Tax Drag on Investment Returns
There is an old adage that states that an investment should not be chosen just because it is tax advantageous, but that the asset should be purchased on its own merits.
This is true; however, it is possible to hold the exact same asset but in a different investment vehicle and receive a significantly higher return on one than the other.
If £50,000 had been invested for the last five years in JP Morgan’s Natural Resources Fund, a higher-rate taxpayer cashing in at the time of research would receive £247,000 after tax if the fund was held in a collective.
However, if the exact same asset was held in an onshore bond they would receive only £183,500 post tax. Similarly, an offshore bond holding would have yielded £193,000.
Another example is Invesco Perpetual’s High-Income Fund, which would have produced £109,500 for a higher-rate taxpayer in a collective but only £93,300 if held in an offshore bond, and £97,200 if held in an onshore bond.
The same investment assets: different tax wrappers; and very different returns as a result.
If you have a question, or would like to arrange an initial meeting to discuss how I can help you with your financial and tax planning – at no cost and without obligation – call Nigel on (01295) 660571 or request a call-back.
*Source of figures: Money Marketing 4 September 2008. Wrapper charges are excluded in the calculations.