Monthly Archives

April 2019

Inheritance Tax: How to Reduce the Bill

By | Financial Planning

Many families stand to lose more money to the Government through Inheritance Tax (IHT) than they really should. In 2016, £585 million was spent unnecessarily on IHT by British taxpayers. With IHT receipts expected to reach an all-time high in 2018, it seems unlikely that this trend will reverse in 2019.

Certainly, everyone should pay their fair share to society, but why should your loved ones lose out needlessly? At FAS we can help you to put sensible measures in place ahead of time to ensure that you, one day, leave a meaningful legacy to your family.

Here are some practical ways we can help you to reduce your IHT liability:

The Nil Rate Band & Additional Threshold

A new rule was introduced on 6 April 2017 which has had an important impact on IHT planning. It is something to consider if you have direct descendants.

To quickly recap, in 2019-20 Inheritance Tax (IHT) is levied at 40% on the value of your Estate over £325,000. This threshold is called the Nil Rate Band (NRB).

Your “Estate” includes assets such as your property, cars and personal possessions.

So, if your Estate is valued at £475,000 when you die, then £325,000 would be free of IHT. The rest of it – i.e. £150,000 – would likely be taxed at 40%, which means an IHT bill of £60,000.

Since 6 April 2017, however, an Additional Threshold (AT) has been in place which can reduce your tax bill. This new threshold allows you to pass on an extra £150,000 in 2019-20 to direct descendants (e.g. children or grandchildren) in the form of your residential property.

Let’s see how this would affect the example above. Suppose this person’s £475,000 Estate consists entirely of their home. Assuming they pass this property onto a direct descendant, the whole Estate would likely be free from Inheritance Tax. This is because it would fall under the combined thresholds (i.e. £325,000 NRB + £150,000 AT = £475,000 allowance).

Spouse / Civil Partner Benefits

Each person has their own Nil Rate Band and Additional Threshold. That means you have your own NRB and AT, and if you are married then your spouse does too (the same applies in civil partnerships).

When you combine these allowances together it means that you can effectively double the amount you can pass on to beneficiaries, Tax-free, via an Inheritance:

Person A: £325,000 NRB + £150,000 = £475,000
Person B: £325,000 NRB + £150,000 = £475,000

Total Tax-free allowance (2019-20) = £950,000

So, if you and your spouse / civil partner own a £900,000 home and pass it to your children when you die, then you should be able to do so, Tax-free, assuming everything is in order, and the remainder of your Estate is less than £50,000.

Remember, your unused allowances pass on to your spouse if you die before them. You do not need to both die at the same time to combine your NRB and AT allowances!

Bear in mind that you cannot combine your IHT allowances in this way if you and your partner are unmarried, or not in a civil partnership. This is the case even if you have lived together for a long time and have children.

Pension Planning

Pensions are primarily intended to provide you with an income when you retire. However, they can also be an important part of your IHT strategy.

Remember we mentioned that your “Estate” comprises assets such as your property, cars and personal possessions? Pensions are notably absent from that list.

That’s because your pension does not form part of your Estate for IHT purposes. So, if you have a £750,000 house and a £300,000 pension pot when you die, the former might be liable to Inheritance Tax. The latter will likely not be.

You can pass on your pension pot to your beneficiaries, Tax-free, if you die before the age of 75. If you die after that age then the pot still does not face IHT. However, your beneficiaries will have to add any money they receive from your pension to their income. That means that they could face a higher Income Tax bill.

With some careful financial planning, you can therefore potentially pass on more of your wealth to your loved ones via your pension pot(s). Please note that you cannot do this with Final Salary pensions or Defined Benefit pensions.

Making Gifts

The IHT rules in 2019-20 allow you to give away up to £3,000 per year, Tax-free. Think about that. Over five years that amounts to £15,000. Over fifteen years it totals £45,000.

You could ignore this allowance but consider that £45,000 taxed at 40% IHT amounts to £18,000 that could have otherwise gone to your family. So gift-making is not a strategy to dismiss lightly.

We can help you understand the current allowances and how they impact on you and your family. One annual exemption that is often missed is for wedding gifts. Here, you can give up to £5,000 (Tax-free) to your child for their wedding day (£2,500 for a grandchild or great-grandchild).

