February 2020

Feb 26

person with a headset adjusting the speaker while staring at a screen

Warning – How to Avoid Financial Scams in 2020

By FAS | Financial Planning | No Comments

It’s no secret that financial scams are becoming more sophisticated in 2020. Earlier in February, The Guardian ran a story about how one unfortunate retired couple who were conned out of £43,000, and who are still struggling to gain compensation (their banks are claiming the couple were negligent). In this particular case, the couple received a call from a scammer who claimed to be a bank fraud investigator insisting that their savings could be stolen. They instructed the couple to phone their bank using the number on their bank card. However, as the couple did so, the scammer was able to cleverly keep the line open and divert them to a fake call centre.

We sometimes encounter sad stories such as these, or “near misses” which could have resulted in financial disaster. So what can you do to protect your family finances against malicious activity? We offer this short guide to help.

#1 Be careful on public WiFi

It has been estimated that at least 594 million people across the globe have been victims of cybercrime. Much of this can be attributed to the rise of public WiFi, which most of us admittedly use due to its convenience (especially when abroad). However, many of these networks are unsecure and fail to have adequate encryption measures in place, allowing hackers to intercept your sensitive data if you log into your mobile banking or make an online purchase.

One way you can avoid this danger is simply to conduct these kinds of activities on your trusted mobile network, and not on public WiFi. Another option, however, especially if you have no access to data, is to connect using a secure virtual private network (VPN), which encrypts the connection to and from your mobile device, creating a secure “tunnel”.

#2 Beware of unsolicited calls

We frequently speak to people who have received suspicious calls about their savings or pension. This is particularly common amongst senior citizens, who are deemed by scammers to be more vulnerable and in possession of greater sums of wealth than younger people.

The first important thing to note is that since early 2019 there has been a UK ban on pension cold calling. So, if you receive a call about your pension from someone you do not know, it is a good idea to consider ending the conversation and notifying your financial adviser. This ban does not stop such calls from happening, of course, so it’s important to always be vigilant.

You could also insist on something in writing from the caller. In other words, tell unsolicited callers: “I never follow instructions from unannounced calls. Write to me so I have something to refer to.” If the person on the phone pushes you because the matter is “urgent” or because “utmost secrecy is required”, then take this to be a red flag.

#3 Paper shredding

Without thinking, many of us throw away receipts which contain details of our credit card or debit card number. This is often where identity theft starts, so it would be prudent to invest in a paper shredder. Also, keep a regular eye on your bank statements or mobile banking (using a secure connection) to monitor any suspicious activity.

#4 Keep software up to date

Many of us are also quite lax when it comes to updating our security and antivirus software for PCs and mobile devices. Be careful not to get into the habit of simply pressing the “later” button when an important app or firewall program prompts you for an update. Many scammers can exploit open holes within these protective layers of security, so it’s important to keep them closed.

#5 Browse carefully

The internet is a fantastic way to manage your wealth and finances, using online investment platforms and mobile banking. Be careful, nonetheless, to check carefully which websites you visit and ensure they are secure. One simple way to do this is to check the website address in your browser to make sure it starts with “HTTPS” (not HTTP), which helps to encrypt the connection between your computer/device and the website.

Also, be aware when using email, text and other messaging services such as WhatsApp. If an unknown company sends you a message with a link (e.g. to your Amazon or iTunes account), think twice before clicking on it. Quite often these are fraudulent links to fake websites, dressed up to look like the real thing.

Exercise caution with friends and family as social media profiles and email accounts can sometimes be hacked and send these kinds of messages. If you receive a message about a new sales offer, for instance, consider typing the web address separately into a trusted search engine to find it, rather than simply clicking on a link which might take you somewhere unsafe.

This content is for information purposes only. It does not constitute investment advice or financial advice. To receive bespoke, regulated advice regarding your own financial affairs, please get in touch to speak to one of our independent financial planners here at FAS.

Feb 19

view of a river at sunset with a house on the banks

Is Property a Better Investment than the Stock Market?

