Finance

Planning for tomorrow, today

 560 315 Jess Easby
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4 pension facts to help you create a happy and wealthy retirement.

The future may seem far away. Regardless of your retirement goals, there are things you can do to increase your chances of success.

It is important to look objectively at your plans and adapt them as your priorities change over the years and you go through different life events.

Your retirement will be as individual as you are and it may arrive earlier than you had anticipated. Time really does fly. Planning ahead is almost certainly going to give you more choice and freedom and pensions can be the most tax-efficient way to save for your retirement.

1. Tax Relief

Most UK taxpayers receive tax relief on their pension contributions, which means that the Government effectively adds money to your pension pot.

Basic rate tax relief: The pension scheme administrator will claim the basic rate tax relief for you from HM Revenue & Customs (HMRC). With basic rate Income Tax at 20%, for every £80 you pay into the pension plan you receive basic tax relief of £20 which is also paid into your plan. The total amount paid into the plan is therefore £100.

Scottish taxpayers and tax relief: Scottish taxpayers receive tax relief based on Scottish Income Tax rates and bands. If you pay tax at the Scottish starter rate, HMRC will not ask you to repay the extra tax relief claimed by the pension scheme administrator.

Welsh taxpayers and tax relief: From 6 April 2019, the Welsh Assembly has devolved powers to set their own Income Tax rates. Currently they have set the rates at the same level as the UK rates.

Please note that the Scottish and Welsh rates may change in the future

Higher rate and additional rate tax relief: Intermediate, higher or top rate tax payers may be able to claim further tax relief from HMRC. If you are eligible for further tax relief on your payments, you can ask HMRC to change your tax code by contacting them or you can complete a Self-Assessment Tax Return after the tax year has ended.

2. Employer Contributions

The Government introduced auto-enrolment as a way of helping employees save for retirement. It means that employers must automatically enrol certain staff into a workplace pension scheme.
When you pay into a workplace pension, your employer and the Government also contribute. The amount paid depends on your employer’s pension scheme and your earnings, but minimum contribution rates are set.

Unlike other ways of saving, a workplace pension means you aren’t the only one putting money in. Your employer has to contribute too, as long as you earn over £6,240 a year. You will also receive
a contribution from the Government in the form of tax relief. This means some of your money that would have gone to the Government as income tax, goes into your workplace pension instead.

You and your employer must pay a percentage of your earnings into your workplace pension scheme. The earnings trigger is one of the three key factors which ultimately governs who gets enrolled into a workplace pension scheme through automatic enrolment (the existing threshold is £10,000 for the tax year 2020/21, which runs from 6 April to 5 April the following year).

Under auto-enrolment schemes, you make contributions based on your total earnings between £6,240 (Lower limit qualifying earnings band) and £50,000 (Upper limit qualifying earnings band) a year before tax.

Your total earnings include:

  • salary or wages
  • bonuses and commission
  • overtime
  • statutory sick pay
  • statutory maternity, paternity or adoption pay

From April 2019 the amount of total minimum contributions increased to 8% – your employer will contribute 3% and you will contribute 5%. These amounts could be higher for you or your employer because of your pension scheme rules. They’re higher for most Defined Benefit pension schemes.

In some schemes, your employer has the option to pay in more than the legal minimum. In these schemes, you can pay in less as long as your employer puts in enough to meet the total minimum contribution.

3. Flexible access

A Defined Benefit pension scheme pot is highly flexible from age 55. Almost all pensions allow you to take some of your money as tax-free cash. With this option, you can take some or all of your 25% tax-free cash first. What’s left in your pension pot remains invested, giving it a chance to grow; however, as with all investments, your money can go down as well as up.

After you’ve taken all of your tax-free cash, any money you take out will be subject to tax. This means that you can take money from your tax-free amount first and then take the taxable amount when you need it. Remember, you don’t have to take all of your tax-free cash in one go.

To help you minimise the tax you pay, you can take the taxable money whenever you like. So, for example, you can take it over a number of different tax years. This spreads it out, and if you do it this way it could help keep you in a lower tax bracket.

4. Effects of compounding

While it is never too late to start saving and planning for retirement, the earlier you start, the better. Starting earlier means more time for your savings to benefit from the effects of compounding returns. Conversely, the longer you wait, the less time you have for your money to grow and the harder you’ll have to work to reach your retirement goals.

The basic concept is simple. Compounding returns is where the profits you earn on your money are re-invested and start earning more money, which is then re-invested again and so on. With compound returns, it’s less about how much you can afford to put aside and more about for how long the money has time to grow, with your money snowballing into a pot.

Are you approaching retirement, or about to retire?

In the years leading up to retirement, you might start to wonder if you have saved enough to retire comfortably and thought about everything you need to consider. Are you ready to retire? Do you know what you might get? Do you understand your income options, tax and your State Pension? Please speak to us to discuss your options.

Accessing pension benefits early may impact on levels of retirement income and your entitlement to certain means tested benefits and is not suitable for everyone. You should seek advice to understand your options at retirement.

Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from, taxation are subject to change. Tax rules are complicated, so you should always obtain professional advice. A Pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance. Pensions are not normally accessible until age 55. Your pension income could also be affected by interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.
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Festive Financial Gifts

 560 315 Jess Easby
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Deciding on the right investments for the children in your life

As the festive season approaches, have you thought about gifting your children or grandchildren something different this Christmas? Giving them a good start in life by making investments into their future can make all the difference in today’s more complex world.

