Keeping the taxman at bay
Today marks the end of the UK financial year. And it’s the first year in which I’ve earned sufficient to pay higher-rate tax whilst on PAYE, which denies me the opportunity for small-company tax breaks I used with WebThing.
So for the first time, I’ve resorted to ‘regular’ tax-saving measures:
- A SIPP (self-invested pension). In my youth I avoided paying into a pension, because it was clear that the regime then in operation would collapse before my retirement (it has largely collapsed already, and the current crisis is putting the boot in further). The SIPP is a more recent innovation, and much more transparent, as well as tax-efficient. Oh, and it’s good for the economy: my money is invested in productive companies, rather than the government’s bailouts and lame ducks.
- Venture Capital. This is even more tax-efficient than a pension, but higher-risk: the money is invested in small, unquoted companies. The optimistic scenario is that it supports the brightest and best startups in the economy, while generating a nice tax-free income stream for me.
- Charitable donations. I don’t benefit from them, but at least it keeps a few quid away from the thieving government, and benefits someone more deserving. For the first time I’ve asked for a receipt I can keep for the taxman.
Evaluating the SIPP, I find its value is 65% up on what I’ve put in. But that good figure is entirely due to the tax breaks: the portfolio is 1% down on a hypothetical pension invested in pure cash and benefiting from the same tax breaks. On the plus side, most of the equities are paying dividends at a better rate than is available on cash savings. On the minus side, nothing is keeping up with inflation.
I just rounded off the financial year with an additional SIPP payment. I’ve also suspended regular payments: I don’t want to commit any money next year, until we’ve at least heard what nasties in the forthcoming budget may affect it. If, for example, they were to bugger about with the tax breaks on pensions (as one politician advocates), there would be no reason to put any money in, and they could effectively kill off the UK pensions market – and with it, both equities and bonds, and hence UK plc!