Saving is quite different to investing. Whilst savings accounts offer no/low investment risk, they pay correspondingly low rates of interest; however the saver can normally get access to their money quickly and easily.

Conversely, an investment product, including stocks and shares, ISAs, bonds or mutual funds, involves an element of risk, but the longer term returns are potentially higher than savings accounts offer.

Strictly speaking, these are monthly ‘investment’ plans rather than ‘savings’ plans. Although they come in three different guises – ISAs, Unit Trusts and OEICs – they are all what is known as ‘collective’ investments.

In a collective investment scheme, your money is pooled with other investors’ monies and invested directly in various securities such as stocks and shares, bonds, gilts, property and cash.

If they do not have a company pension scheme available, most UK employers provide access to a Personal Pension Plan ('PPP') via the auto enrolment process. It normally makes sense to join this scheme, in order to benefit from the employer's contributions. As well as the default contribution levels, employees can normally invest additional monies, up to the annual allowance. However, if self-employed, a company director and/or you simply want to have an alternative/additional scheme, you can chose to establish your own plan.

You can normally pay in a regular amount (and/or a lump sum) to the pension provider, which they invest on your behalf to build up your pension fund. When you come to retire, your pension fund, or a portion of it, is then normally used to provide you with a regular income. Alternatively, you can withdraw all or some of the fund, as a lump sum. However, income tax will be charged at your prevailing rate on any excess withdrawal above the 25% tax-free allowance.  

There are three main types of personal pensions – Stakeholder, Personal Pension Plan (PPP) and Self Invested Personal Pensions (SIPP).

 

Your home may be repossessed if you do not keep up repayments on your mortgage

Life assurance policies normally pay out a tax free lump sum when the insured individual dies. One of the main reasons for having life assurance is that the beneficiary of the proceeds from the policy can use the cash to pay off any major debts they may be left with, such as a mortgage or other relatively large loans. If you have financial dependants, life assurance can also be established to provide a replacement income for your loved ones. Generally, life assurance becomes less important in your later years as your long term financial commitments, such as a mortgage, reduce or disappear altogether and your dependants have grown up and are no longer relying on your support.

If you were to contract one of the specified critical illnesses, this type of policy would pay out a tax-free lump sum to help ease any possible financial hardship.

Most policies cover seven core conditions - cancer, coronary artery bypass, heart attack, kidney failure, major organ transplant, multiple sclerosis and strokes, although some insurers provide cover for as many 40 different conditions.

Cover is usually available for people between 18 and 70 years of age and can be in force for a certain number of years, i.e. the term of your mortgage for example, or for any length of time of your choosing.

Many critical illness policies are established at the same time as an important life-changing event occurs, such as starting a family or buying a house.

Although there are different types of income protection policies, the majority of plans are designed to pay out a tax-free income if the policyholder cannot work through long term sickness or disablement.

Income protection insurance is sometimes referred to as Permanent Health Insurance ('PHI') and can be established by an employer to replace an employee's income when their pay stops. However, if arranged on this basis the benefits are taxable as earned income.

Policies are normally set up with a 1, 3, 6 or 12 month deferred period, normally aligned to any sick pay provisions. In the event of a claim the payments are normally made until the policyholder is fit enough to return to work, or until he or she starts receiving their pension. The income payable also ends upon the death of the policyholder or at the end of any predetermined payment term if beforehand.

Most insurers impose a limit on the amount of income that can be replaced. The limit is usually based on a percentage of the policyholder’s average after-tax earnings and takes into account any continuing income and state benefits payable.

Getting medical attention and treatment sooner rather than later is important for the self-employed or for people who simply cannot or do not want to wait.

As well as doing away with the need to join NHS queues, PMI policyholders may spend less time in hospital, occupy a private room, enjoy unrestricted visiting hours and have the consultant of their choice.

The other side of the coin is that PMI policies do not cover all possible conditions – especially any existing conditions you may have when you take out the policy.

