Right time, right place, right wrapper

If markets were to bounce back tomorrow would your money be in the right tax wrapper, or the right hands to make the most of it?

When investing for the longer term it’s almost inevitable that you will experience a market downturn at some point but, remember investment values can go up as well as down and some of the biggest market rises have come off the back of large market falls.

Here’s a quick look at some of the tax considerations to help you check your monies are in the right place for a market recovery.

Individual Savings Accounts

Any income or gains within an ISA are free of tax and there is no further tax on the investor on a personal level.

The ISA subscription limit for the current tax year (which started on April 6th) is £20,000 for an adult or £9,000 for children under age 18. However although there are restrictions on the amount you can subscribe, the growth on your ISA doesn’t count towards the limit.

If you normally use your ISA allowance by moving money from your General Investment Account would it be better done now before any potential recovery?

If you want to hold on to your assets then it makes sense to ensure future returns are tax free but if Inheritance Tax (IHT) is an issue then do you want this tax free growth rolling up within your estate only to be subjected to 40% IHT on death?

ISAs are not usually “tax free” for those with an IHT liability and consideration should be given to encashing and making outright gifts or gifts into trust. One benefit of falling fund values is that the value of a gifted investment will result in a smaller gift being made from an IHT perspective and the future growth will accrue outside your estate when markets recover. If this is you ask how we can help.


The pension is another example where income and gains within the investment are tax free but the pension also has the benefit of tax relief and IHT efficiency.

Unlike an ISA, a pension provides tax relief on the contribution made. While 75% of the benefits drawn are subject to income tax in the hands of the member, this still means a basic rate taxpayer receives a 6.25% risk free return (£80 in £85 out) without taking into account any growth. If your pension does grow, your tax relief grows with it so it’s a good place to be if markets pick up.

For those with IHT issues a further benefit of pensions is that they are normally not included in your estate for IHT and where contributions are made to your own pension, while in good health, there is no transfer of value i.e. no gift or “7 year clock” and you still have access to the assets.

If you’ve maximised your own pension allowances you can still make third party pension contributions for family, and remember even where someone has no relevant earnings contributions can still be made up to £3,600 gross and receive tax relief.

Should you kick start your recovery with a 25% boost from tax relief? Ask us about the allowances available to you

Onshore Bonds

UK Life funds pay no tax on dividends generated by the underlying investments.

As investment bonds don’t produce income they are useful tax planning tools for investors who would otherwise pay a high rate of tax on income generated by their investments.

The only taxation suffered by the investor is when a chargeable gain arises. The policyholder receives a 20% tax credit to offset against tax due so basic rate taxpayers have no further tax to pay and where the gain takes you into a higher tax bracket, top slicing relief is available which can help mitigate higher or additional rate tax.

Bonds can also be gifted.  Assignment of a bond to another individual or into a trust by way of gift is not a chargeable event so there is no immediate tax on gains. Being non-income producing assets, bonds can also be tax efficient, and low maintenance, when held in trust as segments can be assigned out to beneficiaries, who are then assessed on any gains based on their own personal tax position. Ask us if you are interested in passing on monies to the next generation (or even the generation after that).


While a particular investment may have been right for you when it was taken out, your tax position and objectives may have changed. Tax rules also change and while tax efficiency doesn’t turn a bad investment into a good one, with investment values having recently suffered a blow, now might be the ideal time to review whether your investments are in the best place to maximise the net returns on your monies going forward.

If you are interested in exploring investment opportunities, please get in touch with your adviser. Alternatively you can contact us at info@brookswealth.co.uk or give us a call on 01733 314553.