Investments

Many people already have investments which were arranged some time ago. Many have several plans and have lost track of what they are invested in, how well they have performed and how to access their funds (including the tax implications of doing so). People would arrange plans with many different providers to spread the risk and "not put all their eggs into one basket." 

This is no longer always necessary as systems in the financial world have really moved on. We now have state of the art systems for managing people’s money, ensuring your money is invested with  many top fund managers for a high level of diversification, regular reviews of the funds and management of risk. 

Not only that our client portal means you can keep in touch with your money’s value. Gone are the days of getting a statement once a year!

To get a higher long term growth rate on a proportion of your funds it may be necessary to take a measured level of risk. Risk levels can be tailored to individual requirements; even a low-risk investment has the potential to achieve a higher long term return than cash investments.  

Firstly, we would ensure that you have sufficient funds in cash for your needs. These are funds you can access in case of emergencies or shorter term spending needs. Then, we would review any existing investments to see how they have performed, the charges and the risk level.  

Very importantly, we would assess your attitude to investment risk and capacity for loss. Capacity for loss is a measure of how a drop in the value would affect your day to day finances and lifestyle.

You may be very cautious with your investments, or you may be happy with a medium or more adventurous risk level. We will discuss your expectations and ensure these are in line with the risk level you wish to take.

In the past when people arranged investments they were often advised to invest into multiple plans with different life companies or providers. This was a form of diversification. By spreading your money around different institutions, it can lower the risk of making a loss. Often people would invest in funds which were managed by that particular life company’s internal fund managers. The only way of spreading your money around was to make a portfolio of separate investments. 

Often though, once the plans had been set up, many people did not review their arrangements. Therefore they were invested in the same funds for the whole term of the investment. Many  have no idea of the performance, or whether they are still invested in the best possible place. 

As time has progressed, providers have provided more choice in terms of funds available, your funds may now be managed by an external fund manager who has links to the company you invested with. 

By setting up your investments with different providers, although this diversifies your investments, quite often it can lead to complication and difficulty in putting the information together for an overall assessment of your risk levels and performance. It can also make tax complicated, as each investment needs to be assessed separately. 

Times have moved on and it is no longer necessary to take such a complex approach. Investments can be made into many different funds under one overall investment. The funds can be reviewed and monitored to ensure that you are invested in the most appropriate funds throughout the term with changes made on your behalf. Often people are much more diversified than they were before, with a good mix of funds at the risk level which suits their own circumstances and attitude to risk. No longer is it necessary to have many different investments and sets of paperwork to deal with. This simple, yet more diversified, approach also makes tax a lot simpler to deal with. Your ISA contributions can also be managed on your behalf to ensure you don't miss any of your ISA allowances.

So, if you are struggling with paperwork from many different providers, and you are unsure if your investments are in the right funds, it could be time to review your arrangements and take advantage of the systems and proactive management now available.

The UK tax system is complex, but there can be significant benefits to structuring your finances in a tax-efficient way. At Talk Money we ensure that you are making the most of the available allowances and that you only pay the tax you need to.

Tax planning is the legal process of arranging your affairs to minimise a tax liability. There are a wide range of reliefs and allowances available to legitimately reduce a liability, but most people do not know about them all, or how to use them.

Tax allowances and reliefs

The government gives you various tax allowances and reliefs each year and although many people do not make the most of these, doing so can be very beneficial. We can help you structure your finances to ensure you are capitalising on all of your allowances, including your personal allowance, capital gains tax exemption, dividend allowance, ISA allowance and pension tax relief. The list doesn’t stop there, so get in touch with your adviser to find out more.

Making sure your investments are tax-efficient

The more tax you pay, the harder your investments have to work to achieve the same returns compared to a lower tax payer. We can structure your investments efficiently to make the most of your money, combining this with the use of your available allowances and reliefs.

When drawing an income, such as in retirement, we can also advise on the best course of action, to make sure it is drawn in the most tax-efficient manner.

Inheritance tax

The area of tax planning that can most benefit your family is inheritance tax, which can cost your loved ones dearly if not organised effectively. Careful financial planning can significantly reduce, or even avoid, inheritance tax so that your family reaps the full benefit of your hard work when you’re no longer there.

What is inheritance tax?

When someone dies, the value of their estate is calculated including all property, possessions, investments and savings. Inheritances between married couples is not normally liable to inheritance tax, but if you are leaving any assets to an unmarried partner, child or anyone else, then your estate will be liable for inheritance tax. The only exception to this is if your assets do not meet the nil rate band.

