Why minimising taxation on your investments is critical

Mar 7, 2018 | Tony Byrne's View

We recently reviewed our clients’ investments with us and I was delighted to discover that 85% of our funds under management are in tax free pensions and ISAs! Let me qualify that statement. Both pensions and ISAs are free of Income Tax and Capital Gains Tax. The only ISAs that are Inheritance Tax, IHT, free are AIM ISAs. Personal pensions are IHT free too. Apart from the 25% tax free cash personal pensions are subject to Income Tax when the benefits are taken which is usually on retirement. You get tax relief on payments into a pension unlike an ISA. However, once the money is invested in a pension it is taxed identically to an ISA until you start taking income withdrawals from it.

The remaining 15% that is not invested in pensions or ISAs will gradually be transferred into both “tax free” investments annually. How do I know this? Well we automatically switch up to £20K each from couples’ General Investment Accounts, GIAs, into ISAs with their prior permission annually. We also encourage further pension contributions especially where the client has earned income.

So what is the upshot of all of this? Well the upshot is that the vast majority of our clients’ investments are invested very tax efficiently indeed. Why is this so important? Because of all of the charges an individual faces on an investment by far the largest single expense is taxation, so the more tax is saved the better the investment return.

In addition to pensions and ISAs we encourage clients to maximise their use of the many tax reliefs and allowances available in the UK today. In particular by using their Capital Gains Tax and Income Tax allowances and by reducing the tax rate they pay on income and gains.

Furthermore we encourage our sophisticated and high net worth clients to invest some of their money into esoteric tax efficient investments such as Enterprise Investment Schemes, EIS, and Seed EIS as well as Venture Capital Trusts, VCT, various Business Relief qualifying investments and various IHT mitigation investments.

As a result we truly live up to our name of Wealth And Tax Management! So if you are fed up with paying too much tax on your investments why not get in touch with us for a taxation review? You know it makes sense.

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