F&C's Question of the Month for May, which canvasses the opinions of visitors to F&C Investments' investment trust website, www.fandc.co.uk, focused on this year's Tax Freedom Day on 30 May. Tax Freedom Day is the notional point at which the average UK taxpayer has fulfilled their tax obligations for the year and begins earning money for him or herself. Of course, in practice tax is deducted throughout the year, but Tax Freedom Day gives an idea of the changing burden of taxation. This year Tax Freedom Day is a full week later than in the early 2000s, though it is still some way short of the mid-1980s peak, when it approached mid-June.
F&C asked investors, in light of the growing tax burden on individuals, what strategies they used to make their investments more tax-efficient. Some 53.3% of respondents said they used all or part of their Individual Savings Account (ISA) allowance each year. The ISA allowance in 2011/12 is £10,680, giving individuals the opportunity to invest quite a substantial sum and enjoy returns that are free of income tax (with the exception on a non-refundable 20% tax on dividends) and capital gains tax.
A further 40% said they used both ISAs and pensions. While returns from pensions are taxable, they benefit from upfront tax relief, which is of particular benefit to higher and top-rate taxpayers, who can see their net pension investments boosted by 40% or 50% respectively.
The balance of 6.7% said they favoured investments that produced capital rather than income returns, enabling them to take advantage of their annual capital gains tax allowance, currently £10,600. Such investments include zero-dividend preference shares, which pay no income during their life but offer a predetermined (though not guaranteed) capital return on maturity, or the ‘B' shares of F&C-managed Investors Capital Trust, which pay a capital distribution equal to the dividends on the ‘A' shares of the trust.
F&C has produced a Guide to Tax-efficient Investing, aimed at helping private investors to keep as much of their investment income and gains as possible out of the hands of the taxman. The Guide covers investments suitable to all risk appetites, from cash and National Savings through investment trusts and OEICs to more adventurous options like Enterprise Investment Schemes and Venture Capital trusts. It also contains information on F&C's range of investment trusts and how investors can access them tax-efficiently through F&C's savings products. The Guide is available to investors by calling 0800 136 420 or it can be downloaded from the literature section at www.fandc.co.uk.
Mike Woodward, Head of Investment Trusts at F&C Investments, said: "Many people would find it a little shocking to think that every penny they earn in the first five months of the year goes straight to the Government. Happily, there are many ways for investors to avoid handing over any more of their hard-earned cash to the taxman, and F&C is pleased to help them in this endeavour."
June's Question of the Month is now on site, asking investors what, in the face of growing short-termism in the stockmarket, they consider a suitable holding period for equity investments.
|
