ISAs  

Investment solutions for the self-employed

This article is part of
Guide to advising the self-employed

Similarly, Mr Sparke says: “With regard to savings, Isas are essential for everyone who is looking to save and, having established a risk level with an adviser, there are a wealth of options available.

“However, with a less reliable income stream, a regular savings plan may be less appropriate, as available cash will vary from month-to-month, to an account which can take occasional lump sums would be more suitable.”

In 2016, the government introduced flexible Isa rules.

As a result, clients can make withdrawals from their Isa without affecting their annual allowance or investment’s tax-free status, as long as they put the money back in the same tax year, explains Victoria Rutland, chartered financial planner at EQ Investors

She says: "For the self-employed who often have less job security and need access to money during tighter times, this flexibility is a big plus.

"Isas do not benefit from tax relief on contributions as pensions do, but there is no income tax to pay on any growth and withdrawals are tax-free."

Long-term investments

According to Mr Lowcock, once Isas have been considered, pensions come back on the scene.

He explains: “Carrying forward any unused allowances could prove useful as it would allow self-employed to take advantage of years when they have higher earnings and when they couldn’t utilise the full allowance.  

“This would also mean they could make more substantial pension contributions later.”

He continues: “Auto-enrolment has also largely passed the self-employed and it is clear that many have significantly less invested in pensions than those who are employed.

“However, depending on how the self-employed individual is 'employed' – for example, if they work through their own company – they could make pension contributions through the business effectively as a salary sacrifice, which is the most tax-efficient way to make pension contributions.”

While Mr Sparke says: “With the advent of AE, the employed will be very likely to have some provision for retirement without taking out their own personal schemes. The self-employed will not often have this safety net.  

“A low-cost personal pension or self-invested personal pension is likely to be a good option and, depending on the client’s priorities, a platform or a scheme directly with a provider can both make sense.

“Longer-term savings can often mean that a higher risk level is appropriate, so portfolios containing more equity and higher exposure to growth markets may be a good option to help build up a nest-egg for retirement."

He adds: “With retirement in mind, both active and passively-managed portfolios could be appropriate as there is ample time for the portfolio to recover from any drops in value.”