Choosing the most effective tax-efficient savings

While investing can be a great way to build your savings, you need to consider the tax that will normally have to be paid on this interest. While there are some forms of savings that are tax-free, it can sometimes be worth investigating investments that offer a higher rate of return but are still highly tax-efficient.



If you're saving in an ISA (Individual Savings Account), you won't have to pay any tax whatsoever on the interest or dividends you receive, nor will you have to pay Capital Gains Tax on profits earned from investments. This makes ISAs one of the most tax-efficient investment options available, allowing you to earn a good rate of return on up to £10,200 paid into your account for this tax year, with that figure increasing to £10,680 in the next tax year.



There are numerous alternatives to ISAs for tax-free savings, however, including National Savings and Investments. Backed by the Treasury, this form of investment is highly secure, with fixed interest options available helping you enjoy the peace of mind that comes from knowing you will continue to receive a steady rate of interest even during turbulent economic times.

A little less secure but still very tax-efficient are VCTs (Venture Capital Trusts) and EISs (Enterprise Investment Schemes), which can also lead to higher earnings. However, your capital is not guaranteed with these investments, which could be a deterrent if you're a newcomer to the investment game and looking for something that carries less risk.



Another way to avoid paying the high taxes charged in the UK is to look into offshore bonds. Although some offshore investments typically require a higher minimum payment than other types of investment, buying bonds can still be affordable, and banks based in locations such as Dublin are extremely well regulated to offer optimum financial security.



Investing can be highly rewarding, and you don't want to risk losing too much of your earnings to the tax office. Statistics have revealed that around £151 million in tax could be saved each year if people chose more tax-efficient investments, or if investors learned how to claim back tax that was charged on their accounts by mistake.



This even applies to your bank and building society accounts, which may be charging you a standard rate of interest even if your taxable income is less than your tax allowances. If you think your bank has made a mistake by taxing your interest, you should get in touch to inform them of the error and ask for your interest to be paid gross, i.e. without the 20 per cent tax.