Financial Planning

The Budget delivered on 26^th November contained no significant changes to Inheritance Tax (IHT). Following the reforms announced in the 2024 Budget to Business and Agricultural relief, together with the upcoming changes to the way unused pensions are treated, the lack of fresh announcements was not unexpected; however, the continued freeze on Inheritance Tax bands until 2031 announced as part of this year’s Budget is a stealth tax increase, that will drag more estates into the scope of IHT and increase the burden on estates already impacted.

The nil rate band for Inheritance Tax – i.e. the amount an individual can give away before IHT applies – has remained static at £325,000 since 2009, and the recent measures announced effectively mean this band will not have increased for 22 years. Granted, the Main Residence Band, which covers the family home when left to direct lineal descendants, and the transfer of bands between spouses, give additional headroom before death duty becomes payable. Despite this, increases in the value of investments and residential property over the last two decades mean that even modest estates are now at risk of an IHT charge.

Given these factors, it is no surprise to us that Inheritance Tax planning is becoming a key financial consideration for families. Protecting family wealth and ensuring this can be passed on to the next generation without onerous tax liabilities, is a common topic of conversation with clients, and one that will become a more pressing issue for many once the changes to the treatment of unused pensions come into force in 2027.

Introducing Discretionary Trusts

In a recent edition of Wealth Matters, we started to consider how Trust planning can be used to mitigate a potential IHT liability and focused on Loan Trusts as being a way to protect future growth on the value of assets from IHT, whilst the settlor (the person making the loan) retained the ability to receive repayment of the loan, if they required funds. This only provides partial protection from IHT, as the outstanding loan remains in the individual’s taxable estate.

A more effective, but less flexible, form of IHT mitigation is to make a gift into a Discretionary Trust. To be effective for IHT purposes, the settlor needs to be excluded as a beneficiary. Without this exclusion, the settlor would retain a “reservation of benefit,” rendering the gift ineffective for IHT planning. An often-cited example of this is an individual gifting the family home into Trust but remaining resident in the property without paying a market rent. This would be considered such a reservation of benefit.

Gifts into Trust reduce an individual’s nil rate band by the amount of the gift, although gifts into Trust over £325,000 are liable to an upfront charge to IHT of 20% on the excess above the nil rate band. Assuming the donor lives for seven years, the gift is then considered outside of the donor’s estate.

The Discretionary Trust Deed will set out who can benefit from the Trust; however, the Trustees will have discretion over who receives benefits from the Trust and in what proportions. No single beneficiary has any direct entitlement to the Trust assets, and instead, the Trust Deed names a pool of potential beneficiaries. In most cases, this will be the direct family of the settlor (children, grandchildren, and great grandchildren) and can include direct lineal descendants not yet born. The settlor will usually appoint themselves as one of the Trustees, along with their spouse, and adult children.

This creates a “family trust” that can benefit any family members in the future. When we discuss establishing such lifetime Trusts with clients, the settlor often considers situations such as helping grandchildren through university, advancing funds at key birthdays, or providing funds for future generations to help them place a deposit on their first home, as being an appropriate time to consider advancing funds from a Discretionary Trust.

Keeping funds within a Trust arrangement can also help protect family wealth in the event of matrimonial breakdown within the family, or where funds that would otherwise be gifted directly to family members, may be spent unwisely.

Tax and Trust investments

When investing Trust assets, the Trustees need to adhere to the requirements of the Trustee Act, and ensure that Trust funds are prudently invested, provide adequate diversification and are reviewed to consider whether they remain appropriate.

Discretionary Trusts are subject to a punitive tax regime, which makes the choice of investment vehicle even more important. Trustees pay tax at a rate of 39.35% on dividend income and 45% on interest, and they also only receive 50% of the Capital Gains Tax allowance enjoyed by an individual. As a result, an Onshore Investment Bond is often selected as an investment vehicle, as it is taxed internally at a lower rate, and segments of the Bond can be assigned to beneficiaries when the Trustees agree to advance funds. The act of assignment does not trigger a tax charge, leaving the beneficiary to surrender the segments advanced at their own marginal rate of tax, which is often lower than the rate applicable to Trusts.

How we can help

Establishing a Discretionary Trust during an individual’s lifetime can be an effective tool to reduce a potential Inheritance Tax liability and protect family wealth. Decisions around the creation of the Trust, the selection of an appropriate investment strategy and ongoing management of the Trust assets are areas where our experienced team can provide advice.

It is, however, important to recognise that Trust planning is just one tool available to mitigate a potential Inheritance Tax liability. Other options, such as Business Relief investments, regular gifting strategies or protection policies, may be more appropriate, depending on your circumstances. Our independent advisers can take a holistic view of your potential estate and consider solutions from the whole of the market and provide advice on the option or options that best suit your needs. Speak to one of our team to start a conversation.

