Savings & Investment
We all want our spare cash to grow fast. Unfortunately, there is no simple magic formula to achieve this. There is also the potential tax implication that needs to be considered.
Taking the decision to begin investing is a big step. It means introducing risk to your money, which is not necessarily a bad thing, as increased risk can help you grow your cash. But, conversely, there is the possibility that you could lose some, or all, of your money.
Of course, you can use safer options like saving in a bank or building society or in post office but the potential returns may not be able to beat inflation.We can help you decide how much you should plan to invest to meet your goal, what degree of risk you want to take and what instrument you use for tax efficiency.
We operate as Independent Financial Advisers, which means we offer the whole range of products sourced from the whole market in UK.
Features of some of the popular products in UK are outlined here.
ISA
It is the most popular and most tax efficient instrument available. There are two types of ISAs, Cash ISA and Stocks & Shares ISA. The maximum amount one can invest in ISA in the current financial year is £15,240, which is revised every year. The full amount can be invested in Stocks & Shares ISA or a maximum of £5,760 in Cash ISA and the balance in Stocks and Shares ISA. One can have one cash ISA, one Stocks & Shares ISA or one each of both in a financial year.
Cash ISA offers fixed rate of interest and is available in banks, building societies or the post office.
Stocks and Shares ISA, as the name suggests invests in company shares and fixed interest securities of Government and corporates, which are linked to the market and therefore their value goes up or down. They carry higher investment risks with potentially higher returns as compared to Cash ISA.
You can also contribute to Junior ISA for a child to the maximum of £3,720 this financial year, if he is not in receipt of Child Trust Fund contribution.
You pay no Income Tax on the interest or dividends (share income) you receive from an ISA and any profits from investments are free of Capital Gains Tax. However, there is a 10% tax credit on dividend income which cannot be reclaimed.
Bonds
Investment bonds are medium- to long-term investments that are designed to produce capital growth and income. You pay a lump sum to a life insurance company. They invest the money for you, usually in a range of funds, until you either cash it in or die.
You can withdraw 5% of the invested amount tax free. The amount can be carried forward if you do not avail the facility. For example, if you have invested £10,000 and have not withdrawn at all, in the third year you can withdraw £1,500 without any tax liability.
Normally, one would exhaust the maximum permissible limits under ISA before considering investing in Bond.
Regular Savings
You have a number of options to choose from to make a regular contribution. OEICs, investment trusts and Friendly Societies’ saving plans and Endowment saving plans of Life insurance companies are pooled investment vehicles where the contributions made by investors are put together and invested in a diversified portfolio to spread risks. Tax treatment varies from one instrument to another and suitability of a particular vehicle will depend on your personal circumstances.
Alternative Investments
For investors prepared to take a high degree of risk, there are options like Exchange Traded Funds (ETFs), Venture Capital Trusts and other Structured Products available. One needs to have a high risk appetite and good experience in investments before venturing into these products.