When we invest client money at MAP, we always take the markets and the current situation into account…you have to!
First of all, when we put money away for a client, we always use accumulating funds, as opposed to income funds, where possible. But why?
If you invest in a company or fund on an income basis, you are looking to receive dividends from them. Everyone gets £5,000 a year with no tax but after that, it is taxable and can amount to a fair bit. If on the other hand you invest in accumulating funds, you are working on increasing the value and getting growth. Growth isn’t taxable to income tax, but any gains are subject to Capital Gains Tax which is a bit more lenient than income tax. Every year a person can make gains of £11,700 and pay no tax at all. If you had made this in income funds, you would get the first £5,000 free and the balance would be taxable.
What we do for the bulk of our clients is invest in accumulation units to maximise growth. Then, if someone needs money and withdraws it, the withdrawal is subject to Capital Gains Tax which is slightly more generous to the individual. From experience, we probably only deal with about two or three capital gains tax assessments a year. That will give you some indication of the scope of this, and shows you can legally avoid paying tax here.
When saving or investing, always bear in mind that if you have income, it will be subject to income tax, whereas if you have capital gains, it is not always liable to Capital Gains Tax.
As well as this basic measure, there are plans which specifically cater for tax:
It goes without saying that if you can reduce the effects of taxation by as much as you legally can, you will keep more of your money. Therefore, you should always plan your money and spending out.
If you would like to discuss any investments or tax planning with Money Advice & Planning Ltd, please contact us today on 0345 241 1808 or e-mail us at firstname.lastname@example.org.
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