Big Fat Bank Profits – 2024’s Deal‑Making Gold Rush
Last week the big‑name US banks had their wallets grow fatter than a Thanksgiving turkey. Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo all announced a combined profit haul of $142 billion for 2024 – an eye‑popping 20 % jump on last year’s figures.
Why the Surge?
A worldwide spike in corporate deals has banks printing money like it’s going out of style. Every signature and every handshake not only fuels the banker’s bonus parade, but also fires up the entire ecosystem of lawyers, accountants, and consultants that keep those deals humming.
Bonus Confessions from the UK
Investment Manager Nicholas Hyett of Wealth Club warned that the “bonus bonanza” of London’s Financial District may be getting snatched up by the tax man, not the high‑street shareholders.
- Frozen tax caps and slimmer pension benefits are tightening the net over the high‑earners.
- The government looks unlikely to loosen those straps anytime soon.
- Smart bonus planning can cut taxes by tens of thousands – sometimes even £30,000 or more.
How a £100,000 Bonus Can Be Reworked
Below is a quick guide for anyone kicking around a hefty bonus and steering it away from the tax‑buzzard’s claws. Think of it as a financial makeover starring your bonus.
- Invest in a mix of ETFs and tax‑efficient bonds.
- Allocate a portion to a salary sacrifice scheme.
- Utilise pension contributions to slash the taxable income.
- Keep an eye on capital gains rules to maximise after‑tax returns.
With a bit of savvy moving, the bonus can stay on your wrist (or in your bank account) for longer and tax‑free for a healthier pocket.
Investing a £100,000 bonus
Invest up to £60,000 bonus in a pension
Why “Salary Sacrifice” Isn’t a Bad Idea After All
When your boss says salary sacrifice, it might sound like a Victorian sacrifice, but it’s actually a way to funnel part—or the whole—of your bonus straight into your pension pot.
Not only does this move dodge that 45% income‑tax drumbeat for top‑rate earners, but it also sidesteps the National Insurance levy. Basically, you end up with more money working for you later.
Moral: Pensions Are the Holy Grail of Bonus Investing
Think of your pension as the Swiss Army knife of savings. Whatever the bonus feels like, tossing it into the pension gives you tax relief at your marginal rate. That means the higher you earn, the more tax relief you scoop up—though some folks argue it’s a bit of a privileged club for the high‑earners.
How Much Can You Invest?
- Anyone can invest up to £60,000 per year, regardless of how long the company has been around.
- For those earning over £260,000, the limit drops to £10,000—so the ultra‑rich just don’t get the same thumb‑up.
Bye, Bye Lifetime Allowance
The old “lifetime allowance” was scrapped last year. That means there’s no cap on the total pension value you can build. In theory, you could stack an army of pension pots, but honesty’s telling you: a huge wealth will probably scare the tax man.
When Retirement Rolls Around
You can grab up to 25% tax‑free of your pension when you finally stash away your career. That 25% or £268,275 (whichever is smaller) is the sweet spot that slips past the tax code. Anything beyond that gets treated like regular income—so keep an eye on the numbers.
Invest up to £20,000 in an ISA
Why ISAs Beat Pensions for the Tax‑Free Enthusiast
After you’ve brushed off the pension, the next logical move is to snap up your full £20,000 ISA allowance. It’s not a pirate’s treasure chase – you won’t get a tax front‑dealing on the way in – but you’ll walk out lighter on the back taxes.
What Makes an ISA Harder to Hold Than a Treasure Chest?
- No tax on your earnings or withdrawals. That’s right, every penny you pull out stays as good as you earned it.
- Tax‑free growth. Your money can balloon, and the government will happily give you the back‑handed word “tax” when it comes time to cash in.
- Accessible anytime. Unlike a pension that’s locked away for years or “decades,” an ISA lets you pull your savings out whenever you want – no bureaucracy, no waiting game.
Since the 2017/18 fiscal year, the £20,000 allowance has remained flat. For most folks, that’s a solid starting point, but if you’re pulling in the higher wages, it’s only the tip of the iceberg.
Giving Kids a Wealth Starter Pack
- If you’ve got children, consider a Junior ISA. You can set aside up to £9,000 a year on their behalf, giving them a tax‑free nest egg that grows over the years – think of it as the financial equivalent of gifting them a golden ticket.
So, in short: once you’ve done your pension work, channel that extra allowance into an ISA, and you’ll be blessed with tax‑free growth, quick access, and a little financial humor along the way. Enjoy the freedom!
Invest £20,000 to £70,000 into early-stage businesses through venture capital
Beyond ISAs: Getting in on VCTs, EIS & SEIS
Once you’ve locked in your ISA and pension, the next step for savvy investors is to look at government‑backed venture capital schemes. The top‑dog trio — Venture Capital Trusts (VCTs), the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS) — is growing in popularity because it gives you a front‑row seat to the next generation of unicorns, while the tax benefits keep your wallet happy.
Why the government loves these schemes
- They’re tax‑friendly (a relief of up to 50 % on income tax, plus extra perks).
- They support young, fast‑moving companies that are essential for a booming economy and high‑value jobs.
- They have largely escaped recent tax hikes because the government sees their long‑term payoff.
What makes them special (and a little dicey)
The cool factor? A chance to own shares in companies that could become tomorrow’s household names. But, let’s be honest: these investments are riskier and less liquid than your typical bonds or stocks, so they’re best suited for investors who have the appetite for a bit of adrenaline.
Quick‑fire recap
- VCTs – buy shares in a portfolio of startups, get a sweet tax cut.
