Investment Options

Current accounts may offer a very low rate of interest (if any) but they are the most flexible in terms of accessing your money. Banks can also offer savings accounts with slightly higher interest rates, as well as notice accounts with more competitive interest rates, but you may have to give a certain amount of notice before making a withdrawal (60 or 90 days perhaps), or agree to invest the money for a set period of time. These types of products are ideal for holding emergency funds and cash holdings that you may need to access at little or no notice.

These products are backed by the government and operate like bank accounts to a certain extent. There are some tax-free products available and they are generally considered low risk.

NS&I offers a range of products from ISA’s to Bonds and savings accounts. Interest is typically low and products are often subject to minimum and maximum holding amounts.

Bonds are a type of debt security where the issuer promises to pay a specified rate of interest during the life of the bond and repay the face value of the bond (the principal) when it matures.

Bond markets can be split into two main categories: Corporate and Government Bonds.

Corporate Bonds are investments based on business loans offered by private companies and are ‘rated’ based on the ability of the issuer to maintain interest payments and repay the loan.
Government Bonds are known as Gilts in the UK and are backed by the UK Government. These are typically considered lower risk than Corporate Bonds due to this backing.

Bonds can be held directly, or indirectly via an investment fund. Bonds held via an investment fund allow an investor to diversify any risk and spread those risks over more assets. The fund holds many types of bond and the buyer owns a proportion of the overall fund. Investment funds are covered separately later in this section.

For investors looking to diversify their portfolio, property has historically offered attractive returns.

You can invest in property either directly, or via an investment fund which focuses specifically on property. The latter would most commonly invest in commercial properties.

Property has the attraction of potentially appreciating in value over time, and although property values do fall, the ‘bricks and mortar’ assets of a fund remain.  However, returns from property are not guaranteed and the value of any investment can fall as well as rise.

Furthermore, if held within a collective investment, because of the nature of property as an asset it may not always be possible to immediately switch or cash-in your investment because the property in the fund may not always be readily saleable. If this is the case then a fund manager may defer your request to cash in for a period of time. You should bear in mind that the valuation of property is a matter of the valuer’s opinion, rather than a matter of fact.

Over the very long term (10 years +) equities have historically offered better returns for investors. Although this is not a guide to the future, it is felt that the increased risk of investing in company shares can potentially be rewarded by investment returns in excess of what is available from traditional bank or deposit accounts. However, there are no guarantees.

Shares can be purchased individually via a stockbroker, or held through an investment fund. In this case the investors monies are added to that of the overall fund and the entire fund is used to purchase a series of shares with the aim of holding a portfolio which will increase in value over time. Your ‘portion’ of this collective will therefore increase in line with that of the overall collective holding.

An investment fund works by pooling money from many investors and investing the money in shares, company and government bonds, property, money market instruments, other securities or assets or a combination of these.

Funds can also invest in certain indices (i.e. the FTSE 100), geographical locations and industry sectors so specific opportunities can be taken advantage of. There are also a number of ‘ethical’ funds available which choose companies based on their environmental impact or may exclude companies which operate in areas which may be considered unethical such as the production of tobacco, firearms and weapons or animal testing.

Investment funds are managed by professional managers who supervise and make ongoing decisions on the assets held within the fund with the aim of producing growth over the longer term.

Investment funds are excellent for providing investment diversification which is important for a well-balanced portfolio.

We can help you select the funds that are right for you. We are completely independent and therefore are able to recommend any fund within the fund universe. We will then monitor and review your portfolio with you, helping to ensure that it is on target to help you reach your financial goals. We will work within your comfort levels to produce a portfolio that you can feel confident with.

An investment fund works by pooling money from many investors and investing the money in shares, company and government bonds, property, money market instruments, other securities or assets or a combination of these.

Funds can also invest in certain indices (i.e. the FTSE 100), geographical locations and industry sectors so specific opportunities can be taken advantage of. There are also a number of ‘ethical’ funds available which choose companies based on their environmental impact or may exclude companies which operate in areas which may be considered unethical such as the production of tobacco, firearms and weapons or animal testing.

Investment funds are managed by professional managers who supervise and make ongoing decisions on the assets held within the fund with the aim of producing growth over the longer term.