Many parents and grandparents want to help younger members of the family financially – whether to help fund an education, a wedding or a deposit for a first home. Christmas is a time for giving so what better gift to make to your children or grandchildren than a gift that has the potential to grow into a really useful sum of money.

There are a number of different ways to get started with  investing for children that could also help you benefit from tax incentives to reduce the amount of tax paid, both now and in the future. Don’t forget that tax rules can change over time so it is important to obtain professional financial advice before making financial decisions.

Ownership of the investments

Investing some money – either as a one-off lump sum or on a regular basis – is an ideal way to give a child a head start in life. There are a number of options available when it comes to ownership of investments for a child. Children receive many of the same tax-efficient allowances as adults, so it’s a good idea to consider specialist child savings accounts.

Some people prefer to keep investments for children in their name; that way, if a future need arises in which you require access to the funds, it is still available to you as it has not yet been transferred to the child.

If you retain personal ownership of the investment, it will be your tax rates that apply as opposed to the child’s. If the investment remains in your estate upon death, more taxes could be payable, so be aware of this.

Bare Trusts

You can hold investments for your child in a bare trust or designated account. Bare trusts allow you to hold an investment on behalf of a child until they are aged 18 years (in England and Wales) or 16 (in Scotland), when they’ll gain full access to the assets.

Bare trusts are popular with grandparents who would like to invest for their grandchild, because the investments and/or cash are taxed on the child who is the beneficiary. This is only the case if you are not the parent of the child. If you are and if it produces more than £100 of income it will be treated as yours for tax purposes.

Grandparents can contribute as much as they like as there is no limit to how much can be invested each year into this type of account. This can be a beneficial way of reducing a potential Inheritance Tax bill if a grandparent would like to make gifts to a child.

Discretionary Trusts

A discretionary trust can be a flexible way of providing for several children, grandchildren or other family members. For example, you might set up a trust to help pay for the education of your grandchildren. The trust deed could give the trustees discretion to decide what payments to make, depending on which children go to university, what financial resources their families have and so on.

A discretionary trust can have a number of potential beneficiaries. The trustees can decide how the income of the investment is distributed. This type of trust is useful to give gifts to several people, such as grandchildren. However, it’s worth keeping in mind that the tax rules can become complex when using a discretionary trust and the investment and distribution decisions are taken by the trustees (of which you can be one).

Junior ISAs

If you want to ensure the money you give to your children remains tax-efficient, a Junior Individual Savings Account (JISA) is available for children born after 2 January 2011 or before 1 September 2002 who do not already hold a Child Trust Fund.

The proceeds are free from income tax and capital gains tax and are not subject to the parental tax rules. They have an annual savings
limit of £9,000 for the current tax year which runs from 6 April to 5 April the following year.

A child can have both a Junior Stocks & Shares ISA and a Junior Cash ISA. From the age of 16, children can have control over how their JISA is managed, but cannot withdraw from it until the age of 18.

Child Junior SIPPs

It is never too early to start saving for retirement – even during childhood. While it may seem a little early to be thinking about retirement as the parent of a child, it’s worthwhile. The sooner someone starts saving, the more they will gain from the effects of compounding. There are significant benefits to setting up a pension for a child. For every £80 you put in, the Government will top it up with another £20, which is effectively free money.

A Junior Self-Invested Personal Pension Plan (SIPP) is a personal pension for a child and works just like an adult one. Parents and grandparents can save up to £2,880 into a SIPP for a child each year. What’s great about this gift is that the Government will top it up with 20% tax relief. So you can receive up to £720 extra, boosting the value of your present to £3,600. This can help a child to build a substantial pension pot if payments are made every year.

But while starting a pension for your child or grandchildren will benefit them in the long run, you need to consider that they won’t be able to access their money until they are much older.

Planning to give the children in your life a financial gift this Christmas?

A gift of money to your children or grandchildren at Christmas can be a wise choice, especially if you take a long-term approach. Many families want to give their children or grandchildren a head start for their future finances. When it comes to investing for children, tax can make a big difference to returns over the longer term. We can help you decide on the right investments for the children in your life. Please contact us to discuss the options available.

Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from, taxation are subject to change. The value of investments and income from them may go down. You may not get back the original amount invested. Past performance is not a reliable indicator of future performance.
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Investing with a Conscience

 560 315 Jess Easby
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Placing money in companies that bring positive change. Issues such as climate change and sustainability have become increasingly hot topics globally and often the subject of conversation. As a result, Environmental, Social and Governance-linked (ESG) investment strategies continue to dominate financial headlines.

These strategies, which include impact investing, are not new, but momentum is growing as shareholders demand greater action and consumers hold businesses to a higher standard. Increasingly, a significant number of UK investors expect their investments to align with their personal beliefs and continue to express interest in sustainable investing.

Potentially higher returns

Findings from new research identified that UK millennials are less likely to compromise their personal beliefs in order to benefit from potentially higher returns compared to their global counterparts[1]. ESG is a set of standards seeking to reduce negligent corporate behaviour that may lead to environmental degradation, armament sales, human rights violations, racial or sexual discrimination, harmful substances production, worker exploitation and corruption, though this list is by no means exhaustive and remains disputed.

More sustainability conscious

This study of more than 23,000 people who invest from 32 locations globally revealed that in the UK, only 20% of millennials, who are often perceived to be more sustainability conscious, would compromise their personal beliefs if the returns were high enough. Globally however, 25% would be willing to be flexible with their values. According to the UK results of the Global Investor Study, some 50% of Britons aged 71+, 23% of baby-boomers and 22% of those classed as Generation X would trade their personal beliefs for higher returns.