We have previously commented on the growing popularity of passive investment across the industry, and the dangers of relying on a passive only approach when constructing an investment portfolio. This year has, to date, seen major global indices advance, leading to reasonable outcomes for those investing in tracker funds. With global equity indices becoming more concentrated, and the S&P500 and Nasdaq looking fully valued, 2026 could well be the year when active fund management can provide superior performance.

Over the last decade, passive investment funds have grown in popularity, receiving significantly higher inflows than active funds over the last five years. Some in the industry, and many financial “influencers” (whose “advice” we recommend you treat with caution) focus on an evidence-based investment approach, which argues that it is difficult for active managers to beat the market over time, and any strategy should, therefore, be exclusively held in passive investments.

The rise in the popularity of passive strategies is also evident from our own market analysis. Our Investment Committee regularly undertakes a comprehensive review of managed portfolio solutions offered by discretionary fund managers, and our analysis clearly demonstrates that many of our competitor’s products and services carry an increasing bias towards passive investments.

Why passive investments are not the panacea

It is unarguable that passive funds provide a low-cost way of accessing global markets, and they have a place in most diversified strategies; however, we contend that passive funds should be used as part of a broader strategy which includes actively managed funds. Supporters of passive investments fail to take account that a passive investment fund will only track – and never beat – the representative index or market it is trying to replicate. Furthermore, due to tracking errors, most passives lag their target index by a small margin.

Adopting a pure passive approach also means that when the index falls, so does the value of the tracker fund. Unlike a fund with an active manager, who could potentially take avoiding action by reducing allocations, increasing the percentage of cash, or using derivatives, the passive fund will simply follow the representative index.

Over recent years, active fund managers have found it difficult to consistently outperform major global indices, in particular US large cap indices such as the S&P500. Those who champion a passive only approach use such evidence as rationale for their exclusive use of tracker funds. Whilst this has historically been the case, we have noted more actively managed funds investing in the world’s largest market are now producing outperformance over the medium term. This trend may well continue if indices fail to make significant headway during 2026.

A well-documented area in which passive investment has limitations are Fixed Income funds which invest in Government and Corporate Bonds. While passive strategies are often primarily associated with Equities, the universe of passive bond funds has expanded significantly over recent years, encompassing UK and Global benchmarks and providing exposure to portfolios comprising hundreds to thousands of individual bond positions.

Whilst these funds provide broad market exposure, our experience shows that active Strategic Bond managers, who can adjust duration exposure, and portfolio credit quality, can respond to macroeconomic conditions, monetary policy shifts, and evolving credit fundamentals, to adjust their portfolios to take best advantage of the prevailing and expected conditions.

Why 2026 may be tougher for passives

Whilst global market indices have advanced over 2025 to date, the headline index performance masks a significant variance in performance across different sectors. For example, at the time of writing, the largest seven components of the S&P500 index – Nvidia, Apple, Microsoft, Amazon, Alphabet, Broadcom, and Meta – account for 35% of the index by weight. Whilst robust performance from Tech stocks over the second half of 2025 has helped propel index performance, the valuations of leading names have become stretched in places, and any weakness in the sector will have a disproportionate impact on the performance of the index. Amongst the remainder of the S&P500, there are undoubtedly pockets of value, which can be exploited by an active manager, who can allocate a greater proportion of the portfolio to undervalued positions. By doing so, they may also be able to limit the risk to the downside if market sentiment turns.

Our approach

We always aim to seek out good value for our clients, and our independent status allows us to take an unbiased approach as to the precise blend of funds we select. The FAS Investment Committee undertake considerable research on a sector and region basis when we conduct the regular review of funds that we recommend to clients, which encompasses both active and passive options. As a result, this allows us to select passive funds, where this is appropriate, but blend in active funds where we see outperformance.

Our preference when selecting active funds is to choose managers who adopt a conviction-based approach and have a clear vision as to how their fund is to be positioned. This can often mean investing in a concentrated portfolio, when compared to the representative region or universe of stocks available. We regularly come across actively managed funds that align their portfolio closely to the benchmark index. In most instances, such funds fail to impress, as they levy higher charges for active management, without providing the prospects for outperformance.

Summary

We believe passive investment funds have a place in any sensible portfolio, as they provide a low-cost way of accessing broad market exposure; however, we do not subscribe to the mantra of many in the industry who believe it is the right approach in all circumstances. We continue to recommend clients also gain exposure to good performing actively managed funds which can provide significant outperformance and drive overall portfolio returns.

Whilst passive funds provide a low-cost option, we have secured discounts on a range of good-performing actively managed funds over recent years, where charges are only slightly higher than the passive alternative. We will, of course, continue to negotiate lower fund charges with leading fund houses where possible.

