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Feb 27
0

Maintaining control of children’s investments

By | Financial Planning

We are regularly asked to provide advice to parents and grandparents who wish to invest for their child or grandchild’s future, potentially to help with higher education costs, or towards a deposit for their first home, the cost of which has increased significantly over recent years. Data from Statista shows that the average deposit for first-time buyers in England in the 2022/23 tax year was £53,414. This is more than double the average deposit a first-time buyer needed to find in 2017/18, according to Savills. Even more stark is comparing the data to 1997/98, when the average first-time buyer deposit stood at just £2,200.

With the pressures of modern living, many young people will struggle to save for the average deposit, amidst costs of rent, household bills and living expenses. It is, therefore, often the case that children turn to the “Bank of Mum and Dad” for help, which could well coincide with a time when parents are aiming to clear mortgages of their own or trying to focus on their retirement planning.

Arranging appropriate investments for children can ease the financial burden for families and help provide the necessary funds to help pay for further education, or a house deposit. There are, however, decisions that need to be reached in respect of the structure of the investment plan, and whether to grant the child access to the funds at 18.

Tax-efficiency, but drawbacks

Two of the most popular methods of arranging children’s investments are structured so that the funds automatically belong to the child on their 18th birthday, which may not be a sensible step.

A Junior Individual Savings Account (JISA) allows a maximum investment of £9,000 per annum, and this can be funded by parents or other relatives, which can help with Inheritance Tax (IHT) planning. The JISA benefits from tax free returns and automatically converts to an adult ISA at 18.

A bare trust is another tax efficient way to save for a child’s future. The funds in trust belong to the child but are managed by the trustees (usually parents and grandparents) until they reach the age of 18. All income and gains generated within the trust are assessed on the child, except when the trust is created by a parent. In this case, income that exceeds £100 per tax year is assessed on the parent. It is important to note that this rule does not apply to grandparents.

Maintaining control

A common conversation point with clients are the risks involved when giving control of an investment to a child at the age of 18. Many parents and grandparents have concerns that the child may not make financially responsible decisions at this point in their life. As we mentioned above, the most common uses of investments for children are funding university costs or using the funds towards a deposit on a house; however, funds are unlikely to be needed for either purpose at the age of 18. Student loans cover the cost of tuition fees, and maintenance loans may cover some of the costs of living. The average age of a first-time buyer is 33 years old, and realistically, it is unlikely that anyone turning 18 will have sufficient earnings to support mortgage payments.

The risk is, therefore, that the child could use the funds for other purposes, such as holidays or socialising, and given the lack of control, could lead to disappointment that funds have been used unwisely, or could generate unwanted family friction.

The alternative is to exert control over when the child gains access to the funds. This is often a more palatable option; however, there are drawbacks that need to be considered. Instead of a bare trust structure, where the child owns the investment from the age of 18, a discretionary trust offers far greater flexibility and control. The trustees have complete discretion as to when funds are paid, and to which beneficiary. This is an ideal way of avoiding automatic access at 18, whilst still gifting funds, so that they leave the parent or grandparent’s potential estate. Discretionary trusts do, however, suffer a more punitive tax regime, which starts with the gift into trust and covers both income tax and capital gains tax. Additionally, discretionary trusts also suffer a potential charge to IHT at each ten-year anniversary.

Despite these drawbacks, careful planning can help reduce the tax burden significantly, and investment structures such as investment bonds can also avoid the need for trustees to account to H M Revenue & Customs each year. Segments of the Bond can be assigned to beneficiaries at a time trustees agree is appropriate, which could ease the tax burden further.

An alternative option is for parents and grandparents to set up separate investment accounts for their children, which remain held in the name of the parent or grandparents. Often such accounts carry a designation, to ensure that the investments remain separate to other accounts held. Naturally, such an approach would not be effective for IHT purposes as the investment remains in the name of the parent or grandparent, and the owner remains liable for income tax and capital gains tax; however, with careful selection of tax wrapper, a more tax-efficient approach can be adopted.

Getting the right advice

Parents and grandparents who wish to save for the next generations can explore a range of options, each with positives and drawbacks. Perhaps the best starting point to consider is whether you are content to give automatic access to the funds at 18 years old. In many cases, maintaining greater control is attractive, and with careful planning, the more onerous tax burden can be effectively managed. Our independent advisers have years of experience of advising parents and grandparents in this area. Speak to one of the team to start a conversation.

Feb 20
0

What a restricted adviser may not know

By | Financial Planning

When choosing a financial adviser, one of the primary decisions is whether to use an independent or restricted firm. Whilst the Financial Conduct Authority require firms to set out their service proposition at the outset, many consumers may not be aware of the difference between the two.

Firms offering an independent advice service, need to be able to recommend all types of retail investment and pension products from firms across the market without restriction. This contrasts with a restricted advice service, which may either be restricted by the type of products they offer, the number of providers they choose from, or both.

Both independent and restricted advisers must have achieved the requisite level of qualification, and therefore it is unfair to consider restricted advice as being “poor” advice; however, the constraints under which a restricted adviser needs to work could result in a compromised solution.

Investment selection

One of the key differences between restricted and independent advisers is the range of investment options offered. Restricted advisers generally build their investment proposition from a limited range of “in house” funds. Whilst many of the major restricted advice firms use external managers to manage their investment solutions, the adviser will only be able to choose investments from the pre-selected available panel of funds. This could mean that the investment portfolio designed for the client doesn’t necessarily fit their needs and objectives.

