Tax planning

It's important to know the implications of tax as it can have an effect on the total returns of your investment

An ISA allows you to save and invest in a tax efficient way

One of the reasons to consider investing in an ISA is because of its tax efficient status. You have an annual ISA allowance (for the tax year 2017/18 it is £20,000) and any Capital Gain, Interest or Dividend received is tax free.

Below are some other tax rules that you may wish to consider if you are investing outside of a tax efficient wrapper such as an ISA.

The introduction of savings allowance

The Government has introduced a £1,000 savings allowance (£500 for higher rate tax payers) which means that the first £1,000/ £500 of interest you receive from all your holdings (including Cash accounts) is tax free. For example, if you are a basic rate tax payer and you receive £1,500 of interest a year from your Bond Fund, the first £1,000 is tax free and £500 taxed at your marginal tax rate (this is the highest band of tax you fall into for any of your earnings).

Changes to the Dividend allowance

Changes to the Dividend allowance have meant that everyone is entitled to receive up to £5,000 of Dividends tax free. As a rough estimate, it would take around a pot of £143,000 yielding 3.5% to provide £5,000 gross Dividend income. Anything in excess of the allowance will incur tax at your marginal rate.

Capital Gains Tax

Currently, you are entitled to a £11,300 tax free allowance before Capital Gains Tax is applicable. The rate you pay depends on your tax band and what kind of asset you are selling. This allowance can't be carried forward (to the next tax year). However, if your gains exceed the allowance you can set any capital losses against them. Any unused losses can be carried forward.

Inheritance Tax

Inheritance tax (IHT) has become an issue for a growing number of people, largely due to soaring house prices over the last two decades. An additional tax-free allowance related to the value of your home (due to be phased in by 2021) will mitigate this somewhat but IHT can be a complex area if you still have assets exceeding the nil rate band. For further clarification you should seek personal advice from a qualified Tax or Financial Adviser.


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