How To Save Tax In 4 Ways With One Investment

How To Save Tax In 4 Ways With One Investment
Underwater by Andy Deitsch. Why?

As the end of the tax year fast approaches, don’t miss these four opportunities to save tax with one simple investment

The One Investment That Could Save Tax In Four Ways

It’s A Pension And It’s A Great Way To Save Tax

In the UK, we enjoy a number of tax efficient investments that enable us to save tax.  They cover a wide range of risk profiles: from cash ISAs at one end of the scale, to high risk VCT and EIS at the other.

One of the most attractive tax efficient investments has been available for decades.  Although the opportunity to save tax using this investment has been reducing in recent years, it still provides four potential and highly valuable tax saving benefits.

Contributing to a pension scheme provides you with four chances to save tax.  The same tax breaks are available whether it’s a SIPP or a SSAS, a personal pension, a stakeholder pension or other pension schemes.

Four Ways To Save Tax

Save Tax 1 - Income Tax Relief Up To 45 Per Cent

If you pay tax at the top rate, a contribution of £10,000 could save tax of £4,500.  Even if you don’t work, you can still save tax by making a pension contribution of £3,600, saving tax of £720.  To work out how much you can contribute, including the right to carry forward three previous years to save tax, use this calculator.

Save Tax 2 - Tax Free Growth On Your Money

Investments you select inside your pension wrapper can grow free of Income Tax and Capital Gains Tax.  Compared to investments you hold outside of your pension wrapper, the effect of compound interest could make a staggering difference to help you save tax in huge amounts over the years.

Save Tax 3 - 25 Per Cent Tax Free Cash

You’ll save tax when you withdraw money from your pension.  You can usually withdraw 25 per cent tax free.  Whilst you can pull out all your money, any further withdrawals you make are taxed as income.  Access is usually available from age 55.

Save Tax 4 - No Inheritance Tax

Instead of withdrawing the money from your pension, where it could be exposed to the penal effect of Inheritance Tax, currently charged at 40 per cent, you can save tax by leaving the money in your pension to pass on to your loved ones.

Use It Or Lose It To Save Tax

As every year, the deadline to use your annual contribution allowance is fast approaching. 

It’s 5 April.  But there’s still time to save tax, if you’re quick.

So check out your financial circumstances now, and see if you could save tax.

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AJ Bell Is Often The Best Value SIPP For Stockmarket Assets

That's our opinion.  Not just because AJ Bell was the first company to offer an online SIPP.  Nor that it's received many prestigious awards.  And not even because the wife of SIPPclub's Founder has an AJ Bell SIPP.  It's because it's one of the most competitive stockmarket SIPPs on the market. 

Over time, charges can wipe out a huge part of your fund.  We like AJ Bell because there are no set-up costs.  If you hold passive funds, which is our preference, or shares, investment trusts, EFTs, gilts or bonds, you pay one small fixed fee no matter how large your fund.  And when you come to draw your benefits either as occasional drawdown or UFPLS payments, there's a small charge for the whole year no matter how many times you access your money (many SIPP and SSAS providers charge more than this for each payment).  However, you should always compare charges in detail, because AJ Bell could be more expensive than other providers, depending on the type of stockmarket assets you hold.

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