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A Guide to Investment Planning


Our Approach

Our Approach

At Absolute Finance we appreciate that every investor is unique and complex, which has led us to develop a highly innovative approach to investment. We believe it significantly improves the management of our client's investments.


Our approach combines rigorous client assessment and portfolio construction techniques to tailor the performance we aim to deliver for each client. The result is a performance profile that creates the confidence and comfort necessary to make the right decisions in both smooth and turbulent times, so as to improve performance over the long-term.


No matter what your investment goals are and how much you wish to invest, we can work with you to develop the most appropriate portfolio for you and can give you an unparalleled insight into how your money is performing. Getting your financial affairs in good shape, with funds available to meet unforeseen costs, to pay education fees, to reduce your mortgage or to support you in retirement, can increase your sense of security and freedom.


There are, of course, times in our lives when saving money may be difficult (for example, when studying or bringing up children), but it is important to look ahead. Saving little by little out of your income or investing lump sums when you can all helps. Holding savings for a long time means they can grow in value as well.


At Absolute Finance we work with our clients to create tailored investment strategies, that meet their financial goals and needs; and we're committed to ensuring that our clients enjoy the best financial planning service available.


As part of our service we also take the time to understand our client's unique needs and circumstances, so that we can provide them with the most suitable investment proposition, taking their personalised investment views into consideration e.g. risk, return, term and ethical views; in order to maximise the investment opportunities available to our clients. If you would like to discuss the range of protection services we offer, please contact us for further information.


Please note that the information contained in the sections below is to help you to think about your investment needs. It is not designed to provide specific advice. If you are unsure of your financial position or about which type of investment is right for you, please contact us for further information.

Investment Goals

Investment Goals

What are you trying to achieve with your investments?
There are different types of risk involved with investing, so it's important to find out what they are and think about how much risk you're willing to take. It all depends on your attitude to risk (how much risk you are prepared to take) and what you are trying to achieve with your investments.


Things to think about before investing:
How much can you afford to invest?
How long can you afford to be without the money you've invested (most investment products should be held for at least five years)?
What do you want your investment to provide, capital growth (your original investment to increase), income or both?
How much risk and what sort of risk are you prepared to take?
Do you want to share costs and risks with other investors (using a pooled investment, for example)?


If you decide to invest using pooled investments, consider which type would be most suitable for you. The main differences between pooled investments are the way they pay tax and the risks they involve (especially investment trusts and with-profit funds). What are the tax benefit implications and what tax will you pay and can you reduce it? You may be looking for an investment to provide money for a specific purpose in the future. Alternatively, you might want an investment to provide extra income. So having decided that you are in a position to invest, the next thing to think about is:


"What am I investing for?"
Your answer will help you to choose the most suitable type of investment for you. If you have a particular goal you will need to think about how much you can afford and how long it might take you to achieve your goal. You may have a lump sum to invest which you would like to see grow, or from which you wish to draw an income. Equally, you may decide to invest in instalments, (for example, on a monthly basis) with a view to building up a lump sum. Your investment goals should determine your investment plan and the time question.


"How long have I got before I need to spend the money?" - is crucial.
Generally, the longer it is before you need your money, the greater the amount of risk you are able to take in the expectation of greater reward. The value of shares goes up and down in the short term, and this can be very difficult to predict, but long term they can be expected to deliver better returns. The same is true to a lesser extent of bonds. Only cash offers certainty in the short term. Broadly speaking, you can invest in shares for the long term, fixed interest securities for the medium term and cash for the short term. As the length of time you have shortens, you can change your total risk by adjusting the "asset mix" of your investments, for example by gradually moving from share investments into bonds and cash. It is often possible to choose an option to lifestyle" your investment, which is where your mix of assets is risk-adjusted to reflect your age and the time you have before you want to spend your money. Income can be in the form of interest or share dividends. If you take and spend this income, your investments will grow more slowly than if you let it build up by reinvesting it. By not taking income you will earn interest on interest and the reinvested dividends should increase the size of your investment, which may then generate further growth. This is called "compounding."


The performance of your investments could make a critical difference to your financial well being in the future, so receiving reliable and professional financial advice is essential – please contact us to discuss your particular situation.