Excluding ‘sin-stocks’

In the UK almost a third (24%) of those who class themselves as having ‘expert/advanced’ investment knowledge are substantially more likely to trade their personal beliefs for better investment returns compared with 18% of ‘beginner/rudimentary’ investors. A total of 78% of Britons said they would not invest against their personal beliefs, and for those who would, the average return on their investment would need to be 21% to adequately offset any guilt. Socially Responsible Investment (SRI) generally focuses on excluding ‘sin-stocks’ from the investment pool based on negative screening guidelines.

Entering the mainstream

In the last two years, sustainable investing in the UK has increased, with 48% of people now frequently investing in sustainable investment funds compared with 34% in 2018, sending a positive market signal that sustainable investing is entering the mainstream. Overall, 40% of UK investors stated that investing sustainably was likely to lead to higher returns. Some 51% said they were attracted to investing sustainably due to its wider environmental impact. Globally, expert or advanced investors are the most likely to think sustainable investments have the most potential to offer higher returns (44%) and the least likely to think investing this way will ultimately disappoint (9%).

Top three ‘behaviours’

Opinion was split among investors globally in terms of how asset managers should address challenges that arise from the fossil fuel industry. Just over a third (36%) said managers should withdraw investment from companies in these industries to limit their ability to grow. However, over a quarter (27%) said managers should remain invested to drive change. Furthermore, investors said that the top three ‘behaviours’ companies should be most focused on were their social responsibility, attention to environmental issues and the treatment of their staff.

Is your future in sustainable investing?

What used to be viewed once as a niche investment philosophy is now firmly planted in the mainstream, with investors aligning their personal values around sustainability and social progressiveness. If you’d like to explore an ESG investing journey with us, please speak to us for further information.

Source data:
[1] In April 2020, the Schroders Global Investor Study 2020 commissioned an independent online survey of over 23,000 people (aged 18-37) who invest from 32 locations around the globe. This spanned countries across Europe, Asia, the Americas and more. This research defines people as those who will be investing at least €10,000 (or the equivalent) in the next 12 months and who have made changes to their investments within the last ten years.
Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from, taxation are subject to change. The value of investments and income from them may go down. You may not get back the original amount invested. Past performance is not a reliable indicator of future performance.
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The Bottom Line: Why Shrewd Customers Use An Adviser

 560 315 Jess Easby
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By Grant Ellis, Director Ellis Bates Group

Let’s face it – Financial Advisers have a bit of an image problem. In the public’s mind they probably rank alongside bankers, second-hand car dealers and estate agents in the trustworthiness stakes, and every investment fraud and mis-selling scandal that’s gleefully reported by the press does nothing to improve this. Then there’s the thorny issue of fees, and the anecdotal view that Adviser fees are unjustifiably high, and that they’re all simply out to line their own pockets at the customer’s expense.

So, is this image and reputation deserved? Should Financial Advisers be viewed with suspicion or is this all a myth? Let’s take a look at a few facts.

In 2017 the ILC-UK published its report The Value of Financial Advice, which quantified, for the first time, the real value of taking financial advice. The results strongly demonstrate the positive value of financial advice for consumers – both amongst those who are wealthy and those less well-off too.

The report concluded that those who were wealthy and took financial advice accumulated 17% more in liquid financial assets and 16% more in pension wealth than those who hadn’t consulted an Adviser. For those ‘just getting by’ the figures were even more dramatic – 39% more liquid assets and 21% more pension wealth for those who took advice; all more than enough to justify the fees charged by the Adviser.

Alongside demonstrating real value for their customers, evidence from this report also reveals that the experience of taking advice is highly satisfactory – 9 in 10 people were satisfied with the advice received with the vast majority deciding to go with their Adviser’s recommendation.

In December last year ILC-UK issued an updated analysis which not only reinforced their 2017 findings but in addition demonstrated that fostering an ongoing relationship with a Financial Adviser leads to even better financial outcomes. For example, those who reported receiving advice at both time points in ILC’s analysis had nearly 50% higher average pension wealth than those only advised at the start.

So, given this independent assessment, it begs the question why Advisers have such a poor image, and since advice has clear benefits for customers, why more people don’t seek it? The ILC-UK report sheds some light on this too.

The two most powerful driving forces of whether people sought advice were whether the individual trusts the Adviser providing the advice and that individual’s level of financial capability. Clearly therefore the more Advisers can demonstrate trustworthiness, the more likely they are to attract customers.

There are a number of ways you can assess an Adviser’s credentials – checking they are actually on the FCA register and how long they have been in business is a good starting point. The most effective check however is to ask their customers. Get the prospective Adviser to give you testimonials from satisfied customers along with the number and scoring of verified reviews they’ve had from clients.  At Ellis Bates Financial Advisers we encourage all our customers to leave a review of the service they have received with an independent review company. Check out the following link for more information https://www.ellisbates.com/reviews/

The International Longevity Centre UK (ILC) is the UK’s specialist think tank on the impact of longevity on society. The ILC was established in 1997, as one of the founder members of the International Longevity Centre Global Alliance, an international network on longevity.