Investment funds are excellent for providing investment diversification which is important for a well-balanced portfolio.

We can help you select the funds that are right for you. We are completely independent and therefore are able to recommend any fund within the fund universe. We will then monitor and review your portfolio with you, helping to ensure that it is on target to help you reach your financial goals. We will work within your comfort levels to produce a portfolio that you can feel confident with.

ISA’s are effectively savings or investment accounts which pay interest free of tax. ISA’s are therefore very popular amongst those looking to build on their existing savings.

There are several types of ISA available which include:

• Cash ISA – This works like standard cash savings account except all interest paid is tax-free. There is a maximum investment limit of £20,000 in the current tax year.
• Stocks & Shares ISA – These ISA’s are able to hold stocks and shares either directly or via investment funds. Interest and dividend payments are paid tax-free and gains grow free of any tax. There is a maximum investment limit of £20,000 in the current tax year.
• Innovative Finance ISA – These are a new addition to the ISA family and instead of holding shares or cash, they allow you to invest your money in bonds, loan notes and peer-to-peer loans. There is a maximum investment limit of £20,000 in the current tax year.
• Lifetime Cash ISA/Lifetime Stocks & Shares ISA – These ISA’s are specifically for home deposits for first-time buyers or to fund retirement savings and are available to those under 40. The tax treatment is the same as for Cash ISA’s and Stocks and Shares ISA’s, however, the maximum contribution is £4,000. There is a 25% bonus paid on contributions up to £4,000. You are able to hold a Lifetime Cash ISA or Lifetime Stocks & Shares ISA alongside a standard Cash ISA or Stocks & Shares ISA in the current tax year, the remaining £16,000 from the standard £20,000 limit can then still be utilised.
• Help to Buy ISA – This ISA is available to help first-time buyers save for a property. A maximum of £3,400 per year can be paid into this ISA and a 25% bonus is also applied. You are able to hold a Help to Buy ISA alongside a standard Cash ISA or Stocks & Shares ISA in the current tax year, the remaining £16,600 from the standard £20,000 limit can then still be utilised.
• Junior Cash ISA/Junior Stocks & Shares ISA – This is specifically for those aged under 18 and works in exactly the same way as a standard Cash ISA or Stocks & Shares ISA. The maximum investment limit in the current tax year is £4,128.

ISA’s generally are an important part of any investment portfolio as they allow for tax-free growth and interest. Taking advantage of these tax breaks can help you make your hard-earned monies work better for you and produce higher returns due to their tax favourable status.

We are able to help you choose an ISA which is right for you and recommend products which will help you achieve your financial goals. Because we are completely independent, we can recommend and arrange any ISA from the entire ISA spectrum. If you already hold ISA’s, we can look at these with you, assess whether they are getting the best returns for you that they can be and if invested, we can review the funds to ensure that they are performing as you wish and suitable for the level of risk that you feel comfortable in taking. Contact us to discuss your options in more detail.

Investment Bonds allow for the possibility of medium to long-term returns on your money along with fund management expertise. They provide access to a mixture of investment funds, which are looked after by professional investment managers.

Investment bonds are usually classed as a single premium ‘life insurance’ policy because a portion of your money can be paid out upon death, but they are really an investment product.  So if your need is solely for life insurance, you may wish to research other more tailored options.

Your premium is invested for potential capital growth, which should build up until you withdraw money from your policy.

Should you need, you can withdraw up to 5% per year of the amount invested without paying any immediate tax. An investment bond could, therefore, be a potentially tax-efficient way of holding a range of investment funds in one place. But if you decide to take more than 5% per year and/or you cash in your entire bond you may be subject to Income Tax.

Types of investment bonds

Investment bonds mainly fall into two categories, onshore and offshore.  The main difference is their tax treatment. Those onshore are subject to UK corporation tax, while offshore bonds are issued from tax havens outside of the UK, for example, the Isle of Man, Dublin, Luxembourg or the Channel Islands, where there is little or no tax charged on the funds.

Offshore bonds may also offer a wider choice of funds that could offer a greater degree of risk and potential rewards to an investor and often require a larger initial investment.

