18% or 50%?

With the rate of capital gains tax at 18% many believe that receiving returns primarily through capital gains is better that through income and as such this ought to affect investment decisions. Add to that the 50% rate of income tax for income over £150,000, and you can see why this message could make sense. However, is there a 'catch'? Well, there could be...while tax is an important factor in the investment decision I don't believe it is the most important factor in most cases. Seeking capital growth (over income) can increase the risk in a portfolio: the recent evidence is all around us: extreme volatility in capital values. Both the Barclays Equity/Gilt report and the Credit Suisse Global Investment Report have stressed the importance of reinvested dividends/ income as a significant factor. So, in looking to mitigate tax, we don't forget to keep an eye on risk and make sure that there's a match between your attitude to risk, your values and your goals. By the way, you may notice arrangements being invented suggesting that income is converted to capital gains in the hands of the investor which will then be taxed at the lower 18% rate: you can bet your boots that these will come under increasing HM Revenue and Customs scrutiny.