Category: Uncategorised

Last month, the government announced a brand-new loan scheme to support businesses through the coronavirus pandemic.

Announcing the package of measures, the Chancellor said: “Small businesses will play a key role creating jobs and securing economic growth as we recover from the coronavirus pandemic. The Bounce Back loan scheme will make sure they get the finance they need – helping them bounce back and protect jobs.”

Applications for the Bounce Back loan scheme open today (4^th May 2020), so here’s what you need to know if you’re considering taking advantage of the support.

What you need to know about the Bounce Back loan scheme

• Under the scheme, your business can apply for a loan from £2,000 up to a maximum of 25% of your business’ annual turnover, or £50,000, whichever is lower
• Lenders benefit from a 100% government guarantee against the outstanding balance of the finance
• The loans are interest-free for a year, with the government covering the first 12 months of interest through a Business Interruption Payment (BIP). After the first year, you will pay interest at a rate of 2.5% per year
• Loans will be taken over six years, but you can repay early at any time with no early repayment charge
• Lenders are not permitted to take personal guarantees or take recovery action over your personal assets (such as your main home or personal vehicle).

You will not have to begin principal repayments for the first 12 months, and neither businesses nor lenders have to pay a fee to access the scheme.

Bounce Back loan eligibility criteria

Credit institutions, public sector bodies, insurance companies and state-funded primary or secondary schools are not eligible to apply. Otherwise, businesses from all sectors can make an application for a Bounce Back loan.

You must self-certify and confirm that:

• You are a UK-based business established before 1 March 2020
• You have been adversely affected by the coronavirus pandemic
• You are not currently using a government-backed coronavirus loan scheme
• You were not a ‘business in difficulty’ at 31^st December 2019
• Your business is not in bankruptcy, liquidation or undergoing debt restructuring
• 50% of the income of your business is derived from its trading activity (not required if the borrower is a charity or a further education college).

Steven Jones, chief executive of UK Finance, says that while affordability checks would ‘be lighter’, firms should still ‘think very carefully about their ability to repay the loan’.

That is because, despite the government guarantee, banks are required to first chase firms for money if they do not repay the loan. As a borrower, you will always remain 100% liable for the debt.

Mr Jones said: “These are loans, not grants, so if a business is already indebted and taking on further debt, they should think carefully before making an application.”

How to apply for a Bounce Back Loan

Your first step is to find a lender. Accredited lenders are listed on the British Business bank website. As of 10am on Monday 4^th May, accredited lenders included: Bank of Scotland, Barclays, Danske Bank, Lloyds Bank, NatWest, Santander, RBS, HSBC, Ulster Bank, Yorkshire Bank and Clydesdale Bank.

You should approach a lender yourself, ideally via the lender’s website. Approach your own provider in the first instance, although you may also consider approaching other lenders if you are unable to access the finance you require.

The online application is seven questions long and you will have to self-certify that your business is eligible for a loan under the Bounce Back loan scheme.

Lenders do not need to carry out any credit checks or verify the long-term viability of firms.

Note that if one lender turns you down, you can still approach other lenders within the scheme.

Once your loan has been approved, the government has previously said that most businesses will get the finance within 24 hours. The British Business Bank said money will be received ‘within days’.

What if I already have a coronavirus Business Interruption Loan?

You can’t apply for the Bounce Back loan scheme if you already have a coronavirus Business Interruption Loan unless the Bounce Back loan will refinance the whole of your existing facility.

However, you can transfer a coronavirus Business Interruption Loan of up to £50,000 to the Bounce Back loan scheme before 4^th November 2020.

Following the launch of the Bounce Back loan scheme, the minimum coronavirus Business Interruption Loan has been increased to £50,001.

Get in touch

If you need any more advice concerning your business or personal finances during these uncertain times, please get in touch.

Please note

The above is offered only for general informational and educational purposes. It is not offered as and does not constitute financial advice. The information has been taken from a verified source and was correct at the time of issue.

