Archive for the ‘NISAs’ Category

Investment Focus: Investec FTSE 100 Enhanced Income Plan

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Our Investment Focus articles are designed to give new and existing customers a more detailed overview of a selection of income and growth investment plans, covering both the risks and the rewards. So whilst the income yields from the FTSE 100 remain under pressure, what better way to start 2017 than to review our best selling income plan, offering a high level of fixed monthly income. Some of you may be familiar with the plan, some of you may even have invested or reinvested into the plan, which remains popular year after year with a wide range of income seekers.

In a nutshell

Investec’s FTSE 100 Enhanced Income Plan is a relatively straightforward plan to understand. It pays a fixed rate of income, every month, for a fixed term. Therefore, your income is paid regardless of what happens to the stock market. The ‘FTSE 100’ in the plan title refers to what happens to your original investment, with your initial capital returned at the end of the term unless the FTSE 100 Index falls by more than 50% during the plan term. If it does, and also finishes below its starting value, you will lose 1% for each 1% fall in the Index. This plan therefore puts your capital at risk.

What is driving customers?

This is our best-selling income investment plan. Whether you are working and need to supplement your earnings, or retired and looking at ways to supplement your pension or savings income, the need for income is one of the most common demands put on our capital. Traditional investment funds only tend to offer a variable income, whilst also putting your capital at risk on a daily basis. Rather uniquely in the income investment space, this plan combines a fixed income with some degree of capital protection.

Where have all the fixed rates gone?

In contrast to the high levels of the FTSE 100 Index we have experienced recently, fixed savings rates are still at record lows. With no realistic prospect of any sudden sharp increases, let alone a return to the 4%+ rates that were around five years ago, whatever your situation the ability to meet income needs remains a very real challenge. But against this backdrop of intense pressure on savers, and whilst stock market conditions perhaps raise more questions than they do answers, this investment from Investec has remained a top seller with income seekers. So let’s take a look at its main features…

Fixed income

With savings rates at such low levels, the prospect of a high fixed income is likely to be attractive to a wide range of income seekers. Unusual for an investment, which normally pay a variable income dependent on the performance of the underlying asset, this plan pays a fixed income regardless of the performance of the stock market. The current issue of the plan is paying 5.04% p.a. fixed, which means that the investor has the certainty of knowing at the outset exactly how much they will receive each and every year.

Monthly payments

Another popular feature is the monthly payment frequency since this is the most useful in terms of budgeting, especially when many UK equity income funds only offer twice yearly or quarterly payments. Therefore, not only does the investment provide a high level of fixed income, but it also pays this on a monthly basis, which could be an important feature when looking to supplement existing income. At 5.04% p.a. on offer from the latest issue, this equates to 0.42% paid each and every month for the entire term of the plan.

Fixed term

The Enhanced Income Plan has a fixed term of six years and although you do have the option to withdraw your money early (and in this respect is not dissimilar to an investment fund), the plan is designed to be held for the full term and early withdrawal could result in you getting back less (or more) than you invested.

Many fixed rate savers will be used to a fixed term whilst this feature should also appeal to investors who wish to plan around this accordingly. Combined with a fixed and regular level of income, this also means that full plan terms are known at the outset and so investors can consider more clearly the risk versus reward prior to investing their capital.

Some capital protection from a falling market

The Enhanced Income Plan contains what is known as conditional capital protection, which means that the return of your initial investment is conditional on the FTSE 100 Index not falling by more than 50% below its value at the start of the plan. If the FTSE stays above this 50% barrier throughout the plan term, you will receive a full return of your original investment when the plan ends. However, if it falls below this level, and is also below its starting value at the end of the six year term, your initial investment will be reduced by 1% for every 1% fall. Therefore this plan puts your capital at risk and you could lose some or all of your initial investment.

The use of averaging

When calculating the final level of the FTSE for the purposes of comparing it with its value at the start of the plan, the plan takes the average of the closing levels of the Index on each business day during the last 6 months of the plan term. The use of averaging can reduce the adverse effects of a falling market or sudden market falls whilst it can also reduce the benefits of an increasing market or sudden increases in the market during the last six months of the plan.

Credit ratings and agencies

This plan is a structured investment and so unlike investing in a fund where you would buy units at the prevailing price on the date of purchase, your initial capital is used to purchase securities issued by Investec Bank plc. These securities are structured in a way so that they aim to provide the fixed income and the return of capital as described above, and means that Investec Bank plc’s ability to meet their financial obligations becomes an important investment consideration. If the bank fails or becomes insolvent, this could affect both the payment of any future income, as well as the return of your original investment and you would not be covered by the Financial Services Compensation Scheme for default alone.

Fitch is one of the main global credit rating agencies and has awarded Investec Bank plc a credit rating of BBB with a stable outlook (awarded 3rd October 2016). The ‘BBB’ rating denotes a good credit quality and indicates that expectations of default risk are currently low and that Investec Bank plc’s capacity for payment of its financial commitments is considered to be adequate but adverse business or economic conditions are more likely to impair this capacity. The stable outlook indicates that the rating is not expected to change in the short to medium term, i.e. in the next 6 months to 2 years.

