Efficient Investment

What is it?

There are many considerations you should take into account when considering investing for the future. Your personal tax circumstances, attitude to risk, investment period, other accessible funds, your social awareness and income and/or growth requirements should all be taken into account when considering which of the vast array of investment vehicles might suit your own particular circumstances.

Who might need it?

Anybody with a lump sum to invest, existing investments and/or the requirement for a lump sum in the future, are examples where efficient investment might be required.

The Trustee Investment Act 2000 requires all trustees to obtain and consider proper advice to ensure that trust assets are meet the needs of the beneficiaries.

How might you calculate it?

If you know when an event could happen and how much it might cost, we could calculate how much you may need to set aside to help cover the eventual cost.

What else do I need to know?

National Savings are considered to be very safe investments - deservedly so - they carry the backing of HM Treasury. However, not all National Savings products are suitable for all taxpayers. National Savings Income Bonds, for example, could result in a tax demand for those who use up all their allowances, whilst fixed interest certificates may be likely to appeal to higher rate taxpayers.

Fixed income investments such as guaranteed income bonds, high income plans and annuities may play their part in efficient investment and tax planning.

Whilst direct stock market investment in purchasing individual shares and gilts (government securities) and fixed interest securities may be likely to appeal to the more sophisticated investor, the less informed could be more comfortable with collective investments, such as unit and investment trusts and their European counterparts, open ended investment companies (OEICS). Tax efficient “wrappers” could be used to shield investments from tax in certain circumstances. These wrappers vary from time to time and have included Friendly Society Bonds, Venture Capital Trusts, Personal Equity Plans, Tax Exempt Special Savings Accounts, Individual Savings Accounts and their individual components. Investment Bonds may be useful to defer potential tax or access tax free withdrawals and might be arranged, where appropriate, on an ‘offshore’ basis to maximise tax efficiency.

Zero Dividend Preference Shares are a type of share issued by an Investment Trust, which receives no income but is repaid at a fixed price at a fixed date in the future. The return depends on the price paid for the shares compared to the price at redemption, and is equivalent to a fixed accumulating rate of interest. Mostly favoured by higher rate taxpayers who do not want dividends, which are subject to income tax, but wish to create capital gains at some point in the future.

These days there is also a range of ethically managed investments that aim to give a sense of social responsibility to their investment decisions.

All investments carry some degree of risk - not all as apparent as others. Investments often considered to be risk free, such as cash deposits - bank or building society accounts - carry their own risk - erosion by inflation, especially in times of low interest rates.

The choices could appear complex and we would always recommend that you seek expert independent financial advice.

Investment Bonds are open ended investments which might be used to provide tax deferred withdrawals (of capital), within Inland Revenue limits.

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