Over the last few weeks, stock markets have experienced volatility due to the impact of the Covid-19 pandemic. Portfolios may have experienced sharp falls at points recently, but for most investors, their long-term plan is still appropriate. However, investment bias can creep in and mean we make rash decisions that we could come to regret in the future.

When we start investing, we know we should have a long-term plan in mind and that short-term volatility is to be expected. All investments involve some level of risk and no matter your risk profile there will be periods where investment values fall. For most people, sticking to a long-term financial plan during volatility is the best course of action, but that can be easier said than done. After all, no one wants to lose money, even in the short term.

Behavioural and investment bias can lead to actions that aren’t right for you. Investment bias refers to assumptions or beliefs that can affect your ability to make decisions based on facts and evidence. When it comes to investing, there are many ways this can have an impact, including these five.

1. Confirmation bias

When we start researching potential investments, we’ve often already made our mind up about whether it’s ‘good’ or ‘bad’. Confirmation bias means we then naturally start to seek information that supports our existing conclusion, dismissing those sources that go against the beliefs we have. In a way, it’s overconfidence in the initial conclusion we made.

This investment bias can lead to us making decisions that aren’t right, even when clear evidence has shown this. It can be difficult to overcome but trying to balance information is important, weighing up on its own merits rather than the fact it affirms beliefs. Having another person, including us as your financial adviser, look at potential investments can help.

2. Information bias

We’ve highlighted why looking at the information when investing is important above. But you can have too much of a good thing.

In modern lives, we’re bombarded with information. Whether it’s in a newspaper, online or through social media, there’s a lot of information on investing out there. It can make it difficult to see the wood through the trees. This can make it challenging to understand what is relevant and irrelevant.

This is where your financial plan can help. Having a clear set of goals and understanding why investment decisions have been made with these in mind can help you focus. Let’s say you’re investing for retirement that is 20 years away, the daily movements of the stock market is unlikely to have an impact on how you should invest.

3. Loss aversion

Would you rather gain £1,000 or not lose £1,000? Research suggests that most people tend to strongly prefer avoiding losses than obtaining gains. This investment bias can create conflicts when it comes to making decisions.

We invest for the opportunity to generate returns, this always comes with some level of risk and there’s a chance values may fall. Loss aversion can mean you don’t take the appropriate amount of risk for your circumstances and goals because you’re actively trying to avoid losses. On the flip side, some investors may resist selling assets that are down, even though it’s appropriate for them, due to the hope that they’ll make the money back.

Here it’s important to look at your investment portfolio as a whole and why it’s been built in the way it has; to help you achieve long-term goals.

4. Anchoring bias

Anchoring bias is a tendency to place too much importance on a particular past reference or piece of information when making a decision. When looking at this from an investment perspective, the most common thing to focus on is a share price. For example, investors may hold on to investments that have lost value because they’ve anchored the value of the asset to a previous stock price. Anchoring bias can skew your perception of what investments are performing well for you.

Looking at the bigger picture and gathering information is important here, it can help create context around why an asset should be held or sold. Again, this should be done with your wider financial plan in mind to help ensure your goals stay on track.

5. Groupthink

We’ve all heard of jumping on the bandwagon, and it happens in investing too. If you’ve felt more comfortable in decisions because many other people have made the same choice, you may be affected by groupthink investment bias. It’s easy to see why it affects bias, after all, if everyone else is doing it, it must be ‘right’.

However, what you are investing for and your overall circumstances play a key role in building a suitable investment portfolio. You might speak to ten people who are all investing in a certain industry. But without knowing what their goals are and the context of their financial situation, it’s impossible to assess if following their lead would be right for you.

