I want to organize my investments to maximise the use of annual tax free allowances in the UK. Assume no income from employment, so Investment Ideas to maximise use of the Personal Allowance are invited. The following is what I believe we can utilize - but are there others?
- Personal Allowance: £12500
- Starting rate for saving (if other income £0): £5000
- Personal Savings Allowance: £1000
- Capital Gains Allowance: £12300
- Dividend Allowance: £2000
This is £32,800 so far.
Personal Allowance: I understand that interest from Bank/Savings accounts can make use of any unused Personal Allowance.
The Income from Investment Loans such as Peer to Peer lending is treated as Interest so can also make use of any unused Personal Allowance. A possible strategy is once you have used up your CGT allowance - perhaps divert some investments into Peer To Peer lending platforms.
You do not pay tax on any dividend income that falls within your Personal Allowance. So, if you plan on using up all your CGT allowance, it may be sensible to structure your investments to invest in dividend paying ones (Income shares rather than Accumulation ones) to use up the unused Personal Allowance.
Any other investments to utilise unused Personal Allowance?
In addition, you can make use of the following:
- ISA investment £20,000 per year - gains free of income and capital gains tax.
- Pension Contribution for no earnings of £2880 - to get £720 of tax relief.
- Premium Bonds - allowed to invest up to £50,000 - and all income is tax free and does not affect your Personal Savings Allowance. With average luck this currently will only generate a 1% return.
- Investing in UK legal tender coins (gold, silver, platinum) is exempt from CGT in the UK, meaning that coins such as The Sovereign, Britannia, Lunar and Queen's Beasts do not attract the tax in the UK.
Note: Any Capital Gains over the annual Capital Gains allowance may not make use of any unused Personal Allowance to reduce the tax burden. It may be worth considering realizing the CGT allowance in 1 tax year, and then realize any extra gain in a subsequent tax year.
Is there any tax free income boosting benefit to using Dividend generating investment stocks instead of growth stocks which are Capital Gains generating? See answer below - the current tax regime gives a benefit to Growth stocks - assuming you have made use of Dividend stocks to utilise any unused Personal Allowance.