If your investment manager is using a passive only approach, we feel it may be a good time to consider whether this remains appropriate. Speak to one of our experienced advisers to discuss your portfolio asset allocation.

When considering the most important aspects of a long-term financial plan, many would immediately focus on savings, investments, and retirement planning. Whilst these are undoubtedly key areas, protection is a core pillar of financial planning which is often overlooked. Life is unpredictable, and events such as long-term illness or death can derail the most carefully constructed plans. By holding adequate protection, you can ensure that financial goals for your family can be met, even when life doesn’t go to plan.

Audit your existing cover

Reviewing the level of life cover you hold can be a valuable exercise in determining what your loved ones would receive in the event of your death.

For those who are employed, a good starting point is to review whether you would benefit from Death in Service in the event of your death. Whilst not mandatory, employers often provide Death in Service policies, as they are a cost-effective benefit and a way to attract and retain staff. Whilst having some similarities to a standard life insurance policy, instead of paying out a specific lump sum on death, the amount paid is usually expressed as a multiple of salary. For example, a scheme paying three times salary to an employee earning £75,000 per annum would provide cover of £225,000 in the event of death whilst employed.

It is, however, important to bear in mind that you may not be in the same job for the remainder of your working life, and could potentially receive less generous cover, or even be without cover, if you change employer.

The other most popular form of life cover are policies taken out to cover outstanding mortgage debt. Most policies taken out for this purpose are established on a Decreasing Term basis, where the amount of life cover provided drops by a set amount each year to reflect the falling mortgage balance. It is important to consider whether changes to your mortgage over time, through further borrowing or an increase in term, are reflected in the level of cover you hold.

Putting cover in place in the event of death is only part of a sensible protection plan. Being unable to work due to long-term ill health or injury can also cause financial hardship and potentially undermine your financial planning decisions. Employers can offer protection in the event of long-term sickness, in the form of an Income Protection policy. This cover pays a monthly income of up to 70% of your basic salary, if you are unable to work due to illness or injury, providing funds to help you continue to meet ongoing financial commitments.

Are you adequately covered?

When assessing whether you hold sufficient cover to protect your family from life’s challenges, it is easy to just consider whether the cover would meet existing liabilities, such as mortgage or other debt.

Whilst holding life cover to settle an outstanding mortgage balance is obviously sound financial planning, this would do little to provide additional funds to cover day-to-day living costs and other expenditure for family members left behind. Although the burden of mortgage payments would be removed, the loss of earnings caused by the death of the main income provider in a family could mean that surviving family members struggle to cover ongoing costs, in addition to other longer-term financial commitments, such as funding further education for your children.

Self-employed and business owners

Whilst those who are employed can benefit from Death in Service and other protection policies provided by their employer, those who are self-employed need to pay particular attention to the level of protection they hold, as there is no safety net in place.

Directors and small business owners can arrange Relevant Life Cover, which acts as a standalone Death in Service policy, which is arranged and funded by the employer, but pays out to the employee’s family or chosen beneficiaries if the employee dies during the policy term. Premiums paid are typically treated as a legitimate business expense, offering potential Corporation Tax relief.

Income Protection is equally important, as a long-term illness or injury can lead to an immediate loss of earnings, without the benefit of the safety net available to those who are employed. Without this protection, individuals may be forced to dip into long-term savings—if available—to cover the ongoing cost of living, which can potentially damage future financial plans.

For small business owners, the prolonged ill health of a key person can disrupt revenue and pose a serious threat to business continuity. This impact extends beyond the individual unable to work, affecting employees and the overall stability of the business.

How we can help

No matter how much energy is devoted to making the right plans for long term saving, without adequate protection against death or serious ill health, the best laid financial plans for your family – or business – can be undermined. It is, therefore, important to consider your existing protection arrangements, to identify potential gaps that could place your financial plans in jeopardy.

Our experienced advisers can undertake a comprehensive review of your existing arrangements and provide recommendations to alter existing cover or establish new policies to ensure your family are protected in the event of death, or long-term ill health. We can advise business owners on ways to not only protect their personal finances, but the health of their business too.

As an independent firm, we can access providers from across the marketplace to find the right solution that is tailored to meet your needs. Speak to one of our experienced team to start a conversation.

The period immediately before a Budget is traditionally a time when a Government remains tight-lipped about impending changes to tax legislation. Chancellor Rachel Reeves has taken the unusual step of addressing the nation, to effectively forewarn the public of the tough decisions that will be behind the Budget announcement on 26^th November. Whilst the speech was light on detail, the underlying message was a clear signal that we may all need to contribute more.

Given the difficult choices outlined by the Chancellor in her speech, it may be tempting to consider adjusting your financial plans in anticipation of the Budget. In our experience, however, trying to “second-guess” legislative changes could lead to a worse financial outcome.