5 tips for beating investment bias

1. Understand what’s driving volatility: A lot of investment and finance news can be filled with jargon. Taking some time to understand what’s happening can help you feel more confident in the decisions you’ve made. At the moment, the falls are largely linked to the measures in place to slow the coronavirus pandemic. We don’t know what will happen in the future, but history shows periods of volatility are usually short-lived. We’re happy to go through what’s driving volatility in your portfolio if you have concerns.
2. Look at the bigger picture: The value of investments may have fallen sharply in the last few weeks. But when you look back over the entire investment period, you’ve likely experienced gains overall. No one likes investment values falling but looking at the bigger picture can put them into perspective. If you’ve invested recently, the falls can seem more severe, but you should still have time to benefit from future rises and recovery.
3. Manage how often you’re reviewing investments: It can be tempting to look at investment performance frequently, especially during a period of volatility. But taking a step back and reviewing less often can help you focus on the long term.
4. Keep your long-term goals in mind: When you first invested it should have been with a long-term goal in mind. The reason we don’t invest for short periods is to hopefully smooth out the short-term volatility investments experience. Focus on these goals, which may still be years away.
5. Speak to your financial adviser: Don’t make a rash decision when it comes to investments. If you are worried or have concerns, please speak to us. We’re here to provide confidence, including during downturns. Please contact us if you have any questions at all.

Please note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

The above is offered only for general information and educational purposes. It is not offered as and does not constitute financial advice. You should not act or rely on any information contained in this newsletter without first seeking advice from a professional.

Rising house prices and the difficulty in saving a deposit are a challenge for many home buyers. So, it’s perhaps no surprise that more and more young people are looking to parents and grandparents for help in getting onto the property ladder.

The so-called bank of Mum and Dad is now the UK’s tenth biggest lender, advancing more than £6 billion every year. While thousands of parents and grandparents are happy to provide financial support, there are concerns that many are offering help without thinking carefully about the implications of gifting or lending money.

If you are thinking of opening the doors to the Bank of Mum and Dad either now or in the future, here’s a guide to all the factors you need to consider.

Click here to download your free copy of the guide.

We are here to help answer your questions. Call one of the team on 0117 3320230 or email hello@bluewealth.co.uk to begin your journey.

This afternoon, Rishi Sunak has delivered the first Budget of the new Conservative government. With a large majority behind him, the theme of the Chancellor’s speech was to deliver the promises made in the party’s election manifesto or, as Sunak himself repeatedly said, to ‘get things done’.

Of course, the coronavirus outbreak has significantly changed the Chancellor’s plans. Opening his speech, Sunak said: “We will rise to this challenge – this virus is the key challenge facing our country today.”

With a package of measures designed to support the economy through the spread of coronavirus, plus a pledge to deliver manifesto promises, who were the winners and losers in the 2020 Budget?

Winners

Borrowers

Even before the Budget began, the Bank of England had already announced measures to support the economy, including an emergency reduction in the Base rate from 0.75% to 0.25%.

The outgoing Governor of the Bank of England, Mark Carney, said: “The Bank of England’s role is to help UK businesses and households manage through an economic shock that could prove large and sharp, but should be temporary.”

If you have a tracker mortgage – where your interest rate is directly linked to the Base rate – you should immediately see a reduction in your repayments.

If your mortgage is linked to your lender’s Standard Variable Rate (SVR) then you may have to wait and see if you benefit. There is hope, as after the Base rate was last cut in 2016 eight of the UK’s top 10 lenders reduced their SVR by the same amount soon after.

Small businesses

With experts predicting that the coronavirus outbreak is likely to have a negative effect on the economy, the Chancellor announced a £12 billion package of support to respond to the economic impact of the virus.

Much of this support was aimed at small businesses, particularly those in the retail, leisure and hospitality sectors who are likely to be most significantly impacted by the public having to stay at home and self-isolate.

For businesses with fewer than 250 employees, the cost of any Statutory Sick Pay caused by the coronavirus (up to a limit of 14 days per individual) will be refunded to the company, in full, by the government.

The Chancellor also announced that:

• Business rates for the next financial year for retail, leisure and hospitality firms with a rateable value of less than £51,000 would be abolished
• £2.2 billion of funding for local authorities in England would be provided, to enable grants of £3,000 to be made to around 700,000 business currently eligible for Small Business Rate Relief
• A new Coronavirus Business Interruption Loan Scheme will see banks offer loans of up to £1.2m to support SMEs, with the government providing a guarantee of 80% on each loan.

