When you’re investing for the future, there are many factors that can affect your eventual return. Just a few such examples include brokerage fees, stock market fluctuations, inflation and, of course, taxes.
For investors looking for maximum gains it can be critical to find ways to mitigate those risks, so that any capital growth is not eaten up by the many deductions one must shoulder.
Fortunately there are a number of government-approved ways to save or invest without needing to pay tax. Here are five vehicles you might want to consider if you’re looking for tax-free investment opportunities…
ISAs
Replacing the PEPs of the recent past, Individual Savings Accounts (ISAs) are arguably the best-known tax-free investment format. Limits are capped and currently sit at £15,240. Sadly, while there exist a number of different ISA platforms; cash ISAs and stock ISAs being the most common, one can only invest in a single ISA in any given tax year. While ISAs such as the Wellesley Listed Bond tend to offer the best returns of all the options outlined here, the tax-free limits mean that they may form only the first step in a tax-free investment portfolio.
Premium Bonds
A secondary option upon reaching your ISA limit is to consider government-backed Premium Bonds. At present Brits have invested over £50billion in Premium Bonds, making them the UK’s most popular saving product. Further good news comes from the fact that the maximum limit that can be invested in this ultra-safe vehicle has recently been increased to £50,000.
That said, no capital growth is guaranteed with Premium Bonds. Indeed, in real terms it’s entirely possible that thanks to inflation you could actually end up with less than you invest.
However for those individuals that are among the lucky winners each month, any prizes are entirely tax free, and can be withdrawn or re-invested into further Premium Bond entries. Sadly, the returns from Premium Bonds are less than exciting, as might be expected from such a secure savings product, earning an average of just 1.35%.
Investors should therefore consider whether their capital would be more profitably-invested in a taxable fund which offers higher potential returns.
SAYE
Savings-related share option schemes may still not be commonplace, but for any employee working for a company with a SAYE scheme there are tax-free benefits to be had.
In essence, with HMRC approval independent companies can offer employees the option to buy shares at a future date. Until then, a monthly sum is deducted from one’s salary and placed into a savings account for a pre-agreed period of time.
Once this time has elapsed the money can then be used to exercise the right to buy at the former option price, potentially providing the benefit of not only savings account interest but also the purchase of shares at below market value – and all without the risk of being subjected to tax.
As mentioned, however, there are considerable hurdles for any independent company looking to offer such a scheme. That said, if you are one of the lucky few to be employed by a company offering such a scheme it provides yet another option for tax-free investing.
Forestry
If you like the idea of alternative investments, purchasing tracts of woodland might be just what the doctor ordered. Not only can you enjoy strolling around your own private forest, but any profits you make are, at present, tax free. This includes no capital gains tax, no income or corporation tax and no inheritance tax (if the investment was made at least 2 years prior to change of ownership).
For the armchair investor there isn’t necessarily any need to purchase and manage woodland yourself; a number of funds exist which invest in forestry on your behalf. As an asset-backed investment, the risks are considered low while the returns can be in line with many ISAs.
Gambling
Ok so we’ll admit that this last option is rather more tenuous than the other “government-approved” tax-free investment vehicles. It’s also important to state that we at Wellesley are in no way condoning or encouraging gambling.
However if you love a game of poker or blackjack, or a flutter on the horses, and can consistently average a profit, the money you make can be classed as tax free depending on circumstances.
We would strongly encourage you to consult a tax consultant or accountant before claiming tax-free status on your earnings, however, as professional gamblers can be taxed, and what defines such a person can be difficult to agree upon.