Furthermore, PMI is an expensive form of insurance: the premiums can rise quite substantially every year and the more comprehensive your cover, the higher your monthly premium will be.

Please note that we do not currently offer advice on private medical insurance, however we can introduce you to specialists who can help you accordingly.
 

Buildings insurance is a ‘must have’ insurance as far as mortgage lenders are concerned, simply because a buildings insurance policy pays for the costs of repairing or even rebuilding a house if it is damaged or destroyed.

Buildings insurance provides ‘bricks and mortar’ cover only and does not cover damage to, or destruction of, the contents of the house.

The premium (which can normally be paid annually or monthly) is normally determined by the rebuilding cost, rather than the value of the property.

Contents insurance usually goes ‘hand in hand’ with Buildings Insurance.

The policy should cover the cost of replacing the contents of your home as a result of theft, loss or damage. Most insurers do not require you to itemise what is included in your cover, preferring instead to provide ‘blanket’ cover.

The term contents usually includes such items as home entertainment systems, kitchen equipment and appliances, furniture, floor coverings, curtains and blinds and your clothing. Some policies will also insure the contents of your fridge and freezer, the contents of your garden as well as the contents of your garden’s outbuildings such as tools, equipment and bicycles.

It is also possible to include cover for mobile phones, MP3 players, jewellery and watches but items costing in excess of £1,000 to replace will usually need to be itemised. Policies vary so please check before taking out cover.

Cover is normally arranged on a new for old basis, i.e. where your old TV is replaced by a new one.

An insurance policy that, in the event of a successful claim, can provide a monthly amount after the deferred period. The payment could be used to help pay your mortgage and other bills, if you are unable to earn your living because of an accident or illness.

Before taking out cover, there are some issues you will need to consider:

• Most lenders will give you three month’s grace before starting repossession proceedings.

• How long your employer will continue paying you while you are off work.

• Your entitlement to state benefits.

• Some policies require you to wait for up to 3 months before you can start receiving benefit – you could be back at work by then.

• Most policies will only pay benefit for a one year period.

A Cash ISA is a savings account where the interest isn't taxed. Providing the applicant hasn’t fully utilised their ISA allowance, by investing in one of the other types of ISA available, their annual allowance is £20,000 (2024/25). This allowance can be split between a Cash ISA, a Stocks & Shares ISA, a Lifetime ISA and/or an Innovative Finance ISA.

Once in the account, the cash will earn tax-free interest for as long as it stays there.

It is only possible to have one Cash ISA a year and with one provider (the allowance can’t be split between providers) and no part of this tax year’s allowance can be carried over to the next tax year.

As the name suggests investing in a stocks and shares ISA entails investing in stocks and shares (equities) either indirectly via collective investment vehicles such as unit trusts, open-ended investment companies and investment trusts, or directly through a Self-Select ISA.

It is also possible to invest in government gilts, corporate bonds and property funds.

The maximum that can be invested in a stocks and shares ISA in any one tax year is £20,000 (2024/25), unless the individual has already invested in one of the other ISA types available (as detailed in the Cash ISA section), where the contribution limit is split between the ISAs held.

Over the long term, equity-based investments tend to outperform cash instruments; however they can be more volatile. Investing in a Stocks and Shares ISA is therefore only suitable for people who are prepared to see the value of their investment rise and fall and are prepared to tie up their capital for at least five years.

These types of investments seek to capitalise on stockmarket potential and are usually linked to an index, such as the FTSE 100 or the S&P 500 etc. Investors receive growth and/or income linked to the returns from the relevant index, however if the index falls over the term of the investment the original capital is normally unaffected and returned to the investor in full.

A savings account where the rate of interest is guaranteed for a specific period of time.

ISAs, Unit Trusts, OEICs (Open Ended Investment Companies) and Investment Trusts are all mutual funds - also known as ‘Collective Investments’.