In addition to emergency measures to tackle the coronavirus outbreak, there was other good news for small businesses.

The government also confirmed that it is delivering on its commitment to increase the Employment Allowance to £4,000. This means that businesses will be able to employ four full-time employees on the National Living Wage without paying any employer National Insurance contributions (NICs).

The Chancellor also confirmed that Corporation Tax rate would remain at 19%.

Those paying National insurance contributions

Delivering on a manifesto commitment, the Chancellor announced that the threshold for paying National Insurance contributions would rise, from £8,632 to £9,500.

This equates to a tax cut for around 31 million people, saving a typical employee more than £100 a year.

Low earners

The Chancellor confirmed that, by 2024 (and economic conditions permitting), the National Living Wage should reach two-thirds of median earnings, equivalent to over £10.50 an hour.

Many people affected by the Tapered Annual Allowance

In recent months, the issue of the pensions Tapered Annual Allowance has made the headlines. Large numbers of NHS staff were refusing to work additional shifts because of the taper, which left many facing large tax bills.

Having promised an urgent review into the taper, the Chancellor announced that the thresholds at which the Tapered Annual Allowance came into effect would rise by £90,000.

Now, if your threshold income is above £200,000, then you need to check if your ‘adjusted income’ (essentially all income that you are taxed on including dividends, savings interest and rental income, before tax plus the value of your own and any employer pension contributions) is over £240,000.

If it is above £240,000, the annual allowance will reduce by £1 for every £2 that your ‘adjusted income’ exceeds £240,000.

According to the Chancellor, this will take 98% of NHS consultants and 96% of GPs out of the taper.

People saving for children

In the Budget statement, the government said: “By saving towards their future, families can give children a significant financial asset when they reach adulthood – helping them into further education, training, or work.”

To support this, the annual subscription limit for the Junior ISA (JISA) and Child Trust Fund (CTF) will more than double in the 2020/21 tax year, from £4,368 to £9,000.

The adult ISA subscription limit will remain at £20,000.

Anyone driving on the A303

For more than five years there have been plans to improve the long stretch of A-road that passes the UNESCO World Heritage site at Stonehenge.

After years of delay, drivers heading to or from the South West received some good news with the Chancellor announcing that the government will build a new, high-quality dual carriageway and a two-mile tunnel in the South West to speed up journeys on the A303, and to remove traffic from the iconic setting of Stonehenge.

For drivers in the area, there is finally light at the end of the (two-mile) tunnel.

Readers

To support learning, the government will introduce legislation on 1 December 2020 to remove VAT on e-publications such as magazines and e-books.

Women

Now that the UK has left the EU, the Chancellor says that the country can reduce the cost of essential sanitary products for women in the UK.

This means that, from 1 January 2021, the ‘tampon tax’ will be abolished through the application of a zero rate of VAT on women’s sanitary products.

Drivers and drinkers

While there were no tax cuts for drivers and drinkers, the Chancellor announced that he was freezing:

• Spirits duty
• Duty on beer
• Duty on cider and wine
• Fuel duty

Losers

Savers

With the Base rate falling to 0.25%, it’s reasonable that long-suffering savers will see yet more falls in interest rates.

Moneyfacts reported that, after the Bank of England last reduced the Base rate in 2016, the average savings rate for an easy access bank account fell by 0.14% in the ensuing three months.

Savers will also see no increase in the amount they can contribute to an ISA in the 2020/21 tax year, and so the limit of £20,000 remains.

Non-UK nationals buying UK property

As widely predicted, a 2% Stamp Duty Land Tax surcharge on non-UK residents buying a residential property in England and Northern Ireland will come into force in 2021.

The aim of this measure is to help to control house price inflation and to support UK residents who want to get on onto and move up the housing ladder.