Even more restrictive are the increasingly common mixed asset solutions that many restricted advisers are now regularly recommending. These ready-made portfolios are largely passive in nature, and with limited active fund management, the potential for outperformance is reduced. These mixed asset solutions are undoubtedly more efficient and cost-effective for the restricted advice firm but offer a wholly inflexible and “one size fits all” solution.

In contrast, an independent adviser can select funds without restriction, which can lead to improved performance over the long term. Our analysis shows that a range of popular mixed asset funds (shown in shades of red and orange on the following chart) have largely tracked each other over the long term. The performance of the CDI Progressive Growth portfolio, which is built from our independent investment process and invests in a similar asset blend to the sample group, is shown in blue.

Performance of a range of restricted multi-asset funds (red/orange) compared to performance of CDI Progressive Growth portfolio (blue), over the last 7 years

Source: FE Analytics February 2025

Whole of Market advice

There is a wide range of financial products available on the open market, and new solutions are regularly released by product providers, which are often designed to improve tax-efficiency in response to changes in legislation. Using an independent adviser will mean that an adviser is free from constraint and can select from these products if they fit a client’s needs and objectives; however, a restricted adviser may not even be aware that such products and solutions exist, or if they are aware, they may be unable to recommend the product if it is not within the panel of options permitted through the restricted advice process.

Good examples of the drawbacks of restricted advice can be found when considering Inheritance Tax (IHT) planning, which is clearly an area of concern for many clients. A range of providers have released products designed to mitigate IHT liabilities, including those that seek to qualify for Business Relief. Most stocks listed on the Alternative Investment Market (AIM) will qualify for business relief, and many Discretionary Managed IHT solutions focus on AIM stocks as a way of mitigating an IHT liability. The recent Budget announced that AIM investments will only qualify for half of the available Business Relief from April 2026 and qualifying AIM investments will therefore face a potential IHT tax charge of 20%.

Being able to look across the whole of the market means that an independent adviser can consider asset-backed Business Relief solutions. These investments differ from AIM stocks, as the investment is made in unquoted companies that carry on trades such as renewable energy, storage and logistics, or secure lending. Asset-backed Business Relief investments are designed to produce more predictable returns, without the associated volatility inherent in AIM stocks; however, the returns generated by asset-backed investments may be lower than AIM stocks in strong market conditions. Perhaps the most important difference is that qualifying asset-backed investments will continue to receive 100% IHT relief (i.e. the full 40%) on investments after 6th April 2026, subject to an overall cap of £1m held in Business Relief assets.

Business Relief solutions are only one of a range of different products designed to mitigate a potential IHT liability. There are a variety of different insurance solutions available across the marketplace, which involve the use of protection policies and are often written in trust. A restricted advice proposition may not have the scope to consider all these options.

Making the most of our independent status

We are proud of the independent holistic advice service that we provide to our clients, and our advice process takes full advantage of our independent status, aiming to tailor the most appropriate solution to each and every client circumstance.

Understanding the marketplace is an ongoing process, as new products are released, and existing products are adjusted regularly. Our Investment Committee undertakes regular reviews of available platform services, and we use independent and external research to provide us with an unbiased view of the costs and features offered by each platform. The Committee also uses expert external research and analysis to review Inheritance Tax solutions, Venture Capital Trusts, Enterprise Investment Schemes and many other products.

If you are using a restricted adviser, it may be wise to consider what your restricted adviser isn’t telling you. You may be missing out on potential solutions that could be a better fit for your needs and objectives, which could also mean lower charges and potentially improve investment performance and/or tax-efficiency. Speak to one of our independent advisers to discuss your existing arrangements. We would be pleased to undertake an unbiased and impartial review and explain where improvements could be made.

Feb 06
0

Why you need to start retirement planning earlier than you may think

By | Retirement Planning

To anyone in their 30s or 40s, retirement plans may seem like something that can be put off until a later date. Multiple financial pressures such as paying down a mortgage, covering the costs of growing children or funding further education costs often mean that long-term financial planning takes a back seat.

It is often the case that people begin to focus on their retirement plans when they accept that retirement is only a decade or so away; however not taking control of your pension plans earlier may have financial consequences, as regularly reviewing your pension arrangements is crucial to ensuring a secure and comfortable future. With constant changes in pension legislation, stock market volatility and potential changes in your financial circumstances, it is important that your retirement plans remain on track to meet your goals.

Identify savings gaps

Many people underestimate the value of pension assets needed to maintain their desired lifestyle in retirement. The full basic State Pension, whilst increasing to £230 per week from 6th April 2025, can only support a very basic lifestyle, and political parties have openly acknowledged that the so-called “triple lock” is under threat. This could mean that increases to the State Pension could potentially fall behind the cost of living over the next decade or two. It is therefore important to start thinking about the level of income that you would like to aspire to achieve in retirement and consider how your existing plans are placed to reach this goal. This could identify savings gaps that could be filled by increasing pension contributions, which may be easier to afford if made incrementally over a longer period.

Working with an independent financial planner can help review your existing pension contributions and provide advice on the level of additional savings that may be required to meet your goals, and how to make contributions as tax-efficiently as possible.

Investment performance and the need to review

Defined Contribution pension funds are typically invested in a mix of assets such as equities, bonds, and property. Modern workplace pension contracts need to offer a “default” investment option, in which pension investments are held, unless a separate investment strategy is selected. The default investment option usually provides an element of auto-adjustment, known as lifestyling. Whilst this approach can vary from provider to provider, the premise is that in the early years, when you are some distance from your retirement age, the fund will invest largely in equities, with the aim of achieving long-term growth. As you nearer retirement, the mix of assets is automatically adjusted so that the allocation to lower risk assets is increased, with the adjustments eventually reaching a position where 25% of the portfolio is held as cash, with the balance held in a mix of assets, at the chosen retirement date.