In a collective investment scheme, your money is pooled with other investors’ monies and invested directly in various securities such as stocks and shares, bonds, gilts, property and cash.

One of the attractions of mutual funds for investors is the degree of diversification a fund can offer – one fund for example can have as many as 300 holdings. It is an accepted fact of investment life that a wide spread of investments helps minimise risk and decreases volatility.

Mutual funds also allow investors to prospect for gains in markets that would otherwise not be available to them – Asia, the Americas and Continental Europe are all practical investment options for even the most modest of investors.

A unit linked Investment Bond is a single premium, non-qualifying life assurance policy. The premium is invested in one or more of the insurance company’s unit linked investment funds.

As the bond is an investment, capital is at greater risk than it would be in a deposit account, but the potential returns can be better. The aim of the investment is to increase the value of the money invested whilst allowing the investor to withdraw money if they should need to and to pay out a cash sum when the last life insured under the bond dies.

There’s normally a range of funds to choose from which match the investor’s long term objectives and complement their views on investment risk.

While most Investment Bonds do not have a fixed maturity date and are therefore considered to be ‘Whole of Life’ policies, they do not guarantee to pay out a guaranteed sum assured.

In common with other forms of investment, Investment Bonds need time to grow, which is why it is not advisable to encash this kind of investment within the first five years, otherwise the investor may not get back the full amount invested.

The structure of these investments often makes them ideal for placing in trust to mitigate an Inheritance Tax liability.

Like Unit Linked Investment Bonds, most With Profits funds invest in a mix of shares, gilts, bonds, property, cash and other fixed interest securities. However, unlike unit linked plans, the returns from a fund’s spread of investments are paid to bond holders in the form of annual bonuses.

Investment bonds are long term investments and investment bond holders should be prepared to leave their capital to grow for at least five years.

Cancelling the bond early may mean having to pay an ‘early surrender penalty’ and a Market Value Adjustment (MVA) where the life assurance company exercises its right to reduce the amount paid out if it deems market conditions to be unfavourable.

Where an investor has a portfolio of individually held equities in excess of £200,000 they may find it easier, more convenient and potentially more profitable to let a professional investment manager make decisions on their behalf.

Having agreed the parameters with the client, judgments about asset allocation and stock selection become the manager’s responsibility. The client is notified of any changes to the portfolio and normally receives statements and reports on a six-monthly basis.

Costs for this service take the form of an Annual Management fee which generally speaking will be between 1.00% and 1.25%.

Please note that we do not currently offer advice on discretionary fund management services, however we can introduce you to specialists who can help you accordingly.

 

It is possible to achieve tax-efficient growth on lump sum investments by taking out a single contribution offshore investment bond. Such investments can combine the tax advantages of an offshore life insurance policy with the investment flexibility of a unit-trust-style portfolio management service.

The investor can choose when to pay tax on any gains they’ve made on their investment although the investment will not be taxed year on year apart from some withholding tax (on certain funds).

This type of investment can be used in a trust to help reduce or mitigate any Inheritance Tax liability.

A stakeholder pension is a type of Personal Pension Plan. The main differences between the two are that every stakeholder pension is required to meet certain conditions, which are:

• The fund manager can only charge a fee of 1.5% of the pension fund’s value each year for the first ten years, after which the fee can be no more than 1%.

• The pension holder must be able to switch pension providers free of charge.

• Contributions can be paid monthly, annually or on an adhoc basis.

• Single or regular contributions can be as low as £20 gross.

• No financial penalties can be imposed for stopping, recommencing, increasing or reducing payments.

• Stakeholder schemes can only be run by trustees or an authorised stakeholder manager.

Anyone who is resident in the UK and is under 75 years of age is entitled to establish their own Personal Pension Plan ('PPP').

The minimum retirement age is normally 55 and this is generally the earliest age for withdrawing benefits (rising to 57 from April 2028). Although there are different types of PPP, they all fulfil the same purpose - to build up a sum of money (a fund) which will be used to provide a retirement income and if required, a lump sum.