The Chancellor says that the money raised from the surcharge will be used to help address rough sleeping, with the government having committed to ending rough sleeping in this parliament.

Business owners and entrepreneurs

Entrepreneurs’ relief offers a reduced 10% rate of Capital Gains Tax on qualifying disposals.

With immediate effect, the lifetime limit on gains that are eligible for Entrepreneurs’ Relief will reduce from £10 million to £1 million. The Chancellor says that 80% of small business owners will be unaffected, but larger businesses or those realising significant gains on disposals will pay more tax.

High earners making pension contributions

While the threshold earnings level for the Tapered Annual Allowance coming into effect have been raised by £90,000, those on the very highest incomes will see a significant reduction in the amount they can contribute to a pension and retain tax relief.

The minimum level to which the annual allowance can taper down will reduce from £10,000 to £4,000 from April 2020. This reduction will only affect individuals with total income (including pension accrual) over £300,000.

However, the lifetime allowance, the maximum amount someone can accrue in a registered pension scheme in a tax-efficient manner over their lifetime, will increase in line with CPI for 2020-21, rising to £1,073,100.

Manufacturers using plastic

The Chancellor announced that the government will introduce a new Plastic Packaging Tax from April 2022 to incentivise the use of recycled plastic in packaging.

The Budget set the rate at £200 per tonne of plastic packaging that contains less than 30% recycled plastic, and will apply to the production and importation of plastic packaging.

Potholes

Potholes are likely to face a difficult year, with the Chancellor announcing a Potholes Fund of £500 million for each of the next five years.

He expects 50 million potholes to be filled in during that time.

Get in touch

If you have any questions about the Budget and how it might affect you, please do not hesitate to get in touch.

After delays and the appointment of Rishi Sunak as Chancellor just weeks ago following the resignation of Sajid Javid, the Budget was finally delivered this afternoon.

It’s the first to be given since the UK left the EU on 31^st January 2020, with the country now in a transition period, and comes amid the coronavirus outbreak. Both featured in Sunak’s address, with coronavirus being named as the key challenge facing the country today, noting that there is likely to be a temporary economic disruption, and playing a role in several of the announcements.

The economy and public finances

The headline figures from the Office of Budget Responsibility haven’t taken the impact of coronavirus into account. With this in mind, GDP is forecast to increase by 1.1% in 2020 and 1.8% in 2021. Wages are expected to continue growing in real terms throughout the current government too.

Coronavirus response

Sunak opened the Budget with how the government will respond to the growing coronavirus threat.

At the top of this list was the widening of Statutory Sick Pay (SSP). All those advised to self-isolate, including individuals that aren’t showing any symptoms will receive SSP from day one, rather than the standard day four. For self-employed and gig economy workers, access to benefits has also been made easier.

Also coinciding with the Budget, was an announcement by the Bank of England this morning that the base rate has been cut from 0.75% to 0.25%. Again, this aimed to support both businesses and households amid the coronavirus outbreak.

Several measures aimed at providing support for business were also announced.

Business

Continuing with the temporary measures in light of the coronavirus, SSP for businesses with fewer than 250 employees will be met by the government in full for up to 14 days per employee. Small firms will also be able to access ‘business interruption’ loans of up to £1.2 million to protect companies from the impact. The UK’s smallest 700,000 businesses may also be able to access a £3,000 cash grant, paid by local authorities.

In addition, business rates will be abolished for firms in the retail, leisure and hospitality sectors with a rateable value below £51,000. This means almost half of all business properties in England will not pay business rates this year.

Business owners that benefit from Entrepreneurs’ Relief will be relieved to know that, despite calls to abolish it, the tax relief remains. But the lifetime limit on gains eligible for relief is being drastically cut from £10 million to £1 million. It’s expected that 80% of business owners will be unaffected but it could have a big impact on the remaining 20%.

There will be no changes to the UK’s Corporation Tax, which will remain at 19%.