Selecting assets that behave in different ways.
When deciding whether to invest, it is important that any investment vehicle matches your feelings and preferences in relation to investment risk and return. Hence your asset allocation needs to be commensurate with your attitude to risk. Another key question to ask yourself is: "How comfortable would I be facing a short term loss in order to have the opportunity to make long term gains?" If your answer is that you are not prepared to take any risk whatsoever, then investing in the stock market is not for you.


However, if you are going to invest, you need to be prepared to take some calculated risk in the hope of greater reward. Risk is an implicit aspect to investing: shares can fall, economic conditions can change and companies can experience varying trading fortunes. The process of deciding what proportion of your investment portfolio should be invested in different types of investment is called 'asset allocation'.


The four main asset classes are:


These asset classes have different characteristics for risk. When you are young you may want to invest in assets with a higher potential for growth but greater risk, because you have the time to benefit from their long term growth. As you get closer to retirement you may want to choose more conservative investments that are steadier in both risk and return.


There is a wide variety of different asset classes available to invest in and commensurate risks attached to each one. Whilst these implicit risks cannot be avoided, they can be mitigated as part of the overall investment portfolio, by diversifying.


If you put all of your eggs in one basket, you are more vulnerable to risk. Different investments behave in different ways and are subject to different risks. Saving your money in a range of assets helps reduce the loss, should one of your investments suffer a downturn.


There is also a need to diversify within each type of investment. This is especially important in the case of share and bond investing, but can even be true of cash, where the risks are generally lowest. Putting all your money in one deposit account runs the risk that the interest paid on that account will change relative to other accounts. This could mean that the interest you receive is no longer as good as when you originally invested.


It is important to remember that all investments have a degree of risk. The key is to get the right balance. Most people need a mix of assets in order to achieve their goals. The mix required depends upon individual needs.


By spreading your investments over a wide range of asset classes and different sectors, it is possible to avoid the risk that your portfolio becomes overly reliant on the performance of one particular asset. Key to diversification is selecting assets that behave in different ways.


Some assets are said to be "negatively correlated", for instance, bonds and property often behave in a contrarian way to equities by offering lower, but less volatile returns. This provides a "safety net" by diversifying many of the risks associated with reliance upon one particular asset. It is also important to diversify across different "styles" of investing- such as growth or value investing as well as across different sizes of companies, different sectors and geographic regions.


Growth stocks are held as investors believe their value is likely to significantly grow over the long term; whereas value shares are held since they are regarded as being cheaper than the intrinsic worth of the companies in which they represent a stake. By mixing styles which can out or under perform under different economic conditions the overall risk rating of the investment portfolio is reduced. Picking the right combination of these depends on your risk profile, so it is essential to seek professional advice to ensure that your investment portfolio is commensurate with your attitude to investment risk.


The important thing to remember is that with investments, even if your investment goes down, you will only actually make a loss if you cash it in at that time. When you see your investment value fall, this is known as a paper loss as it is not a real loss until you sell.


If you are going to invest, you need to be prepared to take some risk and to see at least some fall in the value of your investment.


Whilst all investments carry an element of risk, the amount of risk you take directly affects any potential returns and losses. Generally speaking, if there is less risk to your investment, your money will grow more slowly and with more risk your investment may fluctuate more.


You should also be aware of currency risk. Currencies, for example Sterling, Euros, Dollars and Yen – move in relation to one another. If you are putting your money into investments in another country then their value will move up and down in line with currency changes as well as the normal share-price movements.


Another consideration is the risk of inflation. Inflation means that you will need more money in the future to buy the same things as now. When investing, therefore, beating inflation is an important aim. Investing in cash may not beat inflation over the long term.


We can help you make informed decisions about the investment choices that are right for you, by assessing your life priorities, goals and attitude towards risk for return. Any number of changing circumstances could cause your wealth to diminish, some inevitable and some unpredictable - new taxes and legislation, volatile markets, inflation and changes in your personal life. Structuring your wealth in a way that minimises the impact of these changes is essential. To discuss your requirements please contact us.

Pooled Investment Schemes

Pooled Investment Schemes

Investing in one or more asset classes
A pooled (or collective) investment is where many people put their money into a fund, which is then invested in one or more asset classes by a fund manager. There are different types of pooled investment but the main ones are:
Open-ended investment funds
Unit trusts
Investment trusts
Investment bonds


Most pooled investment funds are actively managed. The fund manager researches the market and buys and sells assets to try and provide a good return for investors.


