Savings & investments
From childhood most of us are told to put away money to save for the future - perhaps for something special? Or perhaps to be sure that when we really need something we have the money to pay for it, without taking on debt.
There are many types of savings and investment, each having different structures, tax treatments and implications for you as the investor.
Some of these are Stocks & Shares ISAs, Cash ISAs, Deposit accounts, Gilts, Insurance Bonds, Endowments, Annuities, Unit Trusts, Investment Trusts, to name a few.
Investment advice from Niche
Most people would like to have an investment which is both safe (in that it will not fall in value) and which offers high returns. Unfortunately, these two requirements don't always go hand in hand as those investments which offer high returns can just as easily drop in value as well as increase.
Therefore, sound investment planning starts with understanding what your investment aims are. Next it is vital to establish what your attitude to investment risk is. This is important for sensible investing and Niche can help you determine an investment strategy appropriate for your needs and the investments best-suited to your investment attitude and tax position.
We can discuss with you what your aims are and recommend suitable ways to help you achieve those goals.
Venture capital trusts (VCTs) & enterprise investment schemes (EISs)
VCTs and EISs are tax-efficient investment vehicles that are actively encouraged by the UK government to support the growth of early stage businesses – they reward you for investing in the lifeblood of the UK economy.
What are VCTs?
Venture Capital Trusts were introduced by the government in 1995 to encourage individuals to invest in small UK companies. They are supported by a number of tax incentives which reflect the fact that investment in smaller and unquoted companies is likely to involve a higher degree of risk than investment in larger companies, or those traded on the main market of the London Stock Exchange.
Please note that VCTs are high risk investments and there may be no market for the shares should you wish to dispose of them. You may lose your capital.
What are the benefits? The current tax reliefs available for qualifying investors are:
- Up to 30% income tax relief on the amount subscribed*
- Tax-free dividends**
- Tax-free capital gains on the disposal of shares**
*Subject to the shares being held for a minimum of five years with a maximum investment of £200,000 in VCTs in any tax year. The amount of relief you receive cannot exceed your income tax liability for that year.
**Subject to a maximum investment of £200,000 in VCTs in any tax year.
What does an EIS do?
Enterprise Investment Schemes were introduced by the government to encourage individuals to invest in small unquoted companies, which typically involve a higher degree of risk than investment in larger companies and those traded on the main market of the London Stock Exchange.
Please note that EISs are very high risk investments. An EIS investment is usually concentrated in one single unquoted trading company. Often there is no market for the shares and it may be difficult to make a disposal. There is a strong possibility of the chosen company failing.
What are the benefits? Providing the underlying investments made by the EIS are held for at least three years, the current tax reliefs available for qualifying investors are:
- 30% upfront income tax relief (up to a maximum investment of £2 million for the 2019/20 tax year and/or £2 million carried back for tax paid in the 2018/19 tax year).
- From 6th April 2018, the limit was increased to £2 million as long as anything over £1 million is invested in knowledge intensive companies (KICs).
- 100% inheritance tax relief after two years (provided the investments are held at time of death).
- Capital gains tax deferral for the life of the investment.
- Tax-free growth (provided income tax relief has been given and not withdrawn).
Who invests in VCTs and EISs?
Higher rates of income tax, pension fund restrictions and a prevailing uncertain economic climate have all made tax planning increasingly important to investors. Even more people are today seeking investments which reduce their tax burden and can generate an attractive tax-free return.
What is an ISA?
An Individual Savings Account (ISA) is a financial product available to residents of the United Kingdom. It is designed for the purpose of investment and savings with a favourable tax status. Money is contributed from after tax income and not subjected to income tax or capital gains tax within a holding or upon withdrawal. Cash and a broad range of investments can be held and there is no restriction on when or how much money can be withdrawn. Under normal circumstances, funds cannot be used as security for a loan. Except in the case of an equitable mortgage or charge. It is not a pension product but can be a useful complement to a pension for retirement income, particularly when it is desirable to draw down capital at a faster rate than permitted from a pension.
There are different types of ISA, including:
- Cash ISA – these ISAs normally use standard instant access saving accounts. Cash ISAs are simply a savings account where the interest earned from the money you put in isn’t taxed.
- Stocks and Shares ISA which lets you put money into different types of investment, such as unit trusts, open-ended investment companies (OEICs - similar to unit trusts) and investment trusts, as well as government bonds and corporate bonds. This means your investment can go down as well as up.
Stocks and shares advice
What are stocks and shares?
Stock is ownership, or equity, in a company. Investors buy stock in the form of shares, which represent a portion of a company's assets and earnings (capital).
As a stockholder, the extent of your ownership (your stake) in a company depends on the number of shares you own in relation to the total number of shares available.
Stocks in publicly traded companies are bought and sold via the stock market. You can buy a share in a stock when a company first decides to trade itself on the stock market - that is, at flotation or privatisation; or you can buy through the stock market once the shares are in circulation and being traded.
What is the risk?
Investing in stocks carries an element of risk because prices can go down as well as up. The price of stocks is a function of demand, which is based on investors' perceptions of the company's future earnings prospects.
What will we do?
We can help you to assess your goals and attitude to risk, ensuring that you make the right decisions for your investments.