Pension speculation – a familiar theme

Mainstream media has, once again, been quick to suggest further changes to pension legislation are possible in this year’s Budget, as one measure the Chancellor could take to balance the books. Whilst newspapers have column inches to fill, we feel much of the speculation is both unhelpful and unwarranted. Firstly, pension legislation has already undergone significant changes over recent years, and governments should be looking to incentivise saving for later life, rather than penalising it. Secondly, media speculation last year led some to try to pre-judge the outcome of the Budget in respect of their pension savings and take pre-emptive action to take Tax Free Cash from their pension prematurely.

As a result, H M Revenue & Customs sent out a bulletin in September, reminding the industry of the rules surrounding the crystallisation of pensions, and the inability to cancel actions once taken. The comments reinforced the rule that decisions taken cannot be unwound, and if actions result in unintended tax consequences, these cannot be reversed.

Transitional arrangements

It has historically been the case that changes to pension legislation also come with transitional arrangements, which smooth the path between the old and new rules. For example, when the Lifetime Allowance for pension savings – first introduced in 2006 and later abolished last year – has been adjusted, those affected by reductions in the Allowance could choose to protect their position.

It is also important to consider the structural changes that the pension industry would need to make, to cope with significant changes to pension legislation. This would suggest that any significant measures announced would not be invoked immediately after the Budget. The changes to pensions and Inheritance Tax, announced in the Budget last October, are a good example of this. Whilst the legislative changes were announced in October 2024, the new rules will not come into force until April 2027, to give the industry time to adapt and for consultations to take place on implementation.

Changes to tax rates can happen overnight, such as the increase to the rate of Capital Gains Tax which took effect from the date of the Budget last year; however, a change to the rate applying to an existing rule framework is relatively easy to implement, whereas structural changes would almost certainly require consultation and a lead time before they become law.

Take steps to stay tax-efficient

As we run up to the Budget, it may be tempting to act given the rampant speculation in advance of the statement. Instead, we recommend clients focus on ways that they can structure their finances in a tax-efficient manner and ensure their plans can adapt to change without incurring heavy costs or unwelcome tax penalties. A well-constructed financial plan considers not just returns, but also how much of those returns you keep after tax and given the expectation that we may all be contributing more to the public purse after the Budget, it is essential that you take advantage of all available tax wrappers, allowances, and reliefs.

Using the annual Individual Savings Account (ISA) allowance and making further pension contributions are simple ways to place funds in tax-privileged wrappers that shelter investment returns from both Income Tax and Capital Gains Tax. Where investments are held outside of a tax wrapper, review the Capital Gains Tax position of existing investments held and make sure you use the annual Capital Gains Tax exemption.

Married couples can also take pro-active steps to consider the structure of family income, to make use of all available allowances. The Marriage Allowance, which lets a spouse transfer £1,260 of their Personal Allowance to their husband, wife or civil partner can save up to £252 a year in Income Tax. Married couples can also take advantage of the gifting rules to structure savings and investments, so that a greater proportion of interest falls within their individual Personal Savings and Dividend allowances.

As more estates are now liable to Inheritance Tax, with an even greater number becoming liable once the changes to pension funds on death are in place from April 2027, taking simple steps to review the value of your potential estate and making use of the Annual Gift Exemption where appropriate can help reduce a potential Inheritance Tax liability.

How we can help

The Chancellor may well have “rolled the pitch” to warn of tough choices ahead of the forthcoming Budget. Whilst we do not recommend acting on speculation, undertaking an audit of your current financial arrangements, to make sure you are making best use of available tax allowances, is a sensible step to take.

Our independent financial planners can help you navigate the increasingly complex tax environment, by taking a comprehensive look at your financial position, including investments, retirement savings, and your Inheritance Tax position, to identify opportunities that can improve your overall tax-efficiency. Speak to one of the team to start a conversation.

Flexi-Access Drawdown remains a popular choice when deciding how to take benefits from a pension in retirement. Given the upcoming changes to pension legislation, where the value of an unused pension is included when assessing the value of an estate for Inheritance Tax (IHT) from April 2027, the added flexibility offered by a drawdown approach provides further planning opportunities for unused pension funds.

What is Flexi-Access Drawdown?

For those over the age of 55 (increasing to 57 from 2028) there are three methods of drawing a pension income from a personal or workplace pension. The first is to buy an annuity, where the residual pension fund after payment of Tax-Free Cash is used to purchase a guaranteed taxable income for life. The second option is to take ad hoc lump sums, which are usually drawn as part Tax Free Cash and the balance as taxable income.

The final option is Flexi-Access Drawdown. This is where the residual pension fund after Tax Free Cash remains invested and taxable income is drawn on a monthly, quarterly, annual, or ad hoc basis. Unlike an annuity, where the income remains unchanged (unless you choose an escalating annuity, which rises at a set percentage each year), Flexi-Access Drawdown allows you to control the precise amount of income that you draw. Income payments can be adjusted as required, and even suspended and restarted, to suit changes in circumstances.