Trackers, on the other hand, are passively managed; they simply aim to track the market in which they are invested. For example, a FTSE100 tracker would aim to replicate the movement of the FTSE100 (the index of the largest 100 UK companies).


They might do this by buying the equivalent proportion of all the shares in the index.


For technical reasons the return is rarely identical to the index, in particular because charges need to be deducted.


Trackers tend to have lower charges than actively-managed funds. This is because a fund manager running an actively managed fund is paid to invest so as to do better than the index (beat the market) or to generate a steadier return for investors than tracking the index would achieve. Of course the fund manager could make the wrong decisions and under-perform the market. And there is no guarantee that an actively-managed fund that performs well in one year will continue to do so. Past performance is no guarantee of future returns.


Trackers do not beat or underperform the market (except as already noted), but they are not necessarily less risky than actively-managed funds invested in the same asset class. Open-ended investment funds and investment trusts can both be trackers.


That old maxim 'time in the market, not timing the market' has never been more apt than during the recent turbulence experienced in the financial markets. If you would like to find out more about pooled investment schemes, please contact us for further information.

Open-Ended Investment Funds

Open-Ended Investment Funds

Investing in one or more of the four asset classes
Open-Ended investment funds are often called collective investment schemes and are run by fund management companies. There are many different types of fund. These include:
Unit trusts
OEICs (Open-Ended Investment Companies, which are the same as ICVCs – Investment Companies with Variable Capital)
SICAV (Société d'investissement à capital variable)
FCPs (Fonds communs de placement)


This list includes certain European funds, which are permitted under European legislation to be sold in the UK.


There are many funds to choose from and some are valued at many millions of pounds. They are called open-ended funds as the number of units (shares) in issue increases as more people invest and decreases as people take their money out.


As an investor, you buy units/shares in the hope that the value rises over time as the prices of the underlying investments increase. The price of the units depends on how the underlying investments perform.


You might also get income from your units through dividends paid by the shares (or income from the bonds, property or cash) that the fund has invested in. You can either invest a lump sum or save regularly each month.


Open-ended investment funds generally invest in one or more of the four asset classes – shares, bonds, property and cash. Most invest primarily in shares but a wide range also invests in bonds. Few invest principally in property or cash deposits. Some funds will spread the investment and have, for example, some holdings in shares and some in bonds. This can be useful if you are only taking out one investment and remembering that asset allocation is the key to successful investment.


The level of risk will depend on the underlying investments and how well diversified the open-ended investment fund is. Some funds might also invest in derivatives, which may make a fund more high risk. However, fund managers often buy derivatives to help offset the risk involved in owning assets or in holding assets valued in other currencies.


Any money in an open-ended investment fund is protected by a trustee or depository who ensures the management company is acting in the investors' best interests at all times.


For income, there is a difference in the tax position between funds investing in shares and those investing in bonds, property and cash. Whichever type of open-ended investment fund you have, you can reinvest the income to provide additional capital growth, but the taxation implications are as if you had received the dividend income.


No capital gains tax (CGT) is paid on the gains made on investments held within the fund. But, when you sell, you may have to pay capital gains tax.


Building an effective portfolio involves receiving professional advice to ensure that your portfolio suits your attitude to risk and return. To discuss your requirements, please contact us.


Open-Ended Investment Companies

Open-Ended Investment Companies

Expanding and contracting in response to demand
Open-Ended Investment Companies (OEICs) are stock market-quoted collective investment schemes. Like investment trusts and unit trusts they invest in a variety of assets to generate a return for investors. They share certain similarities with both investment trusts and unit trusts but there are also key differences.


OEICs are a pooled collective investment vehicle in company form and were introduced as a more flexible alternative to established unit trusts. They may also have an umbrella fund structure allowing for many sub-funds with different investment objectives. This means you can invest for income and growth in the same umbrella fund moving your money from one sub fund to another as your investment priorities or circumstances change.


By being "open ended" OEICs can expand and contract in response to demand, just like unit trusts. The share price of an OEIC is the value of all the underlying investments divided by the number of shares in issue. As an open-ended fund the fund gets bigger and more shares are created as more people invest. The fund shrinks and shares are cancelled as people withdraw their money.


You may invest into an OEIC through a stocks and shares Individual Savings Account (ISA). Each time you invest in an OEIC fund you will be allocated a number of shares. You can choose either income or accumulation shares, depending on whether you are looking for your investment to grow or to provide you with income, providing they are available for the fund you want to invest in.


