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Three things experienced investors should do before tax year end

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With weeks left until the end of the tax year, many experienced investors will have completed their tax year end routine by now: ISAs (maybe for the whole family), pensions (if not caught up by the allowance cuts) and crystallising any capital gains.

But what if after all that you’re still looking at quite a sizeable tax bill?

Alex Davies, CEO and founder of Wealth Club, the UK’s largest broker of tax-efficient investments, reveals three things experienced investors (who are prepared to take greater risk) should consider in the last few days of the tax year:

 

1. Look beyond pensions and ISAs to save up to 50% income and capital gains tax

Pensions and ISAs are great, but the allowances can be restrictive for some. To mitigate this, if you’re prepared to take extra risk, you could look to the government’s venture capital schemes. Each offers a different mix of tax benefits. Which you go for will largely depend on circumstances and how much risk you’re prepared to take. As a rule of thumb, the greater the tax benefits, the higher the risk.

  • Venture Capital Trusts (VCTs) offer up to 30% income tax relief. Returns are paid through regular tax-free dividends, which is a nice bonus. The allowance is a very respectable £200,000 a year.
  • Enterprise Investment Scheme (EIS) investments also offer up to 30% income tax relief. There are no tax-free dividends, but one bonus here is that you can also defer chargeable capital gains you’ve realised. For as long as you stay invested in any EIS, you can forget about the CGT bill. It will only become payable once you come out of the EIS, unless you re-invest the money into another. The allowance is a whopping £1 million a year or £2 million if you invest at least £1 million into “knowledge intensive” companies.
  • The Seed Enterprise Investment Scheme (SEIS) is the real winner when it comes to tax savings. When you invest you can cut both your income and capital gains tax in half. The allowance is more modest but still sizeable at £100,000. But that probably doesn’t matter too much when you consider a £100,000 investment could save you up to £50,000 income tax plus £14,000 capital gains tax.
  • 2.Get back tax you’ve already paid

A valuable but often overlooked perk of EIS and SEIS investments (but not VCTs) is they allow ‘carry back’. As the name suggests, this means you can choose to offset the tax relief against the previous tax year and get back tax already paid.

However, there is a catch. To be able to carry back to 2020/21 tax year, your money must be invested – and the shares allotted – by 5 April 2022. If this deadline is not met, you don’t have the option to carry back, but of course can still offset the tax relief against the current tax year.

3. Protect your ISA from IHT

Pensions can be passed on to the next generation relatively tax efficiently. EIS and SEIS investments should be IHT free after two years too.

The greatest IHT threat probably comes from where you least expect it: your ISA. Contrary to what many think, ISAs are not IHT free. So, if you do nothing, up to 40% of your fund could eventually be eaten up by tax.

Spending your ISA might be fun, but probably not what you had in mind when you were saving into it. An alternative is to invest in an AIM ISA, a managed portfolio of AIM shares that can be IHT free after two years. You still get the ISA benefits of tax-free income and growth for as long as you live, but you don’t need to worry about IHT on top.

 

The most important thing of all

If you’re planning to do anything this tax year and you spot an investment opportunity you like now is the time to act. Delay even by a couple of days and you might find your options are limited.

Popular VCTs are filling up fast and many have already closed. The deadlines for EIS investments allotting this tax year are also looming.

How do ISA, pensions, VCT, EIS and SEIS tax reliefs compare?
  Maximum Investment Income Tax Relief CGT Relief/Deferral Tax-free dividends Tax-free growth IHT relief Loss relief
ISA £20,000 No No Yes Yes No No
AIM ISA £20,000 No No Yes Yes Yes (after two years) No
Pension £0 to £40,000* up to 45% No Yes Yes Yes No
VCT £200,000 up to 30% No Yes Yes No No
EIS £2,000,000** up to 30% Deferral No Yes Yes (after two years) Yes
SEIS £100,000 up to 50% 50% relief No Yes Yes (after two years) Yes

 

*Depending on circumstances. Broadly based on total pension value and income in the tax year. UK rates excluding Scotland.

**Invest up to £1m per tax year or up to £2m if anything above £1m is invested in Knowledge Intensive companies.

 

Top 10

Turn the data landfill into an insight goldmine

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Andrew Watson, CTO, MHR

Today, businesses have access to a wealth of data, with vast amounts of information created daily. While tools exist to help companies make sense of it and take advantage of the critical insights that data can bring to drive stronger business growth, many organisations are simply overwhelmed with the volume and velocity of data collected. With this, there is also a sense of uncertainty on how best to leverage this to create data driven insights.

Disjointed processes and dormant ‘shelfware’ are keeping a wealth of data stuck in silos – untapped and underutilised. As a result, nearly three fifths (57%) of UK organisations say they believe they are making business decisions based on inaccurate data. Without a clear strategy to guide them, organisations will be running blind, unable to access and get value from the relevant data to make stronger predictions and smarter decisions.