- EIS – invest directly in larger growth firms, more robust tax relief.
- SEIS – bet on very early stage ventures, biggest tax break but highest risk.
Tip: Spread the love. Like a balanced diet, diversify across different schemes and other assets to keep your portfolio healthy.
Bottom line
VCTs, EIS, and SEIS offer a unique mix of tax savings and potential for high returns, but they’re not for the faint of heart. If you’re an experienced investor ready for a challenge, these government‑backed schemes are worth a look.
Venture Capital Trusts (VCTs)
Maximizing Tax Relief with VCTs
Ever feel like your tax bill is a monstrous beast? VCTs (Venture Capital Trusts) can be your knight in shining armor. They’re publicly listed funds that put your money into a squad of young, fast‑growing companies hand‑picked by a savvy fund manager. One investment could snag you exposure to a bundle of 50‑to‑100 mini‑businesses—talk about a diversified ride!
Why VCTs Are a Smart (and Easy) Choice
- Listed and Liquid: Because they trade on the stock market, selling is a breeze compared to hand‑holding private equity.
- Hands‑on Growth: VCTs target thriving, usually private firms that need cash to super‑charge their growth.
- First Stop for the Tax‑Weary: If you’ve maxed out your pension and ISA allowances, a VCT is the next logical pit stop.
Money‑Making Rules of the Game
- Maximum Investment: Up to £200,000 per tax year.
- Tax Shield: Receive up to 30 % income tax relief on that contribution.
- Returns That Won’t Bite Back: Most gains come via tax‑free dividends (plus any growth is also tax‑free).
- Five‑Year Stunner: Keep the tax relief only if you hold the VCT for at least five years.
So, if you’re looking to watch your money grow while the taxman can’t touch a single penny, VCTs are the golden ticket—just remember to stay on the ride for five whole years, and you’ll keep the tax perks in your pocket!
Enterprise Investment Scheme (EIS)
EIS: The “Bollywood” Investment for Your Portfolio
Think of the EIS (Enterprise Investment Scheme) as the indie film of the investment world.
You pick the stars—young, sharp‑edged companies—either by yourself or via a savvy fund‑manager.
A typical EIS fund hands you a handful of these gems (5‑15 firms), making the ride a bit bumpy but also far more exciting than the smoother VCT (Venture Capital Trust).
Why the Risk? Why the Thrill?
- Unlike VCTs, you must buy the direct action on the company. That means concentration and a lack of liquidity.
- But the risk comes with a boosting tax payback—the government is ready to say “thanks for the support” with generous perks.
Tax Perks that Make Your Wallet Smile
- Income Tax Relief of up to 30% on the amount you invest.
- All growth on the shares is tax‑free.
- Serious gains elsewhere? You can postpone the capital gains tax (CGT) bill.
- Hold it for ≥2 years and it could qualify for inheritance tax (IHT) relief—even on death.
- If the company tanks, you can offset the loss against your tax bill. A £10,000 loss, for example, might only dent a £45% taxpayer by about £3,850 after tax rebates.
The “Hold‑On” Rule
To keep all the tax goodies, you must keep the EIS stake for at least three years. That’s the wine‑maturing stage—watch it buzz, then let it sit.
Investment Limits and Popularity
- Individual investors can toss in up to £1M per year.
- If the companies carry “knowledge‑intensive” tags, the cap jumps to £2M.
- Because the ceiling is high and the tax sweet spot is big, EIS is the darling of high‑earners who love a dash of risk with a sprinkle of tax relief.
Bottom line: If you’re prepared to navigate a steeper hill, the tax climb rewards you with a platter of savings and a taste of the start‑up adventure.
Seed Enterprise Investment Scheme (SEIS)
What’s SEIS All About—And Why It Might Just Make Your Wallet Smile
Think of SEIS (the Seed Enterprise Investment Scheme) as the first‑pitch pitch‑tender for dreamers who want to launch a business. You can pick the startups yourself like a foodie choosing dishes, or let a fund manager do the food‑critic work for you. Most SEIS funds give you a taste of 10‑30 fresh ideas in a single bite.
Why It’s the Funniest, Riskiest Game of the Venture Trio
- Only the bare‑bones stuff gets in. SEIS favors almost‑ideas, so you’re betting on the very young, the sleepless, the under‑the‑table kind.
- With that risk comes a plush tax bundle. Think capital gains relief that might feel as rare as an early‑day espresso but comes with a generous “let’s not tax you right now” vibe.
- Direct relief on income, growth, and even on your sugars if you exist after your time (IHT relief). Cheers to that!
How SEIS Plays Hook, Line, & Sinker (In the Right Sense)
You can put up to £200,000 in a year. For every pound, the government slaps a 50% income tax relief—that’s half your tax bill, no fuss.
By the time your company takes off, any gains are tax‑free. And if you’ve got other investments under the buckles, you can scoop up up to 50% CGT relief on those gains.
Want a golden ticket for the future? Keep the ticket for three years, and it can also win IHT relief for the heirs—think “cash for future joys.”
What to Do If the Dream Falls Flat
Let’s face it: startup dreams can flop. If you lose, you can write off the loss against your tax bill. Imagine a £10,000 casualty—after all the perks, the most a 45% taxpayer might feel is a modest £1,550 loss.
Take the Leap (But Make Sure the Tax Taxes)
In the end, SEIS is a daring mix of “build your own unicorn” and “pay as you play” plus a generous tax playground. It’s great for the ambitious, but always remember—hold onto it for a minimum of three years to keep the tax perks wagging!
