Do you want to receive regular 'income' payments? Have you managed to accrue capital growth within your asset-backed investment portfolio? If the answers to these questions are 'Yes', you will undoubtedly be concerned about drawing on this capital growth to supplement your income for fear of being subject to a potential tax liability that could arise from such collective investments as unit trusts, investment trusts, OEICs or insurance company bonds.

Tax efficient 'income'

If you find yourself in this position, we can make sure that you utilise your tax exemptions and reliefs to maximum effect. Two possible scenarios demonstrate the point:

Let's say, for example, that you hold an investment in a unit trust or investment trust or OEIC, producing capital growth. If you were to encash some of the units/shares, the proceeds would include an element of growth and an element of original capital. This could enable you to use some taper relief, use your annual capital gains tax (CGT) exemption (which, if unused, is lost as it cannot be carried forward) and to effectively receive a tax free cash sum that exceeds the level of annual CGT exemption.

If you are investing in a UK single premium insurance company bond, you have an annual allowance that allows you to withdraw 5 per cent of the original investment each year for up to 20 years with no tax payable at that time - and this applies even if you are a higher rate taxpayer. In effect, this equates to tax deferral but, if final encashment of the policy occurs in a tax year when you are paying basic rate tax, for example in retirement, then in most cases no tax charge will arise.

If you are seeking to take an 'income' from your capital and want to discuss the most effective solutions, please 
e-mail or contact us for further information.

(article date 03/2003)