Investec Bank plc profile

Investec is an international specialist bank and asset manager with its main operations in the UK and South Africa. Established in 1974, they currently employ around 9,000 people and as at 31st March 2016, look after £121.7 billion of customer assets. They provide a range of financial products and services and specialise in a number of areas, particularly within the banking sector. Their banking operation looks after £24.0 billion of customer deposits and they are also a market leading provider of investment plans and structured deposits in the UK.

Risk v reward

The principle of risk versus reward means that the search for potentially higher returns leads us to consider putting our capital at risk. A good benchmark for assessing your investment is to compare what you could get from a fixed rate deposit (capital protected) over a similar timeframe, and then consider whether you are comfortable with the risk to capital you are taking in order to receive the opportunity for a higher return.

Our leading five year fixed rate bond is currently offering 2.01%, and so by accepting risk to your capital, you are increasing your fixed return by 3.03% a year (since the fixed income from this investment is 5.04% p.a.). With the savings market failing to meet the need for higher income, the decision is whether you are comfortable with putting your capital at risk and the conditional capital protection offered, in order to achieve the higher return.

Fair Investment view

Commenting on the plan, head of savings and investments at Fair Investment Company Oliver Roylance-Smith said: “One of the main attractions with the Enhanced Income Plan is the ability for potential investors to consider its risk versus reward prior to investing. The plan pays a fixed income, each month, for a fixed term – so you know exactly what you will receive, when, and for how long – whilst you get your capital back at the end of the term unless the FTSE has fallen by more than 50%.“

He continued: “Compared to other income investments, this defined return for a defined level of risk could be attractive whilst the monthly income and fixed income features are often high up on the list of priorities for income seekers.”

The plan is open for new ISA investments up to the £15,240 allowance, Cash ISA and Stocks & Shares ISA transfers, as well as non-ISA investments. The minimum investment is £3,000.

Click for more information about the Investec FTSE 100 Enhanced Income Plan »

 

No news, feature article or comment should be seen as a personal recommendation to invest. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular investment. If you are at all unsure of the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice.

This investment does not include the same security of capital that is afforded to a deposit account. Your capital is at risk.

Tax treatment of ISAs depends on your individual circumstances and is based on current law which may be subject to change in the future. Always remember to check whether any charges apply before transferring an ISA.

This is a structured investment plan that is not capital protected and is not covered by the Financial Services Compensation Scheme (FSCS) for default alone. There is a risk of losing some or all of your initial investment. There is a risk that the company backing the plan or any company associated with the plan may be unable to repay your initial investment and any returns stated. In addition, you may not get back the full amount of your initial investment if the plan is not held for the full term. The past performance of the FTSE 100 Index is not a guide to its future performance.

60 second ISA savers guide to the 2016 Budget

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Following last month’s speech by the Chancellor, George Osbourne, we give our 60 second guide to the Budget for ISA savers, offering a quick round up of the main changes and what this will mean for both cash savers and investors alike.

Your ISA Allowance

While Chancellor George Osborne may have taken the decision to maintain the Individual Savings Account (ISA) Allowance at £15,240 for this new tax year (2016/17), the chancellor also announced that from 6th April 2017, it will see a significant increase of £4,760 giving savers and investors a total allowance of £20,000 to spread between their ISA accounts over the 2017/18 tax year. The Junior ISA limit will remain at its current rate of £4,080.

Innovative Finance ISA

The recent Budget also introduced a new type of ISA which has launched for this current tax year. Announced in the Summer Budget of 2015, this has fallen slightly under the radar for many but this new savings option, entitled the ‘Innovative Finance ISA’, is designed to provide a tax-free wrapper for investors in Peer-to-Peer Lending (P2P). This ISA allows individuals to lend to others by using Peer to Peer Lending platforms but without paying tax on the interest they earn.

As this is a new distinct category of ISA, savers can open an IFISA along with a Cash ISA and a Stocks and Shares ISA (or Investment ISA), all within the same tax year – so any contributions into this type of ISA does count towards the £15,240 current tax year allowance. Although at present there are only a small number of P2P providers who have been authorised to offer their products within an ISA, there are a significant number who are awaiting authorisation. The area of P2P lending has seen significant growth in recent years and there will be more to follow on this later in the year…

Lifetime ISA

Possibly one of the biggest headlines for this year’s budget was the announcement by Mr Osborne of another kind of ISA which will launch in April 2017 – the Lifetime ISA. The Lifetime ISA will allow individuals aged between 18 and 40 to simultaneously save for both the purchase of their first home and their retirement. The ISA will work similarly to the current Help to Buy ISA, in that savers will be granted a 25% bonus on their contributions when used to purchase all, or part, of a new home (up to a maximum property value of £450,000 nationwide), with a maximum annual contribution limit of £4,000.