The need to review existing pensions

Flexi-Access Drawdown is not offered by all pension arrangements. Whilst many newer pension contracts offer Flexi-Access Drawdown as an option, a surprising number of contracts, such as NEST (the workplace pension set up by the government) do not. When it comes to older style pension arrangements, these often pre-date the introduction of Pension Freedoms, and cannot facilitate drawdown.

It may, therefore, be necessary to transfer pensions to another provider that offers full access to pension flexibility; however, as there may be guarantees attaching to older style arrangements, such as guaranteed annuity rates or enhanced rates of Tax Free Cash that could be lost on transfer, it is important to seek independent advice before considering any pension consolidation exercise.

Why pension investment choices are critical

As pension funds remain invested through Flexi-Access Drawdown, a key component of any sensible plan is to ensure that pension investments remain appropriate, considering your financial objectives, needs, and individual circumstances, and continue to perform well compared to underlying market conditions. Even where pensions offer Flexi-Access Drawdown, the contract itself may only offer a limited range of fund options, which can hinder investment performance over time. This can be avoided by selecting a provider that offers funds from across the marketplace, from which an appropriate investment strategy can be constructed.

IHT and pensions

The flexibility of a Flexi-Access Drawdown approach can be a useful tool when dealing with unused pension funds, which become potentially liable to IHT in less than eighteen months’ time. Under the current rules, unused pension funds are exempt from IHT, and a mainstay of financial planning advice over recent years has been to consider personal pensions as a way of passing wealth to the next generation outside of your estate.

With the IHT treatment of unused pension funds changing from April 2027, existing financial plans may well need to adapt. One option may be to take pension drawdowns, which can fund gifts to family members. Where Tax Free Cash is available within an individual’s Lump Sum Allowance, this can be drawn without any income tax charge. Once Tax Free Cash has been exhausted, it may also be an option to draw regular income from a pension in drawdown, even if it is not needed to support your lifestyle, to fund further gifts to family. Whilst the drawdown income would be subject to Income Tax, depending on your total annual income, it is possible that this income could be drawn at Basic Rate (20%). Whilst it may seem counter-intuitive to volunteer to pay Income Tax, paying 20% Income Tax may well be preferable to your beneficiaries paying IHT at 40%.

It is also worth remembering that where an individual dies after the age of 75, beneficiaries will pay income tax at their marginal rate (i.e. added to their other income and taxed accordingly) on sums drawn from the pension in addition to the fund potentially being liable to IHT. Taking drawdown pension income to fund gifts could, therefore, prove to be tax-efficient, although this depends on your personal financial circumstances.

The benefit of independent advice

Flexi-Access Drawdown could be a sensible option to consider for those needing retirement income or wishing to pass funds to the next generation in a tax-efficient manner. It is, however, not the only option, and the benefit of a guaranteed income via an annuity may be appropriate for some. An alternative could be to blend these approaches to provide an element of guaranteed income together with the additional flexibility offered by Flexi-Access Drawdown.

This is where tailored advice is so valuable when planning for retirement and later life. Our experienced advisors can look across the marketplace and consider the most appropriate option, or options, for your circumstances. We can access pension plans that offer drawdown at competitive terms, and our truly independent approach to investment selection can help build an advisory or discretionary managed portfolio to meet your needs and objectives.

As investments remain in place through Flexi-Access Drawdown, it is important that any drawdown plan is carefully reviewed at regular intervals, to ensure that the strategy can adapt to changes in circumstances and further changes in legislation. Our comprehensive annual planning review takes a holistic approach by considering all aspects of your financial arrangements, and our advisers can recommend changes in strategy that may be required to meet changes in your circumstances and prevailing investment market conditions.

Speak to one of our independent advisers to discuss pension income options in retirement, or how best to deal with unused pensions given the upcoming changes to the IHT treatment of unused pensions on death.

Due to a combination of rising property and asset values, static bands on which assets can pass without being subject to IHT and government policy decisions, more estates than ever will become liable to IHT in the future. Upcoming changes to the IHT treatment of unused pension funds will only exacerbate the position for many estates, with some individuals – who need not be concerned about IHT at present – finding their estate would be liable to IHT once their pension value is added to the value of their estate from April 2027.

As a result, planning tools designed to mitigate a potential IHT liability are becoming ever more popular. Establishing a Trust during your lifetime is one of a range of options which can help pass assets on to the next generation in a tax-efficient manner, and protect family wealth; however, Trusts can be difficult to understand, due to the specific rules, tax treatment and the different types of Trust that can be created. In the first of a recurring series, we will cover several types of Trust that can be effective in different planning scenarios. In this issue, we focus on Loan Trusts.

