When considering pension savings over additional or alternative savings, you will find that some strategies will have different elements which make them more desirable or not. Planning is really important, to make sure your financial reviews are up to date and the most realistic for your goals and ambitions of the future. If anything changes, you will need to keep all your financial plans updated (on a regular basis), to combat all situations that life puts on your path.
When looking to manage your investments, choosing between Hargreaves Lansdown or Interactive Investor, is a very common choice for NI investors, as you will see from our guide there are a lot of different investment strategies you can follow to maximisie your performance.
The Realistic Approach
When you make your objectives, you need to be as realistic as possible. A financial plan requires honest answers of where you think you are going and what you will need. You will need to separate your heart from your head. As the actual realistic goals cannot be based around the limbo of the two! You will always find how seyting numbers across a short term, to long term goal makes things easily prioritised for categories, when you want to meet the objectives. A step at a time is the most useful thing you can do for yourself!
How do you set financial goals for yourself?
To set financial goals for yourself, they often are as described below within our list.
- A comfortable retirement is one of the biggest goals that we all hope to achieve and reach.
- Having the right amount of money, to cover insurance and any health-related issues that might pop up along the way.
- A sizable estate that you can pass on to your family members after your passing.
- Assets techniques which you can plan to ensure a lifetime programme to give to heirs or chosen loved ones.
- Raising enough funds to begin a business and second home for holidays.
- Investment plans that can battle against any market fluctuations and inflations.
- Planning the best ways to minimise tax on your income and capital.
An Investment Strategy
It is very important to keep in mind that shares will always go up and down for value, and also the dividend income from it can also fluctuate too. If you do not invest properly, this can ultimately affect the income that you would get from your investment and take you away from having long term return goals from your investments. So, you essentially have to be very sure before you take any investment.
How can you be tax efficient?
Paying tax on your savings and any investments you make should be avoided. There are many tax free investment products and saving accounts that exist which you can do, to ensure you minimise tax outgoings.
National savings and premium bonds are modest, yes. Yet you can usually save up to £50,000 without having to worry about any taxes on this value. While £50,000 may not seem like a lot, it definitely is better than nothing!
Stocks and shares are proven to be the most investment friendly approach, if you are looking for longevity for your cash. There are OEIC’s which are designed to ensure that traded exchange funds operate to spread the risk available to you. The capital gains and dividends are changed with tax, yet you will have an allowance of £2000 a year which is available to you tax free. The tax rate above this is 7.5% for a basic tax payer, yet it can go all the way up to 38.1% for additional rate taxpayers.
Banks and building society accounts
A banking society will offer you a higher degree of investment returns, which can be spread across banks, in addition to allowing you to readily access your funds too. The PSA (Personal Savings Allowance) will remove some of your income to tax, usually around £1000 of the basic rate taxpayers saving income, in addition to a £500 higher rate taxpayer income. There is no PSA that is available to additional tax payers. In addition to this, there is a benefit of a £5000 starting rate personal allowance on your savings band, if it is a non-savings income. The rate of the tax is 0%.
Investing in property
When you invest in property, it is seen as a long-term investment. The mortgages are often available to give you 75% of the total costs of your property, so you will need to make sure that if you are renting out the property, there is a return from the rent that goes beyond covering the cost of the interest loan. The risk of the investment will always be weighed against the capital growth prospectus.
Landlords today are not allowed to deduct their finance costs from the property income, and must therefore have a basic rate reduction on their income tax. Yet this does not apply to furnished holiday lettings for example.
ISAs
ISAs are individual savings accounts, and they are open to up to £20,000 for each tax year, without any tax liability. You can invest up to this much amount before you will invoke any tax on your savings. Junior ISAs work in the same concept, yet they have smaller limits of £9000 per annum. This applies to all young children up to 18 years old.
Alternative Investment Schemes
There are alternative investment schemes that you can involve yourself with are mentioned briefly below.
Enterprise Investment Schemes
EIS investments often do attract some relief on income tax, however it is limited to 30% on a £1 million investment per year. This can increase to £2 million, for those who are making knowledge-intensive companies and therefore investing in that.
Venture Capital Trusts
These are used to invest in shares which unquoted companies that still qualify for EIS investments. The shares of the VCT will be left out from tax requirements on the dividends, in addition to any of the capital gain from the shares within the VCT. Income tax relief is again at 30% if subscribed to the VCT shares with up to £200,000 for each tax year. The shares need to be held for at least 5 years to qualify.
