Tax Effective Investments
These are investments which are chosen for their tax advantages, however it is more important that they are suitable for your purpose than are chosen for any tax advantage.
ISA
Individual Savings Accounts (ISAs) are tax-free savings accounts which means you do not have to declare any income from them. They were introduced in 1999 to replace PEPS and TESSAs. You can use an ISA to save cash, or invest in stocks and shares.
ISAs can be used to:
- - save cash in an ISA and the interest will be tax-free;
- - invest in shares or funds in an ISA - any capital growth will be tax-free and there is no further tax to pay on any dividends you receive;
- - you are able to save or invest up to £7,200, which is the annual ISA investment limit in any tax year, including up to £3,600 in a cash ISA;
- - from 06 October 2009, the ISA limit will increase to £10,200, up to £5,100 of which can be saved in cash for people aged 50 or over and from 06 April 2010, the ISA limit will increase to £10,200, up to £5,100 of which can be saved in cash for all ISA investors.
Child Trust Fund
An initial £250 (maybe £500) investment is available to every qualifying child on birth. For the full eligibility conditions click here. This is then invested in a qualifying fund, chosen by the parent or guardian and grows tax free until the childs 18th birthday. Additional contributions can be made by parents, family and friends of up to £1,200 to the account each year.
Listen to the HMRC's podcast here.
Venture Capital Trusts
The Venture Capital Trust scheme started on 6 April 1995. It is designed to encourage individuals to invest indirectly in a range of small higher-risk trading companies whose shares and securities are not listed on a recognised stock exchange, by investing through Venture Capital Trusts (VCTs). So, if you invest in a VCT, you spread the investment risk over a number of companies.
Venture Capital Trusts are generally only suitable for sophisticated investors.
Income tax reliefs:
- - exemption from income tax on dividends from ordinary shares in VCTs ('dividend relief'),
- - income tax relief at 30% is available to be set against any income tax liability that is due, whether at the lower, basic or higher rate for an investment up to £200000 in any tax year.
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Capital gains tax (CGT) reliefs:
- you may not have to pay Capital Gains Tax on any gain you make when you dispose of your VCT shares. (This is called disposal relief);
- if you invested in shares issued before 6 April 2004, you may be able to treat gains arising on disposals around the time your VCT shares are issued as postponed to a later year. (This is called deferral relief.)
General
It is vitally important to consider all of your available allowances and reliefs when building any investment portfolio, including income tax, capital gains tax and inheritance tax. To ensure correct asset allocation and the maximum tax free gains or income please contact us to discuss your portfolio.