Once you’ve sorted your pensions and ISAs, look at VCTs and EIS schemes to manage your money and help it grow even further.
Use VCTs to Push Really Hard
If you’re making the best use of your pensions and ISAs, you might consider Venture Capital Trusts or VCTs. I’ve mentioned the income tax benefits of VCTs before, and also warned you about the risks involved in these kinds of investments.
But if you want to push your portfolio really hard and you understand and are prepared to accept those risks, then you should definitely look into them as an option. There’s no capital gains tax when you sell your VCT shares which is another benefit. You are locked in for five years if you want to keep the income tax benefits.
So VCTs are useful for high earners who have more limited pension savings options. But they also have a place for anyone with a high-risk appetite to build wealth. Interestingly, you can even roll over a maturing VCT into another one and get tax relief on the same money for a second time – nice!
As always, do your homework and seek advice in this area. Read any literature from cover to cover to make sure you know and are happy with the way your money will be invested. And don’t risk money here that you can’t afford to lose.
Use EISs for CGT Management
Enterprise Investment Schemes are also very tax-efficient and often come into play when people are looking to do something about a capital gains tax problem. EISs allow you to defer paying your capital gains tax by investing the gain you have made elsewhere into one of these schemes.
You can then unwind the scheme progressively over time within the annual CGT allowance, rather than all at once as is the case if you sell an investment property or your business or something.
Again, make sure you know what you’re getting. Yourself into and what the downside risk is. If ever there was an object lesson in not letting the tax tail wag the investment dog, this is it. If you didn’t have a tax problem, would you still look at an EIS? If the answer is no, then you might want to think twice about considering them even now.
EISs and VCTs are risky. You might lose a lot of money. Is a definite tax saving worth a possible 100% loss? It’s your call. Please, this is specialist stuff, not the kind of thing you can reliably ask about in an online forum – seek advice and make sur your adviser knows what he or she is talking about…
Keep Things Tidy and Under Review
And finally, try to keep things optimised by undertaking regular reviews of your platforms, accounts an underlying investment. Anything left to its own devices will eventually drift out of kilter.
You must steer the ship, not allow the tides to take you where they will. Set aside a regular date once a year to take stock of everything. I’ve done an episode on how to review things in the past which you can find here.
The only one completely invested in your financial future is you. No-one is going to do it for you, unless they’re forced to because your rich great uncle named them as trustees or something. But assuming you’re not a trust fund baby, you will need to be intentional about staying on top of things.
Check your charges – are they proportionate? Could you save money by switching to a different platform? Check your level of savings – can you increase it? Remember the power of small increments the we talked about earlier? Log in to your platform now and push the monthly savings amount up a bit.
Are you going to use all your allowances this year? If so, what should you do with any excess? If not, can you find more money to max your ISA or pension? Check the split of your savings between pensions and ISAs – is it optimal for your time of life? Are you getting to the point where you should focus more on pensions?
Check the underlying assets. Do you need to rebalance your component funds to bring them back into the proportion you set? Have any of the funds done badly? Do you know why? Is there anything that needs to be done?
Gather all your statements and make sure all is as it should be. Address any actions you need to take and get them done – then you can forget about it till next year, or until some life event causes an ad hoc review of things.
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