Like unit trusts OEICs provide a mechanism of investing in a broad selection of shares thus aiming to reduce the risks of investing in individual shares. Therefore you have an opportunity to share in the growth potential of a stock market investment. However do remember that your capital is not secured and your income is not guaranteed.


Each OEIC has its own investment objective and the fund manager has to invest to achieve this objective. The fund manager will invest the money on behalf of the shareholders. The value of your investment will vary according to the total value of the fund which is determined by the investments the fund manager makes with the funds money. The price of the shares is based on the value of the investments the company has invested in.


We offer expertise covering a range of different investment products. To discuss your requirements, please contact us.

Unit Trust

Unit Trust

Participating in a wider range of investments
Unit trusts are a collective investment that allows you to participate in a wider range of investments than can normally be achieved on your own with smaller sums of money. Pooling your money with others also reduces the risk.


The unit trust fund is divided into units, each of which represents a tiny share of the overall portfolio. Each day the portfolio is valued, which determines the value of the units. When the portfolio value rises, the price of the units increases. When the portfolio value goes down, the price of the units falls.


The unit trust is run by a fund manager, or a team of managers, who will make the investment decisions. They invest in stock markets all round the world and for the more adventurous investor, there are funds investing in individual emerging markets, such as China, or in the so called BRIC economies (Brazil, Russia, India and China).


Alternatively some funds invest in metals and natural resources, as well as many putting their money into bonds. Some offer a blend of equities, bonds, property and cash and are known as balanced funds. If you wish to marry your profits with your principles you can also invest in an ethical fund.


Some funds invest not in shares directly but in a number of other funds. These are known as multi-manager funds. Most fund managers use their own judgment to assemble a portfolio of shares for their funds. These are known as actively managed funds.


However, a sizeable minority of funds simply aim to replicate a particular index, such as the FTSE all-share index. These are known as passive funds, or trackers.


You may choose to spread your investments across a range of unit trusts and have a choice of income and/or growth – to discuss your requirements please contact us.

Investment Trust

Investment Trust

Reflecting the popularity in the market
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.


The price of the investment trust shares depends on two main factors:
the value of the underlying investments (which works in the same way as open-ended investment funds); and
the popularity of the investment trust shares in the market.


This second point applies to investment trusts but not to open-ended investment funds or life assurance investments. The reason is because they are closed-ended funds. The laws of economics say that if there is a high demand for something, but limited supply, and then the price goes up.


The result is that investment trust shares do not simply reflect the value of the underlying investments; they also reflect their popularity in the market. The value of the investment trust's underlying investments is called the net asset value (NAV). If the share price is exactly in line with the underlying investments then it is called trading at par. If the price is higher because the shares are popular then it is called trading at a premium and if lower, trading at a discount. This feature may make them more volatile than other pooled investments (assuming the same underlying investments).


There is another difference that applies to investment trusts; they can borrow money to invest. This is called gearing. Gearing improves an investment trust's performance when its investments are doing well. On the other hand, if its investments do not do as well as expected, gearing lowers performance.


Not all investment trusts are geared and deciding whether to borrow and when to borrow, is a judgement the investment manager makes. An investment trust that is geared is a higher-risk investment than one which is not geared (assuming the same underlying investments).


Split-capital investment trusts
Split-capital investment trusts (splits) are a type of investment trust that sell different sorts of shares to investors depending on whether they are looking for capital growth or income. They run for a fixed term. The shares will have varying levels of risk, as some investors will be ahead of others in the queue for money when the trust comes to the end of its term.


The tax position is largely the same as for open-ended investment funds. You should be aware that tax legislation changes constantly and you should find out the most current position.


There is significant potential for increasing your wealth through investing, but only if your money is invested in the right way. To discuss your individual requirements, please contact us.

Investment Bonds

Investment Bonds

Putting your money in a range of different investment funds
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.


Investment bonds are not designed to run for a specific length of time but they should be thought of as medium-to-long term investments, and you'll often need to invest your money for at least five years. There will usually be a charge if you cash in the bond during the first few years.


The bond includes a small amount of life assurance and, on death, will pay out slightly more than the value of the fund. Some investment bonds offer a guarantee that you won't get back less than your original investment, but this will cost you more in charges.


You can usually choose from a range of funds which can invest in, for example UK and overseas shares, fixed interest securities, property and cash. They can also offer a way of investing in funds managed by other companies, but this may lead to higher charges.


