Bure Valley Group is an investment introducer platform which links successful investors with exciting, innovative UK startups seeking funding. This content is for information purposes only and should not be taken as financial or investment advice.
It feels good to be financially rewarded for your hard work – for instance, earning a £100,000 bonus. Yet how should you invest that kind of money (assuming you don’t want to spend any of it!)? Below, our investment team at Bure Valley Group offers some ideas to help investors with the decision-making process, maximising their potential returns.
To learn more about our EIS projects and other early-stage opportunities, visit our portfolio page here. For enquiries regarding our latest projects and funding, you can reach us via:
+44 160 334 0827
Patience is a virtue
There can be a powerful urge to spend/invest a full £100,000 bonus all at once. Yet it often pays to take your time and reflect on different options.
Yes, it is true that there may be an opportunity cost to letting your money sit in cash (it could be generating significantly higher returns invested elsewhere). However, rushing into a bad investment decision could cost you more.
Take some time to review your financial plan. Are there any weak areas which could do with “reinforcing” (e.g. rebuilding a depleted emergency fund)? Is your balance of assets to liabilities a bit too skewed towards the latter? If so, perhaps some of the bonus could be used to address this – such as paying down some expensive debts.
Remember diversification
It may be tempting to put the full £100,000 bonus into a single asset or investment opportunity, such as a buy to let (BTL) property. However, be careful about putting all of your eggs in one basket – especially if the investment is highly illiquid.
Spreading out your bonus across multiple investments (“diversifying”) is a helpful way to mitigate the risks associated with any particular company, market or asset class within your portfolio.
For instance, here at Bure Valley Group, we offer EIS investment opportunities (Enterprise Investment Scheme) to our investor network. By investing in multiple early-stage companies, an investor can access the growth potential of many different startups and protect their overall returns if one or two of them do not work out.
Think about tax
It is not just your choice of assets which can affect your returns. Also, how you structure your assets, from a tax perspective, has a big impact.
In 2023-24, the capital gains tax (CGT) allowance (also called the “annual exemption”) has been reduced from £12,300 per year to £6,000. This means that an individual can earn less tax-free capital gains outside of an ISA compared to previous years.
In 2024 the CGT allowance is expected to shrink further to £3,000 per year. Therefore, if you have a £100,000 bonus ready to invest, you need to think carefully about how these kinds of allowances bear upon the timing – and manner – of your investments.
One option is to spread your investments across multiple tax years. However, this option is becoming less effective for wealthier individuals as the tax-free allowance constricts each year.
Another idea is to transfer some of your £100,000 bonus to your spouse or civil partner, so they can maximise their own CGT allowance, dividend allowance and ISA allowance – potentially improving the overall returns of your household.
However, due to the limited nature of these allowances (e.g. you can only commit up to £20,000 per year into your ISAs), investors may need to explore additional options to improve their tax-efficient returns. This is where venture capital routes, such as the Enterprise Investment Scheme (EIS), can play an important role.
In 2023-24, an investor can invest up to £1,000,000 into EIS-qualifying investments and enjoy tax-free capital gains on EIS shares held for at least three years. If the companies qualify as “knowledge intensive”, then an investor can commit up to £2m each tax year.
If you are worried about the implications for your estate plan, then note that EIS shares are exempted from inheritance tax (IHT) if held for at least two years.
EIS companies are early-stage businesses which often have a lot of “runway” ahead of them for capital growth (i.e. higher potential returns compared to many public stocks). However, investors need to be comfortable with the risk level involved. There is typically a greater chance of investment failure with a startup compared to investing in a larger, more established business.
Invitation
Interested in finding out more about the exciting startup projects we have on offer to investors here at Bure Valley Group?
Get in touch today to start a conversation with our team and discuss some of the great investment memorandums we have available here:
+44 160 334 0827
