38 . Glasgow Business January/February 2014
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>Continued from page 36 “Also, remember emergency cash. It’s wise
to save for the long term, but if you have an emergency, such as losing your job, it’s not good if all your money is locked away in a pension fund. “Next, use your ISA allowance. At the moment
you can save £11,520 each year in an ISA. Although an ISA doesn’t get tax relief at the outset – unlike a pension scheme – both grow virtually tax free during the period of investment. Pensions pay tax on income when you start drawing the benefits, but there is no tax on drawing money out of an ISA. “Unit Trusts and OEICs (Open Ended Investment
Company) are collective investments with no special tax privileges that provide an option if you’ve used all your ISA allowances and still have a lump sum to invest. “Although Venture Capital Trusts (VCT)
and Enterprise Investment Schemes (EIS) do have fantastic tax breaks, they are very risky investments. These are really for the small minority of the population who enjoy high-risk investing and can afford to take the hit if their investment fails.”
“Pensions pay tax on income when you start drawing the benefits, but there is no tax on drawing money out of an ISA”
Stephen Cotter, Financial Planning Director at
Investec Wealth & Investment, added: “The idea of owning property to rent out for additional income in retirement still draws the attention of a lot of clients. However, caution is advisable as this often requires the commitment of a sizeable percentage of your investment portfolio, and owning property comes with a loss of liquidity. Also, you may not be able to manage the property yourself and may have to appoint a property management company to look after your investment. “For many people, investment bonds have
many benefits. During your working life, the assets can be held in the investment bond without
further personal liability to income or capital gains tax. Once into retirement, you can use annual withdrawals of up to 5 per cent of the original investment as additional ‘income’ with no income tax deduction (or loss of any Personal or Age Allowance) this allowance is cumulative and can be paid until the full value of the initial investment has been paid out. “What’s more, investment bonds are an
excellent vehicle for using with a Loan Trust for Estate Planning. So, not only are you saving for your retirement, but, by keeping any growth outside your estate, you are beginning to address any Inheritance Tax liability too.”
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