Other Options

The above examples are just a handful of tactics to consider when thinking about Estate planning for your beneficiaries. Other options which might be appropriate for you include using Trusts and taking out a Life Insurance policy.

The rules surrounding Inheritance Tax are quite complicated and are subject to change. You could easily miss an important consideration if you try doing everything yourself, especially if you have a large complex estate.

Please do get in touch if you wish to discuss any aspect of the above in more detail.

What Difference can a Diversified Portfolio make?

By | Investments

Investing can be an incredibly risky business if you do not know what you are doing.

The story of a Chinese farmer who invested his life savings in a local mining company illustrates the point perfectly. He lost $164,000 when the company failed. Not only that, but he went into debt to buy $1 million more stocks to recoup his losses.

Most of us can see the problem here and think we would never do something so foolish as to put all of our eggs in one basket. Yet many people do make investment mistakes, sometimes against their better judgement and sometimes without realising it.

This is where a diversified portfolio can help protect your wealth. By spreading your money across multiple asset classes and investment types, you can mitigate your losses whilst maintaining a steady level of growth over the long term.

Diversification: An Example

The 2008 financial crisis might seem long ago to some people. For many investors, however, the pain is still fresh. Some people lost as much as 30% of their portfolio value in one year.

Yet this period of recent history provides a valuable lesson about the importance of diversifying your investments. Those investors with bonds in their portfolios, for instance, fared the storm much better than those with fewer bond investments and higher levels of (UK) equities.

Some portfolios with over 60% (UK) equities lost over 20% of the value of their portfolio between the end of 2007 and the beginning of 2009. Those with over 60% bonds might have only made a minimal loss – or even none at all.

The point here is not to try and argue that it is better to invest in bonds rather than stocks. Remember, past performance is no guarantee of future returns. Also, each investment type brings its own potential risks and rewards. Stocks tend to be higher risk with higher potential return, whilst bonds tend to carry lower risk and lower potential return.

Rather, the point is to show the importance of diversifying your investment portfolio. Had an investor put all of their money into (UK) equities during the 2008 financial crisis, their portfolio would have almost certainly taken an unbearable hit. However, by having investments spread out across different kinds of stocks, bonds and other assets, you lower your risk levels and minimise potential damage.

A Diversified Portfolio: Common Components

Domestic equities

Equities are sometimes also called “shares” or “stocks”. Here, you buy a degree of ownership in a company or set of companies in order to gain an investment return (e.g. on their profits). For the British investor, domestic equities refer to your investments in UK companies and typically form an important part of your portfolio.

At the time of writing, large numbers of UK stocks have been sold off in light of Brexit. This might sound like a bad thing for investors, but it could actually present them with some new opportunities to make a return.

However, the uncertainty surrounding Brexit should serve as a warning to not put all of your investments into one country’s equities, where they will be subject to the health, nature and effects of that single economy.

International equities

One way to diversify the equities in your portfolio is to buy shares in companies outside the UK. For instance, you might invest in funds which buy shares in the USA, Western Europe or even across the world. Certain funds might focus on a particular region such as technology companies in East Asia.

International equities can be a great way to spread your investment risk and leverage opportunities outside of the domestic market. However, they can be subject to currency fluctuations which can impact the value of your invest – even if you make a return. So, once again, it is a good idea to spread your investments out rather than just invest in these equities.


Bonds are essentially a kind of “IOU” and are generally seen as less-risky than equities. For instance, you can buy a UK government bond and you be fairly confident that they will eventually pay the principal back with interest.

Due to their lower level of investment risk, bonds generally provide a lower investment return compared to equities. Therefore, they offer less growth potential for investors looking to expand their wealth, but are an attractive “insurance policy” against market dips and are a useful tool for investors to protect wealth as they approach retirement.


Quite often a portfolio will also include investments in property in the UK, and possibly abroad. One common approach is for investors to put some of their money into REITs (Real-Estate Investment Trusts), which allows them to buy commercial property using pooled funds with other investors.

REITs and other real estate investments can offer some strong returns, but they also carry their own risks. Looking at Brexit once again, the uncertainty here has raised a lot of questions about the future of the UK property market and house prices. So, the rule of diversification applies.

Constructing a Diversified Portfolio

When building a diversified investment portfolio, you should consider the tax efficiency of your investments, as well as some of the popular investment platforms. However, building a solid investment portfolio which meets your needs and appropriately diversifies is not easy.

