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July 2019

two people working on a laptop and a tablet - Alternative ways to boost your Retirement Income

Alternative ways to boost your Retirement Income

By | Investments

In recent years, pension savers have faced a number of changes in the tax landscape. On the one hand, most people now have a lot more flexibility and control over their pension savings since the 2015 Pension Freedoms, which allows you to start drawing from your workplace and/or private pension(s) from the age of 55. You are also no longer required to use your pension savings to buy an annuity, but now have other options available such as the likes of a ‘drawdown’ arrangement.

On the other hand, pension savers also arguably face new restrictions in respect of tax reliefs. For instance, in 2006-07, it was possible to commit up to £215,000 for the tax year into pension savings. Today in 2019-20, the Annual Allowance is significantly lower at £40,000, or up to your yearly salary – whichever is higher.

This, coupled with the ISA savings limit of £20,000 per year, is causing many higher earners in particular to question whether there are other tax efficient avenues open to them to save for the longer term and retirement. For those in this position, there are fortunately a range of options available.

In this article, we’ll be taking a look at three in particular: Venture Capital Trusts, Enterprise Investment Schemes and Seed Enterprise Investment Schemes.

Below, you will find a brief overview of each one and a short summary of some of their respective pros and cons. Please note that this content is for information purposes only and should not be taken as financial advice. To receive tailored, regulated financial advice about your own situation please speak to one of our Financial Planners.

1. VCTs

Venture Capital Trusts (VCTs) can be a compelling option for those clients with a higher risk appetite who are interested in investing in small businesses and who want to take advantage of some attractive tax reliefs.

A VCT is a company which typically trades on the London Stock Exchange (LSE), and its main purpose is to achieve growth and income by investing in a portfolio of unquoted businesses. The businesses are selected by the fund manager or team, who will be experienced in finding strong positions for the portfolio.

One powerful reason to consider a VCT is the 30% Income Tax relief which you can claim on the value of your investment. Two important conditions are that you can only invest up to £200,000 per year into VCTs, and you must hold shares for 5 years to retain the tax relief.

So, suppose you invest £10,000 of capital into a VCT, you would receive Tax Relief of £3,000 (i.e. 30%) assuming you hold the investment for the qualifying period, and pay this much Income Tax in the Tax Year in question.

There are drawbacks, however, which you need to be aware of. First of all, there are fees which you will need to pay for the management of the VCTs. These can be around 2%-3% per year, and this naturally eats into your investment returns. Secondly, you will need to factor the 5 years holding period into your financial plan, which might not work for everyone.

2. EIS

The Enterprise Investment Scheme (EIS) is often confused with VCTs, as they can sound very similar. However, there are some important differences – not least being that the former is a Government Scheme, whilst the latter are quoted companies.

Similar to VCTs, investing in EIS-qualifying companies allows you to claim back 30% of your investment as Income Tax relief. However, one significant difference is the treatment of dividends. VCTs allow you to generate an income via tax-free dividends, which can make them an attractive supplementary tax-free retirement income source.

One of the crucial advantages of EIS investments is that they are exempt from Inheritance Tax, provided the investments qualify for Business Property Relief (BPR) and provided you have owned them for at least 2 years. In addition, whilst you can only commit up to £200,000 per tax year into a VCT, you can put up to £1m per year into EIS-qualifying companies. Indeed, you can even commit up to £2m provided the EIS companies qualify as “knowledge intensive”. Regardless, you must hold EIS shares for at least 3 years to retain the tax relief.

However, you should also be aware that the EIS can carry a higher level of investment risk than VCTs due to the nature of EIS companies. In general, EIS-qualifying companies tend to be smaller with a lot more growth potential, but also carrying a higher risk of failure.


The Seed Enterprise Investment Scheme (SEIS) is similar to EIS, but with some important differences. Notably, you can only commit up to £100,000 per tax year into SEIS-qualifying companies or funds, but you can claim 50% Income Tax relief on the value of your investments.

Similar to the EIS, you must hold the shares for at least 3 years to retain tax relief and any dividends are also taxable (unlike VCTs). One important drawback to be aware of with SEIS is that companies that qualify for SEIS relief need to be very early stage and therefore the risks are higher than EIS qualifying investments.