Personal finance

No immediate changes were announced in the National Living Wage (NLW). But the government did announce a target for the NLW to reach two-thirds of median earnings by 2024. Based on current forecasts, this would lead to an NLW of over £10.50 an hour in 2024.

The National Insurances threshold will increase from £8,632 to £9,500. It will provide 31 million people with a tax cut, saving a typical employee £104.

It’s also good news for those building a nest egg for children. The Junior ISA annual subscription limit will more than double in the new tax year to £9,000. However, the adult ISA subscription will remain the same at £20,000.

Pensions

Following headlines focused on the impact of the tapered annual allowance on pensions, this has been addressed in the Budget. The tapered annual allowance, which reduces how much you can tax-efficiently save into a pension each year, has been increased by £90,000 each. The ‘threshold income’ will now be £200,000 and the ‘adjusted income’ £240,000.

This is good news for many high earners, but those that exceed these thresholds could find their annual allowance is cut even further. Previously, the annual allowance could be reduced to a minimum of £10,000, this has been cut to just £4,000.

The lifetime allowance for pensions has also increased in line with inflation, rising to £1,073,100 from £1,055,000.

Alcohol, tobacco and fuel

Duty rates on beer, spirits, wine and cider will be frozen, as will fuel duty. Business rate discount for pubs to rise from £1,000 to £5,000 too.

However, duty rates on all tobacco products will increase by an amount equal to inflation plus 2%.

Health and education

Compared to 2019/20. NHS England will receive a cash increase of £34 billion a year by 2024. The Immigration Health Surcharge that new arrivals to the UK pay to fund the NHS will also rise to £624, with a discount rate of £470 for children.

An additional commitment of £7.1 billion to fund schools in England by 2022/23 was also announced. This will increase the minimum per-pupil amount to £3,750 for primary schools and £5,000 for secondary schools in 2020/21. On average, schools will see an increase of over 4% in funding per pupil compared to the 2019/20 budget.

Housing

For non-UK residents, a Stamp Duty Land Tax (SDLT) surcharge will apply. It will add 2% to standard SDLT when purchasing residential property in England and Northern Ireland from 1 April 2021. It aims to control house price inflation.

Questions?

If you have any questions about the Budget and how it might affect you, please do not hesitate to get in touch.

As the coronavirus continues to dominate the news, Brewin Dolphin’s Head of Research Guy Foster looks at what the outbreak could mean for the markets in the coming weeks and months.

Stock markets have been sent sharply lower by news that the coronavirus is continuing to spread outside mainland China, with clusters now in Italy and Spain in addition to an uptick in cases in Iran and South Korea.

More encouragingly, reports suggest that the number of cases is stabilising in the Chinese province of Hubei, where the virus was first discovered.

Even so, as the virus spreads to other parts of the world, risk assets are being sold off, and investors are heading into perceived safe havens such as gold and government bonds.

Why have markets taken so long to react?

There have in fact already been several sell-offs following the intensification of the virus in mid-January, but the market largely shrugged off any concerns – broadly due to the fact that events had been very well contained, with over 90% of cases restricted to China.

We believe that investors initially saw this outbreak as a temporary anomaly, with efforts to restrict its spread, such as factory closures and disruptions to supply chains, weighing on growth in the first half of 2020. But that deferred activity gave investors something to look forward to in the second half of the year, as economies were expected to rebound.

However, news that the virus has spread in a meaningful way outside of China to Italy and South Korea is forcing a reappraisal of that expectation. Now, the worry for investors is that tougher quarantine measures outside China to prevent or slow the spread of the virus make it increasingly difficult for companies to maintain normal production levels. This in turn will hit sales and profits.

We have already seen companies such as Apple warn that their next quarter’s trading periods will be impacted because of broken supply chains and closed factories, and this will only get worse if the virus spreads further. Such disruption will have an effect across sectors, making its cumulative impact difficult to predict.

It seems clear that this outbreak has further to run and investors should therefore brace for more volatility in stock markets as investors react to more bad news.

