Monthly Archives

November 2020

Receipt from HMRC reading Capital Gains Tax

Explaining the government’s Capital Gains Tax review

By | Tax Planning | No Comments

A recent review of Capital Gains Tax suggests changes that could rake in £14 billion in additional revenue for the Treasury. We look at the implications for you.


Chancellor Rishi Sunak has earned lots of praise for his wide-ranging and unprecedented measures to help the UK combat the damaging effects of the coronavirus lockdowns. But already he is looking at ways to pay for them. One recent review of Capital Gains Tax (CGT) has recommended cutting the annual CGT allowance, and changing the rates at which CGT is taxed – moves which could earn billions of pounds for the Treasury, but could result in headaches and higher taxes for many of us.


What is CGT?

CGT is the tax people are expected to pay on the profit they make when they sell or dispose of an asset. The tax is calculated on the gain that is made rather than the total amount received. For CGT purposes, ‘chargeable’ assets will include property that is not your main home, shares that are not held in an ISA, and most personal possessions valued at more than £6,000 (with the exception of cars).


What is the annual CGT allowance?

Everyone is entitled to an annual CGT allowance of £12,300. This means that you will only have to pay CGT if the gains you have made on your assets are above this amount. So, if you sold shares at a profit of £15,000 this year, you would only pay CGT on £2,700 (the amount over the annual allowance).


What is the CGT rate?

According to the Treasury, some 265,000 individuals in the UK paid a combined total of £8.3 billion in CGT in the 2017/2018 tax year (the latest available figures). By comparison, in the same tax year, more than 31.2 million taxpayers paid a combined £180 billion in income tax. Higher rate taxpayers are expected to pay CGT at 28% on gains made from residential property, and at 20% on gains from other chargeable assets. Basic rate taxpayers usually pay CGT at 18% on residential property gains, and at 10% on other assets. But that could all be set to change.


The CGT review

In early November, the Office of Tax Simplification (OTS) published its eagerly anticipated report into CGT, commissioned by Rishi Sunak back in July. The report suggests that current CGT rules are “counter-intuitive” and have created “odd incentives” in several areas. It noted that the annual exemption could also “distort investment decisions”, pointing to 2017-18 tax year data showing that 50,000 people reported net gains just below the annual threshold.

Among the report’s findings, it suggested that the government should consider reducing the £12,300 annual CGT allowance, reducing it to between £2,000 and £4,000. It also suggested aligning CGT rates more closely with Income Tax, in a move that could raise up to £14 billion for the Exchequer. For higher rate taxpayers, that could mean the CGT tax rate increasing from 20% to something closer to 45%.


Who should be worried about changing the CGT rules?

The OTS proposals would most likely affect individuals with second homes, as well as those with large share portfolios sitting outside of tax-efficient ISAs. The proposals are also likely to cause bigger problems for owners of small companies who hold large sums of cash within their business with the aim of using the cash as a pension when they retire. The OTS also suggested that business owners should pay Income Tax rates on share-based remuneration and earnings retained in their companies. Other recommendations included changing Entrepreneurs’ Relief — recently renamed ‘Business Asset Disposal Relief’ — with an allowance focused on business owners approaching retirement.


How concerned should you be?

Firstly, there is no guarantee that these OTS proposals will end up as legislation. Yes, Rishi Sunak is keen to raise money to fill the fiscal hole left by the Covid-19 crisis. But any far-reaching CGT reforms are likely to prove unpopular with voters, and in particular those entrepreneurs and small business owners that do so much for the UK economy – and have faced such a difficult 2020. For now, the Treasury is keeping its cards close to its chest, saying only that “The government’s priority right now is supporting jobs and the economy”.

Secondly, it is very difficult to make future tax revenue calculations based on a ‘discretionary’ tax such as CGT. If the annual allowance is set too low, or CGT rates are too high, it may encourage individuals to hold onto their assets instead of selling them. If fewer people end up paying CGT, then the Treasury may find their hoped-for additional tax revenue predictions were over-optimistic, and that the CGT reforms have discouraged taxpayers from selling their assets and “distorted investment decisions” even further.


What actions should I be thinking about?

It is hard to predict what the Chancellor will ultimately decide, but with a coronavirus vaccine due for widespread distribution in 2021, it is fair to assume that the government’s attention will be turning from supporting jobs and the economy towards attempting to pay down some of the debt that has been run up this year. So, we feel now may well be a sensible time to undertake a review of your existing investment portfolios, to consider your CGT position and ensure your investments are as tax-efficient as possible.

In particular, this is a good time to focus on investments that have been held for some time, which may carry substantial gains. Whilst CGT is only one consideration when deciding on appropriate changes to an investment portfolio, the result of the OTS review may well mean that now is an ideal opportunity to consider existing investment portfolios in light of potential changes to come.


