Question 5
What investments can be considered particulary tax efficient?
The following table is a quick reference to the main tax efficient investments:-
| Pension | ISA | National Savings | |
|---|---|---|---|
| Income tax relief for initial investment | Yes, at your higher rate | No | No |
| CGT deferred on investment? | No | No | No |
| Tax exemption for income arising on investment | Yes + | Yes | Yes |
| Capital gains tax exemption? | Yes | Yes | Not applicable |
| Claw back of income relief? | Not applicable | Not applicable | Not applicable |
| Tax relief on interest paid on loan to acquire investment? | No | No | No |
| Maximum Yearly investment | 15-40% earnings ++ | £7,000 +++ | £40,000 ++++ |
| Investment easily cashed in? | No | Yes | Yes |
| Can you lose money | Yes, depends on investments | Yes | No |
| Inheritance tax business property relief? | No | No | No |
+ Tax credits on dividends are not available
++ Depending on type of scheme/plan, salary on which contributions are based may be restricted
+++ Higher maximum up to 2005/06 only, thereafter £5,000
++++ £80,000 maximum for a married couple, which may be doubled to £160,000 using "bare trust" arrangements