At FAS, we ensure you make informed choices about how to invest your money whilst taking into account charges and taxation, as well reducing investment risk without necessarily hampering growth potential!

Better to stay in the Market than try to time it

By | Investments

Markets can be intimidating beasts. They go up and they go down. Some people profit through their investments whilst others lose money.

How is an investor supposed to approach this picture? Should you put your money into markets given the risks involved? If so, how much should you commit and what should you invest it in?

Moreover, when should you put it in and when should you take it out? Should you withdraw your money as markets are falling or during periods of volatility to try and curb your losses?

This latter question is the one we want to focus on here. This is known as “timing the market” and, generally speaking, it is a bad idea.

It might seem counter-intuitive, but it is ultimately better to stay in the market for a long period of time rather than trying to time it. Here’s why:

The Difficulty of Prediction

If you are already investing, remember why you invested in the first place.

It might be because you wanted to build up enough money for a comfortable retirement one day. Markets can be a great way to achieve that. Consider, for instance, that equities in the UK have grown by 5% on average each year since 1900.

However, you likely knew that it wouldn’t be plain sailing when you first started investing. The very nature of markets is that they stop and start. They bring short-term risks but also the potential of longer-term growth.

Consistently predicting the short-term dips and troughs is incredibly difficult, if not impossible. Think about the number of variables involved leading up to a market crash or substantial rise. There are human decisions made within governments and companies, which themselves are very hard to anticipate. Then there are local and world events which come down to bear.

Trying to see the near-future in this ever-shifting puzzle (where new pieces are constantly thrown into the mix) is clearly beyond normal human capacity, although this does not stop lots of stock brokers from trying!

It is very hard to see a market fall coming and pull your money out to protect it in time. In fact, trying to time the market in this way can really cost you both in the short and long term…

The Cost of Getting it Wrong

Consider for a moment what might happen if you missed some of the best days on the stock market because you pulled your money out at the wrong time.

One study actually tried to demonstrate this for the FTSE 250. It showed that if you invested £1,000 in 1987 and left it there for three decades it would be worth £24,686.

However, if during that time you put your money in and pulled it out, missing the FTSE 250’s best 30 days, then the money would be worth £6,878. That’s a difference of £17,808.

When you spread out the annual return over the thirty-year period, you would have seen an 11.3% return if you had kept your money in the FTSE 250.

Had you missed the best ten days it would be 9.3%. Had you missed twenty of them, it would be 7.9% and if you missed all thirty days it would be 6.6%.

These percentages might seem small, but over thirty years the difference amounts to a lot of money due to the nature of compound interest. There might be just 4.7% between 11.3% and 6.6%, for example, but remember that represents £17,808 in the above scenario.

In other words, rather than trying to time the markets it is almost always better to stay put and aim for longer term growth.

Should I invest now?

The answer to that question depends on your own financial circumstances. At the time of writing, it might be tempting to think that you should not invest right now given uncertainties surrounding the U.S.-China trade war and Brexit.

However, this is not necessarily a reason not to invest. Historically, some of the best investment returns have happened during times of great economic challenge.

One sensible way to protect yourself from short-term market dips and shocks is through “pound cost averaging”. Very simply, this means that you put your money into the markets gradually rather than in one bulk.

So rather than putting £20,000 straight away into stocks (which might then suddenly go down) you could put £2,000 into stocks over a 10-month period, reducing your risk exposure. It might mean that you actually end up making a better return in the long run, because you could end up buying more stocks at a cheaper price during a market dip. If these then rise in value down the line then you actually will have gained a higher investment return because of the dip. Conversely, of course, you could lose out on gains if the markets continue to rise during your phasing period.

Investment Tips

Unfortunately, you cannot completely shield yourself from short-term investment risks and market falls. However, there are some tactics you can use to increase your chances of gaining a higher investment return over the long-term:

    Diversify your investments across a range of stocks, funds and asset classes. That way, if one company or market falls your other investments will help balance the risk.
    Invest sooner rather than later. Remember the power of compounding. £10,000 invested over ten years produces about £16,288 at a 5% annual return. Over twenty years it gives you about £26,532. Over thirty is gives you about £43,219. Over forty years, you are potentially looking at £70,399.
    Take advantage of ISAs and other tax allowances to make sure you keep as much of your investment returns for yourself as possible.
    Stay in the market. Remember the potential costs of missing the best investment days because you incorrectly timed the market.