Investment risk can never be eliminated but it is possible to reduce the ups and downs of the stock market by choosing a range of funds to help you avoid putting all your eggs in one basket. Different investment funds behave in different ways and are subject to different risks. Putting your money in a range of different investment funds can help reduce the loss, should one or more of them fall.


You can usually switch between funds. Some switches may be free, but you may be charged if you want to switch funds frequently. Any investment growth at the time of a fund switch is not taxable.


Any growth in investment bonds is subject to income tax. The investment will pay tax automatically while it is running so, if you are a:
non-taxpayer – you will not have to pay any further income tax but you cannot reclaim any tax;
basic-rate taxpayer – you will not normally have to pay any further income tax; and
higher-rate taxpayer (or close to being one) – if you withdraw more than 5 per cent of the original investment amount in a year or you have made a profit when you cash in the investment, you may be liable for more income tax.
additional-rate taxpayer – if you withdraw more than 5 per cent of the original investment amount in a year or you have made a profit when you cash in the investment, you will most likely be liable for more income tax.


Depending on your circumstances, the overall amount of tax you pay on investment bonds may be higher than on other investments (like a unit trust, for instance). But there may be other reasons to prefer an investment bond. Or you may want to set up the investment within a trust as part of your inheritance tax planning (but note that you normally lose access to at least some of your money if you do this).


You can usually take out some or all of your money whenever you wish but there may be a charge if you take money out in the early years.


You can normally withdraw up to 5 per cent of the original investment amount each year without any immediate income tax liability. The life assurance company can pay regular withdrawals to you automatically. These withdrawals can therefore provide you with regular payments, with income tax deferred, for up to 20 years.


Whether you want to consider a managed fund, or a more focused investment objective utilising a specialist fund – for example, funds that may invest in a particular geographical area such as the Far East or North America, or alternatively, in a particular type of investment such as gilts, property or cash – please contact us to discuss your individual requirements.



Combing investment with life cover
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.


Some of your premium is used to buy life cover (so if you die before the end of the term the policy pays out a death benefit) and the remainder of the premium is invested. The amount of life cover will depend upon the premium you pay, your age and sex, and the length of the policy.


Many life assurance companies and friendly societies offer a with-profits fund. If you keep paying the premiums, these plans offer a guaranteed minimum value at maturity. If investments do well then they will add a bonus to the guaranteed minimum amount. They may also add a final bonus at the end of the policy term. You can also often choose from a range of other funds which can invest in, for example, UK and overseas shares, fixed interest securities, property and cash.


Maximum investment plans tend to offer a wider range of funds than other types of endowment. Maximum investment plans may also offer a way of investing in funds managed by other companies, but this may lead to higher charges.


If the policy has a planned duration of at least ten years and is held until the end of the term, the value of the policy will be paid to you as a lump sum, generally without any further tax liability.


In some other cases you may have to pay income tax at maturity if you are a higher-rate taxpayer (or close to being one). For example if you stop an endowment early, you may have to pay tax on any capital growth.


If you do not maintain premiums into a friendly society savings plan until the end of the term, you may have to pay some tax.


You may find your investment goals change if you get married, have children, or start a business, so it could be an idea to switch your investment into different funds. And as you approach retirement, you may want to move your money gradually into investments that offer more security. To discuss your requirements, please contact us.

Tax Wrappers – ISA (Individual Savings Account)

Tax Wrappers – ISA (Individual Savings Account)

ISAs (individual Savings Accounts)
Individual Savings Accounts (ISAs) are not actual investments; they are a tax-efficient wrapper surrounding your fund choices. When you make an ISA investment you pay no income or capital gains tax (CGT) on the returns you receive, no matter how much your investment grows or how much you withdraw over the years.


An ISA is an ideal way to make the most of your tax-efficient savings limit and save for the future. The value of tax savings and eligibility to invest in an ISA will depend on individual circumstances and all tax rules may change in the future.


Saving or investing in an ISA
To save or invest in an ISA you must be:
a UK resident
a Crown employee (such as diplomat)
a member of the armed forces (who is working overseas but paid by the government), including husbands, wives or civil partners
aged over 16 years for the Cash ISA component, and over 18 years for the Stocks and Shares ISA component


An ISA must be in your name alone; you can't have a joint ISA.


ISA options
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.