However, savers will not be limited in how much they can contribute each month and in addition to this, money withdrawn after the account holder’s 60th birthday will also enjoy the same bonus and can be used for any means. Savers will be able to receive their bonus on contributions made up until their 50th birthday, leaving the possibility to make a maximum individual contribution of £128,000 which would be matched by the government to a value of £32,000. Partial withdrawals from the account for other uses before the age of 60 will be allowed but will not benefit from the bonus or any interest upon it and incur a 5% charge.

Help to Buy ISA

With much of its function being replicated with the new Lifetime ISA, it was also announced that Help to Buy ISAs will be made unavailable to new savers from the 30th November 2019. Savers who opened a Help to Buy ISA before this date will be able to keep saving into the account, but they must claim the bonus by 1st December 2030. However savers waiting for the Lifetime ISA to launch should be aware that it is possible to open a Help to Buy ISA and then merge it with a Lifetime ISA when it launches in April next year. It is also possible to have both a Help to Buy ISA and a Lifetime ISA but individuals will only be able to benefit from one of the bonus payments when used to purchase a property.

Helping savers plan for the future

All in all this was a good budget for ISA savers, but we must not also overlook the significant reforms which have taken place since the New ISA (NISA) was introduced in April 2014 and which remain unchanged, including:

  • Increased flexibility – savers can divide their ISA allowance between Cash ISA and Stocks and Shares ISAs in whatever proportion they wish, especially welcome news for those who want to use their entire ISA allowance for cash savings which had been previously capped.
  • Increased ISA transfer potential – savers can transfer from a Stocks and Shares ISA to a Cash ISA, or the other way around. Previously, transfers from Stocks and Shares ISAs to Cash ISA were not permitted.
  • Tax-free interest in Stocks and Shares ISAs – interest is now earned tax free in a Stocks and Shares ISA whereas previously, with the exception of a Cash ISA, any cash held within the Stocks and Shares element of an ISA was subject to a 20% charge on the interest earned – paid to HMRC.
  • Withdrawals permitted – since last year savers may now withdraw and replace money in the same tax year, without it counting towards their annual ISA allowance provided that it is paid back in to the account by the end of the financial year in which the withdrawal is made. Previously money taken out of an ISA lost its tax free status, meaning that additional payments would count towards your allowance for that year.
  • Junior ISA flexibility – those who have taken out a Child Trust Fund (CTF) for their child are now permitted to convert the fund into a Junior ISA.
  • Passing on an ISA allowance – married couples can pass an extra ISA allowance, equal to the value of their ISA savings on death, to their surviving spouse. This means that couples can now pass the ISA tax breaks to each other however, passing the ISA tax status from parent’s to children is still not permitted. When the surviving partner dies, they will continue to fall inside the family estate for inheritance tax purposes.

Combined, these ISA reforms give savers every opportunity to plan for the future, regardless of their stage of life.

Fair Investment View

Commenting on the Budget, Oliver Roylance-Smith, head of savings and investment at Fair Investment Company Limited said: “Along with the changes made to existing rules surrounding ISAs in the last two years, the 2016 Budget’s announcement of several new types of Individual Savings Account means that individuals may now utilise their personal ISA allowance with far greater flexibility than ever before, spreading their allowance between a variety of savings and investment plans to meet their needs.”

He continued: “But perhaps the most significant move is the increase to a £20,000 ISA allowance in 2017. Remember that just 2 years ago, the allowance stood at just £11,880, with a boost from 1st July of that year to £15,000. This recent announcement sees the limit rise from £11,880 on 6th April 2014 to £20,000 on 6th April 2017, a rise of £8,120 in just 3 years. This means that a couple could save up to £30,480 during this current tax year, increasing to £40,000 from 6th April next year, offering the potential to accrue considerable sums within their ISA accounts in a relatively small timeframe. Good news indeed for savers.”

For more information, see some of our most popular ISA pages below:

Click here for our Top 10 Investment ISA Plans »

Click here to compare our selection of Cash ISAs »

Click here to compare our selection of Investment ISAs »

Click here to compare our selection of Share Dealing and Self-select ISAs »

 

No news, feature article or comment should be seen as a personal recommendation to invest. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular plan. If you are at all unsure of the suitability of a particular product, both in respect of its objectives and its risk profile, you should seek independent financial advice. Tax treatment of ISAs depends on your individual circumstances and is based on current law which may be subject to change in the future. Always remember to check whether any charges apply before transferring an ISA.

Tax free income using your ISA allowance

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With only 5 weeks until the end of the tax year, time is running out to maximise the valuable tax benefit of your 2015/16 ISA allowance, before it is lost forever. We have been helping ISA savers for well over a decade, and history shows us that many investors will be looking for the opportunity to receive tax-free income from their ISA allowance. With the current tax year ISA limit of £15,240 only available to use before 5th April, now could be a great time to make the most of tax-free income opportunities, as well as looking towards income ISA options for the new tax year ahead.

