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Savings and investment strategies
From pension savings to alternative savings, investment strategies are often made up of a range of different elements. Early planning is essential: this is a continuous process, and it is important to monitor your financial plans regularly, to ensure that they remain up to date and that you stay on course to achieve your financial goals.
A realistic approach
Being realistic about your objectives is crucial when putting together a financial plan. This requires a balancing act between your ‘head’ (financially prudent strategies) and your ‘heart’ (emotionally acceptable thresholds). We can help you bridge the gap between what you can expect financially and what you dream of achieving. One approach is to set a number of short, medium and long-term goals and prioritise them within each category, in order to meet your objectives.
Setting your financial goals
Some typical financial goals might include: y being able to retire comfortably
y having sufficient funds and insurance cover in the event of serious illness or loss
y accumulating a sizeable estate to pass on to your heirs
y increasing the assets that will pass to your heirs by using various estate planning techniques, perhaps including a lifetime gifts strategy
y tying in charitable aims with your own family goals
y raising sufficient wealth to buy a business, holiday home, etc
y developing an investment plan that may provide a hedge against market fluctuations and inflation
y minimising taxes on income and capital. Your investment strategy
Records show that in the long-term, share investments outperform bank and building society accounts in terms of
the total returns they generate. However, it is important to remember that shares can go down in value as well as up, and dividend income can fluctuate. Choosing the wrong investment may mean you get back less than you invested. Considering the most important factors that apply to you is a vital part of your investment strategy.
Tax-efficient savings and investments
If at all possible, paying tax on your savings and investment earnings is to be avoided. A number of investment products exist that produce tax-free income.
National Savings
Premium Bonds offer a modest ‘interest equivalent’, but there is a chance of winning a tax-free million! The Premium Bonds investment limit is £50,000.
Stocks and shares
Investment in stocks and shares has historically provided the best chance of long-term growth. Investment in open-ended investment companies (OEICs), investment trusts and exchange traded funds are designed to spread the risk, compared
to holding a small number of shares directly. Capital gains
and dividends are charged to tax. A Dividend Tax Allowance of £2,000 a year is available. The rates of tax on dividend income above the allowance are 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional
rate taxpayers.
Bank and building society accounts
Bank and building society accounts do offer:
y a higher degree of certainty over investment return (spread large amounts over several banks, though); and
y (usually) ready access to your funds.
The Personal Savings Allowance (PSA) removes some income from income tax – up to £1,000 of a basic rate taxpayer’s savings income and up to £500 of a higher rate taxpayer’s income. No PSA is available to additional rate taxpayers. Additionally, some taxpayers with amounts of non-savings income no higher than the personal allowance also benefit from the £5,000 starting rate for savings band, with a rate of tax of 0%.
Investing in property
Property is typically considered a long-term investment. Buy-to- let mortgages will generally be available to fund as much as 75% of the cost or property valuation, whichever is the lower. Those investing in property seek a net return from rent which
is greater than the interest on the loan, while the risk of the investment is weighed against the prospect of capital growth.
Landlords are no longer able to deduct their finance costs from their residential property income, they instead receive a basic rate reduction from their income tax liability. The restriction
to finance costs does not apply to landlords of furnished holiday lettings.
Individual Savings Accounts (ISAs)
The overall annual subscription limit for ISAs is £20,000 for 2021/22. Individuals can invest in a combination of ISAs up to this limit, and may involve a single plan manager or separate managers, handling separate elements. However, a saver may only pay into one of each type of ISA each year.
16 and 17-year-olds can invest in an adult Cash ISA. A Junior ISA is available to all UK resident children under 18 as a Cash or Stocks and Shares product or both. Total annual contributions are capped at £9,000. Junior ISAs are owned by the child but investments are locked in until adulthood.
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