In the current 2013/14 tax year you can invest a total of £11,520 into an ISA if you are a UK resident aged 18 or over. You can save up to £5,760 in a Cash ISA, or up to a maximum of £11,520 in a Stocks and Shares ISA.


Total ISA investment allowed in the tax year 2013/14:
Cash ISA only
£5,760 maximum in a Cash ISA or


Stocks & Shares ISA only
£11,520 maximum in a Stocks & Shares ISA or


Cash ISA and Stocks & Shares ISA
No more than £5,760 in a Cash ISA and the balance in a Stocks & Shares ISA up to a combined total of £11,520.


Tax-efficient matters
ISAs are tax-efficient investments with no income tax on any income taken from the ISA. There is no CGT on any gains within an ISA. Interest paid on un-invested cash within the Stocks and Shares ISA is subject to a 20 per cent HM Revenue & Customs (HMRC) flat rate charge. Interest received in a Cash ISA is tax-efficient. Dividends from equities are paid with a 10 per cent tax credit which cannot be reclaimed in an ISA but there is no additional tax to pay. You don't have to inform the taxman about income and capital gains from ISA savings and investments.


If you hold bond funds in your ISA, the income generated would be free of income tax. This could be a real benefit if you need to take an income from your investments, perhaps as you near retirement. Even if you don't want to invest in bonds at the moment, you may want to move money from equity funds into bonds in the future, perhaps when you need to take an income from your investments or if you want to reduce the level of risk in your portfolio as you near retirement.


Transferring your ISA
If you have money saved from a previous tax year, you could transfer some or all of the money from your existing 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 returns are not competitive. But if you have a fixed-rate ISA, you should check whether you may have to pay a penalty when transferring.


A Junior ISA is a tax-efficient way to save for your child's future. You can invest in a Junior ISA each year and the money invested will grow over time and be available to the child on their 18th birthday.
A Junior Individual Savings Account can be set up in the child's name by a parent or guardian
You can set up a Stocks and Shares ISA or Cash ISA or a combination of both
Any investment growth is free of income or capital gains tax
Investment limit is £3,720 – this will rise in line with inflation from 2014
Available to each child in the family each tax year
Anyone can contribute to a child's account at anytime through the year
Money is locked away until the child reaches the age of 18, giving the investment time to grow
The child is the beneficial owner of the Junior ISA.


An ISA is a great way to make the most of your tax-efficient savings limit and save for the future. The value of tax savings and your eligibility to invest in an ISA will depend on your individual circumstances and the tax rules may change in the future. The events of the last few years have shown once again that the path to successful investing is not always easy to follow, so receiving professional advice is essential to ensure that you achieve your financial goals –for more information, please contact us.

Offshore Investments

Offshore Investments

Utilising tax deferral benefits to minimise tax liabilities
For the appropriate investor looking to achieve capital security, growth or income, there are a number of advantages to investing offshore, particularly with regard 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, a variety of savers could put offshore investments to good use.


Financial centres
The investment vehicles are situated in financial centres located outside the United Kingdom and can add greater diversification to your existing portfolio. Cash can also be held offshore in deposit accounts, providing you with the choice about when you repatriate your money to the UK, perhaps to add to a retirement fund or to gift to children or grandchildren. Those who work overseas or have moved abroad to enjoy a different lifestyle often want to pay as little tax as is legally possible.


Tax deferral
Many offshore funds offer tax deferral. The different types of investment vehicles available offshore include offshore bonds that allow the investor to defer tax within the policy until benefits are taken, rather than be subject to a basic rate tax liability within the underlying funds. This means that, if you are a higher rate tax payer in the UK, you could wait until your tax status changes before bringing your funds (and the gains) back into the UK.


The wide choice of different investment types available includes offshore redemption policies, personalised policies, offshore unit trusts and OEICs. You may also choose to have access to investments or savings denominated in another currency.


Moving abroad
Many banks, insurance companies and asset managers in offshore centres are subsidiaries of major UK, US and European institutions. If you decide to move abroad, you may not pay any tax at all when you cash-in an offshore investment, although this depends on the rules of your new country.


Regarding savings and taxation, what applies to you in your specific circumstances is generally determined by the UK tax regulations and whatever tax treaties exist between the UK and your host country. The UK has negotiated treaties with most countries so that UK expats in those countries are not taxed twice. Basically, if a non-domiciled UK resident is employed by a non-UK resident employer and performs all of their duties outside the UK, the income arising is only subject to UK tax if it is received in or remitted to the UK.