This volatility is quite the opposite of the circumstances that have preceded previous downturns. These have tended to be driven by a slowdown in consumer demand. In this instance, however, companies are being restricted from selling their goods and services that consumers still want to buy. So, while growth is being “deferred” rather than destroyed, weakness in share markets will likely be a temporary phenomenon.

Where it becomes a bigger issue is if the economic pause lasts longer than expected, forcing companies to cut back on staff because then it creates classic recessionary conditions, where demand begins to shrink faster than supply. That doesn’t seem like a sensible practice unless the spread of the virus accelerates once more.

What should investors do?

Worrying as this outbreak is, we are urging clients not to allow fear to govern their decisions. We have been in similar territory before in terms of health scares, and there are lessons to be learned from previous outbreaks such as SARS, Ebola, MERS and Zika.

Given its Chinese origins, the SARS outbreak in 2003 is the best comparison, although circumstances are very different today. Back in 2003, China’s share of global GDP was just 4%. Today it is almost 16%, so there is more at stake.

Share market valuations around the world are also higher, and we are at a later stage of a more mature economic cycle.

Nevertheless, history has shown it is better to ride out near-term volatility and wait for markets to recover in the medium term.

Without downplaying the human tragedy or the looming economic fallout, we suspect the current crisis will share some similarities with the SARS outbreak.

It is worth noting that Asia ex Japan equities bottomed out in 2003 shortly after the rate of change in total SARS cases definitively began to move lower.

In just the same way, earlier this month, we saw equity markets rally on the back of data showing that the rate of new coronavirus cases in China had slowed.

Equities remain in demand

However, equities were vulnerable to any new bad news, and that came with reports of the virus spreading into Europe. Ironically, that will mean the prospect of higher returns on cash or bonds becomes an even dimmer prospect – market interest rates now suggest that investors believe it is highly likely interest rates will be cut in the US and UK this year, meaning continued demand for equities, which offer the prospect for higher returns.

So, we are encouraging investors to focus on the medium term. It is important to remember that consumption has not disappeared – it has merely been postponed. And if the outbreak is contained relatively quickly, this delaying of economic activity can give markets a significant boost a little further down the line because it will lead to a surge in activity in forthcoming quarters, as economies recover.

Countries are taking extraordinary steps to contain the virus and pharmaceutical companies around the world are working towards a vaccine at a record pace, with reports that human testing could begin in April.

For equities to begin rallying anew, however, investors will need to see evidence that the rate of growth of new coronavirus cases outside of China is being quickly contained.

The value of investments can fall and you may get back less than you invested.
Past performance is not a guide to future performance.
No investment is suitable in all cases and if you have any doubts as to an investment’s suitability then you should contact us.
If you invest in currencies other than your own, fluctuations in currency value will mean that the value of your investment will move independently of the underlying asset.
The information contained in this document is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness.
The opinions expressed in this document are not necessarily the views held throughout Brewin Dolphin Ltd.

We all want to get the most out of our money, and investing can be an excellent way to help it grow over the long term, but tax can eat into your hard-earned returns. Luckily, there are tax-efficient investment options that can cut the tax bill and boost your assets.

If you’re looking for a solution, these seven tax-efficient investments are worth considering.

1. Stocks and Shares ISA

ISAs (Individual Savings Accounts) are the most common way to save and invest with tax efficiency in mind. In fact, there are around 10.8 million Adult ISAs in the UK.

If you choose a Stocks and Shares ISA, your money is invested to generate returns. The good news is that investments held in an ISA are free from Income Tax and Capital Gains Tax. Each tax year, you can place up to £20,000 into ISAs, choosing either to deposit this in a single account or spread it across several.

One of the benefits of Stocks and Shares ISAs is that you control how much investment risk you take, allowing you to match it to your risk profile. There are plenty of ISA products on the market to choose from too.

2. Pensions

If you’re looking to invest for the long term, a pension may be suitable. As tax-efficient investments go, pensions can help you get the most out of your savings.