Ellis Bates Financial Advisers are independent financial advisers with offices across the United Kingdom. They specialise in active investment management of over £1 billion of assets on behalf of clients, who have given them a 4.9/5.00 score with Trustist. https://www.ellisbates.com/reviews/

For more information please visit their website www.ellisbates.com

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The Big ‘Lies’ About Our Economic Prospects

 560 315 Jess Easby
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By Grant Ellis, Director Ellis Bates Group

In the spring of 2007 I hosted a conference for a group of insurance professionals. One of the most popular speakers was my old friend the economist Roger Martin-Fagg. He was his usual entertaining self, but took everyone by surprise by suggesting that the world economy was on the brink of a meltdown the like of which we had never seen before, and it was going to happen soon – probably within 12 months. Yes, he predicted the financial crash of 2008 a year before it actually happened.

Now in Spring 2007 the world economy was doing very nicely thank you. Following three consecutive years of good growth, averaging 3.8% it was expected to fall only slightly in 2007 to 3.6%. Meanwhile the UK was doing pretty well too. House prices had risen from an average of £150,633 in January 2005 to £184,330 in May 2007 – a rise of 22.4%, whilst wages grew by an average of over 5% per annum between 2004 and 2007. Inflation on the other hand was under control and only rose by an average of 3.25% in the same period. Furthermore, between 2003 and 2007 the FTSE All Share Index grew by 49%, so overall everyone was feeling pretty optimistic about the prospects for the future. No one, other than Roger was saying anything about a recession, never mind a full blown crash!

So, when Roger issued his dire warning, the overwhelming response was to laugh it off – in the same way that we would laugh at a soothsayer predicting the end of the world. Eccentric yes, and likely to happen eventually, just not anytime soon.

You can imagine that those of us who were there in 2007 are far less likely to write off Roger’s opinions now than we would have done previously.

I was therefore pleasantly surprised, and heartened to receive his latest Economic update, penned on 16 June. Once again he is at odds with the mainstream view, and indeed is critical of others talking world economic prospects down. He opens his piece by saying that the press is being irresponsible in the way it is reporting our economic outlook. His opening paragraph reads:

“Last weekend the Daily Telegraph had a banner headline: ‘Britain’s biggest ever collapse in GDP wipes out 18 years of growth’. This statement is completely wrong. I am concerned that individuals who are trying to make the right judgement call are being fed this nonsense. To be clear: 18 years ago our GDP was £1 trillion. It is now £2.2 trillion. The reduction in spending in April was 20% on the previous April. The monthly flow of spending averages £200bn. 20% of that is £40bn. The media, as we know, impact emotion and decision taking. That Telegraph article is therefore both economically illiterate and irresponsible.”

Wow! Hard hitting stuff. And the perpetuation of such comments is still evident a week later. In the Sunday Times on 21 June Sajid Javid is quoted as saying:

“We’ve seen a 25% fall in GDP in two months. To put that in some perspective, that is 18 years of growth wiped out in two months.”

And that’s from our erstwhile Chancellor of the Exchequer, who should be anything but economically illiterate!

In his update Roger goes on to suggest that, despite what the world and his wife are saying, we are not going to have a recession. Indeed, whilst he acknowledges that quarter 2 of 2020 will be significantly negative, he expects quarter 3 to be significantly positive, and predicts that the UK economy could grow by 8.5% in 2021, with the World economy back to 2.5% growth next year too.

His argument is that the fundamentals for a recession don’t exist in the same way as they did for previous recessions; rising prices and interest rates squeezing individuals and companies alike in 1979 and 1989, and banks stopping lending in 2008.  The common factor is a shortage of money available, and that’s not the case this time around. Households have seen a reduction in income, but a larger fall in what they’ve spent, and the UK Government is spending an extra £40bn a month pumping new money into the system, so no shortage here. Roger predicts a mini boom to take off in the next few months as a result of this excess cash in the system, with the only thing that could dampen it being the media reporting company closures, an increase in the R well above 1, and stories of mass redundancies.

I don’t propose to reproduce all Roger’s arguments here – you can read the whole article at https://www.ellisbates.com/news/june-2020-economic-update/ to get the complete picture, but I would say his reasoning and logic are very persuasive. And I for one would not bet against him. I also fully endorse his condemnation of sensationalist reporting in the media. They have to take more responsibility for the message they send out as, rightly or wrongly, people do listen to them. A more evenhanded and less melodramatic approach to reporting would benefit us all. After all, we all know the power of ‘fake news’ by now, don’t we?

Ellis Bates Financial Advisers are Independent Financial Advisers with offices across the United Kingdom. They manage over £1 billion of assets on behalf of clients, who have given them a 4.9/5.00 score with Trustist. https://www.ellisbates.com/reviews/

Sources:
World Economic Situation and Prospects 2007 (United Nations publication, Sales No. E.07.II.C.2), released in January 2007 accessed on 21 June 2020
Office of National Statistics UK House Price Index, accessed on 21 June 2020
Office of National Statistics Wages and Salaries average growth rate percentage, accessed on 21 June 2020
Office of National Statistics RPI All Items: Percentage change over 12 months, accessed on 21 June 2020
Swanlowpark.co.uk FTSE 100 and FTSE All-Share since 1985, accessed, on 21 June 2020

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Lifestyle Protection

 560 315 Jess Easby
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One in five self-employed and contract workers unable to survive a week without work. The world of work has changed enormously over the past 20 years. Being self-employed, freelance or working on a contract basis has become the norm for all sorts of professions. Although it has many benefits, working for yourself means that the responsibility for providing a financial safety net shifts from the employer to the individual. New research has highlighted the precarious nature of self-employed people’s finances.