Why seek income from your ISA allowance?

When it comes to investing, generating an income is one of the most common demands we put on our capital, and so the opportunity to receive tax-free income is one that investors will not want to miss out on. As record low interest rates continue, and the returns available from fixed rate bonds remain largely unappealing, many are considering taking on more risk with their capital. Therefore, it is perhaps understandable why many investors are turning to income generating investment opportunities. Using your ISA allowance allows you to receive this income tax-free, thereby protecting more of your hard-earned capital from the taxman.

Take advantage of ISA transfers

Another priority at this time of year is to review your ISA transfer options. Reviewing any existing ISAs is sensible to do at regular intervals, to make sure you don’t squander the valuable tax efficient benefits of your ISA savings. Checking for low interest bearing Cash ISAs or poorly performing Investment ISAs is a prudent measure, and if you find that your current ISA is no longer offering a competitive deal, most ISAs permit you to transfer existing ISAs to them without charge – although don’t forget to check whether there are any penalties from your existing provider.

Frequency of income payments

There are many options to consider when seeking income from your capital via an ISA, including the level of income offered, degree of risk, and frequency of income payments. Investments can offer the option of annual, bi-annual or quarterly payments, but for those seeking regular income, a plan which offers monthly income payments is often the most appealing.

Defined return, defined risk

We feature two plans below, both of which offer you a defined return for a defined level of risk, which means that you know the exact terms of each plan prior to investing, and exactly what needs to happen in order to provide you with the stated returns. They also include what is known as conditional capital protection, whereby your original capital is returned at the end of the plan term, as long as the underlying investment has not fallen by more than a specified amount, normally a percentage of its starting value.

Investors can then decide based on the likelihood of this happening in combination with the income on offer. This is a unique feature of structured investments and is in contrast to other income investments where your capital is exposed to day to day stock market risk and fluctuations in value. As savers continue to face the impact of record low savings rates, this feature could be an attractive option for those considering taking on investment risk with some of their capital.

Tax-free income options using your ISA allowance

All of the investment plans featured on www.fairinvestment.co.uk are available as New ISAs and accept ISA transfers (as well as non-ISA investments) although note any application deadlines that may apply. The income paid from an investment held within an ISA is not then subject to tax, thereby resulting in the potential for an attractive stream of tax free income. To help you compare ISA investment options for income, here are two of our ISA season income best-sellers:

5.28% fixed income, monthly payments

The FTSE 100 Enhanced Income Plan from Investec has been one of our best selling income investments for a number of years, and it is particularly popular during the ISA season. The main appeal of the plan is that it offers a fixed income which is paid to you each month, regardless of the performance of the FTSE 100 Index. The annual income is currently 5.28% (paid as 0.44% each month).

The plan will also return your initial capital at the end of the term unless the FTSE falls by more than 50% during the plan term. If it does, and fails to recover by the end of the term, your initial capital will be reduced by 1% for each 1% fall, so you could some or all of your initial investment.

Fair Investment view: “One of the attractions of an ISA is that it allows income to be generated that would otherwise be subject to income tax. Should you invest in this plan directly (i.e. outside of an ISA), the income would normally be subject to income tax. Using your ISA allowance therefore offers basic rate tax payers the equivalent of 6.60% each year, and for higher rate taxpayers this rises to 8.80%.

The high level of fixed income and the monthly payment frequency are popular features and combined with a fixed term, means the investor knows exactly how much they will be paid, when, and for how long, whilst also having some capital protection against a falling stock market. The current issue of the plan also offers a Double ISA option, with the opportunity to invest using both your 2015/16 and 2016/17 ISA allowances.”

Click here for more information on the Investec FTSE 100 Enhanced Income Plan »

 

Up to 7.0% yield, quarterly payments

The Focus FTSE Quarterly Contingent Income Plan offers the potential for up to 7.0% annual income dependent on the performance of the FTSE 100 Index. The plans pays a quarterly income of 1.75% provided the value of the Index at the end of each quarter has not fallen by more than 25% from its value at the start of the plan. If the Index is below this level, no income would be paid for that quarter.

Your initial capital is returned at the end of the plan provided the FTSE has not fallen by more than 40%, measured at the end of the fixed term only. If it has fallen below this level, your capital will be reduced by 1% for each 1% fall, so you could lose some or all of your initial investment.

Fair Investment view: “It’s has been a while since we’ve been able to talk about the potential for up to 7.0% income from a plan based on the performance of the FTSE, but the latest issue of this popular income investment offers exactly that. The 25% barrier means that the FTSE can fall up to 25% at the end of each quarter and you would still receive 7.0% annual income. With typical yields on UK equity income funds feeling the strain at the moment, this investment could be a timely addition to those seeking high yield investment opportunities.”