The returns pension investments generate aren’t taxed; instead, withdrawals are taxed once you use a pension to create an income. You also benefit from tax relief paid at the highest level of income tax you pay. It can help your contributions add up, particularly when you consider compounding. The amount you put into a pension and still receive tax relief on is usually limited to either £40,000 or your annual earnings each tax year. However, if you earn more than £150,000 annually you may be affected by the tapered annual allowance, which can be as low as £10,000.

Of course, you need to keep in mind that your pension won’t be accessible until you reach pension age. If you have other plans for your investments or need to access them sooner, other options may be able more suitable.

3. Dividend-paying shares

After you’ve reached your ISA allowance, choosing shares in companies that you intend to hold long term which pay annual dividends can be a tax-efficient investment. Each tax year you don’t have to pay tax on those that fall into your dividend allowance. For the 2019/20 tax year, this is £2,000.

4. Venture Capital Trusts

Venture Capital Trusts (VCTs) are listed companies that are run by a fund manager that invests in companies. Typically, they will invest in smaller companies that are not quoted on stock exchanges. This gives you an opportunity to invest in companies that have the potential to experience fast growth, but it also comes with additional risk that means they’re not suitable for all investors.

So, why are VCTs tax-efficient investments? You can claim the amount invested in newly issued VCTs on a tax bill at 30%. So, if you invest £10,000 in VCTs, you can offset £3,000 against your tax. However, you can’t claim more than the amount of your tax bill. You must also hold the investment for five years.

5. Enterprise Investment Scheme

If you’re interested in investing in early-stage companies, choosing ones that qualify for the Enterprise Investment Scheme (EIS) can help you get the most out of your money. Like VCTs, EIS companies have rapid growth ambitions but investing in early-stage companies is considered highly risky compared to mainstream investments, as there’s a greater chance they’ll fail. You should consider if high risk investments match your risk profile before proceeding.

Each year you can invest £1 million in EIS companies and take advantage of 30% income tax relief. They become even more tax-efficient if you hold the investments for three years. At this point, they become free from capital gains tax and inheritance tax. This can make it an attractive way to reduce your tax liability over the long term.

However, you should carefully consider the risk. Investing in an EIS fund, rather than a single company, can help spread the risk but there is still a relatively high chance investment values will fall.

6. Seed Enterprise Investment Scheme

The Seed Enterprise Investment Scheme (SEIS) is similar to the EIS but you invest in companies at an even earlier stage of development. This means the potential returns and risk are even higher as the company must be no more than two years old. As a result, they’re not suitable for mainstream investors but can be useful for sophisticated investors that have made use of other allowances.

The higher risk means as a tax-efficient investment, the benefits are greater. You can receive 50% income tax relief when taking advantage of the SEIS, which can be received the same year the investment is made. Once again, returns will be exempt from capital gains tax and inheritance tax. The amount you can invest whilst receiving tax relief is lower, at just £100,000 per year.

7. AIM shares

If you’re worried about the impact of inheritance tax on your legacy, AIM shares can help mitigate the bill. AIM is the London Stock Exchange’s international markets for smaller growing companies. It includes a range of businesses, from start-ups to firms that are backed by a VCT looking to raise capital growth.

AIM shares make it on to the tax-efficient investments list because they qualify for business property relief. This means, once they’ve been held for two years, they are exempt from inheritance tax. This can make them useful for planning long-term wealth and how you’ll pass your estate on to loved ones.

Again, AIM shares are considered high risk and they’re not suitable for everyone.

If you’d like to discuss tax-efficient investments in relation to your circumstances, please get in touch. We’re here to help you build an investment portfolio that suits your aspirations and risk profile.

Please note: Articles on the website are offered only for general information and educational purposes. They are not offered as and do not constitute, financial advice. You should not act or rely on any information contained in this website without first seeking advice from a professional.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

High risk investments, such as those in Venture Capital Trusts, the Enterprise Investment Scheme, the Seed Enterprise Investment Scheme and AIM Shares, are not suitable to all investors. Your investments should align with your risk profile.