Financial Support

A survey[1] of the financial health of self-employed, part-time and contract workers reveals that if an accident or illness prevented them from working, more than one in ten (11%) wouldn’t be able to last any time without using long-term savings, while 30% would run out of money in less than a month. And 48% said they couldn’t turn to friends or family for financial support, while one in ten said they would be forced to turn to credit cards or payday loans.

Figures from the Office for National Statistics (ONS) show that the number of self-employed workers in the UK increased from 3.3 million in 2001 to nearly 5 million in 2019[2]. While a quarter (25%) of those surveyed said they would seek help from the state, benefits provide little or no support for this group.

Income Protection

Some self-employed people wrongly believe they would not be eligible for income protection if they fell ill and couldn’t work. However, Statutory Sick Pay isn’t available to self-employed workers, and for those workers that are eligible, the maximum that can be claimed is just £94.25 a week versus the average outgoing of £262.83[3] a week for self-employed or contract workers.

More than half (55%) have no life insurance, private medical insurance, critical illness cover or income protection should they find themselves unable to work due to illness or injury.

More Time off Work

Nearly half of those surveyed (45%) worry that sickness will prevent them working. They also worry about consistency of earnings (37%), and over a third (35%) of those workers who took time off for illness or injury last year returned to work before they felt they had fully recovered. Half (50%) of these said they did so because they couldn’t afford to take any more time off work.

People in full-time employment commonly receive sick pay and life insurance through their employer, but self-employed people need to provide it for themselves. Although many self-employed people and contractors worry about the consequences of an accident or illness preventing them from working, too few are taking steps to protect themselves from any loss of earnings if they are unable to work.

Do you have a financial safety net in place?

Many self-employed people consider income protection insurance and critical illness cover in case they get too sick or injured to work, or suffer from a serious illness. Life insurance is also common for people who have dependents, such as a partner or children. If you have any concerns or want to review your protection requirements, please contact us.

Source data:

[1] Research among 1,033 UK self-employed, part-time, contract and gig economy workers between 1 October and 7 October 2019, conducted by Opinium on behalf of LV=.
 [2] EMP14: Employees and self-employed by industry.
 [3] Average monthly outgoings of £1,182.76 recorded from 1,033 UK self-employed, part-time, contract and gig economy workers between 1 October and 7 October 2019, conducted by Opinium on behalf of LV=.

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Wealth transfer and the next generation

 560 315 Jess Easby
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How to secure your family’s financial future.

We spend a lifetime generating wealth and assets but not many of us ensure that it will be passed to the next generation – our children, grandchildren, nieces, nephews, and so on. Intergenerational wealth transfer is the passage of wealth from one family generation to the next.

It’s becoming increasingly important for more people to consider succession planning and intergenerational wealth transfer as part of their financial planning strategy. As the baby boomer generation reaches retirement age, we’re on the brink of a vast shift in assets, unlike any that we have seen before.

Wealth transfers

By 2027, it is expected that wealth transfers will nearly double from the current level of £69 billion, to £115 billion[1], coined as ‘the Great Wealth Transfer’ of the 21st century.

Intergenerational wealth transfer can be a huge issue for all family members concerned. If done well and executed properly, it can make a real difference to the financial position of the recipients. If misjudged or poorly handled, it can cause enormous issues, conflicts and resentments that are never forgotten nor forgiven.

Financial implications

One aspect that hasn’t been widely considered is the impact on other family members, and in particular children, as their parents think about selling their business or retiring from their career, perhaps selling their family home, and starting life in retirement.

It is important that children are prepared to deal with this process, not least so they are aware of the financial implications and how they may be affected. For instance, children may be expecting to receive a certain amount of money from their parents – particularly those who are selling a business – and end up disappointed. Conversely, they may not be expecting to receive anything, and are therefore not equipped to deal with a windfall.

Contributory factors

According to the King’s Court Trust, £5.5 trillion will move hands in the United Kingdom between now and 2055, with this move set to peak in 2035[2]. Why? Well, there are a number of contributory factors that account for this. The two main reasons are increased net worth and rising mortality rates.

For those approaching, or in, retirement, it’s important to have frank and open conversations with children about expectations and also whether children have the knowledge and understanding to manage financial matters.

Approaching retirement

This is not an easy exercise, as you may not want to discuss your financial affairs with your children. You may find your children’s eyes are opened when they see what their parents have been able to achieve financially. They may even want to know how they can do that themselves and change their own habits.

Everyone works hard to provide for their family, and perhaps even leave them a legacy. However, parents approaching retirement shouldn’t feel that their family is solely reliant on them, or that they need to be responsible for their children’s financial situation.

Expressing wishes

A good approach is to help your children establish their own strong financial footing and be ready for intergenerational wealth transfer. For instance, introducing them to your professional advisers can provide comfort that there is someone they can go to for advice.

Having open conversations with your children and expressing wishes and goals will also ensure that your family are all on the same page, which can help reduce potential conflict later when managing intergenerational wealth transfer. These are some questions you should answer as part of your intergenerational wealth transfer plans:

  • When did wealth enter my life and how do I think this timing influences my values and family relationships?
  • What impact does affluence have on my life and the lives of my next generation?
  • What was the key to my success in creating wealth and how might telling this story to my future generation be helpful?
  • What is my biggest concern in raising my children or grandchildren with affluence?
  • What conversations (if any) did I have with my own parents about money and wealth growing up?
  • How did my parents prepare me to receive wealth?
  • What lessons did I learn from my parents about money and finance that I would like to pass on to my heirs?
  • What family values would I like to pass down to the next generation and how do I plan on communicating this family legacy?
  • What concerns do I have about my adult children when it comes to inheriting and managing the family wealth?
  • How can I help prepare my beneficiaries to receive wealth and carry on our family legacy?

