Further tax efficient income
Individual Savings Accounts (ISAs)
ISAs are a great way to generate more tax-free investment income.
You can subscribe up to £20,000 into ISAs each year and consolidate old cash ISAs into stocks and shares ISAs.
ISAs generally don’t cost anything other than the underling investment fund costs and any platform costs, and allow you to earn tax free investment income and capital gains.
Gains and dividends versus income
Less than 1% of UK tax payers pay capital gains, and yet the top rate of capital gains tax is 20%, versus 45% on income and 60% on income between £100,000 and £125,140 per year.
Dividend tax rates at 7.5%, 32.5% and 38.1% are also lower than marginal income tax rates.
International or Offshore Investment Bonds
For those who have “maxed out” their ISAs and are using their annual capital gains tax allowances an international investment bond is an uncontroversial way of deferring income tax and receiving an untaxed annual income.
They are no longer expensive contracts and are widely used by UK tax residents. They are less efficient at dealing with capital gains than investment income.
Tax issues will depend on everyone’s individual circumstances. Future tax rates, allowances, tax types and the tax treatment of savings and pension accounts will be subject to change. Tax planning needs to be a regular ongoing process.
Non UK resident tax payers will need to get advice on the taxes payable in their country of residence.
Tideway are not tax advisers and if you have any doubt, you should seek specialist tax advice.