The Gazette 1989

FEBRUARY 1989

GAZETTE

Advice on Investments

clear means of realising the investment in the future. Section 23 Apartment or House: For someone with cash to invest for at least ten years the purchase of a new apartment or house for renting can be a very attractive proposition. Provided it falls into the Section 23 guidelines, the rental income can be collected tax free until the purchaser recoups the cost of the building in full. The cost of the building can be reckoned to be about 70 to 80 pc of the price paid. The letting has to be to a non- connected tenant for at least ten years. Good conversions also comply with the rules. Better still the tax relief can be immediately set against other rental income if the client has any. Unit Linked Funds: Since Mr X does not want to invest directly in company shares either at home or abroad, a unit linked fund may be an alternative. The entry cost is higher than buying shares directly but there is the benefit of professional management of the fund and the knowledge that the investment is a spread of shares or properties or whatever. A unit linked fund is basically a co-op of investors who pool their money under the aegis of some insurance company which provides the professional management. About 8 pc of the investment goes in buying in. There is a 3 pc stamp duty and there is usually a 5 pc spread between the price at which the units are bought and the price at which they are sold. So someone who cashed in their investment immediately after making it would lose 8 pc of their money. Those funds which do not have a 5 pc price spread usually impose heavier annual management costs and early encashment penalties. Unit values - like shares - can go up and down. Some perform better than others. Some carry less risk than others. The choice is wide. Quarterly surveys of fund performances are published in some of the daily papers and can provide a guide to future prospects. Past performance is not always a

There is no simple, all embracing answer to that most popular of questions "whe re should I put this money". Indeed before attempting to answer any financial advisor worth his salt will need to spend some t ime asking a lot of questions in return. Does the investor need an income: does he or she need ready access to the funds: what is his or her tax situation: what is the attitude to risk: and even, is there any worry about the t ax -man asking where the money came from?

"tax effective". Let us have a look at some of the options. Pension Scheme: if he has not already set up a personal pension scheme, then he should do so without delay. He will get full tax relief on annual contributions of up to 15 pc of his income and will also benefit from the fact that the money in the pension fund builds up free of tax. It can, in fact, be worth while to put in even more than 15 pc of income for that reason. If Mr X is an employee of his own company, the tax relief possibil- ities are far greater since the company can claim tax relief on all its contributions provided the scheme does not promise more than the maximum benefits approved by the Revenue Commissioners. And they are very generous. Business Expansion Scheme: An earlier article in this series looked at the opportunities for setting up businesses in the tourism sector under this scheme. Any individual can get tax relief on up to £25,000 a year invested in such a project. Of course, the scheme also applies to manufacturing ventures and stock- brokers often have entrepreneurs on their books looking for funds. There are also funds which seek investment from time to time and spread the funds over a range of ventures. But be careful, the tax advantage can often be largely offset by profit sharing and share option schemes which the promoters build-in for their benefit. And there may be no by C o lm Rapp le

There are no black and white answers to most of these questions. There are degrees of risk aversion. There may be no need for ready access to the money - except an emergency arising. A good financial advisor needs to know his client and his or her circumstances - one reason indeed why solicitors can have an advantage in this area. The advisor, of course, also needs to have a broad notion of the type of outlets available. It is then a matter of fitting the client to the investment outlet. There is a growing range of investment possibilities - new products being developed by the increasingly competitive financial services sector and the new found option of investing abroad with the easing of exchange controls. It would take a book - even a few books - to cover them all adequately. For the purposes of this article let us look at three make- believe clients and some of the investment options which might suit them. Client 1 - Mr X is self-employed with a good income. He pays heavy tax but has some spare funds which are not needed in the business. He does not need to supplement his income and can leave the money untouched for the foreseeable future - certainly some years. As a businessman he is not adverse to risk. The range of options here are immense. But let us suppose that Mr X wants something more exciting than putting his money on deposit with a bank, building society or the Post Office and that direct stock exchange investment does not appeal to him. But he would like the idea of something

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