How to invest in Britain: From shares to bonds and property funds

On the stock market, it can sometimes pay to be ‘greedy when others are fearful’ – so go the famous words of Warren Buffett, the octogenarian chairman of US conglomerate Berkshire Hathaway and one of the world’s most famous investors.

Fearful is exactly what many investors and business executives are about Brexit and its supposed impact on the UK. Almost every day brings a grim warning about the possible consequences of ‘no deal’. 

Could it be that investors are currently too fearful and that there are opportunities for those brave enough to take a different view?

ALLURE: The Government is eager to attract investment into fledgling British businesses to help boost their contribution to the UK economy

Venture capital brings tax breaks 

The Government is eager to attract investment into fledgling British businesses to help boost their contribution to the UK economy.

As a carrot they allow big tax breaks to those who invest in Venture Capital Trusts, including an immediate 30 per cent reduction in your income tax bill – so long as you hang on to the shares for five years.

Investors also receive any capital gains tax free – if there are any gains – plus tax-free dividends. The maximum investment is £200,000 in a tax year – though the minimum is usually £2,000 to £10,000. 

Managers of venture capital trusts typically use the money to help 20 or 30 young companies grow their businesses.

If all goes to plan, the managers will either sell or float each business and hand over any profit made as a tax-free dividend.

But since the underlying firms are mostly unlisted or trade on London’s junior Aim stock exchange, they are best suited to sophisticated investors. There is no guarantee they will be successful.

Ben Yearsley, director of Shore Financial Planning, says: ‘Venture capital trusts can be attractive for those who want to access a dynamic part of the market that you can’t get elsewhere.’

Costs are steep, including upfront charges of up to 2 per cent and annual charges as high as 4 per cent. Yearsley likes Maven Income & Growth and Pembroke B shares VCTs.

Your pension questions answered 

Are you trying to save for retirement, make the most of your income in old age, navigate the state pension maze, or just feel baffled by some bit of pension jargon?

In the This is Money podcast this week, former Pensions Minister and our regular columnist, Steve Webb, is on hand to help you out.

Editor Simon Lambert and host Georgie Frost are also joined by The Pensions Advisory Service boss Michelle Cracknell to answer reader questions. 

Press play above or listen (and please subscribe if you like the podcast) at Apple Podcasts, Acast, Spotify and Audioboom or visit our This is Money Podcast page.    

Property brings solid gains 

Physical buildings such as shops, offices, warehouses and factories with their foundations in UK soil could not be more British. Investors usually buy through funds or real estate investment trusts.

Commercial property can provide consistent income and long-term returns – and is an important ingredient in diversifying investments providing some protection from stock market falls.

Although no guarantee of what lies ahead, the average property fund has returned 40 per cent over five years and 65per cent over ten years.

Patrick Connolly, of financial adviser Chase de Vere, says: ‘We’ve seen how effective this can be in recent weeks when commercial property investments have held up while stock markets have fallen.’

But a fund which holds bricks and mortar is not easy to sell quickly – the managers will have to offload the properties to release cash. 

This was seen when property funds such as those run by Standard Life and Aviva were suspended from trading in the upheaval after the EU referendum. 

Connolly adds: ‘We only recommend funds that invest in physical property as they have far less correlation to the stock market and are less volatile than those that invest in property shares.’

He likes funds that invest widely across the UK and are not too fixated on London – such as M&G Property Portfolio, L&G UK Property and Janus Henderson UK Property.

Peer-to-peer loans beat cash deposits 

Britain’s small businesses often turn to peer-to-peer loans as key means to growing their sales. 

These let ordinary people stump up their own money for firms to borrow and in return receive interest that aims to beat cash deposits. 

The deals are arranged through an online ‘peer-to-peer’ lender – a kind of dating agency for businesses and consumers.

One of the biggest is Funding Circle where investors can earn rates of up to 7 per cent. Using its automated option lets investors spread their risk across many businesses.

For example, lending £2,000 allows investors to spread money across at least 200 businesses – but the interest rate they earn will be lower, perhaps 4 per cent. P2P investments can be held in a tax-free Isa.

Minnow British businesses that lenders have supported via Funding Circle include The Great Yorkshire Gift Shop in Leeds.