For those who do not wish to take control of their pension, this approach is designed to avoid the potential for the value of pension savings to fall heavily just before retirement; however, taking control of your pension investments and making investment decisions, can produce outperformance and lead to a greater pension fund value at retirement. Furthermore, most lifestyle approaches are invested in passive investment funds only, which by their nature, will only ever track their benchmark index. Actively managed funds, invested in the same sector as a passive fund, could potentially outperform significantly, and considering your pension investments earlier in life can give more time for investment decisions to have an impact on your pension fund value, and the income it can generate in retirement.

Building a cohesive strategy

Most people accumulate multiple pension pots from different employers over their careers, and designing a cohesive overall strategy across multiple pensions with different providers can be complicated. Older pension contracts often carry higher ongoing costs than modern pension arrangements, which can impact on performance over time, and many only offer a limited range of fund options from which to create a good performing investment portfolio.

Consolidating older pension arrangements into modern style platform pensions can help bring order to deferred workplace pensions and provide the opportunity to put a cohesive investment strategy, designed to meet your attitude to risk and goals, in place. Undertaking such a consolidation exercise earlier in life provides greater time for the new investment strategy to outperform, and in doing so, can help the value of your pension fund reach a level required to provide a more comfortable retirement.

Working out a financial plan

Starting to consider a retirement plan can be a daunting task; however, working with an adviser can help identify your financial goals and priorities, and consider the level of contributions required to meet your retirement plans. Independent financial advice can also be vital when considering options in respect of existing pension arrangements you hold. Consolidating older style arrangements into a single plan is not right for everyone, as some pensions set up years ago can contain valuable benefits, such as guaranteed annuity rates or protected tax-free cash, which may be lost on transfer. A comprehensive independent review of your pensions can help identify such special features and critically analyse the charging structure and options within your existing arrangements.

Financial advice can also rearrange pension investments into a cohesive strategy, designed to meet your attitude to risk. Modern pension platforms provide access to a very wide range of investment funds from across the marketplace, thus avoiding the restrictions imposed by many workplace pensions. Speak to one of our experienced advisers to discuss your existing pension arrangements, and build a financial plan designed to meet your retirement goals.

Jan 30
0

Inheritance Tax – how advice can help reduce your liability

By | Inheritance Tax

Inheritance Tax (IHT) mitigation is a common feature of many long-term financial plans, and a topic where our advisers often provide independent advice. It is perhaps unsurprising, given the increase in the number of estates now liable to IHT. HMRC recently announced that IHT receipts for the 2023-4 tax year had increased to £7.5bn, and with the changes to Agricultural and Business Relief and Pension Death Benefits announced in the 2024 Budget, this figure is likely to grow significantly.

Tailored advice is crucial

IHT is, in some respects, a voluntary tax, as actions taken through your lifetime can help reduce, or even eliminate, the amount of tax payable by your beneficiaries. Effective IHT planning does, however, require very careful planning to maximise the tax efficiency of any actions taken, and ensure that planning strategies do not have unintended consequences. It is important to note that IHT planning is an area where “one size does not fit all”. There are a range of options open to reduce your potential IHT liability; however, the most appropriate option or options for each individual’s circumstances is entirely dependent on the value and composition of financial assets, family situation and other factors such as your attitude to risk and health.

Considerations when gifting

Perhaps the simplest way to reduce the value of your potential estate is to gift assets to family members. Gifting is straightforward, and as the saying goes, giving with a “warm hand” can mean that the donor of the gift can see the positive impact of the gift made. With the pressures on family finances, and difficulties younger family members can encounter purchasing their first property or paying for further education, intergenerational lifetime gifting is becoming more commonplace. There are, however, important considerations when gifting, particularly when assessing your own need for funds in the future. If you needed long-term care, for example, you may regret gifting funds if this means you are unable to access the level or quality of care that you need in later life.

When making gifts, it is important to consider the type of gift you intend to make and to ensure that the gift is as tax-efficient as possible. Lump sum gifts above the annual exemption each year are deemed “potentially exempt transfers” where you need to live seven years from the point the gift is made to avoid a potential IHT charge on the gift. Gifts out of surplus income can avoid the seven-year clock; however, such gifts need to be made from income that is truly surplus over your expenditure, and gifts of surplus income need to be made regularly.

Gifting assets directly to family members may not be desirable. Often younger family members are below the age of 18, and gifting could also create issues for adult children who themselves may have an IHT problem. Gifting assets into trust may be a solution in such circumstances. Trusts can be powerful tools to protect family wealth; however, the tax regime applicable to trusts can be punitive, although the impact can be lessened by structuring trust investments sensibly to reduce both the tax burden and administration.

Keep control of your assets

Many people wish to retain greater control over their assets when considering IHT planning. Assets that qualify for Business Relief are an option that may be an appropriate way to reduce a potential IHT liability. Qualifying investments are likely to be outside of your estate for IHT purposes once they have been held for two years, although this assumes the investment is held until date of death and remains qualifying. The primary benefit of Business Relief solutions is that the investment remains in your name, and can be sold and accessed if the funds are needed for another purpose, for example long-term care or private surgery.

Another option to mitigate an IHT liability is to consider insurance options. A Whole of Life insurance plan, appropriately arranged, could provide funds that your executors can use to pay part or all the IHT due. This type of planning does, however, have drawbacks, as premiums can become more expensive in later life and need to be paid throughout your lifetime. It is also inflexible, as it cannot adapt to future changes in legislation or circumstances. Insurance can also be used to cover lump sum gifts made during your lifetime. Such policies cover the IHT payable on any lifetime gifts, and as the amount that needs to be covered tapers after three years, premiums are more affordable.

