Where Can I Invest?
Individual Savings Account (ISA)
What is an ISA?
An ISA is an excellent investment vehicle, which is free from income (interest and dividend) tax, as well as capital gains tax.
Why should I choose an ISA?
Tax efficiency is the name of the game; not just to maximise gains, but to get rid of the headache of taking tax into account, as you would with gains and income made from investments in a General Investment Account.
What types of ISA are there?
Cash ISA: Great for holding cash and accumulating tax-free interest
Stocks & Shares ISAs: Used for investing
Lifetime ISA: Used for either a first-time buyer or retirement (there are complex rules for this type of ISA in comparison to the others listed)
How much can I put in an ISA?
Currently, you can contribute a maximum of £20,000 across Cash and Stocks & Shares ISAs (combined!). This also includes the £4,000 Lifetime ISA limit. For example, you could put £8,000 in a Cash ISA, £8,000 in a Stocks & Shares ISA, and £4,000 in a Lifetime ISA to reach your annual limit.
This will change next year, as Cash ISA limits for anyone under 65 will reduce to £12,000.
General Investment Account (GIA)
What is a GIA?
A GIA refers to an account that can invest, but is not protected from income or capital gains tax. Although it must be correctly reported to HMRC, you should not avoid potential long-term investment gains.
Why should I choose a GIA?
If you have already maximised ISA and pension contributions (or do not wish to use a pension for other reasons), a GIA is a perfect ‘overflow’ investment vehicle.
How much can I put in a GIA?
Contributions and withdrawals are unlimited.
Trusts
What is a Trust?
A trust is a separate legal entity which can hold investments within it. They are synonymous with wealth, but there are many types of Trusts, with many different uses.
Some trusts, when set up, can’t be undone. You need to be absolutely sure what you are doing. Proper advice from an Independent Financial Adviser and/or solicitor is recommended.
Venture Capital Trusts (VCTs)
What is a VCT?
VCTs are a way, introduced by the government, to increase funding to growing companies. These are high-risk investments, encouraged by a 20% income tax relief on the amount invested. For example, if you invest £10,000, you will get a £2,000 reduction in your income tax bill.
You must hold these investments for at least 5 years, or you will pay back the income tax relief to HMRC.
Enterprise Investment Scheme (EIS)
What is an EIS?
Similar to a VCT, the government use this to encourage investments into smaller companies. Therefore, it is riskier than a VCT. Because of this, it offers additional tax benefits, such as higher tax relief and Inheritance Tax benefits.
Business Relief
What is Business Relief?
Business Relief is a high-risk investment used to lower Inheritance Tax liability. The origin is from the government giving the ability to pass a business through family members, but has been taken advantage of in other ways.
After holding a Business Relief investment for 2 years, the owner benefits from a 100% reduction of Inheritance Tax, from 40% to 0%.
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