By FAS | Investments | No Comments

Many people love the idea of investing in property. After all, a home is an asset you can smell, feel and easily understand. Plus, the beauty of many properties can also make the investment an artistic one and a labour of love. It has also been argued that homeownership is an important cultural value within British society, and property investing taps into that.

However, the picture isn’t completely clear. Despite the importance of homeownership to many British people, for instance, the UK now holds one of the lowest rates of homeownership in Europe (about 63.5%); lower than Croatia, Slovakia and Hungary. Much of the decline has been attributed to rising house prices and increasing unaffordability particularly for young people.

Homeownership is still widely regarded as a sign of economic progression. A property portfolio, therefore, is commonly viewed as a hallmark of high personal wealth and success. Yet, is building a property portfolio the best way forward for most people? In particular, could the stock markets hold better prospects for building and preserving wealth for you and your loved ones?

In this short guide, we will be offering some thoughts on these very questions and we hope you find this content informative.

Property vs. the Stock Market

The question of whether or not property beats the stock market as an investment depends on the perspective you take. Below are some of the main areas to consider:

Returns

Here, the question essentially asks which investment generates a greater profit but this isn’t as easy to establish as you might think. It is important to remember that there are many hidden costs involved with both property and stock market investing. The former will carry maintenance costs and repairs which affect your property portfolio, whilst the latter could be affected by excessive annual investment management fees that deplete rates of return.

There is also the investment timeline to consider. How many years should your comparison analysis be over and in addition to this, which properties or stocks are you comparing? For instance, properties in one part of the country may rise in value whilst others fall. Certain market indexes are also likely to vary in performance.

One interesting study is the research conducted by the Credit Suisse Research Institute, which compiled data over the last 118 years to find out where property out-performed stocks when it comes to rates of returns. They found that, on average, investing in UK stocks between 1900 and 2017 would have net a 5.5% rate of return each year, whilst house prices rose by 1.8% per year. So despite popular belief, Property does not necessarily provide a better return than the stock market over a period of time.

Taxes

Many believe that property holds better tax benefits than the stock market, yet this is a complex area.

Take Capital Gains Tax as an example. In 2019-20, you can earn up to £12,000 per year in Capital Gains without incurring any tax liability. This applies to the sale of owned property (excluding your main residential home) and to stock market investments, which you might sell after they have increased in value.

However, stocks still arguably have an edge over property as far as taxation is concerned, for at least two reasons. Firstly, you can shelter up to £20,000 of stock market investments within an ISA each year where gains made on investments are exempt from Capital Gains Tax (CGT). This is not possible with a Buy to Let property. Secondly, you can buy and sell your shareholdings over time, possibly keeping everything under your £12,000 CGT annual allowance. However, Capital Gains on property sales must be dealt with all at once and are likely to far exceed this allowance.

Risk

Investment risk is closely linked to rates of return. As a general rule, the greater the risk, the higher the level of potential return from an investment. So in theory, since stocks appear to offer greater returns than property, the latter should be less risky?

Over time, the stock market is likely to be more volatile than the property market. If you choose not to invest for the longer term (i.e. more than 5 years) then stocks and shares could be considered a more speculative investment depending on how markets have performed. However, there are at least two ways to mitigate this risk. First of all, diversifying your portfolio across different types of holdings, geographical areas and asset types can help spread the risk. Secondly, stock markets have historically grown over the years despite short-term volatility. By staying invested in the market when prices fall rather than “panic selling”, you can often weather the storm and benefit from the eventual upturn when markets recover.

Of course, it’s important to note that property investments are not inherently risk-free or immune from volatility either, as the 2008 financial crisis should remind us.

This content is for information purposes only. It does not constitute investment advice or financial advice. If you are interested in discussing your financial plan or investment strategy with one of our experienced financial planners at FAS please get in touch.

Feb 12

Photo of a little cheerful boy moving into his new family home

How to Ensure Your Wealth Passes to Your Loved Ones

By FAS | Tax Planning | No Comments

Keeping wealth within the family is desirable but not always easy to plan. There is a myriad of Inheritance Tax (IHT) rules to mitigate and these are often complicated and subject to change. As Financial Planners, we are here to help clients navigate this complex landscape and leave a meaningful legacy for their loved ones, without paying unnecessary tax.