The plan holder makes ‘contributions’ to the plan, which are then invested by the pension plan provider in a pre-selected range of investments. How big the plan holder’s final pension pot will be depends on the amount of money that has been paid into the plan and how well the plan’s underlying investments have performed.

Having built their pension pot, on retirement the plan holder is faced with a number of choices in terms of what they do with it. Firstly, up to 25% of the fund is available as tax free cash and this can be taken as a one off withdrawal, or as a sequence of encashments of which 25% of each withdrawal is tax free.

Maximising tax efficiency is normally a key factor for consideration and advice is critical. After taking the Tax-Free Cash, the remaining fund can be swapped for an ‘annuity’ – another name for regular and guaranteed income. Alternatively, an Income Drawdown solution may be suitable, where the pension pot stays invested and the plan holder derives his or her income from the fund’s investments. (Please refer to the Pension Annuity and Income Drawdown tabs below for further explanations). In addition, with effect from 2015/16, a new option is also available - the plan holder can fully encash their pension (paying income tax at their highest marginal rate). Please note that this option is rarely advisable and can result in a higher tax bill than other options and advice is critical before any decisions are made. In addition, a combination of these three options is available - part Annuity, part Income Drawdown and part encashment.

For every £1 a basic rate taxpayer contributes to their PPP the pension provider claims tax back from the government at the basic rate of 20 per cent. So for every £80 the plan holder contributes, the government pays an extra £20 on top. Higher and additional rate taxpayers get additional tax advantages.
 

A SIPP is similar in most respects to a PPP, the main difference being that the plan holder has a much greater choice of investment options.

Rather than just being able to invest in a limited range of funds, a SIPP holder can, for example, invest their contributions in equities, gilts, investment trusts, unit trusts and commercial property and more.

The plan holder can choose the investments, or can appoint someone else to do that for them.

This facility allows the plan holder to leave their pension pot invested and take adhoc or regular withdrawals from their investment, rather than buying an annuity. There is no restriction on the amount that is available for withdrawal, with 25% of any withdrawal being paid tax free (normally subject to a maximum of £268,275 in total) and any residual withdrawal being taxed at your highest marginal rate of income tax.

Please note these vehicles are only suitable for a limited number of people as the value of your pension is totally dependent on the value of the funds you are invested in.

‘Wraps’ (aka ‘platforms’) are online, server-based investment portfolio management services, which enable the intermediary and/or their client to consolidate, view, analyse, quantify and manage any and all of the client’s invested assets.

A platform is not an investment in itself, but a facility where an individual can store all their investments. Assets which can be ‘stored’ on a platform include shares, bonds, cash, investment trusts, unit trusts and pensions as well as tax-wrapped investments such as ISAs, Child Trust Funds and self-invested personal pensions.

The benefit for investors of consolidating all their investments on one platform is that the investor has one point of reference and a simplified reporting process.

Although there are numerous different annuity structures, there are three main types of annuity - Lifetime, Impaired and Enhanced Lifetime Annuity.

The plan holder pays all or part of their pension pot to the insurance company in return for a fixed or rising income. The income can be paid monthly, quarterly, half-yearly or annually for a minimum period of time, or for the life of the plan holder.

The actual amount of income the plan holder receives would depend on the size of their pension pot and the annuity rate offered by the insurance company – some offer higher rates than others. The rates are calculated based upon a range of factors.

If the plan holder dies while still in receipt of annuity payments, all or part of the annuity can be paid to the spouse or civil partner.

Impaired Life Annuity
People with chronic medical conditions such as high blood pressure, diabetes, heart conditions, kidney failure and certain types of cancer for example are not expected to live as long as individuals who do not suffer from such conditions. Where those circumstances exist, the provider of the annuity may be inclined to pay them a higher income than they otherwise would.

Enhanced Annuity
Smokers, people who are overweight and those who have been engaged in hazardous occupations (e.g. mining) may qualify for enhanced annuity rates.