Keeping control

We often meet clients who understand the benefits of settling funds into Trust for the next generation; however, to be effective for IHT purposes, the settlor (i.e. the person creating the Trust) usually needs to give up access to the capital. This may not be practical, as the settlor may need access to the funds, to provide themselves with regular payments in the form of an income.

Instead of gifting funds into Trust, an alternative is for the settlor to lend funds to the Trustees. By lending – rather than gifting – the capital, the settlor has access to the original loan on demand. The outstanding loan remains inside the settlor’s estate for IHT purposes; however, investment growth remains within the Trust and therefore outside of the settlor’s estate. Furthermore, loan repayments to the settlor, to cover expenditure, will naturally reduce the value of the estate over time.

The settlor usually also acts as one of the Trustees, which allows them to retain control over investment decisions, and in the case of a Discretionary Trust, when money is paid to beneficiaries.

Options on establishment

The easiest way to access a Loan Trust is through an insurance provider, who produce the necessary Loan Trust Deed. Upon creation of the Trust, the settlor lends money to the Trustees, who then invest the money into an Investment Bond. This particular investment vehicle is appropriate as it allows regular withdrawals of up to 5% of the original investment each year without creating a Chargeable Event for tax purposes. Using an Investment Bond offered by leading investment platforms, the Trustees can invest money in a wide range of investment funds available across the open marketplace and access discretionary management of the Trust portfolio, if preferred.

In most cases, the Trust Deed is prepared on a Discretionary basis where a pool of beneficiaries (usually direct family members) can benefit, although no single beneficiary has a right to the capital.

Loan Trusts in action

Meet Richard and Amy, who hold assets valued above £1m. As a result, their estate is potentially liable to IHT. They wish to gift funds to their children and grandchildren, to help pay down their children’s outstanding mortgage balances at the right time and help their grandchildren through further education. Most of their wealth is, however, concentrated in their primary home, and whilst the couple hold investments valued at £200,000, they cannot afford to give substantial sums away absolutely, as they rely on the income from their investments to supplement their pension income.

Richard and Amy loan £150,000 of their investments to a new Discretionary Trust, keeping £50,000 immediately available to them. They arrange regular loan repayments of 4% per annum from the Trust, which matches the income they currently receive on their investments, so that their monthly expenditure is covered.

Roll forward three years, and the value of the Trust investments has increased to £170,000. The £20,000 growth achieved over the initial investment is inside the Trust, and therefore immediately outside of Richard and Amy’s estate. Furthermore, the £18,000 they have received in loan repayments over the three years has reduced the outstanding loan, which is included in their estate, to £132,000.

Changing circumstances

The Loan Trust arrangement is very flexible and can adapt to changes in circumstances. For example, should the settlor no longer need access to the outstanding loan, they can waive their right to income, so that the Trust assets are held for the beneficiaries. The act of waiving the loan is treated as a gift for IHT purposes, and therefore careful consideration is needed before following this course of action; however, waiving part of the loan each year, potentially limiting gifts to the annual exemption, could reduce the value of the potential taxable estate over time.

The need for sound planning advice

Loan Trusts may well be complex arrangements; however, they can be an effective way of reducing a potential IHT liability over time and retaining access to funds if needed. They may also be useful for those who have already made Chargeable Lifetime Transfers by other gifts into Trust, as the loan made to establish the Trust investment is not treated as a chargeable transfer.

The downside to a Loan Trust is that the outstanding loan remains inside the settlor’s estate, and other Trust arrangements could provide a more efficient transfer of wealth. Our experienced advisors can provide independent advice on a range of IHT mitigation tools, including assets that qualify for Business Relief, insurance solutions, and Trust planning. If Trusts are an appropriate option, we can advise on the right Trust to meet your needs and objectives. If you have concerns about IHT and ways to reduce the burden of tax on your estate, please speak to one of our independent advisers.

One of the most important decisions to make when constructing a sensible investment portfolio is to achieve the correct balance between risk and reward, which is appropriate paying regard to the risk tolerance of the investor. Naturally, investors are always keen to maximise returns where possible and they may be tempted to build a portfolio that aims to seek growth in areas that are outperforming at the time. The downside of such an approach is that this often carries additional investment risk.

An effective way of reducing portfolio risk, is to add diverse types of investments and blend them together, thus creating a diversified investment portfolio. Mathematical studies to determine the optimal diversified portfolio started over 70 years ago, with the most notable study being Harry Markowitz’ Modern Portfolio Theory in 1952, for which Markowitz won a Nobel prize. Modern Portfolio Theory first determined the most efficient way of holding assets that are either positively or negatively correlated, and introduced the notion of the Efficient Frontier, which aims to produce a set of investment portfolios that are expected to produce the highest return at a given level of risk.

