THIS has always been an interesting time of year for those with spare cash.
With the financial year about to end in early April, it’s the final opportunity to use the various tax breaks granted by Her Majesty’s Revenue & Customs (HMRC).
Independent Financial Advisers (IFAs) demonstrate the benefits and potential returns of putting that money into pensions, property, stocks and shares and various tax-free wrappers such as Individual Savings Accounts (ISAs).
Individuals then decide whether the likelihood of an extra 5 or 10 per cent return on an investment was worth the extra risk.
Not any more. Many of the tax breaks are still there; those investing in ISAs have much more choice than before and can invest much more. At the recent budget, the maximum amount was raised to £20,000 for the 2017/2018 tax year. The annual ISA allowance comes with a warning – “use it, or lose it.”
Pension contributions have been cut drastically in recent years, as has the amount that can be held in your pension pot (now £1m), without facing a 55 per cent tax charge on the excess.
Today, the average investor’s main concern is protecting what is already there. Since the banking crisis and recession of 2008, many have seen their stocks and shares ISAs struggle.
A tax-free wrapper is a double-edged sword. While any gains are exempt from Capital Gains Tax (CGT), so are the losses that could be set against gains elsewhere.
Those with banking shares and now oil may have continued to receive valuable dividends that are added to their ISA pots, but have seen the value of the actual shares plummet.
Protecting your money is not restricted to investments. The amount guaranteed by financial institutions has recently dropped to £75,000. That may seem a lot, but often we can have more parked in a bank or building society for long periods.
Record low borrowing and savings rates, as well as low inflation, means that, apart from the danger of burglary or fire, stuffing your hard-earned cash under the mattress is not as daft as it once was, although it is not on the IFA recommended list.
Sadly, even the odd flutter is not as attractive as it once was. Imagine the recent agony following the ecstasy of picking five correct numbers in the National Lottery.
The recent addition of an extra 10 numbers – 50-59 – has meant huge jackpots, even if they don’t come around very often. The odds on winning the jackpot soared from 1 in 14 million to 1 in 45 million.
Last week, the 114,232 players who matched three numbers in the National Lottery received £25 and the 7,879 who matched four got £51.
And the 4,082 who correctly forecast five of the six numbers, expecting a good night out or a weekend away at the very least for their luck, were left stunned and rather aggrieved with a pay-out of £15!
Even the grand old UK favourite – the Premium Bond – has lost some of its sparkle, even though the amount that can now be held in Premium Bonds is £50,000 (since June last year).
From this June, the odds of winning a prize will increase from 26,000 to one to 30,000 to one.
And the other savings rates offered by the National Savings and Investments (NS&I) – Direct ISAs, Direct Saver, Income Bonds and the Investment Account – will also be cut.
The total value of Premium Bond prizes will drop by almost £5m a month to £62.9m and the number of prizes will fall from 2.3m to 2m.
While the two £1m monthly prizes will remain – it would have attracted much headline publicity if it had been cut to one – the number of £100,000 prizes has dropped from five to two, and the number of £50,000 ones from 12 to 5.
Premium Bonds have remained popular and, unlike the National Lottery, there is no time limit on claiming your prize – you can go all the way back to 1957. Currently, around £48m in prizes remains unclaimed.
It’s clear we like a gamble, a flutter – but only when that’s the name of the game. Long-term investments, for most people, need to be safe and secure.
:: Darren McKeever (dmckeever@ wwfp.net) is Northern Ireland adviser of Worldwide Financial Planning, which is authorised and regulated by the Financial Services Authority. For a free, no obligation initial chat about your individual finances, call 028 68632692, e-mail info@wwfp.net or click on www. wwfp.net. Follow us on Twitter: @WorldwideFP.