If you are interested in discussing your investments or tax planning with one of our experienced financial planners at FAS, please get in touch here.

This content is for information purposes only. It does not constitute investment advice or financial advice.

Mature woman writing a Will

Make November the month you write your Will

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If you’ve been putting off making a Will, now might be the right time to put it back on your to-do list. Throughout November, Will Aid is helping thousands of people to get their Wills written professionally, while also contributing to several charitable causes.


According to research from Royal London published in 2018, 54% of UK adults haven’t made a Will, and a worryingly high 5.4 million people in the UK don’t know how to go about making one. There are several reasons most people give for not making a Will. Procrastination is the most common reason, with lots planning to make one ‘when they get older’. A large proportion of people without a Will simply seem to believe that they don’t need to make one –  either because they feel they have very little value to leave behind or they are confident their estate would end up where they intended it to without one. But this may prove to be a mistake.


What does a Will do?

Your Will gives you the opportunity to clearly state your wishes about what should happen to your money, your possessions, and your property after you die. It also allows you to name the person or people you want to be in charge of organising your estate after your death (called your ‘executor’), and lets you give them specific instructions on how to carry out your wishes. This could be anything from appointing legal guardians for your children, making gifts of your possessions to family and friends, making arrangements for your pets, and your specific requests for your funeral.


Why is having a Will important?

Writing a Will puts the control over your wishes in your hands. But it also removes most of the complexity that comes with sorting out a person’s estate after their death, which is a particularly difficult and stressful period at the best of times. Knowing that you have a Will already in place can give you and your family peace of mind that the process of dealing with your estate has already been taken care of. And leaving a Will that states clearly who should get your possessions and your property when you die can prevent unnecessary distress for your loved ones after you’ve gone.


Providing clarity on your financial affairs

Writing a Will is particularly important for anyone who has children or other family members that depend on you financially, or if you would like to leave some of your possessions to people who are not considered part of your immediate family.


Writing a Will can also make your financial affairs clear to the taxman, and help reduce the amount of inheritance tax that could otherwise be payable on the value of the property and money you leave behind. For example, by specifying you are leaving the family home to your children or grandchildren, your estate can claim the main residence nil-rate band, which would allow it to benefit from up to an additional £175,000 in tax-free allowances in the 2020-2021 tax year.

Life Interests

Leaving a Will can also be tremendously important in more complicated family circumstances. For example, you can use a Will to provide a ‘Life Interest’ – which can prevent unpleasant and expensive legal battles between your loved ones after your death. Creating a Life Interest is particularly important for people who have divorced and have children from their first marriage. With a Life Interest, the deceased can make sure their new partner is legally entitled to stay in their home while ensuring it will be passed on to the children as part of their inheritance.


What happens if you don’t write a Will?

If you die without leaving a valid Will, this is called ‘intestacy’ or ‘dying intestate’. This means that if you live in England or Wales (the rules are different in Scotland), everything you own will be shared out under standard intestacy rules. In other words, the law gets to make the decisions on who gets what from your estate. Here are some of the most common problems that can arise from letting the law decide:

  • If you’re married, your husband or wife can inherit all of your estate even if you were separated at the time of your death. Your children might not get anything.
  • If you’re unmarried, and not in a civil partnership, your partner will not be legally entitled to anything when you die, no matter how long you were together.
  • If there is inheritance tax due on your estate, it could be significantly higher than necessary.
  • If you have children or grandchildren, the amount they are entitled to may depend on where you live in the UK.
  • If you die with no living close relatives, thanks to a law called bona vacantia, your entire estate could be handed to the Crown.


Stop putting it off

Some people worry about the costs involved with writing a Will, but in most cases it is not as expensive as you might think. And in November, you can arrange to have your Will written through Will Aid and make a charitable donation to several good causes at the same time.


What is Will Aid?

Will Aid is a partnership set up between the legal profession and nine of the UK’s best-loved charities. Since 1988, it has enabled helped raise more than £21 million for good causes, while ensuring that more people in the UK get peace of mind from having their Will professionally written. More than 500 solicitor firms nationwide took part in Will Aid last November, raising over £900,000 for charities working with some of the most vulnerable people in the UK and around the world.


How does Will Aid work?

Solicitors who are taking part in Will Aid will draw up a basic Will for clients without charging their usual fee. Instead, clients are invited to make a voluntary donation. The suggested donation is £100 for a single Will or £180 for couples. The donations are then given to nine of the UK’s biggest charities, including the NSPCC, Save The Children, Age UK, British Red Cross, and more.


Over the years, Will Aid has helped more than 300,000 people to put their financial affairs in order, make their last wishes known, and give them and their families peace of mind. If you would like to have your Will written through Will Aid, you can find your nearest participating solicitor and book an appointment on the Will Aid website.