Understanding each jurisdiction
Investor compensation schemes tend not to be as developed as in the UK, so you should always obtain professional advice to ensure that you fully understand each jurisdiction. It is also important to ensure that you are investing in an offshore investment that is appropriate for the level of risk you wish to take.


If you are an expatriate you should make sure that you are aware of all the investment opportunities available to you and that you are minimising your tax liability. Investing money offshore is a very complex area of financial planning and you should always obtain professional advice. Currency movements can also affect the value of an offshore investment.


Any potential invest or unsure of their tax position is recommended to take professional advice before investing. For further information, or to consider if investing offshore could be appropriate to your particular investment objectives, please contact us

Ethical investment opportunities

Ethical investment opportunities

Not sacrificing your life principles in exchange for chasing the best financial returns
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.


Ethical criteria
The Ethical Investment Research Service (EIRIS) defines an ethical fund as 'any fund which decides that shares are acceptable, or not, according to positive or negative ethical criteria (including environmental criteria).'Funds that use negative screening, known as dark green funds, exclude companies that are involved in activities that the fund manager regards as unethical. Each fund group has a slightly different definition of what is unethical, but this typically includes gambling, tobacco, alcohol and arms manufacture. It could also cover pollution of the environment, bank lending to corrupt regimes and testing of products on animals.


Positive screening funds
Positive screening funds use positive criteria to select suitable companies. Funds that take this approach look for companies that are doing positive good, such as those engaged in recycling, alternative energy sources or water purification. So an ethical fund of this type might buy shares in a maker of wind turbines or solar panels.


Engagement funds
Engagement funds take a stake in companies and then use that stake as a lever to press for changes in the way that the company operates. This could mean persuading oil and mining companies to take greater care over the environmental impact of their operations or pressing companies to offer better treatment of their workers. In addition, this process may involve making judgements regarding the extent to which such investments are perceived to be acceptable, and about the potential for improving through engagement the ethical performance of the party offering the investment.


Best financial returns
Ethical investors will believe that they should not (or need not) sacrifice their life principles in exchange for chasing the best financial returns, with some arguing that in the long term, ethical and SRI funds have good prospects for out-performing the general investment sectors. Since ethical investment, by definition, reduces the number of shares, securities or funds in which you can invest, it tends to increase the volatility of the portfolio and therefore the risk profile. This can be mitigated by diversifying between funds, and between different styles of funds and fund managers. Like their non-ethical equivalents, some ethical funds are much higher risk than others.


To find out more or to discuss your ethical options, please contact us.

Enterprise Investment Schemes (EIS)

Enterprise Investment Schemes (EIS)

Wealthier investors taking a long-term view
Attractive tax breaks as part of a diversified portfolio Enterprise Investment Schemes (EISs) are tax-efficient vehicles set up to encourage investment into small, unquoted trading companies. Following the changes announced in various Budgets, the EIS is the only tax-efficient investment offering a capital gains tax (CGT) deferral. Capital gains tax on the disposal of other assets can be deferred by reinvesting the proceeds in EIS shares. An income tax rebate of 30 per cent is available on investments up to £1,000,000 per tax year, providing you've paid sufficient income tax and stay invested for three years.


Two aspects to CGT relief
There are two aspects to CGT relief available. Growth on the EIS is tax free as long as you have held the investment for at least three years. Also, you can use an EIS to defer a capital gain and so delay paying CGT. As long as an EIS continues to trade and was held for at least two years at the time of death it falls outside your estate for inheritance tax purposes. Dividends from EIS companies are paid with a 10 per cent non-reclaimable tax credit and are potentially liable to further tax. Consequently most EIS companies do not pay dividends as it is more tax-efficient to roll up income within the company as tax-free growth


Tax-free growth
EIS funds fall into two distinct camps: those that wind up after the three years required for investments to be held to qualify (known as 'planned exit EISs') and those that carry on until investors agree that a wind-up makes commercial sense. For EIS funds and portfolios, the manager may not be able to invest as quickly as hoped. This may reduce the return on your investment, and the investment may lose its EIS status or tax relief may be delayed. Investments in smaller companies will generally not be publicly traded or freely marketable and may therefore be difficult to sell. There will be a big difference between the buying price and the selling price of these investments. The price may change quickly and it may go down as well as up.