And the longer data is left untouched, and the more of it that is generated, the harder it will be to leverage it to its truest potential. Organisations must urgently recalibrate their relationship with data and learn how to integrate and analyse it to find trends and useful information. Leaders should see this as an opportunity to utilise the right tech solutions to harness the power of data as a vital source of competitive advantage and turn a digital landfill into a goldmine of data.

 

The data treadmill

Andrew Watson

Every day data is captured by every department in every business. No matter how big or small an organisation is, it is generating invaluable insight from customer patterns to trends on the efficiency of internal processes.

But with this level of data generated, many are finding themselves on a data treadmill, constantly working to ‘catch up’. These organisations are failing to make progress as they are not utilising or optimising the data tools at their disposal. In fact, very few companies are fully embracing the spectrum of tools and methodologies available. Most businesses are spending disproportionate amounts of time on manual data processes, resulting in a ‘reporting lag’. By focusing on simply managing the mechanics of data, such as moving and storing it, businesses are struggling to unite and access real-time data insights, instead creating disjointed silos that lack the enterprise-wide connectivity and visibility needed to identify where processes can be improved.

For other businesses, the challenge comes from not knowing what they want to achieve with the data, or that they have data at their disposal at all. Unused, unanalysed data is a missed opportunity for leaders to create real business value. This is not helped by organisations rushing into buying new systems during the pandemic and subsequently leaving them gathering dust, or only being used at a fraction of their full potential. In other cases, data scientists have been brought into an organisation, but do not know where to start, as the wider business lacks a smart data strategy underpinned by clear objectives. All too often, analytics are left as an afterthought.

Businesses need to become more data savvy lest they continue to fall even further behind. Not only do leaders need to ascertain what decisions their company needs to make, and where they can get the data to support these choices, but they also need to change their data strategy by putting in place the tools and people that can integrate the data to find previously unknown information.

 

Uniting business strategy and data strategy

However, this requires the organisation to have a business strategy that aligns with its data strategy, so that the data being captured can be used to measure improvements and ultimately drive business growth – after all, more than nine in ten (91%) organisations recently surveyed by MHR acknowledged data-driven decision making as an important factor in their development.

A strong data strategy is a cultural shift that requires top-down leadership. Leaders can ensure that the purpose and use of data within an organisation is directly linked to the core business goals, while guaranteeing that a new data-optimised culture is developed end-to-end throughout the company, bridging the gap between business strategy and implementation. In turn, aligning business and data strategies enables organisations to accurately measure the success of their current approach, providing them the next steps they need to take to continuously improve.

While data scientists can be viewed as a solution, they do not have the in-depth knowledge of how the business operates to ensure true strategic alignment. Alternatively, businesses can leverage the right technology, such as an integrated software solution, to ensure that their business and data strategies are fully intertwined throughout the organisation. With this in place, complex data processes can be streamlined and simplified through automation, empowering businesses to make informed strategic decisions from reliable and accurate data.

With technology in place, business and data strategies can be brought together and can generate eye-opening insights that keep companies on top of their data, ensuring that they are not running blind in the race towards data maturity.

 

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An Entrepreneur’s Guide to Investing in Bitcoin

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By

Marcus de Maria, Founder and Chairman of Investment Mastery.

 

Over recent years, Bitcoin has been steadily growing in popularity among today’s investors. At the same time, there has been a lot of debate about Bitcoin, and other cryptocurrencies, and their value.

Its supporters argue that it is the future of currencies and investment; its critics are adamant it’s not all it’s cracked up to be and might not make the big profits people are expecting.

To better understand its true stature in the market, we need to look at recent developments. For instance, Bitcoin’s valuation has risen by more than 763% in just one year, easily surpassing the rise in the traditional stock market.

With more and more people buying Bitcoin, it is now gaining the attention of the mainstream financial institutions and platforms, when once Bitcoin was derided, joked about and said would never last.

Marcus de Maria

Fast forward twelve years since its’ launch, and we have Tesla and SpaceX mastermind Elon Musk recently announcing that his car empire will not only buy $1.5 billion-worth of Bitcoin, but will accept cryptocurrencies as payments in the future.

And well-known FinTech companies such as Square and PayPal have also announced their intention to support Bitcoin in the future.

Despite this, the most important Bitcoin development is, perhaps, the recent initial public offering (IPO) of Coinbase Global, Inc. (NASDAQ: COIN), today’s leading cryptocurrency exchange platform.

There is no doubt: Bitcoin is gaining momentum. Recent developments have contributed to the sharp rise in the value of Bitcoin, and asset proponents believe this is just the beginning.

 

Bitcoin background

Bitcoin was created in 2008 by a programmer, or group of programmers, under the pseudonym “Satoshi Nakamoto”. Twelve years on, and the true identity of Bitcoin’s inventor is still unknown, adding a little mystique to this already enigmatic entity!

