I have £250,000-£300,000 I need to invest to generate income for travel and luxuries. I am a basic-rate taxpayer, retired, and though I don't need the money immediately I would like to draw on it in a couple of years.
What are your thoughts on insurance company investment bonds versus bank or building society fixed-rate bonds? I understand investment bonds must be left for a minimum of five years because of the costs, which is fine, and up to 5% a year can be withdrawn free of income tax for up to 20 years. However, I believe they are expensive, which probably means the fund wouldn't be able to generate 5%.
MB, by email
The only similarity between building society bonds and those run by insurance companies is the name. The former are boringly safe, the latter may be highly risky, but this is not about either/or: a mixture of both may be best, depending on your comfort level.
Building society bonds guarantee your capital and income, subject to Financial Services Compensation Scheme (FSCS) limits of up to £50,000 per person. Interest is taxed, normally at 20%.
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Insurance company bonds are a wrapper within which you can invest in the stock market or with-profits funds as well as cash, so your capital could shrink. The maximum 5% annual withdrawals are not tax-free. The funds are taxed at source by as much as 20% before you touch them. That is why they are not usually suitable for basic-rate taxpayers. Higher-rate taxpayers have nothing further to pay until the bond is finally encashed.
Withdrawals can give you an illusory "profit". If your investment bond produces only a 3% return and you withdraw 5%, you are eating into capital. And beware commission - don't pay more than 2%.
Danny Cox at Hargreaves Lansdown, the adviser, said: "If you want to invest in the stock market consider unit trusts, which are more tax-efficient, more flexible and in many cases cheaper."
Jason Butler at Bloomsbury Financial Planning recommends AIG guaranteed income bonds (Gibs), paying fixed rates from 2.33% to 2.95% net of basic-rate tax (2.91% to 3.69% gross) for three to 18 months.
NS&I's three-or five-year guaranteed income or growth bonds pay 3.44% to 3.68% net of tax (4.3% to 4.6% gross for basic-rate payers).
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I plan to live and work in Ghana for a couple of years. I would like advice on what plans I should make, with whom and when, so as not to suffer financial liabilities with respect to taxes, pensions and insurance. My main asset is my home, which I intend to let. I will also keep a bank account, mortgage and loans here.
LD, by email
As your absence is likely to be under three years you will be treated as a UK tax resident, unless you can show HM Revenue & Customs you are working full-time abroad and employment/self-employment spans a complete tax year. Complete form P85 and HMRC will decide your UK tax position.
You can also use this form to reclaim tax. Jonathan Spring-Rice at Towry Law, the adviser, said: "Depending on timing, you could get some income tax back."
For letting your home, HMRC has a non-resident landlords scheme. Ensure contents and building insurance cover is valid.
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Pay voluntary class 2 National Insurance to maintain your entitlement to UK benefits such as the state pension and maximise your Isa contributions before you go. You can maintain the Isas while non-resident but you cannot add to them.
If you are paying into a UK personal or occupational pension, you can continue annual contributions of up to £3,600 gross and still receive basic-rate tax relief.
Open a Ghanaian bank account to handle income and spending while there. A British bank such as Barclays or Standard Chartered would make transfers easier. To move large amounts, use a foreign exchange broker such as Caxton FX or HiFX.
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