What is the best vehicle to help your savings grow?
Whether you have sold a business, saved hard or received a windfall, our expert Financial Planners are available to assist you with how best to invest your money to maximise returns and minimise risk.
Once we’ve spent time with you, understanding your aims and circumstances together with your attitude to risk, we can begin to recommend how your investments should be structured.
These are simply the financial products into which you place your investments and savings. Different wrappers will have different tax treatments and their inclusion in a portfolio will depend upon your circumstances and objectives.
Some wrappers come with generous tax benefits as a compromise for the investment being judged to be high risk, for example, investing in a Venture Capital Trust. Others will contain far less generous potential returns and have fewer tax benefits associated to them, for example, Cash ISAs.
As a general principle, we adhere to the old adage, ‘don’t let the tax tail wag the investment dog’. In other words, you should not invest in something purely for the tax benefits. The investment itself should stand up on its own merit and fit with your personal risk profile.
In general, the main wrappers we use are as follows:
These are one of the most tax efficient wrappers available and are suitable if your objective is to provide an income for the longer term. They provide tax relief on contributions paid in, virtually tax-free growth while the money is held, and the ability to access part of your fund as a tax-free lump sum when benefits are taken. There are limits as to how much can be placed in a pension each year and over an individual’s lifetime, so care should be taken that these are not exceeded otherwise tax penalties can result.
For UK residents with money to invest, an ISA is usually the first port of call. All gains and income generated in ISAs are virtually tax-free. Money can be withdrawn tax-free and does not need to be declared on tax returns. Some products may carry penalties for short-term encashment but generally, ease of access is one of their main advantages.
There is a limit to the amount that can be placed in an ISA each tax year so not everyone’s portfolio can be held entirely within an ISA from the word go. Having said that, the current limit is £20,000 per annum for UK adults.
These are essentially ‘unwrapped’, i.e. there are no tax concessions for holding funds within these types of investment. This means any gains and income generated from the portfolio will be subject to either capital gains or income tax. However, if you have a non-earning spouse or are not using your capital gains tax allowances elsewhere, these investments can be structured so that there is little tax to pay. Through our ongoing advisory service, these funds can be moved into an ISA to make an increasing element of your portfolio tax-free as time goes by until eventually the whole fund is held within an ISA, generating you a tax-free income with no tax on the gains.
These are tax deferral vehicles and are suitable for clients who may have a lower income in future. Income can be taken from the portfolio from the outset with no immediate liability to tax. They can be held onshore or offshore, depending on individual circumstances, for instance, whether you are likely to move overseas or spend time working outside of the UK.
As holistic advisers, we’re not under any influence to use a particular service or product but can instead select those which are in the very best interests of our clients.
Our advice will always look at the combination of wrappers and we will very rarely recommend the holding of only one type of investment. It is the ability of many wrappers to operate in parallel with each other which provide investors with the security they need in respect of their current assets and their future income.
If you’d like to know more about how we advise clients across the range of financial planning and investment products, do contact us here.
- The value of your investment may go down as well as up