The role independent advice can play

IHT planning is an area that needs to be reviewed from time to time, to make sure that the measures put in place remain effective. Changes in circumstances, or an increase in the value of assets held, could mean that further planning is necessary. Even those who have undertaken IHT planning in the past may well need to revisit their plans in light of the changes to Agricultural and Business Relief from April 2026, and Pension death benefits from April 2027, either to arrange further mitigation, or amend existing arrangements as necessary.

Another key aspect to consider is the need for IHT planning to fit within a wider, comprehensive financial plan. There are often competing priorities in later life, such as income production, preservation of capital, tax efficiency and risk management. This is where working with an independent and holistic financial planning firm can help create a financial plan that takes into account your individual circumstances, and prepares a tailored strategy which aims to reduce your potential IHT liability, whilst taking other important financial planning considerations into account. Our experienced advisers can assess the potential liability to IHT, and provide holistic advice on the available options. Speak to one of the team to start a conversation.

Jan 23
0

Why Bond Yields matter

By | Investments

You may well have noticed the intense media coverage of the rise in UK Government bond yields since the start of the year, which have led to Chancellor of the Exchequer Rachel Reeves coming under increased pressure. Bond markets saw weakness through the final quarter of 2024, which intensified over the first few trading days of this year, over concerns that the Government will need to borrow more money to fund their spending plans. This is not the first time, nor will it be the last, that bond market conditions move from being an investment story to headline news. Just over two years ago, bond market turmoil led to the resignation of Liz Truss in the wake of the infamous Kwasi Kwarteng budget, and in 1976, Harold Wilson’s Government was forced to borrow money from the International Monetary Fund due to the spiralling cost of debt.

How is it that bond markets can exert so much influence? The reason is that Government bond yields are a critical indicator, and have implications for the outlook for risk assets, the wider economy and personal finance.

Bond yields in focus

When Governments look to borrow money, they often do so by issuing bonds, which are known in the UK as gilts. Each gilt offers a fixed rate of interest for the life of the issue and have a redemption date, at which point the Government will buy back the gilt for a fixed price.

Take the example of a gilt issued today, with a redemption date in 10 years’ time. The gilt carries an interest rate of 5% per annum. At the point of issue, the gilt is priced at 100p and it will be repurchased in 10 years at 100p. At launch, the yield on the gilt (which is calculated by dividing the interest by the bond price) is 5%. The Government therefore knows the amount of interest payable on the debt, and investors can easily determine their rate of return if they hold the bond to redemption.

Gilts and other bonds are, however, traded securities, and bond prices will fluctuate over time, with factors such as the underlying base interest rate, the economic outlook and global conditions influencing the direction of bond prices. Low confidence in the economic outlook can lead to investors selling gilts, leading to a fall in price. Any such fall in price increases the yield. Using the example above, if the gilt price fell from 100p to 95p, the yield on the bond would increase from 5% to 5.26%.

Such a move would not impact the level of interest paid by the Government on this particular bond; however, the yield sets the market expectation at which future bonds would need to be priced. Gilts regularly redeem and indeed, gilt issuance is likely to rise to help finance the Government’s spending plans. As a result, the interest costs paid on Government borrowing would rise over time, as new issues need to offer a higher rate of interest to match market expectations.

Bond yields have wider implications

When investing in fixed interest securities, such as gilts and other bonds, the yield is clearly critically important, as it represents the return that you can achieve from holding the bond to maturity. Gilt and other major Government bond yields also set a benchmark return that you could achieve without taking significant investment risk. This has a direct impact on other investment markets, such as equities, as a higher yield makes bonds more attractive to investors relative to equities, and can lead to investors moving out of riskier assets and buying bonds instead.

Central banks also keep a close eye on Government bond yields, as the yield on key benchmark loan durations provides a temperature check on the health of the economy. Sharp increases in bond yields, as experienced in the UK and US recently, could lead to central banks raising overnight interest rates.

Pressure in bond markets not only affects investors but also impacts on other areas of personal finance. Pension annuity rates are calculated with reference to gilt yields, and rising yields can have a positive impact on annuity rates. The opposite is, of course, true, as witnessed by the very poor annuity rates offered when interest rates stood at close to zero during the Covid period.

The rates offered on fixed-rate mortgages are also sensitive to movements in gilt yields, as interest rate expectations are used to calculate rates offered by mortgage lenders. Many individuals will see cheap fixed-rate deals taken out over the last five years coming to an end in 2025, and a spike in yields could heap further pressure on borrowers whose current deal is ending. In turn, this could impact mortgage affordability and dampen demand in the housing market.

Any further constraint on the public purse can also have a knock-on effect on personal finances. If Government borrowing costs become more expensive, this may lead to cuts to expenditure on public services or could force the Government to raise taxes further.

Where next for bond yields?

The increase in yields seen over the last few months is largely a reflection of changes in interest rate expectations. Inflation has been nudging higher, moving further away from the Bank of England target rate of 2%. Investors are also nervous about the prospect of trade tariffs being imposed by the incoming Trump administration.

Given these factors, bond markets are likely to remain volatile in the short term. Whilst the spotlight has rightly been placed on the pressures on UK gilts, bond yields have also risen in the US and Europe, which lead to investment opportunities within fixed income investments. This may well be an ideal time to consider the allocations you hold in fixed income within your investment portfolio. Speak to one of our experienced team if you would like to discuss how your investments are positioned.

