Protection from the taxman

By STEPHEN WOMACK
Updated:

 

IT makes sense to manage your investments with one eye on Revenue & Customs. The smaller the proportion of any income or gains that go to the taxman, the less risk you have to take with your money to achieve a given return.

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Isas are the starting point for most investors. Up to £7,000 each tax year can be paid into an equity Isa.

Higher-rate taxpayers pay no further tax on any income from equity funds and capital gains on an Isa do not count for capital gains tax purposes. Income drawn from bond funds is free from income tax.

Guy Johnson and wife Maggie Henderson use Isas as a core for their saving plans. The couple, from Kingston, Surrey, have invested in a string of Isas with investment house M&G over the past four years, including the Index Tracker, Asian and Global Leaders funds.

Guy, 32, who is a business analyst, says: 'Using an equity Isa is the obvious way to invest when we have any spare cash. You don't have to declare the Isa on your tax return and it should reduce our eventual tax bill.'

For those with larger portfolios and assets held outside Isas, look to use capital gains tax allowances. You are allowed to make up to £8,800 of profits in any one year free from tax. Anything more than this could be taxed at up to 40%.

If an investment is doing well, consider taking a slice of the profits and reinvesting them elsewhere to bank gains free of CGT.

Those comfortable investing in smaller companies could consider a Venture Capital Trust. These trusts invest in fledgling companies, where risks and rewards are high.

Savers can claim 30% income tax relief on new VCT shares they buy. Future dividends from the trust are also tax-free. Up to £200,000 can be saved into a VCT each year.

>> TOOL: Do your own research on tax-free cash Isa accounts

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