Few people are so rich that they don't care about tax breaks. In fact, accountants often say that sometimes the very rich are the most adamant about reducing their tax bill - even though they have far more money than they could ever realistically spend in the course of their day-to-day lives.
Financial advisers constantly warn against letting tax-driven investments direct a person's financial planning. There is a place for tax deductible pensions and property purchases, BES schemes etc but they are not a good idea solely for the accompanying tax writeoff. The aim, say financial advisers, is to create a balanced portfolio of investments which will satisfy your expectations, suit your risk profile and keep down your tax bill.
A product that fits this role neatly is the Special Investment Scheme (SIS), introduced under Section 13 of the Finance Act 1993 around the same time as Special Savings Accounts (SSAs), Special Investment Policies (SIPs) and Special Portfolio Investment Accounts (SPIAs) were brought in. Keeping track of all the acronyms is not easy, but essentially they all offer savings or investment opportunities with lower than usual tax charges.
The SSA, a no-risk, deposit-based product is the most popular. With a DIRT rate of 15 per cent, an individual can hold a maximum of £50,000 in an SSA; a couple can hold two SSAs up to a maximum value of £100,000. Next comes the SIP, a 10 per cent taxable savings product mainly marketed under the generic term PEP (Personal Equity Plan) and sold by life assurance companies on a regular premium basis.
The SPIA is another investment version of the SSA, but also with the lower tax rate of 10 per cent. Funds are invested in pools of assets operated by stockbrokers, with a minimum of 55 per cent of the fund in Irish equities. At least 10 per cent of that total must be invested in Irish companies with a market capitalisation of less than £100 million. The balance can be invested in gilts to provide a certain amount of capital security, but the performance of the Irish stock market has made this quite unnecessary.
The next variation on this theme is the lesser-known SIS or Special Investment Scheme. It has mainly attracted funds from higher net worth investors who are interested, not just in the 10 per cent tax liability on any profits, but by the fact that it is designed as a pooled unit trust investment with access to a wider range of international funds.
As with SPIAs, 55 per cent of funds must be invested in Irish stocks, 10 per cent of that in the smaller Irish companies. The most popular SIS unit trusts include international investment options for the balance of the money, with the objective of producing higher returns over the longer term.
Mr John Crowe is a director of the private client division of the consultants KPMG and is a strong supporter of the SIS. "This is a little-known gem of an investment," he says. "Not only are they usually structured to give you excellent international stock exposure, but you end up only having to pay 10 per cent tax on any profits. The charges usually amount to a 3 per cent entry cost, a 5 per cent bid-offer spread and an ongoing 1 per cent annual management fee, but there are genuine growth opportunities to offset the charges." There are very few SIS accounts being promoted, says Mr Crowe and his personal preference is the Eiri Account from Bank of Ireland Asset Managers whose international fund management has been "very good to date".
The Eiri fund range was only launched 17 months ago, but £10,000 invested in the Equity fund would have grown to £14,180 over the period. Its nearest competitors are Special Investment Accounts from the likes of Irish Life, Norwich Union and the main banks which have achieved returns ranging from £12,754 to £13,942.
How much you can invest in these accounts is dictated both by the products' own minimum sums (most require at least £10,000) and whether or not you already hold any other "Special" account. The overall maximum an individual can invest is £75,000 in a special investment product, and only £50,000 in the deposit-based SSAs. You can hold a combination of accounts but the total investment cannot exceed £75,000 for an individual. The limits can be doubled for married couples.