Between generations

Despite the vast amount of wealth likely to be passed down between generations, those in line for inheritance could end up being over-reliant on their expected windfall. The key will be to ensure younger generations are able to get involved and understand how to handle the wealth they will be inheriting, as well as being able to make good decisions about the wealth that they generate themselves.

You need to consider who will receive what and whether you want to pass your wealth during your lifetime or on death. These decisions then need to be balanced by the tax implications of any proposed planning. This is especially important at what can be a highly stressful time. By making advanced preparations, the burden of filing complicated Inheritance Tax returns can be reduced. It’s worth noting that UK Inheritance Tax receipts exceed £3bn from 17,900 estates[3].

Source data:
 [1] Kings Court trust, ‘Passing on the Pounds – The rise of the UK’s inheritance economy’.
[2] Resolution Foundation, Intergenerational Commission. ‘The Million dollar be-question’.
[3] Prudential 2019.

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Estate Protection

 560 315 Jess Easby
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Preserving your wealth and transferring it effectively.

Estate planning is an important part of wealth management, no matter how much wealth you have built up. It’s the process of making a plan for how your assets will be distributed upon your death or incapacitation.

As a nation, we are reluctant to talk about inheritance. Through estate planning, however, you can ensure your assets are given to the people and organisations you care about, and you can also take steps to minimise the impact of taxes and other costs on your estate.

In order to establish the value of your estate, it is first necessary to calculate the total worth of all your assets. No matter how large or how modest, your estate is comprised of everything you own, including your home, cars, other properties, savings and investments, life insurance (if not written in an appropriate trust), furniture, jewellery, works of art, and any other personal possessions.

Having an effective estate plan in place will not only help to ensure that those you care about the most will be taken care of when you’re no longer around, but it can also help minimise Inheritance Tax (IHT) liabilities and ensure that assets are transferred in an orderly manner.

Write a Will

The reason to make a Will is to control how your estate is divided – but it isn’t just about money. Your Will is also the document in which you appoint guardians to look after your children or your dependents. Almost half (44%) of over-55s have not made a Will[1], and as such, they will not have any say in what happens to their assets when they die.

Should you die without a valid Will, you will have died intestate. In these cases, your assets are distributed according to the Intestacy Rules in a set order laid down by law. This order may not reflect your wishes.

Even for those who are married or in a registered civil partnership, dying without leaving a Will may mean that your spouse or registered civil partner does not inherit the whole of your estate. Remember: life and circumstances change over time, and your Will should reflect those changes – so keep it updated.

Make a Lasting Power of Attorney

Increasingly, more people in the UK are using legal instruments that ensure their affairs are looked after when they become incapable of looking after their finances or making decisions about their health and welfare.

By arranging a Lasting Power of Attorney, you are officially naming someone to have the power to take care of your property, your financial affairs, and your health and welfare if you suffer an incapacitating illness or injury.

Plan for Inheritance Tax

IHT is calculated based on the value of the property, money and possessions of someone who has died if the total value of their assets exceeds £325,000, or £650,000 if they’re married or widowed. If you plan ahead, it is usually possible to pass on more of your wealth to your chosen beneficiaries and to pay less IHT.

Since April 2017, an additional main residence nil-rate band allowance was phased in. It is currently worth £150,000, but it will rise to £175,000 per person by April this year. However, not everyone will be able to benefit from the new allowance, as you can only use it if you are passing your home to your children, grandchildren or any other lineal descendant. If you don’t have any direct descendants, you won’t qualify for the allowance.

The headline rate of IHT is 40%, though there are various exemptions, allowances and reliefs that mean that the effective rate paid on estates is usually lower. Those leaving some of their estate to registered charities can qualify for a reduced headline rate of 36% on the part of the estate they leave to family and friends.

Gift Assets while you’re Alive

One thing that’s important to remember when developing an estate plan is that the process isn’t just about passing on your assets when you die. It’s also about analysing your finances now and potentially making the most of your assets while you are still alive. By gifting assets to younger generations while you’re still around, you could enjoy seeing the assets put to good use, while simultaneously reducing your IHT bill.

Make use of Gift Allowances

One way to pass on wealth tax-efficiently is to take advantage of gift allowances that are in place. Every person is allowed to make an IHT-free gift of up to £3,000 in any tax year, and this allowance can be carried forward one year if you don’t use up all your allowance.

This means you and your partner could gift your children or grandchildren £6,000 this year (or £12,000 if your previous year’s allowances weren’t used up) and that gift won’t incur IHT. You can continue to make this gift annually.

You are able to make small gifts of up to £250 per year to anyone you like. There is no limit to the number of recipients in one tax year, and these small gifts will also be IHT-free provided you have made no other gifts to that person during the tax year.

A Potentially Exempt Transfer (PET) enables you to make gifts of unlimited value which will become exempt from Inheritance Tax if you survive for a period of seven years.

Gifts that are made out of surplus income can also be free of IHT, as long as detailed records are maintained.

IHT-Exempt Assets

There are a number of specialist asset classes that are exempt to IHT. Several of these exemptions stem from government efforts over the years to protect farms and businesses from large Inheritance Tax bills that could result in assets having to be sold off when they were passed down to the next generation. Business relief (BR) acts to protect business owners from IHT on their business assets. It extends to include the ownership of shares in any unlisted company. It also offers partial relief for those who own majority rights in listed companies, land, buildings or business machinery, or have such assets held in a trust.