Essentially, Bitcoin is a cryptocurrency. A cryptocurrency is a virtual “coins” or “tokens” and used in digital cryptocurrency systems instead of physical cash.

Similar to physical fiat currencies, digital coins have no intrinsic value, and are not backed by gold or silver.

Bitcoin is one of the most widely used of the thousands of cryptos now available to the investor.

Considering that the great attraction to crypto is that it’s a decentralized currency, thousands of different types of coin in “circulation” is a big giveaway to how popular it is among users and investors.

What gives Bitcoin its value is the fact that there will only ever be 21 million bitcoins “minted” or “mined” to give its proper definition (more on this in the future).

It’s this scarcity that provides the value, although one Bitcoin can consist of multiple denominations, the smallest being a “satoshi” which is 0.00000001 of one Bitcoin (or BTC as it is also known).

 

Bitcoin & The Blockchain: How does it work?

Bitcoin exists solely on the “blockchain” in “wallets.”

A wallet is the digital equivalent of a traditional bank account for fiat currencies such as dollars, sterling, yen, etc.

The blockchain is a public ledger that is totally transparent and accessible to everyone who uses the blockchain and bitcoin, and now any crypto that is in existence.

Transactions on the blockchain are “peer-to-peer”, meaning the transaction doesn’t go through a “middleman” (i.e. third party that would normally charge a fee for making the transaction).

Crypto transactions also undergo thorough verification and confirmation.

Crucially, every transaction and record of bitcoin activity is encrypted which means no one knows who owns any one bitcoin or where it goes to and from, unless they publically declare it (although the identities can eventually be detected under special police powers in cases of suspected fraud).

Only the transaction itself is recorded and is made visible to anyone.

That is why Bitcoin is a cryptocurrency (or crypto), because it has an extremely high level of privacy to it via cryptography.

“Crypto” comes from the Greek word “kryptos,” meaning hidden.

Bitcoin wallets operate via secret key.

This key is used to “sign” transactions. It provides mathematical proof that the transaction has come from your wallet (or owner of the transacting wallet).

This secret verification stops the transaction from being tampered with once it has been issued.

All transactions are confirmed and appear on the block chain network within 10-20 minutes.

It is this security and the fact YOU – and not the banks – are truly in control of your digital money that is so appealing to users and investors alike.

 

What to consider when investing

Firstly, and arguably most importantly, is risk-factor. Investing in Bitcoin as an individual is a lot less risky than investing as a business.

The mentality must be, ‘this is my business’s money. I won’t speculate with my business’s money, and I am not going to risk my employee’s livelihoods. Yes, I would be crazy not to invest but it would be crazier to risk it all.’

It’s very easy to go all-in and invest a large sum of money when you have it, but that is not really a sensible strategy.

So, to start with, entrepreneurs and business leaders should consider the risks, diversifying their portfolio and starting small.

 

Other Bitcoin Investment Options

There are different options when it comes to investing in Bitcoin.

First, you can invest in a company that uses Bitcoin technology so you will be exposed to it without purchasing it directly. When the value of Bitcoin goes up, the company shares go up too, providing a return on your investment.

I can’t invest in Bitcoin through my ISA, but investing in a company such as Block (previously known as Square) means I have an indirect tax-free investment opportunity in Bitcoin. Investing in a company that utilizes Bitcoin can be more volatile than Bitcoin itself, so more money can certainly be made.

Investing solely in Bitcoin is different, as it doesn’t move so much in value, but the individual company using Bitcoin can go up and down sometimes by 80%.

Buying Bitcoins directly from an app like Coinbase allows investors to “physically” own the asset.

This is an important distinction to make, as Coinbase allows investors to actually buy Bitcoin and store it in their own crypto wallet. That way, investors will be able to gain access to the coin’s price performance and use it as the currency to make other trades.

Owning a standalone Bitcoin is no different from owning any other currency, except for the incredible fluctuations in value.

 

To invest directly into Bitcoin here’s how to get started:

  1. Sign up to an Exchange
  2. Enable two-factor-authentication for security
  3. Get a Bitcoin wallet
  4. Connect the wallet to a standard fiat bank account
  5. Place your Bitcoin order
  6. Manage your Bitcoin investment

When the set-up is complete, what you really need to consider is, how much do you know? I am a firm believer in spending at least 20 minutes a day educating myself on investing. I’ve seen too many beginner investors ignoring that advice and rushing in without understanding how it all works.

Surround yourself with people that understand crypto investment and dedicate time to reading up on strategies and tips that will benefit all investments you make.

Bitcoin is certainly a crypto asset you should be investing in alongside a diversified portfolio. It is certainly a highly volatile asset with large and rapid price swings, which in turn can offer the potential for large returns but also carries a high level of risk.

Before making any decisions, it is critical that you learn how to invest in Bitcoin responsibly and utilise proven, reliable strategies. Once you feel confident with your approach, take that first brave step.

As Warren Buffet once famously said, “Be fearful when others are greedy, and greedy when others are fearful.”

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