Robo advice vs financial adviser

Why robo-advice won’t be taking over the world just yet

By | Financial Planning | No Comments

Trusting your finances to a digital investment platform might be cheap, but you can’t put a price on the peace of mind that personal financial advice gives you.

Technology has had an outsized impact on our lives for several years now. Every time you use a computer, your mobile phone, or take a trip in your car, algorithms are there, behind the scenes, helping to shape your decisions, whether you realise it or not. Algorithms even choose what we see on social media, they dictate which films we watch on Netflix, or what ends up in our basket when we shop online.

But when it comes to providing financial advice, algorithms are still lagging behind. Back in 2015, the introduction of ‘robo-advice’, which relied on computer-generated investment portfolios, was predicted to spell the beginning of the end for financial advisers. But five years later, although we have all grown used to doing most of our daily activities online, the machines don’t look like they’re winning this particular battle.


So, what exactly is robo-advice?

As you would expect, robo-advice is an online investment service where clients are asked a number of questions, including how much they wish to invest, how long they plan to invest the money for, and their general attitude towards risk. The answers to these questions are then used to invest the client’s money into one of several available investment portfolios. The money is then managed digitally for as long as the client wants to remain invested.


What are the positives of robo-advice?

First of all, robo-advice promises to keep the cost of the investment lower than you would expect if you tried to manage a diversified portfolio of investments yourself, or through a financial adviser. And by keeping things simple, it’s a very quick process to get a portfolio up and running. Once the questions have been answered, the client can have their funds invested within a day or so. For investors who have relatively small amounts to invest, it’s a good way of setting aside regular amounts without having to worry too much about keeping an eye on the investments.


What are the negatives of robo-advice?

Despite the name, robo advisers don’t usually offer financial advice. They use algorithms to know just enough about someone to place their money into a particular savings pot, but that’s about the extent of their ability to solve clients’ financial problems. For most people, robo-advice can only get them so far.


Why is robo-advice limiting?

If the events of 2020 have taught us anything, it is that life is unpredictable and sometimes more complicated than we would like it to be. The companies that offer robo-advice to customers want to convince people that financial advice can be stripped down to a computer-generated, algorithmic ‘paint by numbers’ approach. But the reality is that people’s needs are usually far more complex.

One of the most valuable aspects of having a relationship with a financial adviser or financial planner is that it goes far beyond just recommending and overseeing a specific investment.


It pays to have someone to talk to about money

Most people have an emotional relationship with money. Financial issues are the number one cause of arguments rows between married couples. It gives people sleepless nights, and can have a significant impact on their mental health. So, having a financial planner to talk to, someone to listen to your financial needs, hopes and fears, is still an essential part of the advice process – and not something that an algorithm can deal with (yet).


Keeping calm during a crisis

One of the ways that financial planners can really demonstrate their worth is through the value of their experience. This has been a strange year in investment terms. In the early months of the year, when the coronavirus pandemic – and subsequent lockdown – became a global threat, stock markets plunged in value. Inexperienced investors, or those without a financial adviser, often respond in times of crisis by selling their investments, and crystallising their losses.

But a good financial planner can take the emotion out of your financial decisions, help to put ‘apocalyptic’ media headlines into perspective, and make sure that your portfolio is best-positioned to take advantage of recent stock market falls, while also capitalising on longer-term trends. Financial planners can help to reduce the overall risk within your investment portfolio by recommending sophisticated investments, such as tax-efficient Venture Capital Trusts or Enterprise Investment Scheme plans, that simply aren’t available on robo-advice platforms.

In short, during volatile investment conditions, financial planners get the opportunity to get creative, demonstrate their experience and specialist skills, and to really prove their value to their clients. A robo adviser portfolio will just carry on regardless.


Financial planning that goes beyond investment

And of course, investment advice is just one aspect of what our financial planners do. The questions we ask during our fact-finding stage are not just restricted to finding out how much you want to invest and for how long. We are more interested in hearing you talk about your life goals, your plans for your retirement, the wealth you want to pass on to your children and grandchildren. We’re asking these questions because we want to help you plan your financial journey through life. All this information helps us to create a much deeper, lasting relationship with our clients throughout their relationship with us. And it means we’re ready to help when something unexpected happens.


Summary: a matter of trust

While algorithms have improved our way of life in many areas, often in areas we’re not even aware of, it’s also becoming more apparent that algorithms can themselves be flawed or contain hidden biases – after all, they are still programmed by humans.

The lack of take-up of the services offered by robo-advice companies suggests that most people are still deeply sceptical about leaving their financial future in the hands of computer programmes that don’t understand them or care about them.