Portfolio Diversification in action

The simplest form of diversification is to select investments across different asset classes, such as equities, bonds, property, commodities, and cash. Additional diversification can be achieved by investing in different regions of the world, where the growth outlook may differ.

Balancing exposure between different sectors and industries, such as technology, industrials, consumer products, energy, and finance can add further diversification. Within equity markets, stocks that offer a value bias, with a strong dividend yield and good cashflow, can be blended with more growth orientated, or smaller companies, with better prospects for growth, but at the cost of additional risk.

Practical benefits of diversification

Constructing a diversified portfolio can help reduce the overall level of risk within an investment strategy, as a diversified portfolio is less exposed to a downturn in the fortunes of a single company, industry, or country. It can also help stabilise returns, as different assets behave differently at each point of the economic cycle. For example, in a period when equity markets fall, other assets, such as fixed interest securities, may be less affected, and reduce or limit the drawdown on the portfolio value.

A diversified portfolio can also help cushion the blow if an unforeseen event occurs. A good example of this is to consider the stabilising effect of investment grade bonds and alternative assets during the initial stages of the Covid-19 pandemic.

Diversification in today’s markets

It is abundantly clear that investment markets today bear little resemblance to the stock market at the time Markowitz created the Modern Portfolio Theory. Whilst the general principle of portfolio diversification holds true today, investors need to consider whether the ever-changing investment landscape calls for portfolios to be adjusted more frequently to match shifting market trends.

Firstly, Modern Portfolio Theory assumes that investors take rational investment decisions. Increasingly we are seeing global markets driven by sentiment, with the “herd” mentality of investors focusing on a particular sector, industry, or idea. In part, passive investment funds, which track a particular index, are driving this trend. As funds are allocated in accordance with the weight a company holds in the index, more money is allocated to the largest stocks by weight, further boosting that company’s position in the index, which has a greater bearing on future index returns.

A second key point to consider is that assets that are usually uncorrelated can move in line with each other at different points in the investment cycle. For example, the Great Financial Crisis of 2007-8 had a negative impact on all asset classes, from equities to bonds to property. We have also noticed that equities and bonds are more closely correlated in periods of higher inflation. For example, shortly after the Russian invasion of Ukraine in 2022, global inflation pushed sharply higher, and UK inflation peaked at 11.1%. As a result, most asset classes struggled during 2022, with both global equities and global bond markets falling during that year.

Finally, the pace of change in investment markets is accelerating, with new investment trends becoming mainstream more quickly than has historically been the case, due to the speed at which investors can access information. This is likely to lead to greater market distortion over time.

The importance of portfolio reviews

In today’s rapidly changing world, investment portfolios need to be able to adapt. Whilst portfolio diversification remains a tried and tested building block of any sound investment strategy, keeping a portfolio under review, to ensure the level of risk remains appropriate, is even more crucial than ever.

We often see investment portfolios and strategies that have not been properly reviewed. Frequently, the investor is unaware of additional risk due to the change in asset allocation from the original portfolio design. It is also common to see portfolios that are heavily focused on one geographic area – often the UK – and carry lower levels of exposure to global markets, which can lead to excessive risk.

You can help keep investment risk in check by regularly reviewing a portfolio and making changes where appropriate. At FAS, our ongoing advice service offers a comprehensive and robust review at regular intervals, and part of this review looks to ensure that investment portfolios remain adequately diversified. We may also recommend a rebalancing exercise, which adjusts portfolio asset allocations to maintain a preferred balance of risk and reward.

If you hold an investment portfolio that has not been reviewed recently, then speak to one of our experienced advisers. We can assess existing investment portfolios and provide tailored solutions on an advisory or discretionary basis, using our research and analysis of investment funds from across the marketplace.

Prudent investment advice and management have been the cornerstone of the service FAS have provided clients for more than 30 years. Our advisory proposition, where bespoke investment portfolios are created to suit individual clients’ needs and objectives, has been developed and refined over decades, with the same principles providing the foundation for the range of CDI discretionary managed portfolios. These portfolios are exclusively available to clients of FAS/MGFP and have proved a popular solution for individuals, trustees and businesses alike.

As we will shortly be approaching the seventh anniversary of the inception of the CDI discretionary managed portfolios, we thought we would take this opportunity to look at how the FAS Investment Committee process continues to evolve and highlight the strong and consistent performance achieved by the CDI portfolio range.

Attention to detail

When first designing the CDI discretionary managed service, the FAS Investment Committee wanted to ensure that the years of experience managing advisory funds with a conviction-based approach carried through to the new discretionary mandates. The portfolios are still constructed using the same FAS investment process, which has been constantly refined over recent years to improve the access to available fund research and data mining capability. The frequency of fund manager meetings has also increased, with targeted sessions arranged with leading fund managers, where performance, portfolio structure, risk and market outlook is discussed.