Click here for more information on the Focus FTSE Quarterly Contingent Income Plan »

 

Don’t miss out – use it or lose it…

For those looking for income it has perhaps never been more important to manage your savings and investments carefully, and making the most of your tax-free ISA allowance should be a top priority. With only 5 weeks to go until the end of the tax year and the ISA investment deadline, it’s important to make the most of this opportunity, as well as planning ahead to maximise your tax-free income for the forthcoming tax year.

The income investments detailed above are available for individuals to use their ISA allowance and will also accept ISA transfers (from both Cash ISAs and Stocks & Shares ISAs) and non-ISA investments, with minimum investments from £3,000. The current issues of both plans also offer a double ISA option, so investors can use this year’s and next year’s ISA allowance on one application form. For the current tax year (2015/16) the annual New ISA allowance is £15,240 and this is also the limit for the next tax year (2016/17) which starts on 6th April 2016. You can therefore invest up to £30,480 into new ISAs that give you the opportunity to receive a regular tax free income.


Click here to find out more about the Investec Enhanced Income Plan »

Click here to find out more about the Focus FTSE Quarterly Contingent Income Plan »

 

No news, feature article or comment should be seen as a personal recommendation to invest. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular investment. If you are at all unsure of the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice.

Tax treatment of ISAs depends on your individual circumstances and legislation which are subject to change in the future. ISA transfer charges may apply, please check with your provider.

Structured investment plans are not capital protected and are not covered by the Financial Services Compensation Scheme (FSCS) for default alone. There is a risk of losing some or all of your initial investment. There is a risk that the company backing the plan or any company associated with the plan may be unable to repay your initial investment and any returns stated. In addition, you may not get back the full amount of your initial investment if the plan is not held for the full term. The past performance of the FTSE 100 Index is not a guide to their future performance. These investments do not include the same security of capital as a deposit account.

New ISA allowance all wrapped up with our ISA season best seller

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The start of the new tax year brings with it a new and increased ISA allowance, which is open to every adult in the UK and is available right now. The recent Budget confirmed the ISA allowance would increase by inflation so the current 2015/16 tax year limit stands at £15,240 and has been available since 6th April. For investors looking for tax free income and who want to make the most of this new allowance straight away, we take a closer look at our most popular income plan during the recent ISA season and explain why it might be a compelling option for all those seeking income, both savers and investors alike.

Investors seeking income

Whether you are new to investing or a seasoned investor, the need to generate an income is one of the most common demands put on our capital and can cover a wide range of savings scenarios. If you are one such investor actively seeking income then this fixed income investment plan is certainly worth a closer look.

In a nutshell

For those who wish to get the tax year off on the right foot, the Enhanced Income Plan from Investec is our most popular income plan this ISA season. The current version offers investors a fixed income of 5.04% each year for a six year term and pays income to you each month (equivalent to 0.42% per month). Your capital is at risk should the FTSE 100 Index (‘the FTSE’) fall by more than 50% during the term of the plan and fails to recover by the end of the plan term, in which case you could lose some or all of your initial investment. This is known as conditional capital protection and is one of the investment plan’s main differentiators from other types of income investments.

A high fixed income

A fixed income is rather uncommon amongst income investments which normally offer a variable income based on prevailing market conditions and the performance of the underlying investments. This is therefore a popular feature since it provides investors with the knowledge of exactly how much income they will receive, when and for how long. When held within an ISA, the 5.04% fixed income is also paid tax free. This is equivalent to basic rate tax payers receiving 6.3% interest and higher rate tax payers 8.4%.

Compared to cash

Since this investment offers a fixed income over a fixed period, it is relatively easy to compare those elements with cash and a guaranteed return that you would receive from a fixed rate bond of similar duration (subject to the bank/deposit taker remaining solvent). Although there is not a market for six year fixed rate bonds there has historically been a healthy market for longer term fixed rates with five year fixed rates traditionally offering the higher returns as compensation for you committing your capital for longer. Unfortunately the market here has declined with leading rates currently offering no more than 2.50%. This investment therefore offers a premium of 2.54% in return for putting your capital at risk.

So the main question to consider is whether you are prepared to risk your capital in return for just over double the interest you could receive from the current market leading fixed rate Cash ISA, where the return of your capital at the end of the term is protected. Is the additional 2.54% income each year worth the risk that the FTSE may fall by more than 50%?

Compared to investment funds

Some of the yields available from investment funds certainly catch the eye, with many bond funds offering yields in excess of 5%. There are three main differences between the Investec fixed income plan and investment funds:

Variable income

The income from investment funds is not guaranteed and is dependent on the underlying holdings and market conditions. Since these will vary over time, so too will your income. The income from the Investec plan is fixed and so remains the same throughout the term.

Capital risk

The treatment of your capital is different to the Investec plan in that there is no conditional capital protection – your capital is fully at risk on a daily basis. This is important since the income yield and any rise or fall to your original capital should always be considered together since both have an effect on your overall return. For example a 6.60% income yield could be compelling in its own right but not so if it coincides with a 6.60% reduction in the value of your capital.