Jan 16
2

Avoid becoming the victim of an investment scam

By | Investments

We have previously reported on the alarming rise in financial fraud, which accounts for 4 in every 10 offences carried out against individuals in the UK. Sadly, more people are falling victim to ever more sophisticated methods used by fraudsters, who are using new technology to their advantage.

A recent report undertaken by Barclays indicates that one in five consumers have fallen victim to a scam over the last year, and one in three people know of someone who has been scammed. Further evidence of the rise in fraud is that the Financial Ombudsman Service reported that they received over 8,700 complaints relating to fraud in the first quarter of 2024, an increase of 42% on the same period in 2023, and double the number of complaints seen in the first quarter of 2022.

These grim reports are a timely reminder of the need to remain vigilant against fraud. Victims may not only face financial consequences – becoming a victim of financial fraud can also lead to considerable emotional harm.

Financial fraud can take many forms, with the most common being cases where consumers are tricked into handing over bank details to fraudsters, after being alerted that they are due to receive a fictitious refund from an organisation or business, or owe a fine or have tax to pay. Other frauds and scams, including those relating to investments and pensions, have also become more commonplace over recent years.

What can you do to protect yourself?

There are some common-sense steps you can take to help defend yourself against financial scammers.  Firstly, always remain vigilant if you receive any unsolicited communication from your bank, H M Revenue and Customs or any other company you deal with.

You should also be cautious when receiving an unexpected phone call. If you’ve been called by someone claiming to be from your bank, end the call and then phone the official bank number from a different phone. This is important, as scammers can keep the line open if you call back from the same phone. You should never disclose passwords, PIN numbers or bank details over the telephone.

Text messages or emails received from a bank or other service provider should be treated with suspicion, especially if the text message asks you to click on an email link. This could direct you to the scammer’s website, where your personal details can be collected. If in doubt, always log on to a legitimate website directly, rather than clicking a link in an email.

It is not only communications from companies and organisations that need to be treated with care. An increasingly common scam is where a scammer contacts an individual via text message, pretending to be the child of the victim, asking for funds to be sent to the child for a fictitious reason.

You should always be wary of cold callers trying to sell you an investment product or service. Don’t allow yourself to feel rushed into making a financial decision, and always take time to think about whether to take up an offer. This will give you time to seek independent advice before reaching a decision.

Unrealistic investment returns

Scam cases involving investments and pensions continue to rise, and fraudsters are using more convincing ways to make offers look and sound more plausible to unsuspecting consumers. A good rule of thumb is that you should always reject any unsolicited contact offering you the opportunity to make an investment. The contact could come via a telephone call (often from organised set-ups known as “boiler rooms”) or an email, and may offer the opportunity to purchase an investment that can provide unrealistic returns that sound too good to be true. The fraudulent offer may also try and hurry you into making an urgent decision, on the pretext that failure to act quickly would mean missing out.

Protect your pension

Pension scams usually take the form of cold calls, offering investment opportunities in high-risk investments, such as overseas property, forestry or other similar unregulated investments. Many of these offers will suggest that the individual needs to transfer their pension to the scammer to access the unregulated investments, and this is often accompanied by high pressure selling tactics.

Another potential scam is a call offering the ability for an individual to access or unlock their pension before the age of 55. This can only legitimately be undertaken in a very limited set of circumstances and treat anyone contacting you to offer such services as being highly suspicious.

Know who you are dealing with

Consumers can help protect themselves from investment fraud by checking who they are dealing with. The Financial Conduct Authority (FCA) Financial Services Register lists details of firms and individuals who are authorised to provide investment and pension advice.

The FCA also provide a list of “cloned” firms on their website, where you can check whether a fake firm has been previously reported for setting up a fraudulent operation that uses the name, address or other details of a legitimate firm.

Don’t add to the statistics

Given the worrying increase in financial fraud, everyone needs to be vigilant to the risk of falling victim to a scam or fraud. Consumers should always treat any unsolicited contact from a financial services provider, a utility company or other organisation with a degree of caution. Trust your instincts, and if something feels suspicious, then report it to Action Fraud, the UK’s national reporting centre for fraud and cybercrime.

Jan 09
0

Five themes for 2025

By | Financial Planning

Many investors will look back at 2024 and be satisfied with returns from investment markets. Whilst pockets of positivity remain, 2025 may well be a year when investors are likely to face more testing conditions than the calm waters seen last year. We look at five themes that could shape market direction over the next twelve months.

Broadening of US market performance

2024 was a year when technology stocks dominated investor attention. And rightly so, given the consistently strong earnings updates throughout the year, amidst increased focus on the potential for Artificial Intelligence (AI) to boost earnings growth over the medium and longer term. Given the demanding valuations of leading tech names, investors may increasingly look to other sectors of the US economy, where valuations are less expensive. Given the sheer size of the largest tech stocks, any extended period of weakness will have a direct impact on index values, and 2025 may well be a year when taking a selective approach to asset allocation will yield outperformance.

Another variable is the impact of an incoming President Trump. Expected cuts to corporate tax rates may well help support investor sentiment, and relaxed regulation could help provide a boost to banks and financials. The Oil and Gas sector could also see renewed interest, given the anticipated policy decisions.

Tariffs – words or action?

One of the biggest unknowns as we enter 2025, is the extent to which Trump will follow through on threats to impose tariffs on the US’ trading partners. Trump has stated that tariffs will apply to imported goods from China, Canada and Mexico from day one of his second term in office. Trump imposed tariffs during his first term in office, in an attempt to boost jobs and industry, and clearly favours extending import duties; however, the extent to which Trump’s threats are followed through is open to question.