Life Insurance within a Trust

A life insurance policy in trust is a legal arrangement that keeps a life insurance pay-out separate from the valuation of your estate after you die. By ring-fencing the proceeds from a life insurance policy by putting it in an appropriate trust, you could protect it from IHT. The proceeds of a trust are typically overseen by a trustee(s) whom you appoint. These proceeds go to the people you’ve chosen, known as your ‘beneficiaries’. It’s the responsibility of the trustee(s) to make sure the money you’ve set aside goes to whom you want it to after you pass away.

Keep Wealth within a Pension

When you die, your pension funds may be inherited by your loved ones. But who inherits, and how much, is governed by complex rules. Money left in your pensions can be passed on to anyone you choose more tax-efficiently than ever, depending on the type of pension you have, by you nominating to whom you would like to leave your pension savings (your Will won’t do this for you) and your age when you die, before or after the age of 75.

Your pension is normally free of IHT, unlike many other investments. It is not part of your taxable estate. Keeping your pension wealth within your pension fund and passing it down to future generations can be very tax-efficient estate planning.

It combines IHT-free investment returns and potentially, for some beneficiaries, tax-free withdrawals. Remember that any money you take out of your pension becomes part of your estate and could be subject to IHT. This includes any of your tax-free cash allowance which you might not have spent. Also, older style pensions may be inside your estate for IHT.

Make Sure Wealth Stays in the Right Hands

Estate planning is a complex area that is subject to regular regulatory change. Whatever you wish for your wealth, we can tailor a plan that reflects your priorities and particular circumstances. To find out more, or if you have any questions relating to estate planning, don’t hesitate to contact us.

Source data: [1] Brewin Dolphin research: Opinium surveyed 5,000 UK adults online between 30 August and 5 September 2018.

Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from. Taxation are subject to change. The rules around trusts are complicated, so you should always obtain professional advice. The value of investments and the income they produce can fall as well as rise. You may get back less than you invested.

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Why Silence Isn’t Necessarily Bliss

 560 315 Jess Easby
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Over six million adults refuse to discuss their will with loved ones. Making a Will is very important if you care what happens to your money and your belongings after you die, and most of us do. But have you tried to talk with your children about your Will? If that conversation isn’t happening, you’re not alone.

And it’s not only parents who are uncomfortable. Adult children may also be nervous about raising the topic of their parents’ finances for fear they appear greedy or nosy. Understandably, talking about dying can be seen as ‘taboo’ and it is not always easy to bring it up. However, discussing your Will with beneficiaries means they are better prepared when the time comes. However, worryingly, almost six and half million adults refuse to discuss their Will with loved ones according to new research[1]. A quarter (26%) of people with a Will say they will not discuss it as they do not want to think about dying, and one in four (27%) do not want to upset beneficiaries by discussing the contents of their Will[2]. It is also hugely important for family members to be aware of vital decisions in your Will, such as who will look after your children. By overcoming ‘death anxiety,’ the natural fear of talking about death and the emotions associated with it, these important conversations can ensure your beneficiaries are aware of your wishes and understand them. Nearly half (45%) of UK parents, the research identified, with adult children believe their Will is ‘no one’s business’ but their own or a partner’s. But sharing the contents of a Will makes the financial and practical consequences of death easier for those left behind. Losing someone can have a huge impact on finances for months or even years to come, so it is crucial for families to be prepared.

‘When I’m gone’ conversation with your partner or family

Avoid talking to someone when they’re busy. Look for opportunities to broach the subject, such as when you’re discussing the future or perhaps following the death of someone close to you

  • Consider beginning the conversation with a question such as, ‘Have you ever wondered what would happen…?’; ‘Do you think we should talk about…?’
  • Think about how you would manage financially should the worst happen. What impact would losing a partner or family member have on your household income and your expenses? Be aware that your financial situation may change in the future
  • Make sure you know where all important documents such as Wills, bank details, insurance policies, etc. are kept, so that you have all the information you might need
  • Prepare in advance – would you know how to manage the day-to-day finances? If not, consider how you could start to learn about them now so this doesn’t come as a shock

In the event of an illness, loss of capacity or death – are your plans in place?

Many of us will eventually reach a point in our lives when we require specialist assistance to ensure that our family will be able to cope better and manage their affairs in the event of an illness, loss of capacity or death. If you would like to review your particular situation, contact us to arrange an appointment.

Source data: [1] Royal London – six million figure is based on ONS adult population stats of 52.8million. Our research shows 47% of UK adults have a Will – 26% of this figure equates to 6,458,535.05 [2] Opinium on behalf of Royal London surveyed 2,006 adults between 26 and 29 October 2018. The survey was carried out online. The figures have been weighted and are representative of all GB adults (aged 18+).

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Tax-wise

 560 315 Jess Easby
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Make the most of your valuable allowances, reliefs and exemptions

Once we enter January, the end of the 2019/20 tax year will be just over three months away on 5 April. As this date approaches, the window of opportunity reduces if you want to make the most of valuable allowances, reliefs and exemptions that could help reduce your tax bill and make sure your finances stay tax-efficient.

Some of these allowances will be lost forever if they are not used before the tax year end – and the sooner you claim them the better. Every year, some people leave end-of-year tax planning until the last minute. But leaving planning until the eleventh hour increases the risk that you will discover you have left it too late and missed out on the chance to improve your financial position.

