Investing tax efficiently

I don’t believe anybody begrudges paying tax to aid society and raise the standard of living across the UK; however, it is natural for us to want to a) see the tax collected by HMRC spent efficiently and b) contribute our fair share and no more.

When managing investments it is important to all of my clients that I invest in a tax efficient manner.

We help clients make the most of the available allowances and incentives which include:

• individual savings accounts (ISAs) and junior ISAs

• pensions

• capital gains tax allowance

• dividend allowance

• personal savings allowance

• venture capital trusts and enterprise investment schemes

You get the picture; there is a lot to consider when trying increasing the tax efficiency of an investment portfolio.

The individual managing your investments needs to be mindful of the implications of selling any investment held and have a clear understanding of the allowances available.

For individuals and couples, from prevailing income tax thresholds to capital gains tax allowances, ISA limits and the latest dividend tax rules, we draw on a repertoire of tax efficient investments and make certain tax allowances are utilised efficiently and profitably, if appropriate.

Along with pensions, ISAs are the investment products with favourable tax status which most people are familiar with.

However, there is a perceived view that ISAs are not attractive at present, which is incorrect.

An ISA is simply a wrapper, which shelters whatever is inside the wrapper from capital gains and income tax.

Therefore to say an ISA is a poor returning investment is incorrect.

The success of the investment will depend very much upon what is placed inside the ISA and this can include cash or stocks and shares.

You will be aware that cash, as an asset class, is not providing much return at present, however, importantly, and worthy of note, the capital value will not fluctuate which may be important to some.

Everyone should have some cash buffer to cover unforeseen circumstances before even considering investing.

For many, encouraged by the exemption from income or capital gains tax, investing in equity markets via a stocks and shares ISA is their first introduction to investing as opposed to saving and an important part of many peoples portfolio.

For higher and additional rate tax payers, or those prepared to take greater investment risks, the income, CGT and inheritance tax benefits of venture capital trusts and enterprise investment schemes may prove useful.

Introduced by the Government to encourage investment in smaller companies, their inherent riskiness means they are not suitable for everyone.

With uniform tax breaks but diverse quality of underlying investments we approach these investment products with caution and great care.

Again, I don’t believe anybody begrudges paying tax, however, in my opinion, it is imperative to efficiently make use of your allowances and structure your wealth in a way that is working hard for you and your family, as well as assisting the Government in running the country.

Gary Welford is an investment manager at wealth management firm, Brewin Dolphin, in Newcastle.

The opinions expressed in this article are not necessarily the views held throughout Brewin Dolphin. No director, representative or employee of Brewin Dolphin accepts liability for any direct or consequential loss arising from the use of this document or its contents. Any tax allowances or thresholds mentioned are based on personal circumstances and current legislation which is subject to change.