Diversification

An investment fund generally invests in a number of holdings and with bond funds this can sometimes be in the hundreds. This has the effect of spreading the risk of your investment so if one of the holdings fails or falls in value significantly, it has less of an impact on your overall return. Your investment into the Investec plan buys securities issued by Investec Bank plc only and so your income and return of capital is also dependent on their ability to meet their financial obligations. This means the credit rating of the Bank becomes an important consideration.

Also remember that investment funds have annual management charges (normally up to 1%) which have an impact on the overall performance. There are no annual management charges associated with the Investec Enhanced Income Plan.

Fair Investment conclusion

When considering income investments it is important to understand fully how each investment works and the risks it entails. Whether this is inflation risk, risk of capital loss or fluctuating yields, it should always be remembered that it is the income and capital loss/rise combined that produce your overall return and this is before tax is taken into consideration.

Commenting on the Enhanced Income Plan from Investec, head of savings and investments at Fair Investment Company Oliver Roylance-Smith said: “As an alternative to open ended investment funds, the defined return and defined risk offered by fixed term investments offer investors an alternative approach to achieving income and an often competitive balance of risk versus reward.”

He continued: “Their conditional capital protection means that your initial investment has some protection against a falling market and the high level of fixed income, monthly payment frequency and fixed term provide a range of features that could be attractive to both savers and investors. Which of these features is the most appealing will vary among investors, but could equally appeal to fixed rate savers prepared to put their capital at risk in return for a high fixed income.  Where else can you receive 5.28% fixed income each year, paid to you regardless of what happens to the stock market? It is therefore understandable why the Enhanced Income Plan from Investec Bank has been one of our most popular income investments.”

The plan is open for new investment ISAs (£15,240 limit), Cash ISA and Stocks & Shares ISA transfers and non-ISA investments with a minimum investment of £3,000.

Click for more information about the Investec Enhanced Income Plan »

Click here for our Select Range of bond income funds »

 

No news, feature article or comment should be seen as a personal recommendation to invest. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular investment. If you are at all unsure of the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice.

Tax treatment depends on current legislation and your individual circumstances which may change in the future. Before transferring an ISA please check there are no penalties for withdrawal from your existing ISA provider.

The Investec Enhanced Income Plan is a structured investment plan that is not capital protected and is not covered by the Financial Services Compensation Scheme (FSCS) for default alone. There is a risk of losing some or all of your initial investment. There is a risk that the company backing the plan or any company associated with the plan may be unable to repay your initial investment and any returns stated. In addition, you may not get back the full amount of your initial investment if the plan is not held for the full term. The past performance of the FTSE 100 Index is not a guide to its future performance.

ISA savers 2 minute guide to the Budget

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Further to last month’s Budget speech by the Chancellor, George Osborne, we give you a quick round up of the main changes around ISAs and what this will mean for both cash savers and investors.

New tax year, new limits – an even bigger allowance

From July last year, Mr Osborne significantly increased the annual ISA allowance to £15,000, allowing savers to squirrel more money away from the taxman than ever before; and because the allowance now rises in line with inflation, since 6th April 2015, the annual ISA investment limit for 2015/16 has risen by £240 to £15,240. Every UK adult gets their own allowance, so couples can save twice that amount. The limit for the Junior ISA (JISA) has also risen by £80 to £4,080.

Radically more flexible

A significant reform is that savers now have the freedom to withdraw and replace money in the same tax year without it counting towards their annual ISA allowance limit for that year, as long as the repayment is made in the same tax year as the withdrawal. This means ISA are now fully flexible so you can withdraw money without losing your tax benefits, provided you pay it back in by the end of the financial year. In the past, money taken out of an ISA lost its tax free status so any additional payments would count towards your ISA allowance for that tax year.

Junior ISA flexibility

In a change aimed at the younger generation, families who have taken out a child trust fund (CTF) can now convert it into a Junior ISA CTF’s were a tax-free savings wrapper for children born between 1st September 2002 and 2nd January 2011 which were replaced by the Junior ISA. Some CTFs have been unpopular with parents since they have combined disappointing performance with limited investment choice and high charges, although if you are considering transferring to a Junior ISA you will need to check that they are willing to accept the Child Trust Fund.

Passing on an ISA allowance

Further to an announcement made last December, married couples are now free to pass an extra ISA allowance, equal to the value of their ISA savings on death, to their surviving spouse. This means that couples can now pass the ISA tax breaks to each other however, passing the ISA tax status from parent’s to children is still not permitted.  When the surviving partner dies, they will continue to fall inside the family estate for inheritance tax purposes.

“Help to Buy” ISA

A new “Help to Buy” ISA scheme was also announced, aimed at helping first-time buyers get onto the property ladder. Under the scheme, for every £200 a first-time buyer saves, the Government will top up the deposit with £50 up to a maximum of £15,000 in total. So, if a first-time buyer saves £12,000, the Government will add a £3,000 ‘bonus’ to the pot. Savers will have access to this money and will be able to withdraw funds from the ISA account if they need them for another purpose, but the bonus will only be made available for those using the money for a home purchase. The Help to Buy ISA will only be available on houses worth £250,000 or less, or £450,000 or less in London.

