Tax-saving strategies
Keep what is rightfully yours!

Using a combination of insurance bonds and charitable gifts could mean that you avoid higher-rate tax on your investments. Insurance bonds may benefit higher-rate taxpayers because of the way they are taxed. Investors are permitted to withdraw 5 per cent a year of the original capital for 20 years without incurring a tax charge.

In an onshore bond the insurer pays 20 per cent before returns are paid out, so basic-rate taxpayers have nothing further to pay. Offshore bonds are taxed only when the individual sells.

So to reduce a potential tax bill it makes sense to ensure that you are a basic-rate taxpayer in the year that you sell your bond, which is where gifts to charity come in.

A contribution to a personal pension also raises the higher-rate threshold.

Tax in retirement
At retirement you are allowed to take up to 25 per cent of your pension fund as tax-free cash.

But if you invest that in a standard savings account or fund, you may pay tax on any income it produces. If you put the money in an offshore bond, you could withdraw 5 per cent a year without paying tax.

The investments also grow tax-free until there is what is known as a ‘chargeable event’, when you encash the bond and bring the funds back into the UK or take out more than 5 per cent a year.

Wealth protection
Another way to protect your wealth in retirement is to consider taking your tax-free cash in instalments to provide an income, rather than drawing your pension which would be taxable. If you retire with a fund of £400,000 you are entitled to take up to £100,000 as tax-free cash. Rather than taking this all in one go, you could take smaller tax-free amounts, for example, £20,000 for five years.

Take an alternative approach
If you buy wine, antiques or vintage cars, any gains made are often tax-free. If an asset has a predicted life of less than 50 years it is classed as a wasting asset and the profit you make on the sale is exempt from capital gains tax (CGT).

This takes the sale of certain antiques, such as long case clocks and vintage or collectable cars, outside the scope of CGT altogether. Wine is sometimes, but not always, classed as a wasting asset. If HM Revenue & Customs (HMRC) decide it will improve in quality and value after 50 years, the exemption may not apply. You also lose the exemption if HMRC regards you as a trader running a business.

Family maintenance
Most people are aware that giving away assets during your lifetime is a legitimate way to reduce any potential death duty, but you have to wait seven years before most large gifts are exempt. Payments made for the maintenance of family members, though, are immediately inheritance tax (IHT) free. In that way, you reduce a bill even if you have left it too late to do other planning. The exemption covers payments to spouses or civil partners, dependent children, including those at university, or a dependent relative, including the elderly needing care.

Business perks
If you run a business, it escapes IHT once you have owned it for two years, as long as it is ‘wholly or mainly’ involved in a trade. You could put your investment portfolio into the business and still get the IHT exemption as long as it does not form more than half of the company. This should only be considered if you do not want to sell your business in the future.

Tax-free profits
If you sell personal belongings, known as chattels, for less than £6,000 any profit is tax-free and does not reduce your annual CGT allowance (£9,200 this year). Chattels include books, furniture, old coins, clocks, watches, silverware and ceramics. Even cars, lorries and motorcycles are included if they are bought as an investment. The sale of private vehicles is always exempt from CGT.

Need more information? Please email or contact us with your enquiry.

Levels and bases of, and reliefs from, taxation are subject to change.