Tax efficient investing

When creating your bespoke portfolio, your investment manager will take into account any tax ‘wrappers’ that can be used to reduce your exposure to tax.

These include Individual Savings Accounts (ISAs), Junior ISA’s (JISAs), Self Invested Personal Pensions (SIPPs) and Offshore bonds. Originally designed by the government as a way of encouraging people to save, each year, savers over the age of 16 are able to make use of an ISA ‘wrapper’. This allows a level of tax protection of up to £20,000 (from April 6, 2017) each tax year. There are two main types of ISA – Cash, and Stocks & Shares. From time to time, the government raises the ISA threshold. In April 2017, this threshold was raised from £15,240 to £20,000.

Types of ISA

  • Cash ISA: A straightforward savings account which is exempt from tax on interest. Some allow instant access and some are fixed term – the interest rate will generally vary with the length of the term.
  • Stocks & Shares ISA: Stocks & Shares ISAs are exempt from tax on interest, income or capital gains tax and are usually invested in equities, bonds or investment funds.
  • Junior ISAs: To give the young saver a headstart, the Junior ISA allows you to deposit £4,128 a year for your child or grandchild tax free. Again this can be in the form of cash or stocks & shares.

How can a SIPP help?

A SIPP is a government approved pension scheme, designed to help you save for retirement. A SIPP allows tax relief when you invest your personal pension, whilst giving you greater control over investment decisions.

Typically pensions can only be invested in a limited number of funds, however you can invest a SIPP in funds of your own choosing. This type of pension offers up to 45% tax relief on contributions, and you are also exempt from capital gains or income tax.

From the age of 55, you can start to access your SIPP either as a drawdown or as a lump sum. You can discuss this with your investment manager who will be able to guide you as to the best option to make your SIPP last throughout your retirement.

What is an offshore bond?

As with ISAs and SIPPs, there are tax benefits to including offshore bonds in your investment portfolio.

A UK bond is a loan to a company or government (a “gilt”) which, in return, provides a fixed rate of interest.

By contrast, an offshore bond is not taxed locally, so over the long term investors can benefit from compounded income and gains.

Income within the bond will only be subject to tax upon encashment of the bond.

How Quilter Cheviot will help you

A benefit of having a dedicated Quilter Cheviot investment manager is that they will have a detailed understanding of your portfolio, know how best to use the incentives and allowances available, understand the impact of selling your investments and will avoid any unnecessary taxes.

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