Final thoughts

VCTs, EIS and SEIS all offer some attractive benefits to especially higher rate tax payers which are well worth considering within your wider financial plan, especially as you approach retirement. However, their nature as a higher investment risk means that you should consult a Financial Planner about how to integrate these into your financial plan, prior to making any big decisions. If you would like to speak to us about this, then please do get in touch.

toy house with coins surrounding it in stacks and a bigger toy house in the background - The place of an inheritance in financial planning

What Place Should an Inheritance Take Within Your Financial Plan?

By | Financial Planning

Inheritance can be a thorny topic, which we often dread discussing with family. As a result, many people put the conversation off until their parents or grandparents actually die. By which point, deciding what to do with your inheritance can feel somewhat overwhelming, on top of the emotional turmoil and grief you are likely to experience.

In light of this, whilst it might be a difficult conversation, it can be a good idea to think about having it now (well ahead of time) if this is possible. It can save a lot of pressure for yourself later, as well as avoiding potential family fall outs.

Having a clear grasp of what is coming to you can be immensely helpful for your financial planning. However, it’s important to be realistic. Millennials in particular (i.e. those born between 1981 and 1996) tend to have very inaccurate expectations about how much wealth they will one day inherit from their parents, anticipating a sum of around £130,000. In all likelihood, however, the median inheritance currently stands at £11,000.

The place of an inheritance in financial planning

Of course, some fortunate people will inherit more, and £11,000 is certainly nothing to turn your nose up at. This sum could make a huge difference to your family. However, it’s important to keep your potential, future inheritance in perspective. There are many events out of your control which might affect how much you eventually receive.

For instance:

Unforeseen taxes/debts. Your parents or grandparents might have promised you tens of thousands of pounds one day. However, it is very difficult for you to know the full nature of their wealth or financial situation. They could be facing an inheritance tax bill or debt repayment which eats into the value of your inheritance, when it comes to dealing with the Estate. This can happen even if parents appear financially astute.

The cost of care. Your parents or grandparents might be very healthy now, but sadly none of us know what will happen in the future. Dementia, Alzheimers and Parkinsons affect thousands of people in the UK, often leading to them needing around-the-clock professional care. The fees for these services can be very high and can easily reduce the value of an Estate, which would have otherwise been passed on as an inheritance. Care Home fees, for instance, can cost over £30,000 per year which residents are expected to pay themselves, if they have over £23,250 in capital assets.

Remarriage. In reality, it is quite common for people to remarry later in life. This might occur following divorce, or perhaps bereavement of a husband or wife. Regardless of how it might happen, this could affect your inheritance since, by default, the Estate will be distributed according to the Rules of Intestacy, if there is no Will in place stating what should happen in the event of death. In this instance, if the Estate is valued at less than £250,000, then the surviving husband or wife will receive everything.

What are the implications of all this? Well it basically means that for most people, an inheritance should take on a “supplementary” role rather than “primary” pillar within your financial plan. In other words, if one day you do receive the inheritance you hope for, then it will be a welcome addition to your finances and wealth. If it does not arrive in the form, timing or manner in which you might expect, then your financial plan will not be affected or ruined as a result.

Ways to use inheritance money

So, what are some options for your inheritance money, should it come your way?

1. Settle debts. If you have any debts weighing heavily on your mind or monthly bank balance, then it may be a sensible idea to consider paying these off or reducing them. For instance, clearing £200 in monthly debt repayments could free up a lot of breathing space, allowing you to place more funds elsewhere in order to build up your assets (e.g. saving into a pension).

2. Emergency funds. If you do not already have 3-6 months’ worth of living expenses saved as an emergency fund, then it can be a good idea to commit some of your inheritance money towards building up this safety net. This will give your family peace of mind and financial stability in the unfortunate event of either you or your partner losing a job or needing to suddenly cover an expensive bill (e.g. a replacement boiler).

3. Pay off the mortgage. If one of your main financial goals is to live mortgage-free as soon as possible, then paying off your mortgage (either as a lump sum or regular mortgage overpayments) could be an attractive option. Be careful to check your mortgage lender’s terms, as there can often be charges for repaying your mortgage debt over certain thresholds.

4. Invest some of it. If you deposit a substantial inheritance into an ordinary savings account, then in today’s low interest rate environment, it is likely to start losing its value over time, due to inflation. However, investing it in a pension fund or a Stocks & Shares ISA could be a way to help the money grow over time.