In this short guide, our financial planning team will be sharing some ideas on how clients with complex estates can leave their wealth to younger generations.

The Nil-Rate Band

The Inheritance Tax (IHT) threshold, also known as the nil-rate band (NRB) refers to the threshold after which you start paying IHT (usually 40%) on the value of your estate. In the 2019-20 tax year, this is set at £325,000 and includes the value of your home. So, if your estate is worth £500,000 when you die, then £175,000 is potentially liable to be taxed at 40%.

However, there are a number of IHT rules which can affect your threshold, and how much you pay. First of all, married couples and civil partnerships can inherit any unused IHT allowance from their deceased spouse. If they have not previously used any of this allowance, then the surviving spouse can effectively “double” their IHT threshold to £650,000.

Secondly, there is also an important caveat regarding your home. If you pass on your family home to direct descendants (e.g. children or grandchildren) when you die, then you can raise your IHT-free threshold using an additional nil-rate band (ANRB). In 2019-20, this allows each individual to pass on an extra £150,000, tax-free.

Again, married couples and civil partners can combine their ANRBs to potentially shield £300,000 of property value from the tax man. It’s also worth noting that this threshold will be raised to £175,000 in April 2020, which could allow couples to pass a £1m estate to their direct descendants completely free of IHT. For many people living in the South East this is welcome news in light of rising property prices, which might have tipped their estate over the IHT bar.

Pensions

It may sound strange to focus on pensions in an article about estate planning, but they can be a vital tax-saving tool. Under current rules, your pension is excluded from the value of your estate for IHT purposes, allowing you to potentially pass hundreds of thousands of pounds to your loved ones without these funds being potentially liable to IHT.

However, you do need to be careful with this and we recommend speaking to one of our experienced financial planners to ensure your pension is properly integrated into your estate plan. For instance, final salary pensions rarely (if ever) can be inherited by children, although there are often reduced benefits for a surviving spouse. Your state pension, moreover, cannot be passed down to your children or to your husband, wife or partner.

It is those with defined contribution pensions who can primarily make use of this part of the IHT system. Even then, however, there can be tax implications. If you die before the age of 75, for example, then under current rules your beneficiaries can receive any pension funds tax-free. If you die after this age, however, then it might affect their Income Tax bill (possibly pushing them into a higher tax bracket).

Other areas

There are a range of other IHT-mitigation tactics open to people with complex estates, depending on your personal circumstances:

For those interested in small businesses or startup investing, the Enterprise Investment Scheme (EIS) may be worthwhile considering. Here, you can invest up to £1m per tax year into EIS-qualifying companies and receive up to 30% tax relief against your Income Tax bill. Provided you hold your EIS shares for at least two years, these can also be passed down to beneficiaries, IHT-free.
Trusts can be a great way to reduce IHT whilst retaining a degree of control over your assets. Not only can this help to protect your child’s legacy if your surviving partner decides to later remarry, a Trust can help you control how the money is spent on you children and grandchildren. However, make sure you seek independent financial advice before committing to a Trust, as these come in different forms with a variety of rules.
Life insurance is also an option to consider, as the payout from your policy can be used to cover a potential future IHT bill. Bear in mind that you need careful financial planning if you are considering this, as the insurance policy itself can be included in the valuation of your estate (e.g. if it is not properly written into a Trust). You also should speak to us to ensure whether an insurance policy makes financial sense for you. In some cases, it might be cheaper to simply pay the future IHT bill than pay for the policy.

Do give us a call if you wish to discuss this area of advice in more detail!

Feb 05

two people discussing something on a tablet

Financial Planning for Business Owners: A Short Guide

By FAS | Business Planning | No Comments

Financial planning can be a challenge when simply dealing with your own personal wealth and finances. Trying to tie your pension, taxes, protection and estate planning into one coherent strategy, for instance, required considerable thought and ongoing review. For business owners, however, things can be even more complex; often blurring the lines between professional and personal financial planning.