VCTs were designed to encourage private individuals to invest in small unquoted companies.

By their nature, VCTs are complex and high-risk investments and are typically only suitable for investors who have a high level of financial understanding and are prepared to take a long-term view. In addition, HMRC practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen. However, VCT investors can enjoy various tax incentives, which are summarised as follows:

• Income tax relief at 30% of the amount of their investment. For example, an investment of £200,000 (the maximum) in a VCT would generate a tax rebate of £60,000 for the investor providing he or she has a large enough income tax bill, upon investment, to offset the tax refund against. Please note that the investor has to hold the shares for at least five years, otherwise the tax relief may be clawed back.

• The dividend income arising from ordinary shares in VCTs is exempt from income tax. This applies to both newly issued and second-hand VCT shares.

• Providing the company maintains its VCT status, any capital gains realised from the disposal of VCT shares should be paid free of CGT
 

Don't invest unless you're prepared to lose all the money you invest. This is a high risk investment. You may not be able to access your money easily and are unlikely to be protected if something goes wrong.

 

EIS’ were also designed to encourage private individuals to invest in small unquoted companies, by offering tax advantages in return. By their nature, EIS’ are complex and high-risk investments and are typically only suitable for investors who have a high level of financial understanding. EIS investors can enjoy various tax incentives, which are summarised as follows:

• Income tax relief at 30% of the amount of their investment. For example, an investment of £1,000,000 (the maximum from April 2020) in an EIS would generate a tax rebate of £300,000 for the investor providing he or she has a large enough income tax bill, upon investment, to offset the tax refund against. Please note that the investor has to hold the shares for at least three years, otherwise the tax relief may be clawed back.

• It is possible, subject to certain criteria, for the investor to elect to carry back all or part of his or her investment to the previous tax year in order to offset the tax relief against the investor’s income tax liability for that year.

• Any capital gains realised from the disposal of EIS company shares is paid free of CGT, providing the shares have been held for three years.

• If the investor incurs a loss upon disposal of their EIS company shares, the loss may be offset against other chargeable gains. It is also possible to offset this loss against the investor’s income tax liability for the current, or preceding, tax year.

• Investors may benefit from deferring the tax liability in relation to a capital gain realised from disposal of other assets until the eventual disposal of the EIS company shares.

• EIS company shares may currently benefit from 100% Business Property Relief. This means that the value of these shares could have a nil value for IHT purposes after two years of ownership.
 

Don't invest unless you're prepared to lose all the money you invest. This is a high risk investment. You may not be able to access your money easily and are unlikely to be protected if something goes wrong.

An Equity Release Mortgage ('ERM'), also known as a Lifetime Mortgage, Home Reversion or Home Income Plan, allows homeowners aged normally 55 and over to realise part of the equity in their property ('equity' is the value of the property less any mortgage that is outstanding on it).

All ERMs work on the same principle - the homeowner borrows against the value of their home in return for passing over a share of the property’s sale proceeds to the lender when the homeowner dies. The equity released (which is not subject to tax) can be used exactly as the homeowner chooses. However, if the monies released are spent, you will reduce the amount of inheritance you leave.
 

A lifetime mortgage is not suitable for everyone and may affect your entitlement to means-tested benefits, so it is important to seek financial advice before taking any action. If you are considering releasing equity from your home, you should consider all options before equity release. The interest that may be accrued over the long term with a Lifetime Mortgage, may mean it is not the cheapest solution. As interest is charged on both the original loan and the interest added, the amount you owe will increase over time, reducing the equity left in your home and the value of any inheritance, potentially to nothing. Although the final decision is yours, you are encouraged to discuss your plans with your family and beneficiaries, as a Lifetime Mortgage could have an impact on any potential inheritance. We would also encourage you to invite them to join any meetings with your Financial Adviser so they can ask questions and join in the decision, as we believe it is better to discuss your decision with them before you go ahead.