And remember the additional changes in place since last year:

  • The ban on transfers from Stocks & Shares ISAs to Cash ISAs has been removed, thereby allowing full two-way transferability between deposits and investments and vice versa.
  • The rule which prevents more than 50% of the total limit being placed in a Cash ISA has been scrapped and so the entire £15,000 NISA contribution limit can go into cash deposits, or any combination of cash and stocks and shares.

Non-ISA changes

The Chancellor also confirmed tax breaks for non-ISA savings, via the introduction of a new “personal savings allowance” which will reward savers by not taxing the first £1,000 of savings income for basic rate savers, and the first £500 for higher rate taxpayers. Additional-rate taxpayers will not benefit. Mr. Osborne said that this reform would abolish the tax on savings for 17 million people.

Fair Investment view

Commenting on the Budget, Oliver Roylance-Smith, head of savings and investment at Fair Investment Company Limited said: “The addition of the £1,000 savings allowance has largely removed the benefit of increased flexibility for Cash ISAs and with savings rates as they are, many savers may now consider the use of a Cash ISA unnecessary. But investors and those looking to achieve the potential for higher returns than cash has been able to offer in recent years, are the real winners from this year’s Budget. The latest ISA reforms have left investment ISAs more generous, flexible and tax-efficient and a couple can now save up to £30,480 knowing that any income or capital gains will not be subject to tax in the future. Used in the right way, this could build up substantial sums in a relatively short period of time.”

For more information, see some of our most popular Investment ISA pages below:

Click here for our Top 10 NISA Investment Plans »

Click here to compare our selection of Investment ISAs »

Click here to compare our selection of Share Dealing and Self-select ISAs »

 

No news, feature article or comment should be seen as a personal recommendation to invest. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular plan. If you are at all unsure of the suitability of a particular product, both in respect of its objectives and its risk profile, you should seek independent financial advice. Tax treatment of ISAs depends on your individual circumstances and is based on current law which may be subject to change in the future. Always remember to check whether any charges apply before transferring an ISA.

How to get tax-free income using your ISA allowance

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With the 2015 ISA season in full flight, time is running out to maximise the valuable tax benefit of your ISA allowance before the deadline on 5th April 2015 – otherwise it is gone forever. Many investors will be looking for the opportunity to receive tax-free income from their ISA allowance, which currently stands at £15,000 until the end of the tax year. With the potential to use this entire amount in either a cash or investment ISA, now could be a great time to make the most of tax-free income opportunities for your 2015 ISA allowance as well as looking towards high-income ISA options for the new tax year ahead.

Why seek income from your ISA allowance?

Generating an income is one of the most common goals when it comes to investing, and so the opportunity to receive tax-free income is one that investors will not want to miss out on. As record low interest rates continue, and the returns available from fixed rate bonds remain unappealing, it is understandable why many investors are turning to income generating investment opportunities. Using your ISA allowance allows you to receive all the benefits of this income tax-free, thereby protecting more of your hard-earned capital from the taxman.

Get frequent income payments

There are many options to consider when seeking income from your capital via an ISA, including the level of income offered, degree of risk, and frequency of income payments. Many investment plans offer the option of annual, bi-annual, quarterly payments, but for those seeking regular income, a plan which offers monthly income payments is often the most appealing.

Take advantage of ISA transfers

Another priority at this time of year is to review your ISA transfer options. Make sure that you don’t squander the valuable tax efficient benefits of an ISA by keeping your capital in a poorly performing investment. If you find that your current ISA is no longer paying a competitive rate, most ISAs permit you to transfer existing ISAs to them without charge – although don’t forget to check whether there are any penalties from your existing provider. All of the plans listed below are available for both new ISA investment and ISA transfer.
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2015 Cash and Investment ISA selections

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With time running out to meet the 5th April end of tax year deadline, we bring you our selection of some of the best Cash and Investment ISAs available. We also include some alternative options for those who are seeking the potential for a higher return while still protecting their money, as well as our best-selling fixed income investment, for those considering investing their existing ISAs or new ISA allowance.

New ISA Rules – Save up to £15,000 in your cash ISA

As a result of new ISA rules which came into effect on 1st July 2014, your ISA allowance for the current 2014/15 tax year is £15,000. You can put some or all of this allowance into an Investment ISA, or some or all of the allowance into a Cash ISA. Bear in mind that that these allowances are per person, so a couple can put up to £30,000 in total into a cash ISA before the end of the tax year. Make sure you remember the most important end of tax year deadline which is midnight on 5th April. Note that many ISA providers will need your application – and possibly your cleared funds – before this date and that some ISA plans have an earlier deadline for ISA transfers.

