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Invest for capital gain rather than income

In the current turbulent market you could be forgiven for focusing purely on trying to preserve your capital rather than investing for future growth. That said, things will improve, particularly with medium and long term investments, and, before you invest, you should think about the tax consequences as well as the investment potential of a particular asset.

Since April 2008 the reduction in the rate of Capital Gains Tax to 18% means that you are likely to get significantly better returns, after tax, on assets that produce capital gains than assets that produce income (where higher rate tax payers and trustees are taxed at 40%). The difference may be even greater from April 2011 when income can be taxed at up to 45%.

TLT's head of Tax and Estate Planning, Patrick Wooddisse, comments,"Whilst this seems obvious it is often overlooked by investment advisers who concentrate purely on achieving the best gross investment returns. In practice it can be surprisingly difficult to tell which assets are subject to Capital Gains Tax and which are subject to Income Tax. For example, surrender of life policies, disposal of hedge funds and disposal of bonds (up to the level of any accrued income) are all subject to Income Tax at 40% although they look, at face value, like capital disposals. It is certainly worth taking the time to check with your tax adviser."