4 ways to make your bonus work harder

Our private banking team works hard to support City professionals across sectors such as finance, law and insurance. Many of these clients receive bonuses or profit share distributions as part of their remuneration, with typically just 30-40% of income received through a cash salary or fixed allowance.

In complex arrangements like these, tailored private banking services including mortgage lending, foreign exchange and wealth management can help individuals with their financial objectives.

“How individuals use their bonus or profit share largely depends on its composition. This could include a split across cash and shares, deferral and vesting conditions,” says Private Banker Zoe Ross. “Our specialist teams build deep personal relationships with our clients and create efficient and flexible solutions based on their requirements.”

If you work in the City and are due to receive a bonus, here are four ways we could help you achieve your financial goals.
 

1. Upsizing or refurbishing your property

Some clients look to leverage their bonuses or profit share to buy a new home or make improvements to their current property.

“City professionals who are interested in mortgages with a high loan-to-value (LTV) ratio often want a bespoke repayment plan that allows them to use bonuses or vesting stock income to reduce their level of debt,” says Zoe.

For every lending decision, we look at an individual’s wealth holistically and can often consider their bonus or profit share history. Sometimes, this includes a foreign currency element. “In these cases, we’re also usually able to take that into account when determining affordability, as well as helping clients manage their foreign currency exposure through our Foreign Exchange (FX) desk,” says Zoe. “This can sometimes help clients achieve a higher loan amount than they expected.”

Speed of response is important as many City professionals are often time-poor. “Our understanding of clients’ income profiles means we can work more efficiently with them and provide funding quickly,” says Zoe.

In addition, clients looking to refurbish their current home rather than move may be able to access other borrowing solutions.

2. Investing in a buy-to-let

After cooling during 2024, residential rent growth is predicted to increase. A 17% rise in rents is forecast between 2024 and the end of 2027*. “This means that despite regulatory changes, there is still interest in buy-to-let properties in London and beyond,” says Investec Private Banker Lucy Arnold. “We can help clients act quickly when the right opportunity emerges.”

Clients often choose Investec because we look at their income holistically when assessing the affordability of an investment property. As with our residential mortgages, this can help achieve a higher LTV. “Typically, a buy-to-let mortgage is offered on an interest-only term,” says Lucy.

Some clients are exploring the option of purchasing property as a limited company, perhaps by setting up a Special Purpose Vehicle (SPV). While lending to an SPV can be a challenging proposition for some lenders, our team is familiar with UK tax and legal restrictions and can work with the ultimate beneficial owners.

“We have seen a change in the buy-to-let tax landscape in recent years that has led some clients choosing to buy property as a limited company – or SPV – with the objectives of potentially offsetting costs and maximising returns,” Lucy says.

3. Earning interest on your balance

If you’re looking to save your bonus, we have two savings accounts tailored for the needs of high-net-worth individuals: the Voyage Reserve and the 3 Month Reserve.

“Our notice deposit accounts provide a higher return than our instant access products. They also pay higher interest rates on the portion of a balance over £1m. Clients can make unlimited withdrawals subject to serving notice.” says Investec Private Banker Emily Bernstein. There is a notice period of one month for the Voyage Reserve account and three months for the 3 Month Reserve account.

4. Boosting UK cashflow with FX

Finally, if you receive your bonus or profit share in US dollars (USD) or euros, Investec Currency Access accounts pay interest on the balance. In addition, the foreign exchange specialists in our private banking team can help you manage your exposure.

“Some of our UK-based clients are partly compensated in US dollars. This means they have ongoing exposure to GBP/USD currency movements,” says Private Client FX Dealer David Bimpson. “If clients know how much they will receive as a bonus, we can help secure an exchange rate up to 24 months in advance with an FX Forward contract, which enables them to capture potentially opportune movements in the rate, prior to funds being received.”

We also support clients by monitoring markets, offering call alerts and placing market orders on demand. “As with all of our private banking services, we devise strategies on a case-by-case basis,” says David. “This personalisation is especially important when cash flow increases, such as during bonus season.”

*Source: Hamptons International: Market Insight - Forecast Edition: Autumn 2024 - Softening the surge

Important information:

Minimum eligibility criteria and terms and conditions apply. Your property may be repossessed if you do not keep up repayments on your mortgage. Investec residential mortgages are only available for residential properties in England or Wales and are primarily available to UK residents and subject to eligibility.

You can only book an FX Forward which is for an underlying personal or commercial spending purpose. You cannot book an FX Forward for investment or speculative purposes, for example in order to achieve a gain based on movements in exchange rates. Also, you cannot book an FX Forward on behalf of any other person. Additional terms and eligibility criteria apply for FX Forwards.

References to taxation are based on our current understanding of the legislation but we do not represent that it is accurate or complete and it should not be relied upon as such. Tax laws are subject to change.

Wealth management services are provided by Investec Wealth & Investment, part of Rathbones Group. Investec Wealth & Investment (UK) is a trading name of Investec Wealth & Investment Limited which is a subsidiary of Rathbones Group Plc. Investec Wealth & Investment Limited is authorised and regulated by the Financial Conduct Authority and is registered in England. Registered No. 2122340. Registered Office: 30 Gresham Street. London. EC2V 7QN.