The nil rate band

The nil rate band is the value of an estate that does not attract inheritance tax. It is currently £325,000, with 40% tax payable on the value of the estate above that level. If at least 10% of the net value of the estate has been left to a registered charity, a reduced rate of inheritance tax will apply. This reduced rate provides a 10% discount off the standard 40% rate of inheritance tax, so a reduced rate of 36% rather than 40%. There is also a newer allowance, the residence nil rate band, which was introduced in April 2017. This measure introduced an additional nil-rate band, which applies when a residence is passed on to a direct descendant. This currently adds a further £175,000 per person to the tax-free allowance. Estates that are worth more than £2 million will lose some or all of this residence nil rate band. For every £2 of estate over £2 million, £1 of the allowance is forfeited. Inheritance tax is also applied on lifetime gifts to trusts, if they exceed the nil rate band, and can result in an immediate tax charge. It can be complicated, so speak to your Talk Money adviser to find out more.

How can we reduce inheritance tax?

There are several options available to mitigate inheritance tax. These include gifting assets either directly or into a trust, or buying a life assurance policy to provide your family or beneficiaries with a lump sum payment when you die. This could be used to pay any inheritance tax bill. Alternatively, investments can be an attractive option, as some can qualify for business property relief. There are a myriad of ways to make sure you only pay the right amount, and that your family are not left with a surprising bill.

In the current extended period of low interest rates many people are struggling to find the best home for their money. To get the best rates on your cash nowadays, you have to be on the ball. Many banks and building societies offer higher rates for a certain amount of investment, but most of these accounts come with caveats. You may need to do a certain level of transactions each month; the higher rate may apply only to a limited balance, or there is an end date to remember. The result of this is that many people have their money divided over many different financial institutions, this can give a better return but can be hard work to keep track of.

Traditionally, people who wished to keep their funds in cash  have sought a cash ISA to invest their annual ISA allowance. In April 2016 something changed, the new Personal Savings Allowance was introduced. This meant that basic rate taxpayers could earn £1,000 interest without paying tax, for higher rate taxpayers the limit is £500. This new tax allowance has left many people asking if a cash ISA is worth doing. If you can get a more favourable rate on a normal savings account which could be tax free anyway, it may be argued this is the best route. 

What about your ISA allowance? Any ISA allowance not used during the tax year is a lost opportunity for longer term tax free growth. This tax year you can invest up to £20,000 into an ISA whether this be a cash ISA, a stocks and shares ISA or a combination of the two. Any growth on an ISA is tax free from time of inception until the funds are withdrawn. Many people have built up considerable sums in ISAs (previously PEPs) over the years and are enjoying long term tax free growth. For some this forms a large part of their retirement funds. Not only do ISAs grow tax free, there are no tax complications for you to deal with later on. The returns do not need to be reported on your tax return. 

If you haven’t used your ISA allowance this year, it may be appropriate to consider investment in the stocks and shares variety. Some people think these are high risk, but not necessarily so. A stocks and shares ISA can be set up at a risk level that suits individual investors. Although the return cannot be guaranteed, a stocks and shares ISA has the potential to provide a higher long term growth than investment in cash.

If you are feeling disappointed with your cash ISA interest rate it is possible to transfer to a stocks and shares variety without affecting your current ISA allowance. This transaction must be a transfer directly from provider to provider, so please take advice and don't withdraw your cash ISA funds to change provider.

We are all becoming more aware of the impact we are having on the world. We are happily recycling, we donate money to charities to help nature and the environment and we are all concerned with global warming. Many people take this concern one step further by literally investing for the future of our planet; often known as ethical or green investment.

Many of us have money in a personal pension, a bond, ISA or unit trust. The money will be invested in funds, managed by fund managers. The money will be pooled with that of other investors and used to by assets which should hopefully make your money grow. Normally, this will include shares in companies, in the UK and sometimes abroad. But do you know where your money is invested? 

The companies in your investment funds could be dealing in gas, oil, arms, tobacco or pharmaceuticals; in essence you could be supporting companies which are going against your moral beliefs. It is always difficult to dig below the surface and find out, and it is even more difficult if you want to avoid investment into certain companies or areas of investments, especially as the investment will be changing as time goes on. 

Large life companies and fund managers know that people are concerned, and many have now launched “ethical funds”. These funds can put your mind at rest that you are investing in the right place. The funds can be accessed via an ISA, pension or other investments. There are two main ways:

How do the funds invest?

Negative screening: The fund manager would avoid investments in companies whose activities are deemed to be negative. This process is used by most UK ethical fund managers.

Positive screening: The fund manager would invest in companies who are involved in projects with a positive social or environmental impact, such as waste management or renewable energy. The manager would literally screen in companies who are doing good in the world. These funds are often known as green funds.