I have found myself in a position whereby I have 3000 pounds in a halifax account collecting a small amount of interest and being taxed on that interest.
I am self employed and want to invest this money tax free. Problem is I already have a full up cash isa for this year.
I want to invest for around 2-3 years maximum so the stocks and shares ISA seems like a potential loser. I will not need instant access to the money and prefer to use people on the high street where I can go in and discuss things.
I have little knowledge of finance and dont know how to make this money do anything useful.
Got a mortgage? Consider getting an offset type if this is going to happen often. Or, can you just pay down 3K on your current mortgage? You'll be getting a tax free, very high and safe return in either case.
[Leading caveat: this advice is worth precisely what you paid for it. I can and do make mistakes, although I try to avoid them. Check everything for yourself, and don't blame me if it goes pear-shaped!]
Here's an idea, and you get a pretty snazzy payback if it all works out. The only thing is, there's a three-year lock-in, if you don't want to repay the tax refund.
One of the cute things about Enterprise Investment Schemes and Venture Capital Trusts is that they're incredibly tax-efficient. You get income tax relief at 40% (regardless of your highest income tax rate) back on the original investment, up to the maximum amount of income tax you've paid that year. That means that for a 3,000 investment, you get back
1,200 of income tax. 3,000-worth of investment for 1,800 quid? Not bad.
Not only that, but when you do come to sell the shares, three or more years down the line, you don't pay capital gains tax on the proceeds, either.
I'm not sure of the tax position on dividends. IR137 makes no statement either way, so I assume that they're taxed as usual (although I've heard suggestions to the contrary).
There's a pretty high upper limit to the total purchases you can make in a year: GBP 250,000 for EISs; GBP 200,000 for VCTs. And yes, if you make an obscene amount of taxable income in a year, you can buy both, up to their joint limits, and enjoy a GBP 450,000 * 40% = 180,000 income tax refund.
And if you sell within the three year period, you lose your tax reliefs. I'd suggest using your nice cheque from the taxman to fund next year's ISA, so that if you do have to sell early, and have to repay that tax refund, you still have some interest on it.
These are not low-risk investments. Less than half of the current VCTs are making much if any gains. EISs are only on low-cap investments, for shares that aren't on the market yet. And if the company does something that disqualifies it for VCT/EIS status, you could be liable to repay your income tax relief. Usual caveats apply: if you can't afford to lose it, don't do it. But if the money's been lying ignored and unloved in an old account for ages, it doesn't sound like it's vital to you.
My suggestion: read up your Investors Chronicle, find out companies that are getting initial funding through EIS schemes immediately before launching onto AIM, read the prospecti, do your research, and buy into one that looks like a one-way bet and allows initial investments in the GBP 3,000 range. Right now, I'd be very chary about investing into VCTs; there are so few that are beating high-yield cash (e.g. corporate bonds).
The key thing is to ensure that the company will be in a liquid market before the sale horizon (the start of the period at which you'd be in danger of wanting to redeem the investment). You don't want to be in the situation of holding shares you can't trade, when you need to trade them, so companies that are already trading, or will trade immediately after the EIS fund-raising round, are a good choice.
I am not into finance never even picked up an FT before and am unfamiliar with most of the terms you use. I have only ever had current accounts and ISAs before, never bought bonds or anything like that.
I dont want to take much risk and would like to get the same sort of return on my money that I am getting on my ISA about 5.3% tax free.
Ah, right, that's fair enough. Sorry I pitched a tad high.
Basically, it's a scheme that lets you make high-risk investments in small companies, for which the Inland Revenue gives you back 40% of your investment as an income tax repayment. Given that you're about to say (below) that you don't want to take on risk, this is clearly not the best option.
You don't say what your highest income tax rate is, and that makes a difference for this.
On balance, and if you've a mortgage, I suspect that Tumbleweed's suggestion of switching to an offset mortgage, and using your money to reduce your mortgage payments, is probably your best bet. Make sure you get a full picture of the costs involved from each potential provider, and the redemption costs from your existing provider, first though; you don't want to spend half of more of your nestegg feathering someone else's. (To make an omelette of a metaphor.)
Funnily enough, you mention bonds, and there are some quite high returns on corporate bonds, but I suspect that's probably not something you're going to want to get deeply into.
Well, to be fair, what he *actually* said was, "I want to invest for around 2-3 years maximum so the stocks and shares ISA seems like a potential loser."
Which I read as meaning, "For a short-term investment, the returns wouldn't justify the costs." Certainly, at least one Motley Fool columnist has supported that point of view before now.
Just goes to show how ambiguous and sterile language is on Usenet.
OK lets get this clear. I do not yet have a mortgage and wont be considering one for three years or so from now. I simply have 3000 pounds to put away and all the savings accounts seem like rubbish and my cash isa is full.
I am self employed and earn around 35k/yr so am in the high income tax bracket -40%.
Is there something I can do with my money to get a return of 5/6/7% - preferably on the high street or internet. I dont mind leaving it for a few years if the returns are worth it.
Bah! Beat me to it! Mind you, that's a twelve-month fixed period. Also, because you can't put in more than 250/month, by the time you get it up to 3,000, you've hit the end of the fixed period, and the whole lot's swept into a lower-rate account (typically 4.9% gross).
To be honest, it's not going to be easy to get something high-street with the kinds of net gains the original poster was asking for. You can get around 5-5.5% gross on a number of high street accounts, and that's probably about as good as you're going to get.
Take a look on Channel 4 teletext (start at page 500) on Sunday, when they publish a summary of the best accounts and products available each week.
No, he's saying that if you are one of the unfortunate many who have substantial amounts owing on their cards, or on other relatively expensive loans, you can stick your money into them. Not so they go "into credit", but that they go "less into debit", as it were. That would save you much more in interest you would otherwise be having to pay out than you could hope to earn by investing it in any low-risk interest-paying stuff.
BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here.
All logos and trade names are the property of their respective owners.