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Premium Bonds – A good Investment?

Premium Bonds are an incredibly popular savings vehicle with over 21 Million bond holders and around £72 Billion ‘invested’.  Yet, they really aren’t a savings vehicle at all.  There is no interest rate although NS&I provide a guide ‘return’ of 1.4% (effective from 1st December 2017).  But this return

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Financial Scams

It is estimated that financial crime costs the UK an eye watering £52bn according to the Economic Crime Directorate at the City London Police. That may be the tip of the iceberg as, apparently, 88% of all cybercrime goes unreported. Many of these scams do look and sound perfectly

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Inheritance Tax Hits New Heights

In the 2017/18 tax year some £5.2 billion was paid in inheritance tax (IHT). That’s £400 million more than in 2016/17 and the highest IHT ‘take’ on record. On one level, this isn’t a surprise, the ‘nil rate band’ – the amount of an estate which is not subject to IHT

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The Pensions Regulator

The Pensions Regulator (TPR) has been active this year.  Back in February a bus company and its owner were fined just over £31,000 for ‘wilfully failing to comply with the law on workplace pensions’ by failing to Auto Enrol a total of 36 staff into a pension scheme.  That

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Pension Tax Relief

Pensions have always been and still are the most tax-efficient form of investment, but limits on contributions and total savings have been reduced dramatically. A major part of the reason is that higher rate tax relief on pension contributions is costing the Exchequer £38 billion annually and questions remain

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Encouraging Enterprise

In his Spring statement, Chancellor Philip Hammond announced that consideration was being given to introducing a new higher-risk variant of the Enterprise Investment Scheme (‘EIS’), to encourage investment in new “knowledge intensive” technology companies. EIS was introduced in the 1990s and offers investors in companies that meet the criteria

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ISA Investment Options

The annual ISA allowance is a “use it or lose it” investment opportunity. Hence the proliferation of press advertisements exhorting investors to utilise the allowance before the tax year end. The allowance currently stands at a very meaningful £20,000, which compares with £15,240 maximum investment in the tax year

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No more March Budgets!

Until 2017, the Chancellor of the Exchequer traditionally delivered a Spring Budget, usually in March, and in more recent years this was preceded by an Autumn Statement to announce interim changes. But no more! Chancellor Philip Hammond has broken the mould, and there will in future be a single

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Helping children to buy homes

The 3% stamp duty surcharge on the purchase of second homes which was introduced in April 2016 has posed a problem for parents wanting to help their children onto the housing ladder by buying in joint names. However, some enterprising lenders have devised plans which avoid the problem. These

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Premium Bonds – A good Investment?

Premium Bonds are an incredibly popular savings vehicle with over 21 Million bond holders and around £72 Billion ‘invested’.  Yet, they really aren’t a savings vehicle at all.  There is no interest rate although NS&I provide a guide ‘return’ of 1.4% (effective from 1st December 2017).  But this return is in the form of ‘prizes’ varying from £25 to £1 Million.  It is in fact extremely unlikely that anyone sees the 1.4% return; a few will receive significantly more while the vast majority of bond holders will receive considerably less.

The perceived benefits of Premium Bonds are that they are 100% guaranteed by the Government and that any prizes received are free of tax. Of course, there’s also the thought of the possibility of winning big!  While not a savings vehicle, Premium Bonds are also not a lottery since the ‘stake’ will be returned on demand.  The only loss is to the spending power of your £100 (minimum purchase price) as it fails to keep pace with inflation.

The current tax rules for savings income has removed the tax advantage of Premium Bonds for the majority of the population as the Personal Savings Allowance (PSA) means that basic rate tax payers will only pay tax on interest from true savings accounts if they receive more than £1,000 pa while 40% tax payers will only pay tax on interest over £500 pa.  Non-taxpayers will, like everyone else, receive interest gross and will not have to account for any tax.  So only 45% tax payers or those with significant deposits now need to seek tax free interest and, for them, Premium Bonds may still be attractive, especially as the prizes aren’t set against the PSA.  Although the ‘return’ of 1.4% is low, it still compares well with instant access ‘cash’ ISAs.

Security is also, possibly, over-rated.  Deposits are, generally, covered by the FSCS up to £85,000 so they stack up well against Premium Bonds on this front as well.

And, of course, there’s still the fact that you might win big!  There are 2 £1 Million prizes every month (as at 1st December 2017) and the odds of winning that in any one month are a mere 35,926,766,878 to 1!

So, if you have some Premium Bonds – and over 100,000 of us have the maximum £50,000 holding – and you want a guaranteed return of more than 0% it may be time to reconsider whether you should switch out to some sort of deposit account.  But the lure of that big win will be a significant factor, whatever the numbers say.