The Office of National Statistics estimates that the UK collects £594 billion in taxes annually. Out of this, nearly 40% is collected from income tax as PAYE and capital gains. High takes in the UK reduces the rate of return of most investments. For instance, the UK’s capital gains tax is rated at 10-20%, depending on your tax bracket. Thus, if you buy shares at £5,000 and sell at £20,000, you will profit from £15,000. If you pay capital gains tax at 20% on the £15,000, you will pay £3,000 in taxes. This simple illustration demonstrates how your returns decline when you account for taxes. Thus, if you desire to have a low taxed portfolio, the following instruments can be a better choice for you.
1. Wine investment
Wine is gaining track as a high-value, low-cost investment choice for investors. Wine is exempt from most taxes, like capital gains, VAT, income tax, and duties. According to wine investment UK, a trusted brand in wine portfolio management, wine is also traded as a commodity in the world market, implying lower taxation. In the wake of Brexit, the government priority is to encourage more wine production in the UK and less reliance on imported wine, so the British producers are likely to receive more government incentives. This will make wine cheaper to produce and reduce taxes, making it an ideal investment for a high return.
2. Heath Savings Account
A Health savings account is a great investment to make since it guarantees high returns and the best health care. According to Investopedia, an estimated 26 million people contribute an estimated 6.1 billion dollars to health savings accounts in the U.S. alone. This pool of resources provides a great pool to get the best health cover while earning high returns on interest. A health savings account reduces your tax liability in two ways:
· It is tax-deductible when computing income tax. This implies that if you contribute to HAS, your employer will deduct less money from your payslip as PAYE.
· Interest on HSA is tax-exempt. Unlike interest on other instruments like stock, which are subject to taxation, HAS interest attracts no taxes.
3. Municipal bonds
Lending to the government is not only the surest investment but also the most profitable investment. The government issues municipal bonds for funding state projects. Municipal bonds enjoy high returns on the interest, which are tax-exempt, making it an ideal investment for the tax conscious.
4. Education fund
According to Oxford University, the average cost of higher education in the UK is £9,250, with this cost expected to increase with the increasing cost of living. This means that affording a university education will continue to be an uphill task for the average family. Investing in a college fund is not only a sure way to secure your kids’ higher education but to also enjoy a low tax rate on a college fund. Since the government is keen on ensuring more young people get a university education, most college funds will continue to be tax exempt.
5. Charitable donation
A charitable donation is not only a great way to enjoy a high-return, tax-exempt portfolio but also a great way to invest in humanity. Most charitable institutions have portfolios that guarantee high returns for investors. However, the organization’s goals, objectives, mission, and strategies determine the success rate of these donations. Always conduct due diligence before investing in any charity. Further, ensure that you clearly understand the charity’s nature to avoid falling into the hands of scams.
With these ideas, you can invest in portfolios that offer high returns and significant tax savings. Diversifying your portfolio is a great way to maximize returns by spreading risk, so consider investing in more than one portfolio.