Ensure your investments run and run
WHEN Au r o r a s Encore crossed the line for last weeke nd’s d r a matic 66/1 victory in the Grand National, co-owner Douglas Pryde knew that his day job would come in especially handy.
A happy recipient of a share of the blockbuster £545,000 winners’ payout, independent financial adviser Pryde will now be taking his own advice on how to invest his personal £150,000 prize. The IFA, who founded DG Pryde in Duns, Berwickshire, over 25 years ago, is only too well aware of the pitfalls of windfalls, and the options open to anyone with a decent lump sum to invest.
“I don’t want to see an unexpected bonus frittered away,” he said. “What happens when you put it in a building society is you end up using it for credit cards, and stupid things like new cars which aren’t worth anything. What you could do is take best advantage of investment opportunities.”
His first port of call will be venture capital trusts (VCTs) and the Seed Enterprise Investment Scheme (SEIS), which, along with the Enterprise Investment Scheme (EIS), offers investors tax breaks for making medium-term investments in growing companies. The SEIS offers 50% tax relief, rather than the 30% in the other two schemes, the holdings must be kept for three years, and the investment limit is £ 100,000. Pryde says one further attraction of SEIS is the relief from inheritance tax ( IHT) after two years. He adds that the UK economy is in urgent need of the support. “It is only really young emerging companies that will get this money, and banks are not going to lend money to new operations.”
The EIS offers similar IHT relief, it has a £1m investment limit, and also a carry back facility that allows tax relief against the income tax liabil- ity of the previous year. “You can work out how much tax you actually paid in that year,” Pryde says. “But you have got to have access to capital, for me it’s the £150,000.”
Next on his list is pension contributions. An investor with enough capital, and enough income to offset, can put up to £ 50,000 into his pension for each of the three most recent tax years as well as the present year, and claim relief against those contributions at his own tax rate. For a 40% taxpayer that could mean cutting their tax bill by up to £80,000.
After that comes the Isa, says Pryde, which this year allows an investment of up to £11,520 in the stocks and shares option. “It may be only £ 11,000, but if you are investing it in a speculative equity investment, by the time April comes round next year it could be worth a lot more.”
He goes on: “Then you might look at some form of IHT planning such as gifting. You can give away £3000 annually, and £3000 for the previous year if you haven’t done it.”
Pryde concludes: “That would be a nice profile of saving income tax, capital gains tax and IHT, all in a purely legitimate way.”
But surely his best investment has been Auroras Encore, bought last Christmas as a Grand National hopeful, and now entered to run in Saturday’s Scottish Grand National at Ayr?
“Someone asked me why not invest in another horse, but that’s not the kind of option I could advise on, it’s an alternative investment, and people have to think about protecting their capital.”
Pryde, who has owned racehorses for 20 years, says: “I do intend to continue investing but I have no plans at the moment – it has been a reasonable investment because I have had about 30 winners.”
The owners now intend to make Auroras Encore available for celebrity events – and are looking for a “major sponsor” interested in a brand promotion opportunity.