'Mixed' investments advised by capital gains tax expert

Date: 9th November 2009

A possible capital gains tax strategy for high earners has been detailed by an expert.

Writing in the Daily Telegraph, head of tax and financial planning at Skandia Colin Jelley said that many investors were looking to get returns counted as capital gains rather than as income in order to reduce their tax burden.

This has become a particular priority for those earning over £150,000 a year - who will see their income tax rates rise from 40p to 50p in the pound from April 2010.

In contrast, capital gains is taxed at 18 per cent and comes with a tax-free annual allowance of £10,100.

Mr Jelley said: "People need to consider a mix of investments that enable capital extraction as well as generating income.

"One of the most common mistakes is to look at different investment products or tax wrappers in isolation."

However, he added that savvy customers could reduce their tax burdens for investment bonds, which are taxed as income.

This can be achieved by taking five per cent out of the bond each year for 20 years - transactions which are not taxable.

For collective investments - which are taxed as capital gains - the Skandia expert recommended that customers keep their returns under the £10,100 annual threshold to avoid tax.

Mr Jelley also pointed out that best investment returns were likely to be gained from a diversified portfolio covering many different asset classes.

The advice comes in the context of near-unprecedented equity market fluctuations caused by the credit crunch, which saw the FTSE 100 lose around 35 per cent of its value across 2008.

Posted by Jacob Williams