It is possible to wrap some investments in a tax efficient wrapper, so you pay less or no tax on any interest you earn. This could be an ISA (individual Savings Account) or pension for example.
ISAs.
An ISA is not a product in itself but a tax wrapper which protects your savings or investments from being taxed. You are able to invest in two separate ISAs per tax year, cash and investment, up to the value of £10,200. This can be with one or separate providers with the maximum cash investment for an ISA as £5,100. Some investment ISAs allow you to take an income tax free whilst also receiving tax free interest on your investment; the same tax free savings apply for a cash ISA.
For more information on ISAs please click here.
Pensions.
Your pension contributions are also protected by a tax wrapper. Rules do apply as to how much you can invest and when you can take the benefits. The tax wrapper provides tax relief, so in other words you are free from paying income tax on any money you contribute to your pension fund. If you are a basic rate tax payer, at 20%, you would receive back 20% of your pension contributions in the form of tax relief. If you are a higher rate tax payer, you would automatically receive 20% tax relief, with the opportunity to claim back any further tax. Your employer may also contribute to your pension pot; again these contributions receive tax relief.
For more information on pensions please click here.
