Tax-efficient saving and investment

A quick guide to making more of your money

There are a number of ways investors can take advantage of tax-efficient saving and investing, here’s a quick guide to get you thinking about the possible options available to you!

Cash ISAs
Cash individual savings accounts (ISA) are basically ordinary savings accounts, but the interest you accumulate is free from tax. Everyone aged 16 and over can put up to £3,600 per tax year (April 6 to April 5) into a Cash ISA.

Many Cash ISAs give you instant access to your money and some providers will also allow you to transfer money between them to take advantage of the best rates, without affecting your annual ISA allowance.

Share ISAs
These are accounts in which you can hold stock market-type investments such as shares. The money grows free of capital gains. Higher rate taxpayers also avoid paying extra tax on dividend payments from shares, and you don’t have to declare ISAs on your tax returns.

You can also hold corporate bonds and gilts in one of these ISAs. They pay a fixed rate of interest and, pay the money back on a pre-agreed date. The interest paid by the bonds is free of income tax if they are held within a tax-efficient ISA wrapper.

From 6 April 2008 Maxi and Mini ISAs no longer exist. Instead ISA savers can now invest into a Cash ISA and/or a Stocks and Shares ISA. For the 2008/09 year you may invest £7,200 into your ISA, up to £3,600 of this can be invested in a Cash ISA but if you wish you could invest the full amount into a Stocks and Shares ISA.
A sensible and more diverse way for private investors to capitalise from the stock market is through collective investment funds, which hold a wide range of shares.

Self-select ISAs
These are largely used for sheltering individual shares in an ISA. With the change in tax treatment of income dividends, a Self-select ISA may not be beneficial for many investors unless they expect to use their capital gains tax allowance each year.

Friendly societies
Friendly societies offer tax-efficient investment schemes that let you put away a small amount, either as a regular monthly payment or lump sum. These are basically endowment policies, so you have to save for a minimum ten years for the proceeds to be tax-efficient.

Offshore investing
Investing offshore provides opportunities for tax deferral, reduction and avoidance.

The attraction is ‘gross roll-up.’ This means assets can grow without being taxed and could therefore outperform onshore investments. However gains or income are liable to tax in the UK when they are brought back onshore. You may also need to pay tax of another country if you take the money there.

You should consider how long you are going to be away if you are emigrating, your residency for tax purposes, your will, property and more liquid assets such as savings. Always seek professional advice as sheltering money from tax offshore can be extremely complicated