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Investment Strategies For Interesting Times

There are many kinds of tax wrappers available that add value to savings and investments whilst shielding them from taxation. Thomas Adcock, tax partner at London accountants, tax and business advisers CBW, explains the benefits of pensions, ISAs and off

No-one likes tax, especially when it reduces the growth of your investments. Consider that for every £1 of growth that your savings enjoy, 40% is collected by HMRC, and that same £1 that could have been reinvested is reduced to just 60p. If you then apply the same going forward, the outcome just gets worse.

Helpfully, there are a number of tax-free products, called wrappers, which allow your savings to grow tax free but, as the government is not in the business of being that generous, are dependent on a number of conditions. The difficulty for investors is choosing the right one and frequently it is a case of choosing a mixture. Clearly, this area is complicated and investors should always seek professional advice from both a tax adviser and an IFA.

Let's start with pensions. Not only do funds invested within them grow tax free, but there is also tax relief on the amounts that get invested. On retirement, investors will get to withdraw a tax-free amount which is broadly equal to 25% of the fund and can now chose how much and when to withdraw their funds under new pension flexibility laws. Furthermore, they are generally outside the scope of inheritance tax (IHT), which is critical and frequently overlooked.

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