Our Investment and Pension specialist, Martyn Charlwood highlights the importance of tax planning to maximise the success of your investments.
In previous articles I have highlighted the attraction of Pensions, ISAs, Unit Trusts, Offshore Bonds etc. I have emphasised the value true investment specialists can contribute to the management of these funds, both in terms of wealth preservation and of course income and growth. Whilst the above are key contributors to the success of these investments, let’s not forget the tax consequences which will dictate which investment or investments are best and most suited to your particular circumstances.
Property as an example can of course be an attractive investment but held within a tax wrapper such as a pension can be considerably more attractive. For illustrative purposes let’s assume the following:
Let’s compare the tax implications of both options and in turn the net effect upon the sale of these assets at the end of a 10 year period.
Property not held within a pension
Property held within a pension
Income tax paid on a total rental income of £250,000 over 10 years (assumes 45% rate of tax)
Capital Gains Tax if sold after 10 years with a property value increase of £240,000 (assumes 28% rate of tax)
Net proceeds retained (net of tax) upon the sale of the properties
The above example seeks to demonstrate that investing via an appropriate tax wrapper (in this case a pension) can make a good investment a great investment. Taking the above example a stage further, over and above the Income and Capital Gains Tax savings, in the event of death the property held in the pension can be passed to beneficiaries without any liability to Inheritance tax whereas the property held in the individuals own name would be potentially liable to 40% Inheritance tax.
More recently we were able to assist clients with an investment of £2.5 million. Their circumstances were such that they required capital growth together with an income of £100,000.00 p.a. A pension was a minor part of their overall capital sum, none of which was invested in property on this occasion but we were able to put together a combination of investments utilising their various tax free allowances in such a way that they incurred less than 2% tax.
As Discretionary Investment Managers we specialise with the ongoing management of your investment funds but equally important, we put in place suitable investments that best compliment your individual tax position both now and into the future.