Tax relief on investments now for the maths

Such a saving could make a big difference to, for example, a couples retirement income; so how can it be achieved? The first step is to take advantage of the New Individual Savings Account (NISA). which is a little like the old ISA on steroids. The new tax wrapper allows anyone to invest up to 15,000 a year tax free.

Another way that a couple can get tax relief on investments is to use their capital gains tax (CGT) allowance. This allowance lets all individuals realise gains of 11,000 each year without attracting any CGT or income tax. It can be an efficient way of providing tax-free income, particularly for higher rate (45%) taxpayers.

So lets assume that our married couple (or civil partners) receive pensions that use up their 10,000 Personal Allowances the amount of income everyone is allowed to earn each year without paying income tax. If the return on their share-based investments (net of the 10% tax credit* deducted at source) is 5% (3% net dividend and 2% capital growth after charges), they could each invest 565,000, including 15,000 into the NISA, before there would be any further income tax or CGT. The figures work out like this:

3% (net of the 10% tax credit) = 16,500

2% capital return = 11,000 (within the CGT allowance)

15,000 in a NISA (fixed interest fund) at 5% = 750

This means that after the 6.09% tax the couple would each enjoy returns of 28,250 56,500 in total.

Tax relief on investments making it work in practice

This is all very well in theory but, in practice, pension income (or other sources of income such as rent) might exceed the Personal Allowance and investment returns could be higher, which will skew the figures. However, these figures do illustrate the benefits of holding ones investments tax efficiently and how worthwhile it is to call on the right expertise to help you navigate the saving and investment universe.

For wealthier investors and investors who have higher incomes, different wrappers, such as pension plans and onshore or offshore bonds can also be used to reduce tax and/or enhance returns. There are additional costs for these which need to be considered but, overall, making use of tax wrappers and allowances can be a very simple and efficient way of boosting investment returns.

*Direct shareholdings and share based investment funds suffer a 10% tax on dividends deducted at source, as opposed to the 20% deducted from the dividends of corporate bond based investments.

The value of your investment may fall and you may get back less than you invested.

Past performance is not a guide to future to performance.

All performance is quoted before fees, charges and transactional taxes and these will have the effect of reducing the illustrated performance.

Any future performance data is based on reasonable assumptions based on objective data but there is obviously no guarantee that these levels of performance will be obtained in which case returns will differ from those illustrated.

Any investment mentioned is for illustrative purposes only and is not intended as investment advice.

Any tax advantages mentioned are based on current legislation and personal circumstances which are subject to change.

The opinions expressed in this document are not the views held throughout Brewin Dolphin Ltd. No Director, representative or employee of Brewin Dolphin Ltd. accepts liability for any direct or consequential loss arising from the use of this document or its contents.

No investment is suitable in all cases and if you have any doubts as to an investments suitability then you should contact us.

The information contained in this article has been taken from public sources disclosed in this presentation and is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness.