Whatever happens in life, we can work with you to make sure that you and your family are provided for. Premature death, injury and serious illness can affect the most health-conscious individuals and even the most diligent workers can be made redundant.
Several factors will determine the shape of your portfolio. The first of these is your investment objective. This takes into account whether you’re investing for income or for growth. If you want to generate income, perhaps to supplement your pension or salary, then you need to consider income-producing investments such as fixed interest or equity income funds. However, if it’s growth you’re after, then your portfolio could be more biased towards equities. Or, you may achieve growth by opting for an equity income fund and reinvesting the income.
Wherever you are with your retirement savings, don’t be put off from taking action – it’s not too late. There are still steps you can take to boost the income you’ll receive when you retire.
For investors concerned about global warming and other environmental issues, there are a plethora of ethical investments that cover a multitude of different strategies. The terms ‘ethical investment’ and ‘socially responsible investment (SRI)’ are often used interchangeably to mean an approach to selecting investments whereby the usual investment criteria are overlaid with an additional set of ethical or socially responsible criteria.
For the appropriate investor looking to achieve capital security, growth or income, there are a number of advantages to investing offshore, particularly with regards to utilising the tax deferral benefits. You can defer paying tax for the lifetime of the investment, so your investment rolls up without tax being deducted, but you still have to pay tax at your highest rate when you cash the investment in. As a result, with careful planning, and if appropriate you could put offshore investments to good use.
Individual Savings Accounts (ISAs)
You pay no personal income tax or capital gains tax on any growth in an ISA, or when you take your money out. If you invest in a stocks and shares ISA, any dividends you receive are paid net, with a 10 per cent tax credit. There is no further tax liability.
A tax wrapper can be wrapped around either the underlying investment or the pooled investment, and means you pay less or no tax. An example of a tax wrapper is an Individual Savings Account (ISA). An ISA is not a product on its own, but a tax wrapper around a savings or investment product, which protects your money from being taxed.
What can you save or invest in an ISA?
ISAs can be used to:
save cash in an ISA and the interest will be tax-free
invest in shares or funds in an ISA – any capital growth will be tax-free and there is no further tax to pay on any dividends you receive
You can invest in two separate ISAs in any one tax year: a cash ISA and a stocks and shares ISA. This can be with the same or different providers. By using a stocks and shares ISA you invest in longer-term investments such as individual shares or bonds, or pooled investments (such as open-ended investment funds or investment trusts).
The current ISA limits are:
If you were born on or before 5 April 1960 (that is, aged 50 or over during the current tax year) you can save up to £10,200. The full £10,200 can be invested in a stocks and shares ISA with one provider or up to £5,100 can be saved in a cash ISA with one provider, with the remainder being saved in a stocks and shares ISA with either the same provider or another.
If you were born after 5 April 1960 you can save up to £7,200. The full £7,200 can be invested in a stocks and shares ISA with one provider or up to £3,600 can be saved in a cash ISA with one provider, with the remainder being saved in a stocks and shares ISA with either the same or another provider. From 6 April this year, the ISA limit will increase to £10,200, up to £5,100 of which can be saved in cash for all
ISA investors.
According to the age 50 rule, someone who is currently under age 50 but who will reach age 50 between 6 October 2009 and 5 April 2010 will only be able to pay in more than £7,200 during the 2009/10 tax year (up to a maximum of £10,200) once they have attained their 50th birthday. So, for example, if an investor will not attain age 50 until 1 March 2010, they will not be able to pay in more than £7,200 until 1 March 2010.
From 6 April 2010 the limit is £10,200 (of which £5,100 can be saved in cash) for everyone.
If you choose to invest the whole allowance in an investment ISA, this can only be with one provider in any one tax year.
Transferring an ISA
If you have money saved from a previous tax year, you can transfer some or all of the money from your cash ISA to a stocks and shares ISA without this affecting your annual ISA investment allowance. However, once you have transferred your cash ISA to a stocks and shares ISA it is not possible to transfer it back into cash.
ISAs must always be transferred, you can’t close the old one and start a new one, otherwise you will lose the tax advantage. If appropriate, you may wish to consider switching an existing stocks and shares ISA if you feel the rate is not competitive. But if you have a fixed-rate ISA, you should check whether you may have to pay a penalty when transferring.
Endowments are regular premium policies which combine investments with life cover and are sometimes used to repay interest-only mortgages. Endowments are offered by life assurance companies, have a fixed term and usually require you to pay a fixed premium on a regular basis.
Investment bonds are designed to produce medium- to long-term capital growth, but can also be used to give you an income. They also include some life cover. There are other types of investment that have ‘bond’ in their name (such as guaranteed bonds, offshore bonds and corporate bonds), but these are very different. You pay a lump sum to a life assurance company and this is invested for you until you cash it in or die.
An investment trust is a company with a set number of shares. It is allowed to borrow money to invest (called gearing). Unlike an open-ended investment fund, an investment trust is closed ended. This means there are a set number of shares available, and this will remain the same no matter how many investors there are. This can have an impact on the price of the shares and the level of risk of the investment trust. Open-ended investment funds create and cancel units depending on the number of investors.