Which investments to put in an ISA

Your_Hero

773567889 wrote: »

Good evening all

I have recently come into a rather large lump sum of money, which I'd like to invest to provide income and growth. It is sufficiently large that it would take many years to squirrel it all away into an ISA.

So I will be investing some within an ISA and most outside, with the aim of gradually moving it across into ISAs year by year.

My question is, which investments would benefit most from being in the ISA, and which can I leave outside?

Does it make sense to go for investments which provide income at the expense of growth, and leave these outside the ISA, while the investments that are expected to grow most get the protection?

Thanks in advance. I realise this is a dilemma that a lot of people would like to have!

It depends on a number of variables which are all vague and unknown to us and of course it is also important to know what your objectives are. Questions to ask yourself are how much income do you require, for how long, what other plans do you have for the money?


Pensions are good from a tax perspective and retirement planning but it may be completely unsuitable for the OP if his objectives are for immediate income or has other plans for the money before 55.


As Ricky points out, there are no more commissions paid to advisers in secret for advised investment products.


I would question the use of an Investment Bond over UTs/OEICs.


From what I can see, the main advantage of an investment bond in your situation would be the 5% income which is deemed as a refund of capital and so the tax is deferred. The benefit of this would be if you have so much income from other sources (interest, dividends, earnings) that any more income from these sources would push you into higher rate tax, then you ought to consider an investment bond. However, it is less tax-efficient as it pays an equivalent 20% tax within the fund.


Otherwise it would be sufficient to stick to UTs/OEICs, paying natural income if the amount is large enough (only a 10% notional tax credit on dividends and no further tax for a BRT, unless pushed into HRT ofc) and feed into the ISA every year. This would eventually produce tax-free income on the lot.

dunstonh

But at the moment, I don't see the benefit of a pension in my (very fortunate) position. I would either need to draw more income from investments in these early years, or use up my earned income to pay the contributions.

Hopefully, they will change your mind on that as "bed & pension" would work fine and be better for you in the long run. You would bed & ISA each year and make sure you dont wrap too much in the investment bonds. The investment bond is useful to avoid CGT. However, since the CGT rate for basic rate taxpayers fell to 18% and the internal taxation of the bond is 20% before taper relief, the use of investment bonds has dropped right off and virtually killed onshore bonds now. Offshore bonds can still benefit from gross roll up but they can be more expensive than goign with unwrapped and the tax benefit can be lost through the extra charges. With the ISA wrapper moving to £15k p.a. You could have £150k in an ISA in 10 years (assuming no further increases).

it is difficult to comment without knowing the amounts involved and I dont think that has appeared on the thread yet.

773567889

Definitely not higher-rate at the moment, or in the forseeable future, but I might be if my work took off.

I had understood that the bond could still be worthwhile for lower rate taxpayers (although much less so than higher-rate). But maybe I was wrong about that. It does seem the advantages would be marginal at best; possibly negative!

Thanks again all. It has been more enlightening on here than the IFAs have been.

Your_Hero

773567889 wrote: »

Definitely not higher-rate at the moment, or in the forseeable future, but I might be if my work took off.

I had understood that the bond could still be worthwhile for lower rate taxpayers (although much less so than higher-rate). But maybe I was wrong about that. It does seem the advantages would be marginal at best; possibly negative!

Thanks again all. It has been more enlightening on here than the IFAs have been.

I hope our discussion has not led you to think the IFAs you've spoken to are bad advisers because that is far from what we are suggesting. They would have completed a full factfind and understand your situation better than we do on here and so I wouldn't brush off what they've said at all but rather you need to decide for yourself if it's in your best interest and ask further questions that we raised on here.

Don't forget that if you locked yourself in a room with Adviser A and then Adviser B who are both equally well qualified, they could both come up with differing recommendations but equally suitable depending on your discussions and their experiences. There is no single "right" advice.

773567889

Sure, I'm not suggesting that.

But from my initial conversations with three, I'm not convinced that their advice is going to be sufficiently tailored to justify their percentage (which begins to look eye-watering when you compound them up over 20 years!).