5. Enjoy it. Perhaps you are in the fortunate position where you are already well on track to achieving your financial goals and could instead put the money towards something more luxurious – maybe you would prefer to treat your family to an lovely holiday or buy a new car. If so, then enjoy!

gold bullions with gold coins - Market Turbulence and gold

Market Turbulence: Should I Turn To Gold?

By | Investments

Gold was the currency of states and countries across the world throughout history i.e. Byzantium used a gold standard over 1,500 years ago to support its empire and for centuries leading up to the 20th Century, it was the globe’s reserve currency.

Given its longevity, many people consider investing in gold as a “safe haven”, particularly during periods of stock market volatility. In the days following the 24th June 2016 Brexit referendum result, the FTSE 100 declined by 8% but the price of gold continued to rise, as it has done since April 2016.

Yet investing in gold, whilst it may sound glamorous and “safe”, comes with its advantages and disadvantages, which are important to be aware of before committing to this type of investment.

In this short guide, we will be sharing some of these benefits and drawbacks with you. Please note that this content is for information purposes only and should not be taken as financial/investment advice.

Pros: Why people turn to gold

Gold is tangible and “feels real” to us – similar to property. This (in addition to the prestige and attraction of jewellery) makes gold an appealing investment, compared to more intangible assets such as stocks and bonds.

As mentioned, gold can be a compelling choice for worried investors since its value is often not linked to other assets. During a decline in the stock or property markets, for instance, the value of gold might hold steady or even rise in value (since people often turn to it during market turbulence). Other advantages of investing in gold include:

Liquidity. Property and gold are both “tangible” assets which you can see and touch. However, the advantage of the latter is that it can be bought and sold fairly quickly, which tends to be harder to achieve with property. Virtually anywhere across the globe, you can convert gold into cash with relative ease if you choose to do so.

Diversification. Your investment portfolio should contain a range of asset types and classes in order to spread the risk. This might include a range of stocks, bonds, cash and property investments. Adding another asset type such as gold can help diversify your portfolio even further.

Steady value. Over time, gold tends to retain its value due to the limited amount of gold available around the world. This can make it an attractive hedge within an investment portfolio, especially during times of rising inflation.

Cons: Reasons not to commit everything to gold

Gold offers lots of advantages to an investor but most Financial Planners would caution against leaning towards gold investments for the following reasons:

Bubbles. We mentioned earlier that many people turn to gold during times of market volatility. This can cause the price of gold to rise, but if too many people rush to gold as a haven then it could lead the commodity to become overpriced. It’s then only a matter of time before a price correction happens, which could be harmful to your portfolio.

Insurance & storage. You may choose to buy gold coins or bars yourself and you will obviously need a safe place to keep them. In all likelihood, you will also need to take out insurance. All this added expense erodes the value of your investment returns.

Lack of income. When you invest in companies, it is possible to generate a “passive” income in the form of dividends. Similarly, when you invest in property such as a Buy to Let, you can also create an income stream via rent from your tenants. Gold, on the other hand, does not generate income (unless you buy shares in a gold producing company).

Returns over time. If you are hoping to invest in an asset and hold it for 20 or 30 years in the hope that it will generate a long-term return, then gold is at a disadvantage compared to other assets. As mentioned earlier, gold tends to retain its core value over time whilst stocks/equities such as the FTSE 100, historically, have risen considerably in value. Whilst gold can be a useful hedge, it is not really a great wealth creator.

Ways to invest in gold

Direct purchase. This is the “old fashioned way” of investing in gold – buying physical gold coins or bullion. You then hold and store these yourself, potentially to sell later.

Gold company shares. You could buy shares in gold mining companies. The share prices will be strongly influenced by the price of gold as well as the success of the individual companies.

Gold options/futures. It is possible to invest in gold via financial derivatives, using call and put options. This is quite a risky strategy, however, as most people try to “time the market” by purchasing a “put” when they anticipate a drop in the price of gold, or by buying a “call” if they think it will go up. This is very hard to predict accurately.

Gold ETF. An exchange-traded fund (ETF) behaves a bit like individual stocks, trading on an exchange. A gold ETF will hold derivative contracts in gold, which are, themselves, backed by gold.

Final thoughts

Everyone’s financial situation and investment goals are different, so it’s unwise to make blanket recommendations regarding the position that gold should take within your investment portfolio. That said, it would be fair to say that, for most investors, gold is likely to occupy a small part of a wider investment strategy, if it is present at all.