2015 Cash ISA selections

Instant access Cash ISA selection

If you want to be able to access your money in an instant, the NatWest Instant Access Cash ISA offers a rate of 1.00% (variable) on balances of over £25,000, and a rate of 0.50% (variable) on balances below £25,000. Interest is paid monthly, and transfers in are permitted, meaning that if you transfer in cash from previous years’ ISA you may well be eligible for the higher 1.00% rate as your total amount held may be greater than £25,000. The account is easy to manage in branch, by phone and online, and is open to UK residents aged 16 and over.

Click here to compare other instant access cash ISA options »

Medium term Cash ISA selection

For those looking for a medium-term ISA option, the Aldermore 3 Year Fixed Rate Cash ISA offers a return of 2.20% (gross) with a minimum deposit of £1,000. Interest is calculated daily and can be paid either monthly or annually. Transfers from other ISA providers are available, and the account can be managed by phone, by post or online. You can withdraw cash early if you need to, but be aware that to do so means that you will be subject to loss of interest.

Click here to compare other medium term fixed rate Cash ISA options »
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10 Top Tips for 2015 ISA Season

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With less than 7 weeks until the end of the tax year, now is the time to consider making good use of your ISA allowance and squirreling away your hard-earned cash from the tax man, if you haven’t done so already. ISA season is an important time for savers and investors to review their existing ISAs as well as make sure they maximise new opportunities, and with the increased £15,000 New ISA allowance, this time of year has never been more important. To help you make the most of your ISA allowance, we’ve put together out Top 10 tips for the 2015 ISA season.

Tip 1 – Don’t miss the end of tax year deadline 

On the basis we can all be guilty of putting off until tomorrow those things which need to be done today, there’s a lot to be said for acting in good time. So before you do anything else ISA-related, make sure you remember the most important end of tax year deadline which is midnight on 5th April. This is the latest date for using your ISA allowance and since it cannot be backdated to a previous tax year – if you don’t use it, you lose it. Note that many ISA providers will need your application – and possibly your cleared funds – before this date and that some ISA plans have an earlier deadline for ISA transfers. 

Tip 2 – Maximise your ISA allowance 

As a result of new ISA rules which came into effect on 1st July 2014, your ISA allowance for the current 2014/15 tax year is £15,000. You can put the entire allowance into an Investment ISA (Stocks & Shares ISA), or the entire allowance into a Cash ISA. If you decide to use some of the allowance in one type of ISA, you can also put any remaining balance into the other type. Also remember that these allowances are per person, so a couple can invest up to £30,000 in total before midnight on 5th April 2015.

Tip 3 – Understand what your ISA could achieve

Why pay tax on money that you can protect from the tax man? If you had invested the maximum into an Investment ISA since the 1999/2000 tax year, and it had grown at 7% each year, you would now have a lump sum close to £240,000. This is a significant amount, especially when you consider over £100,000 of this would otherwise have been subject to income tax and/or capital gains tax. 
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Fixed Income Investments In Demand

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Fixed income investments have risen in popularity year on year as more and more investors seek out new ways to generate a predictable and regular income from their capital. This popularity increases none more so than at this time of year, when the additional feature of receiving income tax free when holding your investment plan within an ISA is another reason to consider your options. So with ISA season upon us, and whilst savings rates continue to force many to consider taking on more risk with their capital, we take a look at what fixed income investments can offer and how to compare the latest plans available.

The here and now

Not only have fixed income investments been one of the real success stories in recent years having seen a significant surge of interest since the stock market crash of 2008/9, but this interest seems to be increasing as the needs and demands put on more of us from our capital fails to be met by traditional products, which often have variable and less predictable income.

Savings rates have also fallen dramatically over the same period with top five year fixed rate bonds currently paying around 3.0%, whilst fixed rate Cash ISAs are much lower at around 2.4%. So fixed term deposits are failing to deliver the returns so many cash savers had grown used to, causing many to consider having to take on more risk with some of their capital.

What is a fixed income investment plan?

The fixed income investment, or reverse convertible to give it its technical name, is a fixed term investment where the level of income received is fixed at the outset and is paid to you regardless of the performance of any specific shares or the stock market as a whole. The return of your initial investment is however determined by the stock market, which in usually based on the performance of a major stock market index such as the FTSE 100 (the Index) or a number of shares listed on the Index.

Because the income is not reliant on the performance of the stock market, investors have the benefit of knowing at the outset exactly how much income they will receive and when it will be paid. This certainty of income and timing is undoubtedly playing a key role in their popularity.

Fixed income, fixed term

Not only is the income fixed, but the term of the plan is also. The plan term is normally in the region of five to six years, thereby providing a defined period during which your capital is invested. This combination of a pre-determined fixed income paid over a fixed term creates an investment that is relatively straightforward to understand and which is more easily comparable to other income investments available in the market.

This contrasts with investing directly in shares or a UK equity income fund where in addition to your capital being exposed to daily stock market fluctuations, in both cases your income is variable and not necessarily predictable. Fixed income investments therefore offer a unique set of investment features when compared to more traditional income investments.
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