Incidentally, the rep from Hargreaves Lansdown describes himself in the documents as an IFA - yet he is restricted to using HL's expensive platform. How is that unbiased advice?!

Your_Hero

773567889 wrote: »

Sure, I'm not suggesting that.

But from my initial conversations with three, I'm not convinced that their advice is going to be sufficiently tailored to justify their percentage (which begins to look eye-watering when you compound them up over 20 years!).

Incidentally, the rep from Hargreaves Lansdown describes himself in the documents as an IFA - yet he is restricted to using HL's expensive platform. How is that unbiased advice?!

You are right there. I've not seen HL's documentation for their advisers but if they are restricted to using HL's platform then that is certainly not independent.

RickyC_IFSWP

773567889 wrote: »

Sure, I'm not suggesting that.

But from my initial conversations with three, I'm not convinced that their advice is going to be sufficiently tailored to justify their percentage (which begins to look eye-watering when you compound them up over 20 years!).

Incidentally, the rep from Hargreaves Lansdown describes himself in the documents as an IFA - yet he is restricted to using HL's expensive platform. How is that unbiased advice?!

Over 20 years... You seem to be talking about a different thing here - this must be the ongoing service, which an IFA provides to review your investments with you every year. You do not have to opt for this service and can usually just have an ad hoc service if you don't want your investments reviewed, albeit not recommended.

The HL adviser should be restricted then if he cannot consider any other platforms.

773567889

RickyC_IFSWP wrote: »

Over 20 years... You seem to be talking about a different thing here - this must be the ongoing service, which an IFA provides to review your investments with you every year. You do not have to opt for this service and can usually just have an ad hoc service if you don't want your investments reviewed, albeit not recommended.

Yes, if I was going to go for advice, I'd go for the full service. I don't think there would be any point in just paying to have it set up and then not getting ongoing advice. The real value is having someone on the end of a phone whenever I need.

The HL adviser should be restricted then if he cannot consider any other platforms.

I wonder if it's because I contacted HL first? I'm deemed to have chosen them because I'm happy with the platform?

I'll check it out with the FCA, but on the documentation he gave me it clearly says 'We will advise and make a recommendation for you after we have assessed your needs. Our recommendation will be based on a comprehensive and fair analysis of the market'.

Your_Hero

773567889 wrote: »

Yes, if I was going to go for advice, I'd go for the full service. I don't think there would be any point in just paying to have it set up and then not getting ongoing advice. The real value is having someone on the end of a phone whenever I need.

I wonder if it's because I contacted HL first? I'm deemed to have chosen them because I'm happy with the platform?

I'll check it out with the FCA, but on the documentation he gave me it clearly says 'We will advise and make a recommendation for you after we have assessed your needs. Our recommendation will be based on a comprehensive and fair analysis of the market'.

I'd imagine that it's something to do with HL's compliance department. As a company, they have "assessed the market" but in their opinion HL's own platform is competitive enough to be their first (and only) recommendation.

Do remember that not everything is down to cost. That is just one consideration and you need to also look at the facility the platform provides, the service, administration, reliability, etc.

dunstonh

It has been more enlightening on here than the IFAs have been.

No adviser is going to give too much away whilst you are not paying them. So, that is probably why.

Incidentally, the rep from Hargreaves Lansdown describes himself in the documents as an IFA - yet he is restricted to using HL's expensive platform. How is that unbiased advice?!

If that is actually the case then it is a breach. Any restriction, not matter how small, stops you from using the independent tag. There have been a number of reports that many IFAs will have to stop or will choose to stop using independent. Indeed, many think that independent is on its way out as the cost of retaining it will become too high We are already seeing significant numbers of firms moving to restricted (but whole of market) in the last year.

For the OP, if you are after a long term relationship, then you may want to try your local firms and see if there is a partner/director/owner that you can deal with. Employee advisers tend to move on. Some have really high staff turnover. Those that run the business tend to stay.