Increased costs could stoke US inflation and could damage the growth potential for major export nations who trade with the US.  Trading partners are unlikely to take the imposition of tariffs lying down and could retaliate, leading to a global trade war.

UK economy to enter recession?

Whilst it is too early to speculate on whether the UK will enter a technical recession in 2025, the warning signals are flashing red. UK GDP growth was negative for both September and October, with August being the only month showing positive month-on-month growth over the second half of 2024.

Recruitment firms have seen a drop in job vacancies, with companies from a range of sectors suggesting that the increase in Employer National Insurance and minimum wage from April will add further pressure. Household finances remain under similar pressure and consumer spending remains weak, with early reports of sluggish retail sales over the key pre-Christmas period.

Japan to push forward

2024 was a key year for the Japanese economy, which finally appears to have shrugged off the spectre of deflation. Equity markets responded well to the normalised conditions, with the Nikkei 225 breaching levels not seen since the 1980s. Despite the strong performance over the last year, Japan continues to be an interesting investment opportunity. Compared to other global markets, such as the US, valuations are undemanding, and further normalisation of monetary policy, and increased wages, may boost domestic consumer spending.

Despite the positive outlook, investors need to be mindful that Japanese equities may be volatile. August 2024 saw a sharp fall and rebound in the Nikkei 225, largely due to the Japanese Yen being used as a funding currency for investment overseas, and decisions taken by the Bank of Japan could see the “carry trade” unwind.

Interest rates to nudge lower

2025 should see global central banks continue to cut base interest rates, in response to moderating inflation data. The Federal Reserve, Bank of England and European Central Bank announced a series of rate cuts during the second half of 2024, and whilst further cuts are likely during 2025, central banks will be keeping a close eye on key economic data before committing to further cuts. Inflation figures will, perhaps, be the most important factor that central banks consider, and the Bank of England will be closely watching the jump in inflation seen in October and November, which saw the Consumer Prices Index (CPI) move away from the 2% target.

The US Federal Reserve have a similar conundrum. Inflation dropped consistently in 2024 to reach 2.4% in September, before rebounding in October and November. Whilst the Fed cut US interest rates at their December meeting, Chairman Jerome Powell warned that the Fed would tread cautiously before implementing further monetary easing.

Bond markets may well remain nervous, despite the direction of interest rates. Government Bond yields in the UK and US rose during the fourth quarter, largely due to concerns over the state of government finances. UK Gilt yields have climbed to levels not seen since 2023, on the back of the October Budget, and US Treasury Bond yields have also risen following the US election result.

Time to review portfolio strategy?

2025 may not be the comfortable ride that last year proved to be for many investors. There are, however, always opportunities for outperformance. Given the expected conditions, investors would be wise to review investment strategies to ensure that their portfolio is invested appropriately. Seeking independent advice can help analyse your existing investment approach and provide recommendations to adjust strategies. Our team of experienced Advisers are on hand to provide impartial advice. Speak to one of the team to discuss how your portfolio is positioned as we enter 2025.

Dec 20
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2024 – reflections on a positive year

By | Financial Planning

After a bumpy ride through the post-Covid World, investors may well look back at 2024 with a sense of relief. This year has seen the return of positive market conditions, where investors have been rewarded for taking investment risk, and market sentiment has proved strong enough to shrug off any immediate geopolitical concerns.

A good year for investors

Barring any major jolt before the end of the year, investors can reflect on a positive year, with equities, bonds and alternatives all seeing gains. Relative performance across asset classes has, however, seen a handful of major markets underperform, and adopting a global investment view, with a heavy exposure to the US, has been the key to success over the last 12 months.

With inflation returning to more modest levels, the prospect of lower interest rates, coupled with investor appetite for stocks involved in Artificial Intelligence propelled markets during the first half of the year. The positive momentum has continued, with a further spurt of outperformance seen from US indices after the US election result. Away from the US, the Nikkei 225 index in Japan broke through the psychologically important 40,000 level for the first time in March, after regaining levels not seen since 1989. It has recently regained this level once again, despite a sharp fall and recovery in August amidst a spike in the value of the Yen.  Looking closer to home, UK equities made modest returns, lagging those seen in the North America and Asia Pacific regions.

Political upheaval

2024 was always going to see politics take centre stage, given the number of countries holding major elections. It has proven to be a year of political change, with elections in the UK and US seeing incumbent parties voted out of office. With many predicting a US election that was too close to call, markets breathed a sigh of relief that a clear winner emerged. President elect Trump’s emphatic victory will herald both opportunities for further growth under a pro-business leader, and greater uncertainty over foreign policy decisions that will affect global stability. The clean sweep victory for the Republican party should provide a strong platform for Trump to push through his chosen policies.

Following a landslide victory in the General Election, the new Labour Government has endured a tumultuous honeymoon period. Throughout August and September, the new administration effectively talked down the prospects for the UK economy and warned that a tax raising Budget would be forthcoming, which was duly delivered on the eve of Hallo’ween.

France has endured months of political turmoil, and recently led to the fall of Michel Barnier as Prime Minister, and events in South Korea briefly spooked markets earlier this month, as the sitting President tried to impose martial law.

Whilst 2025 may not be impacted by global elections, unresolved issues remain, and politics will continue to influence global markets.  We expect Eurozone defence spending to be a prominent talking point, in particular given the hawkish words from incoming President Trump about NATO spending. US-China relations could sour if Trump imposes tariffs and rhetoric over Taiwan intensifies.

