Investment (Ethical) Advice

John is age 64 and Sally is age 63

They are married with 2 grown up children and 3 grandchildren, John is recently retired and Sally is successfully self-employed looking to wind down her business in the next 2/3 years.
 
They both have sizeable pension income and large amount of savings in savings accounts, ISAs, NS&I investments and direct share holdings.
 
John and Sally would like the potential for capital growth over the medium term in Ethical investments.
 
Ethical Investments and Investment Advice
They have a sum of £50,000 to invest for capital growth, would like to transfer Cash ISA’s into Stocks and Shares ISAs to generate the potential for a greater return than they are currently receiving, would like to maximize their ISA allowances for 2016/17 tax year, invest in a portfolio of ethical investment funds and adopt a medium risk approach with regards to the investment of these funds.
 
John and Sally appreciate that a degree of risk has to be taken in order to meet their objectives and provide a reasonable level of return over that typically offered by a deposit savings account. Their advisor recommends that they transfer their existing Cash ISAs to Stocks and Shares ISAs and also invest £30,480 to utilize both of their ISA allowances for 2016/17. The reasons for recommending a Stocks and Shares ISA are:
 
  • To retain the tax advantages associated with their existing ISA’s.
  • A Stocks and Shares ISA reflects their stated aims and objectives. 
  • It will provide the potential for capital growth over the medium to long term.
  • It will provide them with a regular income together with the potential for capital growth over the medium to long term. 
  • They wish to continue to make use of the reliefs and allowances available to them to minimise the amount of tax they pay. 
  •  It allows them access to a range of professionally managed funds with which to create an appropriate portfolio and to switch funds without triggering a tax charge. 
  • There will be no penalty applied on encashment of the ISA. 
  • On death the ISA benefits may be transferred to a surviving spouse / civil partner, allowing the spouse / civil partner to benefit from an additional ISA allowance. 
  • Stocks and Shares ISAs do not need to be included on their Tax Return.
 
The advisor then recommends that John and Sally invest the remainder of their lump sum of £50,000 into an Open Ended Investment Company (OEIC) / Unit Trust because:
 
  • An OEIC/Unit Trust reflects their stated aims and objectives. 
  • It will provide the potential for capital growth over the medium to long term. 
  • They wish to make use of capital gains reliefs and allowances available to them to minimise the amount of tax they pay. With careful planning it may be possible to avoid this tax altogether on partial or full encashment.
  • It allows you access to a range of professionally managed funds with which to create an appropriate portfolio. It is possible to switch funds within the OEIC/Unit Trust with any gain made being offset against their annual Capital Gains Tax allowance of £11,100.
  • OEICs / Unit trusts are very flexible; there is no fixed term and they can make additional contributions or withdraw funds at any time without penalty.
  • It is possible to use the monies they build up in the OEIC / Unit Trust to fund future years’ ISA allowances for greater tax efficiency.
  • An OEIC / Unit Trust is an ideal investment to hold under Trust. The investment can be established in their names allowing them to retain control, but designated in the name of the beneficiary.
 
In reaching this recommendation, other types of investments were discounted before deciding on an ISA and OEIC as they are the most tax efficient investments for them.
 
The advisor recommended transferring the existing Cash ISAs, along with their new ISA and Collective Investment Account onto a platform provider which allows them to hold a number of different investment vehicles under one roof.
 
A portfolio within these investment vehicles will be selected for long term capital growth by investing in a diversified range of asset classes with an Ethical (sustainable investing, natural resources etc) standpoint. The selection is based on John and Sally’s attitude to risk, capacity for loss, age, overall wealth and objectives.
 
Ongoing Action
 
It is essential that John and Sally contact their advisor and notify them of any material changes to their circumstances which may require their financial situation to be reviewed prior e.g. bereavement, receiving an inheritance, full retirement. Also, their advisor will remain in regular contact whilst managing the recommended portfolio.

 

The value of pensions and investments and the income they produce can fall as well as rise. You may get back less than you invested.

 

Investors do not pay any personal tax on income or gains, but ISAs do pay unrecoverable tax on income from stocks and shares received by the ISA
managers.

 

Tax treatment varies according to individual circumstances and is subject to change.

 

Stocks and Shares ISAs invest in Corporate bonds; stocks and shares and other assets that fluctuate in value.

Please note all case studies are fictional and for illustrative purposes only

Case Study

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