Acting well before the tax year end means you can also be sure that you are maximising your opportunities and minimising your stress. The list we’ve provided below isn’t exhaustive, but it highlights some of the main areas to consider if appropriate to your particular situation. If you would like to discuss your own financial position, please contact us.

Income Tax

Consider making use of lower-rate tax bands. It’s important to review the tax implications of transferring income-producing assets and taking note of anti-avoidance and settlements legislation.

The way you receive an income, and the rates and allowances that apply, should be at the front of your mind. How much you pay depends on where you live in the UK, with Scotland and Wales in receipt of devolved powers to set their own Income Tax bands on top of the personal allowance.

The annual dividend allowance remains at £2,000 for 2019/20 after reducing from £5,000 this time last year. With the new personal allowance of £12,500 added to the frozen dividend allowance, the maximum tax-free income you can receive through dividends is £14,500 in 2019/20.

Some smaller amounts of income are tax-free up to annual limits. Under the Government’s renta-room scheme, you can continue to earn taxfree income of up to £7,500 a year from letting out a furnished room in your home.

Individual Savings Account (ISA) Allowance

With a Cash ISA or a Stocks & Shares ISA (or a combination of the two), you can save or invest up to £20,000 a year tax-efficiently.

If you are in a position to, it makes sense for you and your spouse to take advantage of each other’s ISA allowance, particularly if one of you has more financial resources than the other. That way, combined, you can save (in the case of Cash ISAs) or invest (in the case of Stocks & Shares ISAs) up to £40,000 tax-efficiently in 2019/20.

Currently, 16 and 17-year-olds actually get two ISA allowances, as they’re able to open a Junior ISA (which for 2019/20 has a limit of £4,368) and an adult Cash ISA. This means that you can put away up to £24,368 in your child’s name tax efficiently this tax year.

People aged 18–39 can open a Lifetime ISA, which entitles them to save up to £4,000 a year until they’re 50. The Government will top up the savings by 25%, up to a maximum of
£1,000 a year.

Pension Contributions

The annual pensions allowance enables you to contribute up to £40,000 in 2019/20. If your adjusted income exceeds £150,000 in 2019/20, your annual allowance will be reduced by £1 for every £2 that exceeds this threshold down to a limit of £10,000.

Any unused pensions annual allowance can be carried forward for three tax years, providing you were a member of a registered pension schemeduring that period. This unused allowance can be added to your 2019/20 annual allowance, giving a maximum pension contribution of £160,000, all of which will attract personal tax relief if you have the required level of relevant earnings.

You can also increase your basic State Pension by paying voluntary Class 3 National Insurance Contributions (NICs).

Consider contributing up to £2,880 towards a pension for your non-earning spouse or children. Tax relief is added to your contribution, so if you contribute £2,880, a total of £3,600 a year will be paid into the pension scheme, even if you earn less than this or have no income at all.

You begin to lose your personal allowance once your adjusted net income exceeds £100,000, such that the allowance reduces to £0 when adjusted net income reaches £125,000.

Inheritance Tax

You can act at any time to help reduce a potential Inheritance Tax (IHT) bill when you’re no longer around.

Gifts of up to £3,000 per year can be made on an IHT-free basis. The limit increases to £6,000 if the previous year’s annual exemption was not used.

A married couple can therefore make IHT exempt gifts totalling £12,000 – if unused, the annual allowance can be carried forward to the next tax year only. This simple technique could save a possible IHT bill of £4,800 in the event of your untimely death.

You should also consider using other annual gifts such as gifts in consideration of marriage or £250 small gifts.

Business Relief (BR) is a valuable IHT relief, with business property potentially receiving up to 100% relief if certain criteria are met. BR is an important part of succession planning, but due to the complexity of the BR rules, the relief may not be due even though you expect to meet the conditions.

It is important to regularly review your BR position to ensure that it continues to apply and that your business activities do not jeopardise your BR position.

Capital Gain Tax Allowance

Capital Gains Tax (CGT) is a tax on the gains and profits you make when you sell something, such as an investment portfolio or second home.

Everyone has an annual allowance of £12,000 (in 2019/20) before CGT applies. Like the ISA allowance, it doesn’t roll over – so if you don’t use it, you’ll lose out. And you may have to pay more CGT in the future.

Also, it’s worth remembering the allowance is for individuals, so couples have a joint allowance for 2019/20 of £24,000. In some situations, it may be appropriate to transfer assets into your joint names so you both stay within your individual allowances. However, this is only effective if the gift is a genuine gift of beneficial ownership, and the transferor does not continue to benefit from the asset following the transfer.

Not every investment portfolio is subject to CGT. If you’re looking for a tax-efficient way to invest, a Stocks & Shares ISA could be for you. Just like any investment, it carries risk – meaning you could lose some or all of your money – but if you do make a profit due to share price increases, you won’t be required to pay CGT on it.

A Bed & ISA will allow you to utilise the current year’s ISA allowance by moving investments from an unwrapped environment to the ISA tax-efficient wrapper. This is achieved by disposing of the unwrapped investment and repurchasing it via an ISA. The disposal of the unwrapped investments may be liable to CGT, but once inside the ISA, the investments are sheltered from CGT in the future.

Don’t lose it, use it

As we make our way towards the end of the tax year, now is the ideal time to review your tax affairs to ensure that you have taken advantage of all the valuable allowances, reliefs and exemptions available to you. To discuss the planning opportunities available to help you, your family and business to reduce your tax bill, please contact us.

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