Higher tax take and a weakening economy

Rachel Reeves’ first Budget brought about a series of significant changes to the way assets and wealth are taxed. The far-reaching set of measures, which may be the most impactful for many years, have received a very mixed response, leaving businesses and the farming community deeply unimpressed.

Apart from the increase in Capital Gains Tax rates, which applied immediately after the budget, many of the changes will come into force in the next and future tax years. Pensions will be brought into the scope of Inheritance Tax from April 2027, which may well mean those in retirement with unused pension funds need to reconsider their plans. The changes to Agricultural and Business relief, which have been met with anger and resentment from the farming community and business owners, will come into force a year earlier, in April 2026. From a planning perspective, those with substantial pension or business assets should look to reassess their financial plans, and holders of agricultural property should begin to gather valuations of assets to see what action can be taken to reduce any likely Inheritance Tax charge.

The planned increase to Employer National Insurance from April 2025 is already being felt in the jobs market, and domestic consumer and business confidence remains at a low ebb. It is, therefore, of little surprise that the initial reading for October saw the UK economy shrink for a second consecutive month.

UK consumers remain under pressure from modest wage inflation and spiralling prices. Many homeowners will see existing fixed rate mortgage deals end in 2025, which will add further affordability pressures, and the end of the Stamp Duty relief for first time buyers in March could limit any further growth in the UK housing market.

We have often commented about our concerns for the health of the UK economy. Early indications are that the impact of the Budget will exert further pressure on an economy that has limped along for some time. The Bank of England would ordinarily look to give the economy a boost by cutting interest rates more aggressively; however, the likelihood of higher inflation in the first half of next year could see the pace of cuts slow as we head through 2025.

Festive wishes

As we draw a close on 2024, we look forward to a year that still presents opportunities for nimble investors. Our first Wealth Matters of 2025 will set out our predictions for the year ahead; however, at this point we take this opportunity of wishing our readers a very Happy Christmas and a healthy and prosperous 2025.

Dec 12
0

Planning for changes in Business and Agricultural relief

By | Inheritance Tax

Measures to reform Agricultural Relief (AR) and Business Relief (BR) were amongst the most eye-catching of the announcements in the recent Budget. The reforms are far reaching and may have implications for those holding business assets, or agricultural land and property. The measures, which are effective from April 6th 2026, will limit the extent of tax relief that is currently available. As a consequence, individuals with substantial agricultural or business holdings may well need to reconsider their succession or exit plans.

The current reliefs

AR and BR provide the ability for families and businesses to transfer wealth and assets between generations, without incurring significant Inheritance Tax (IHT) liabilities. The reliefs allow up to 100% IHT exemption on qualifying agricultural or business assets.

AR applies to both land and buildings which are used for agricultural purposes, and 100% relief from IHT is available if ownership and operational conditions are met.

BR provides relief when holding qualifying business interests, including shares in unquoted companies.  BR also extends to ownership of unincorporated business interests, such as those held in a partnership. As with AR, 100% IHT relief is available for most business property.

In both instances, a qualifying holding period of at least two years is required. In the case of agricultural relief, the two-year period applies to property which is occupied by the owner or spouse, and remains held at date of death. A longer seven-year qualifying period applies to land which is occupied by someone else. For business property, qualifying shares need to be held for two years and continue to be held at date of death.

Changes in the 2024 Budget

The most significant reform announced in the recent Budget was the introduction of a cap on the combined amount of AR and BR available, which applies from April 2026. Under the new cap, only the first £1m of qualifying assets held by each individual will attract 100% relief from IHT. The new £1m cap covers qualifying property (be it for AR or BR) which are held at the date of death, and lifetime transfers of qualifying property within the seven years before death. In the case of lifetime transfers, the rules capture any transfers of qualifying property on or after 30th October 2024, where the individual making the transfer dies after 6th April 2026.

Once the £1m cap has been breached, qualifying assets above this level will only receive half of the IHT relief, which results in an effective IHT rate of 20% on qualifying assets held above £1m.

It is important to note that the Nil Rate Band and Residence Nil Rate Bands will remain unchanged, and these allowances will still be transferable between couples, so that a couple could potentially leave £1m of assets on the death of the second of the couple.

In respect of the new combined cap for BR and AR, the allowance is given to each individual and is not transferable between spouses. Depending on how assets are held, each of a married couple could leave £1m of assets that qualify for BR or AR to the next generation, in addition to the combined £1m nil-rate bands. In total, a maximum of £3m could, therefore, qualify for IHT exemption.

AIM-Listed Shares

Shares in companies listed on the Alternative Investment Market (AIM) currently qualify for 100% relief under BR, in the same manner as unquoted qualifying companies. From 2026, the relief on AIM shares will be reduced to 50%, leaving AIM shares subject to an IHT rate of 20%, assuming all nil rate bands have been used with other assets.

What the changes will mean in practice

It is fair to say the new proposals have been met with fierce resistance, in particular from the farming community. Whilst it is conceivable that the measures could be watered down in advance of the date of introduction in April 2026, it would be sensible for those holding business or agricultural assets to begin assessing their current position and consider any action that may be necessary to reduce the potential tax liability.

For anyone holding business or agricultural assets, it is important to obtain an updated valuation of these assets, so that the true value of the potential liability can be ascertained. Without an accurate valuation, it is difficult to make sensible decisions, and it is also appropriate to bear in mind that it is the valuation in the future that will be assessed for IHT and not today’s value. It may well, therefore, be sensible to factor in growth in the value of land or property over time.