Scams & Unregulated Investments: Update & Warning

By | Pensions

You have spent years building your wealth to support your family and lifestyle. It would be a great shame to lose it to scammers, unscrupulous businesses and high-risk investments.

Yet every year that is exactly what happens. Since 2014 at least £42 million has disappeared from people’s pension pots due to fraud. Worryingly, the Financial Conduct Authority (FCA) says this is likely to be a fraction of the scale of the problem.

Safeguarding your hard-earned family wealth is one of our top priorities at FAS. In this guide, we are going to shed light on some of the latest scams so that you are armed with more knowledge to protect yourself.

The two main areas we will cover are pension scams and unregulated investments.

Pension Scams: What to Watch For

The UK government finally made cold calling about pensions illegal in January 2019 – after years of consultation. This is a welcome move.

This new law was brought in due to pensioners receiving fraudulent calls. People who were tricked by these calls lost, on average, about £91,000 in 2018 and some were even left penniless in retirement.

Despite the ban, however, there are still companies making unsolicited calls to people in the UK about their pension. Sometimes these businesses are based off-shore, far away from the reach of prosecution under British law. So you still need to be careful.

Please note that pension scams do not merely come in the form of unsolicited phone calls about your pension. They can also involve unexpected texts, emails or social media messages.

Be especially wary if you are in your 40s, 50s or 60s as these are prime targets for scammers.

As a general guide:

    Be immediately suspicious of any company that contacts you out of the blue about your pension(s). End the call if you do not recognise them.
    If a caller claims that they can help you access your pension before the age of 55, then it is almost certainly a scam. End the call and do not give out any personal information.
    Should a caller try to pressure you into acting quickly (due to a time-sensitive “offer”) then do not proceed any further with the conversation. Authorised Financial Planners are not allowed to pressure you into important financial decisions, so a stranger on the phone is certainly not allowed to either!
    If you are promised a deal which sounds too good to be true, then it almost certainly is. The main scam to watch out for here are promises of high investment returns with little-to-no investment risk. Almost always, investments with the potential for higher returns also carry a higher level of risk.
    Be wary of anyone offering a free pension review. This might be an attempt by a fraudulent person to access your financial information.

If the company you are speaking to is not FCA-authorised, then you should certainly not entertain a conversation with the caller. Either check the FCA register for the company name if you are at all uncertain about who you are dealing with or contact us.

Remember, a company is only allowed to contact you about your pension if they are FCA regulated and they have an existing relationship with you.

Unregulated Investments: Be on the Lookout

The tactics and issues surrounding pension scams are very similar to the dangers posed by people who try to sell you unregulated investments.

If someone contacts you unexpectedly about a “great investment” opportunity, and you have never spoken to them about it before, then you need to be very careful.

Generally speaking, we would urge you to end the conversation as soon as possible. Make sure you do not give away any personal information over the phone and try to record the name of the business that the caller claims to represent.

Remember, a company must be regulated by the FCA to provide the vast majority of financial services in the UK. If the business is not regulated, then you know not to deal with them further.

However, there is a chance that a caller might indeed represent an FCA-registered firm, but they are trying to sell you an “unregulated product”.

These financial products are high-risk and are not covered by the FCA’s rules or the Financial Services Compensation Scheme. That means you are unlikely to get any money back if you invest in the product and things go awry.

Once again, resist any claims which sound too good to be true (i.e. high returns and low / no investment risk) as well as any pressure to make quick decisions.

Be especially wary if the investment “opportunity” concerns bamboo, hotels, cryptocurrency or storage as these are unregulated products. For a full list of unregulated products, please see the FCA website here.

The Value of a Financial Planner

If there’s one valuable service that a good Financial Planner can provide, it is to give you a reliable “sounding board” and “firewall” against potential scams like the above.

Should someone contact you out of the blue about your pension or an investment opportunity, then you can ask us about it. We will be able to quickly detect whether or not it was a scam and advise you accordingly.

The value of a long-term, trusting relationship with a Financial Planner cannot be understated. It is certainly more reliable than someone you do not know, contacting you unexpectedly, offering grandiose promises and pressuring you to act against your best instincts!

If you are concerned about a recent call, email or message you received then please get in touch.