Wealthier investors
Investing in an EIS is at the top end of the risk scale, but in return you receive attractive tax breaks. As high-risk investments, EISs may only be suitable for wealthier sophisticated investors as part of a diversified investment portfolio. The past performance of an EIS is not a reliable indicator of future results and you should not subscribe to an EIS unless you have taken appropriate professional advice.


To find out more or to discuss Enterprise Investment Schemes, please contact us.

Seed Enterprise Investment Schemes (SEIS)

Seed Enterprise Investment Schemes (SEIS)

Background to SEIS
The Seed Enterprise Investment Scheme (SEIS) is designed to help small, early-stage companies to raise equity finance by offering a range of tax reliefs to individual investors who purchase new shares in those companies. It complements the existing Enterprise Investment Scheme (EIS) which will continue to offer tax reliefs to investors in higher-risk small companies. SEIS is intended to recognise the particular difficulties which very early stage companies face in attracting investment, by offering tax relief at a higher rate than that offered by the existing EIS.


SEIS applies for shares issued on or after 6 April 2012. The rules have been designed to mirror those of EIS as it is anticipated that companies may want to go on to use EIS after an initial investment under SEIS.


Tax reliefs available - Income Tax relief
Income Tax relief is available to individuals who subscribe for qualifying shares in a company which meets the SEIS requirements, and who have UK tax liability against which to set the relief. Investors need not be UK resident.


The shares must be held for a period of three years from date of issue for relief to be retained. If they are disposed of within that three year period, or if any of the qualifying conditions cease to be met during that period, relief will be withdrawn or reduced.


Relief is available at 50 per cent of the cost of the shares, on a maximum annual investment of £100,000. The relief is given by way of a reduction of tax liability, providing there is sufficient tax liability against which to set it. Please note that the relief cannot be set off against the notional tax credit on dividend income, as that tax credit is not recoverable.


To find out more or to discuss Seed Enterprise Investment Schemes, please contact us.

Venture Capital Trusts (VCT)

Venture Capital Trusts (VCT)

Attractive tax breaks as part of a diversified portfolio
A Venture Capital Trust (VCT) is a company whose shares trade on the London stock market. A VCT aims to make money by investing in other companies. These are typically very small companies that are looking for further investment to help develop their business. The VCT often invests at an early stage in a company's development, so it is a higher risk investment. This means that the VCTs are aimed at wealthier investors who can afford to take a long-term view and accept falls in the value of their investment.


Attractive tax benefits
VCTs also offer some attractive tax benefits. If you are a tax payer, you will receive a tax rebate of up to 30 per cent when investing in a VCT. The initial investment, up to a maximum of £200,000 per person per annum, attracts 30 per cent provided it is held for at least five years. You need to be aware that this is a tax rebate and restricted to the amount of income tax you pay; tax deducted at source on dividends is not eligible. This rebate is only available when you invest in a new issue of shares in a VCT or a top-up, but it's worth noting that if you buy VCTs on the secondary market in the same tax year these count towards the £200,000 allowance, despite the fact you don't receive the income tax incentive.


Tax-free dividends
Capital gains and dividends are also tax-free when you eventually dispose of a VCT, although there is no relief for capital losses. By buying shares in an existing VCT quoted on the stock market you become eligible for a capital gains tax exemption and benefit from tax-free dividends as they are paid. However, to obtain the 30 per cent tax relief against income tax you must buy shares in a VCT via a new subscription. VCTs invest in unquoted business, so they are high risk and they can be illiquid, and management costs can also be high.


To find out more or to discuss Venture Capital Trusts, please contact us.



All of the content of the articles above is for your general information and use only, and is not intended to address your particular requirements. They should not be relied upon in their entirety and shall not be deemed to be, or constitute, advice. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without receiving appropriate professional advice after a thorough examination of their particular situation. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of any articles. The pension and tax rules are subject to change by the government. Hence, thresholds, percentage rates and tax legislation may change in subsequent Finance Acts. Tax reliefs and state benefits referred to are those currently applying (at time of printing). Their value depends on your individual circumstances. The performance of the investment funds will have an impact on the amount of income you receive. If the investments perform poorly, the level of income may not be sustainable. The value of investments can fall as well as rise and any income from them is not guaranteed. You should be prepared to lose your investment. Past performance is not a guide to future performance.



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