Business owners may well need to reconsider their succession plans as a result of the change in legislation. It has often been the case that those holding qualifying business assets would simply hold the asset until date of death, when the shares would then be transferred to the next generation, without IHT applying (as the shares are qualifying) and the new owners who inherit the property also benefit from an uplift on the base cost to market value. Given the new rules, it may be necessary to reassess options, and depending on individual circumstances, making lifetime gits of assets may become more attractive. There are also alternative options, such as taking out life assurance, where the policy proceeds on a death claim are paid into trust, and then used to settle part or all the IHT liability.

Getting the right advice

The 2024 Autumn Budget has heralded significant changes in the way agricultural and business property is treated for IHT purposes. The proposed £1m combined cap from April 2026 presents significant challenges for families and businesses with substantial business and agricultural assets. Seeking professional advice is critical to navigate these complex and far-reaching reforms, and advice may need to cover both financial and legal aspects, as changes to existing wills or the way property ownership is structured may well be needed. Speak to one of our experienced advisers if you may be affected by the change in tax rules.

Dec 05
0

Prospects for UK equities post Budget

By | Investments

Most investors instinctively feel comfortable investing in their domestic stock market. The FTSE100 index of leading UK shares is made up of familiar names, and within the largest quoted companies, investors can gain access to attractive dividend yields and modest valuations. The reality is, however, that investors in UK equities will have seen returns lag behind those achieved by their global counterparts over the medium term.

Diminishing influence

The story for 2024 has been all too familiar for UK equities. In the period from 1st January to 30th October – the day of the Budget speech – the FTSE100 index of UK shares produced a total return of 8.92%, compared to the S&P500 index of US shares, which returned 20.37% over the same period. The gap between the UK and US indices has widened further during November, as investors digested the impact of the Budget on the outlook for UK equities, and US shares enjoyed a boost from the clear Trump victory. Further evidence of a lack of investor confidence in the UK can be observed given the large outflows seen from UK equities in advance of the Budget.

The London Stock Exchange is one of the oldest known trading exchanges; however, the influence the UK can exert in a rapidly changing world is diminishing. Within the MSCI World Index, a composite index of the largest global companies, the UK now accounts for just 3.5% of the index weight, compared to 72% for the US.

The explosive growth in the largest US quoted companies has seen the market capitalisation of Apple, Nvidia and Microsoft all individually exceed the combined value of the largest 100 quoted companies in the UK.

One of the reasons for the lack of traction within UK equities is the absence of large-cap technology stocks. The market clamour for stocks involved in artificial intelligence and other high-growth areas has seen value equities, which offer solid cash flow and attractive dividend yields, fall out of favour. Indeed, the decision of British chip designer ARM Holdings, which decided to relist in New York rather than London, was further evidence that technology stocks that wish to gain wider investment exposure can do this more readily on the Nasdaq exchange.

Impact of the Budget on confidence

You could reasonably argue that the recent Budget has done little to boost the fortunes of domestic equities. Prior to the Budget speech, confidence in the prospects for the UK economy was already at a low point. Government ministers repeatedly warned of tough measures in the Finance Act and the Budget speech itself surprised many economists and commentators with the breadth of tax raised.

From a business perspective, additional costs from the hike in Employer’s National Insurance are likely to impact UK growth. Firms could look to trim expansion opportunities, or more likely pass the additional costs onto the consumer. Sectors such as leisure, hospitality and retail, where many workers receive the minimum wage, will see a direct increase in wage costs from April 2025, which will squeeze margins further.

This set of events have the potential to nudge inflation higher during 2025, and potentially force the Bank of England to re-shape the trajectory for UK interest rates. Whilst further rate cuts are expected, there is growing consensus that the pace and timing of the cuts may be slower than anticipated.

Consumer confidence remains weak, with the “cost of living” crisis still alive and kicking. The combination of mortgage rate resets for those coming off cheap fixed rate deals, higher energy costs and static tax bands, mean that consumers may shun big ticket items whilst focusing on essentials.

An improving outlook for the UK economy could increase investor appetite and boost the prospects for UK equities; however, the projected growth figures announced in the Budget suggest that GDP growth will remain subdued over the next five years. As a result, investors, who take a global approach to investment, may well look to other markets, where growth potential is more appealing.

Reasons to be cheerful

Given the current position, we have painted a rather negative picture of the prospects for both the UK economy and UK equities over the medium term. There are, however, reasons to invest in UK equities, particularly if the investor seeks a high level of dividend income. The current dividend yield on the FTSE100 is 3.70%, although companies offering yields well in excess of this level can be found. Seeking income from overseas investments can be more difficult, with the S&P500 index of US shares producing a dividend yield of just 1.19%.

UK equities are undoubtedly cheap when using certain metrics, with the FTSE100 standing at a considerable discount to the implied earnings growth of the S&P500 index. The UK also stands at a slight discount to Eurozone equities. Whilst you could argue that this suggests that the UK is attractively priced, it is entirely possible that the relative value on offer is by virtue of the modest outlook for growth. In other words, the UK could be “cheap for a reason”.

The UK still has a place

Despite the weaker outlook, it would be unwise to dismiss UK equities. We believe they command a place in a well-diversified investment portfolio, particularly for investors who are seeking income from equities, or value to counterbalance growth in a diversified approach. It would, however, be sensible to consider the composition of your investment portfolio, as holding excessive weights in the UK, without adequate global diversification, could limit the prospects for investment returns, and also introduce additional risk. Many traditional discretionary management services focus on UK equities, and we have seen examples where performance has lagged due to an overallocation to domestic positions.

Our experienced advisers can help review existing investment portfolios and provide independent advice on the current asset allocation, diversification and levels of risk. Speak to one of our advisers to discuss your portfolio in more detail.