News Archive - June 2008
Pay less tax
16/06/2008Taxation of savings and investments is a major factor when making recommendations.
For the layman, choosing an investment often comes down to cash (low risk, low returns) versus equity (linked to the stock market, risky, complicated). However, this is vastly oversimplifying the choices available. Even with cash investments, you have the option of fixed term accounts versus notice or instant access accounts. If you are a non-taxpayer, you can have your savings interest paid gross. If not, you will be paying 20% tax on the quoted 'gross' rates advertised by the banks and building societies.
Everybody has a £3,600 p.a cash ISA allowance, which allows you to save that amount each year and pay no tax on the interest. One common misconception is that a cash ISA has exit penalties or is a 1 year term account. In fact, many cash ISAs operate just like an instant access savings account, but with gross interest. On an account paying 6% p.a gross this equates to 1.2% p.a more interest for a basic rate taxpayer, and 2.4% p.a more interest for a higher rate taxpayer.
If you are a basic rate taxpaying couple with £14,000 in cash savings and no other ISA savings, you could get it all transferred over into cash ISAs by April 6 next year (£3,600 each now, and the remainder when the new tax year starts). Assuming accounts paying 6% p.a gross, this would mean over £160 more interest each year.
The situation with equity-type investments is even more complicated. There are various wrappers (pensions, Stocks & Shares ISAs, and onshore and offshore Investment Bonds) which are all taxed differently, even though you can often hold the same investment funds within them. The selection of the right 'wrapper' needs expertise and knowledge of your other investment, income and tax details. Any financial adviser worth their salt will explain their recomendations fully, including any tax implications.
At Mulberry Financial we aim to add value by pointing out any tax-savings measures that can benefit our clients. The benefits, especially when it comes to Inheritance Tax savings, can be huge.
Give us a call for a free meeting to discuss how we can help you.