For some people, using digital-only robo-advice is a cost-effective and simple way to start setting money aside for the future. But for the vast majority, there’s really no substitute to having an experienced financial planner giving you the confidence to make better informed investment decisions. When it comes to the really important questions, or those life-changing decisions, people will always prefer to talk to someone they trust. So, here’s our prediction for the future: financial planning will always be a people-first business.


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 here.

This content is for information purposes only. It does not constitute investment advice or financial advice.

Big tech companies icons on phone

Taking a closer look at tech stocks

By | Investments | No Comments

Tech stocks have led the global equity market recovery since the spring. Some argue that valuations are becoming stretched, but this doesn’t look like a repeat of the dotcom bubble in 2000.


It has been a colossal, if uneven, year for the world’s largest technology companies. The NASDAQ index, home to America’s most prominent tech names, has increased by more than 30% since the beginning of 2020, consolidating a rise of more than 400% over the past decade. And, in what’s been an extremely turbulent year for most companies, the continued strong performance of tech giants such as Apple and Microsoft have been a major reason why the headline US S&P 500 index remains in positive territory over the year to date. Apple’s share price has doubled in value in the past six months, and with the valuation of the company passing $2tn USD in August, the company is worth more than the UK’s 100 biggest companies combined.

It is not hard to see why tech stocks have done so well this year. Lockdown has caused significant changes to people’s lifestyles, and accelerated trends that were already well underway. As well as spending large amounts of time in front of their phones, computers and tv screens, people are shopping online more, storing their personal and business information remotely in the cloud, and companies are increasingly relying on data to make their business decisions. These areas were already expanding rapidly before the coronavirus lockdowns forced people to stay at home, and businesses to rapidly alter their working practices.

In a period when a large number of sectors of the economy have seen profits shrink and businesses come under pressure, tech stocks, along with pharmaceuticals and household goods, are sectors that have continued to see growth.


The rally heats up during the summer

During the summer, tech stocks enjoyed a renewed surge, with a number of additional factors contributing to the outperformance. One reason appears to be the actions of Softbank, a tech-driven investment company in Japan which took large derivative positions in seven of the most high-profile tech stocks (Facebook, Microsoft, Salesforce, Netflix, Alphabet, Adobe and Amazon). Softbank apparently carried out a series of enormous, aggressive trades, costing an estimated $50 billion, that drove up valuations during August and whipped up investor appetite.

Another reason for the rise of tech stocks during the summer, although this one is more open to speculation, is that they were due in part to the numbers of ‘day traders’ in the US. These were people who had considerably more time on their hands to play the stock markets during the summer – the high number of coronavirus cases in the US caused a number of strict lockdowns across most states – and opted to make short-term bets on tech stocks.

After the strong gains seen this year, it was, therefore, not unexpected to see some consolidation in the tech sector over recent weeks, with some profit taking in companies such as Tesla, which have enjoyed a stellar performance this year. That said, US software stock Snowflake attracted significant demand at its initial public offering in September, rising substantially above the expected offer price amidst interest from Warren Buffett’s Berkshire Hathaway. This can be viewed as a positive sign that momentum in the sector remains intact.


Are we seeing a replay of the dotcom bubble?

Some people have drawn unfavourable comparisons of the performance of tech stocks over the last year to the dotcom ‘boom and bust’ that took place in the late 1990s and early 2000s. Back then, excessive speculation and wild valuations for internet-based start-ups such as, and helped to cause a huge market crash that cost investors more than $5 trillion.

But one of the biggest differences between then and now is that today’s tech companies are established names, not ambitious start-ups. Even if valuations appear stretched, their popularity is based on their widespread adoption globally, and they are already making huge profits, and should these profits continue to increase over future years, current valuations may be justified.


Political headwinds ahead for ‘Big Tech’

One of the biggest issues facing tech companies is that some of them are now just too big. In the US and Europe, politicians have expressed concerns that companies such as Facebook and Amazon are too dominant in their sectors, and may have to have their activities curbed and their monopolies broken up in the interests of fair competition and stronger rights for consumers and smaller businesses. These concerns have been overtaken by COVID-19 this year, but could return and have an impact on the value of affected tech stocks now that the US presidential election has passed.


What should investors think or do?

No one can predict with any certainty what is going to happen to tech stocks in the next five years. But if you believe in the long-term case for technology companies, one of the better ways to invest is to spread the investment risk by choosing a dedicated technology fund that offers a blend of established names and future potential winners. That way, even if some of the larger tech names underperform, newer entrants could still do well. Active fund managers are well aware of the speculation over the future of tech stocks and will be positioning their portfolios to ensure they don’t rely too heavily on a concentrated pool of companies. As always, our experienced financial planners can help to find the right fund to help you take advantage of the investment opportunities out there.


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 here.


This content is for information purposes only. It does not constitute investment advice or financial advice.