Contact us to discuss whether investment bonds are right for you in achieving your long-term financial goals.

Structured products are a fixed-term investment where the amount you earn depends on the performance of a specific market (such as the FTSE 100) or specific assets (such as shares).

There are two main types of structured product:

• structured deposit
• structured investment

Structured Deposits are term deposits (like a fixed rate bond) with a variable return linked to the performance of an underlying asset (like the UK stock market). The capital is usually guaranteed.

Structured Investments are designed to offer investment growth or income with performance linked to an underlying asset (like the UK stock market). These involve counter-party risk, which means that if the company goes into liquidation your money is at risk. Structured Investments generally have higher possible returns than Structured Deposits.

Structured deposits and structured investment products are often purchased by customers looking for alternatives to savings accounts and other deposit-based products.

The EIS/SEIS and VCTs have traditionally been grouped together because they encourage investment in small unquoted trading companies and have certain legislative features in common.

VCTs

The Venture Capital Trust (VCT) scheme operates like a company, whereby investors subscribe for shares in the trust itself. Fund managers then use the money raised to invest in VCT qualifying companies. To qualify to be a VCT the fund itself must be listed on a recognised UK stock exchange so that the shares can be publicly bought and sold.

VCTs are exempt from paying corporation tax on capital gains made on the disposal of their investments. But individual investors also get other tax benefits.

Income tax relief of 30% can be claimed on up to £200,000 worth of annual VCT investments, as long as the shares are held for at least five years – this is only for investors who subscribe for new shares in a VCT. For all investors, including those who buy VCT shares on a secondary market, no capital gains tax are payable on the disposal of shares in VCTs and no income tax is payable upon any dividends paid by a trust.

EIS/SEIS

EIS stands for Enterprise Investment Scheme, a government incentive which was launched in 1994 to help encourage investment into smaller, private companies. They also include many tax related benefits:

Income tax relief – individuals who subscribe for EIS shares can offset 30% of the cost against their income tax liability in the tax year in which the investment was made. Relief can be claimed on investments worth up to £1 million per annum. This gives a maximum annual tax reduction of £300,000. There is also a “carry back” facility whereby the cost of the shares can be in effect be treated as if they were bought in the previous tax year, with the relief being applied to that year.

Capital gain tax exemption – if you have received income tax relief on the cost of the shares then any gain is free from capital gains tax if they are sold after being held for at least three years. Again, the maximum amount which can be claimed against is £1 million.

Payment of capital gains tax due on other assets can be deferred if the gains are invested in shares of an EIS qualifying company. The investment must be made one year before or three years after the gain arose and the value of the relief is unlimited.

Inheritance tax relief – shares in EIS qualifying companies generally qualify for Business Property Relief for inheritance tax purposes at rates of up to 100% after two years of holding.

Loss relief – if things don’t turn out as planned and you end up selling EIS shares at a loss then the amount of that loss, less any income tax relief given, can be offset against capital gains or income, either in the year of disposal or for the previous tax year.
Related to EIS is SEIS (the Seed Enterprise Investment Scheme), which applies to companies which are very early stage and looking to expand their operations. The main difference between the two schemes is that income tax relief of 50% is available on a maximum annual investment of £100,000 under SEIS.

VCT’s/EIS’s and SEIS’s can give you access to opportunities that would potentially be difficult or costly to hold directly, alongside the tax benefits of these types of products. This is a complex financial planning area.

We can help you find out if these types of investment are right for you. Contact us for further details.

Peer to Peer lending (P2P) is the practice of matching lenders with borrowers. Effectively P2P Loans are loans from individuals to companies. The ability to invest in direct lending opportunities, previously restricted to banks, is attractive to investors wishing to add additional diversification to their portfolios.

Compared with traditional fixed-income investments (like investment bonds) and traditional savings products, the higher rates of return currently available for P2P has increased appetite for lending.

Some investment companies offer P2P lending bonds. These are fixed term investments that offer a variable rate of return. Your monies are pooled with those of other investors and the combined fund is used by the bond managers to purchase loans in the P2P market. This allows investors to access a range of investment opportunities, holding a more diverse portfolio than would be available via direct lending.

We can help you find out if P2P lending is right for you. Contact us for further details.