Tax wise investments

So, this article isn’t about investments, specifically. For that we have a range of finance experts that we can introduce. This article, however, is to draw your attention to a few types of investment that are particularly good for tax savings, our area of expertise. Your attitude to risk may also come into consideration; the dials are an indication, broadly, of the risk involved for each investment vehicle.  Individual Savings Account (ISA) – An ISA allows a tax free saving of up to £11,520 in any one tax year, running April 6th to April 5th each year. Some of this does have to be allocated to investments in the stock market, but for a lower risk option up to £5,760 can be invested purely in cash funds. Perfect for the risk adverse of you out there! ISA = no income tax on any interest earned and no capital gains tax on any gains (growth) to your portfolio! Access your money at any time! Win win! Pensions – A pension investment or portfolio can be extremely tax advantageous as the fund is able to grow completely free of income tax or capital gains tax, for starters. If you are self-employed, the value of your pension contributions each year also becomes deductible from your business profits; this could be the difference between paying basic and higher rate tax!  For employees where the employer contributes to the pension pot (even in owner-managed companies), the company gets tax relief on the contribution made, and the rule relating to “taxable benefits” is waived, so there is no tax on the employee/director. The limits are, currently, broadly £50k per year so plenty of scope to be efficient with both tax and retirement planning! Stakeholder pensions – For long term investment planning, stakeholder pensions are a good, tax efficient vehicle for investment. Basic tax relief is provided at 20%, even if the stakeholder doesn’t have any employed income to set it against, your children for example. The current limit it £3,600 and the HMRC contributes the additional £720. The children won’t be able to get their hands on the fund until retirement age of course but worth considering none the less. Venture capital trusts (VCT’s) – A more “risk pro” approach to investments is that of a VCT. Here up to £200k can be invested in any one year, typically into start-up companies, often of a higher risk nature. Your funds are actually invested with the VCT, who in turn place the investment as a pool with other similar minded investors. Whilst more risky, dividends from the trust are completely exempt from tax as is any gains usually liable for capitals gains tax. Using current year figures, 30% tax relief is available on the whole investment (so £60k saving on a £200k investment), which is substantial if you are prepared to take a chance of success for a higher return on investment (ROI). Always seek the guidance from a good Financial Advisor before looking at VCT’s. Enterprise Investment Schemes (EIS) – As above, only to be considered for those of you willing to take a risk and after seeking the assistance of a knowledgeable Financial Advisor. Investment of up to £1m per year can be invested through an EIS into a single company and the same 30% tax relief applied. All in all, there is something for everyone. This does touch upon some fairly hefty tax planning and as with everything tax related, it is best to have your accountant give you the final nod. As you can see your tax, financial and retirement plans are closely linked. If planned effectively all can benefit and there is no need to venture outside your comfort zone either; great savings can be achieved even just using one or more of the “lower risk” options.