Where should I invest my lump sum?
ISAs (Individual Savings Account)
If you have a small or moderate sum available for investment one of the best options may be an ISA. You can invest in a ‘Stocks & Shares ISA’ or ‘Cash ISA’ or a combination of the two as long as the total amount invested is limited to £15,240 in this tax year per person. This will increase to £20,000 per individual with effect from the 6th April 2017.
The great advantage of investing in an ISA is that your lump sum will grow free of all taxes and can be cashed in at a future date also free of all taxes. It is one of the most tax efficient investments around and there is no need to report interest or any income, capital gains or trades to HMRC as it is not taxable income.
You must save or invest by 5 April, the end of the tax year, for it to count for that year. Crucially, any unused allowance doesn’t roll over – so if you don’t use it, you lose it forever. You’ll get a new allowance the next tax year, but won’t be able to contribute anything to the old ISA. In the 2017/18 tax year the ISA allowance will increase to £20,000 per individual.
Cash ISAs are normally offered by banks or building societies and normally pay an annual rate of interest and you can choose the term normally, 1, 3 or 5 years.
Stocks and Shares ISAs
Stocks and Shares ISAs can invest in investment funds and shares and we can advise you on which type of investment fund is suitable for your ISA based on your own circumstances and attitude to risk. The returns on Stocks and Shares ISAs tend to be higher than the growth on Cash ISAs over a medium to long term time period but of course there is more risk involved with these types of ISAs compared with Cash ISAs.
Open Ended Investment Companies (OEICs)
An OEIC is a professionally managed collective investment fund that pools your money with other investors and allows you to invest in a wide range of stocks and shares. You can invest in one OEIC or a portfolio of OEICS depending on the size and objective of your investment lump sum. There is no restriction on the amount you can invest in an OEIC unlike ISAs which makes them attractive for larger lump sums. OEICS are potentially liable to Capital Gains Tax but only if the gain is over £11,100 (which is this year’s Capital Gains Tax allowance).
An investment bond is lump sum investment which allows you to achieve capital growth with the advantage of receiving a tax free deferred income for 20 years. There is no restriction on the mount you can invest into an investment bond which makes them attractive for larger lump sums. They are potentially liable for Income Tax income taken out over and above 5% of the original lump sum per year depending on your rate of tax.
Please contact us today for you free telephone consultation to find out which investment is right for you.