In addition to seeking strong performance, the FAS Investment Committee have continued to focus on driving down the cost of the CDI portfolios. This has been achieved through careful fund and asset selection, together with the result of negotiations with leading fund houses to secure access to lower cost share classes. We will continue to work with fund managers and platforms to deliver the most cost-effective solution to our clients.

Consistent outperformance

The FAS Investment Committee regularly review the performance of the CDI portfolios and run comparison reports against funds within the sector benchmark every week. The Investment Committee use the Investment Association (IA) 0-35%, 20-60% and 40-85% mixed investment sectors as fair benchmarks against which to consider the performance of the Defensive, Balanced and Progressive mandates respectively. For the Adventurous portfolio, the IA Global sector is used. Reviewing the performance of the CDI portfolios against our peers is a vital part of our process and helps clients consider how their portfolio has performed against real world returns at a similar level of risk to their own portfolio.

Performance across the CDI portfolio range over the last year has been impressive, largely due to the FAS Investment Committee’s commitment to seeking the very best actively managed funds, coupled with cost effective passive exposure. Over the year to 22^nd September, nine of the eleven CDI mandates stand in the first quartile when compared to the components of the representative benchmark index, with seven portfolios ranking in the first decile.

Whilst the short-term performance has been impressive, the CDI portfolio range also ranks highly against sector benchmarks over the longer term. Over the period from 22^nd September 2022 to 22^nd September 2025, eight out of the eleven CDI portfolios rank in the first quartile with the other three portfolios also comfortably beating their respective benchmark. Looking back further, five-year performance is similarly impressive, with eight portfolios again standing in the first quartile of performance against the sector benchmark.

Source of statistics: FE Analytics, September 2025

Risk Adjusted Returns

Naturally, performance is the key metric on which we, and of course our clients, will focus; however, the level of risk taken to achieve returns is equally important. The FAS Investment Committee consider levels of volatility at each quarterly review stage, to ensure that they remain consistent with the levels displayed by the benchmark. Where changes are made to the portfolio each quarter, the impact of the change on the historic maximum drawdown and value at risk is carefully considered.

Each CDI portfolio has a specific maximum allocation to equities, and current allocations within each portfolio are regularly monitored to ensure the asset allocation boundaries are not breached. Diversification is also carefully reviewed to ensure that any one mandate does not become overly exposed to a handful of sectors.

An evolving process

The performance of the CDI portfolio range continues to impress, and rank highly amongst sector peers. Market conditions will, of course, vary from time to time, and after a very strong period for returns from both equities and bonds, the FAS Investment Committee remain vigilant to potential risks facing the global economy and equity valuations.

Whilst the FAS Investment Committee are naturally pleased with the returns achieved since the inception of the CDI portfolios, they are very aware of the need to avoid complacency at all costs. The FAS Investment Committee will ensure that the investment process continues to evolve to meet the challenges of today’s markets and the needs and objectives of our clients.

If you hold an advisory or discretionary portfolio managed by another firm, perhaps now is the time to review the service you receive, and the performance achieved. Our experienced independent advisers can carry out an unbiased review of an existing portfolio and undertake detailed analysis of performance, risk and charges.

Speak to one of the team to discuss how the CDI discretionary managed portfolios, or our advisory services, could provide a cost-effective investment solution.

As we move into later life, our financial priorities often shift, and funding the cost of long-term care is a common concern. It is not surprising, given the rapid increase in the cost of nursing and residential care over recent years, and the financial impact on those who need to fund care costs.

According to recent figures from Age UK, the average weekly cost for residential care is around £949 per week, whilst full nursing care costs an average of £1,267 per week. There are, however, substantial regional differences, and we have come across situations where weekly costs for both types of care are significantly higher than the average.

Funding decisions

Local authorities have a duty to arrange appropriate levels of care, following an assessment of an individual’s needs. If there are significant health needs, NHS continuing healthcare may be available, which could cover some or all of the care costs; however, if the individual is not eligible for NHS continuing healthcare, and they hold assets greater than £23,250 (including property) they will be expected to make a contribution towards care costs, either in part or in full.

Self-funding care costs can be a daunting proposition, where financial decisions need to be made at a time of stress and worry when an individual is moving into care. Our experience shows that seeking independent financial planning advice can help alleviate these concerns, by helping families, or Attorneys appointed under a Lasting Power of Attorney, consider a range of options and agree an appropriate strategy to meet the ongoing care costs.

Financial assessment

When we first meet clients who potentially have care needs, or are moving into care, we undertake a full assessment of their capital assets, together with their income sources (e.g. pensions, attendance allowance, investment or property income) to work out the shortfall between the cost of care and other essential costs (such as personal care items and spending money) and their income.

It might be the case the individual can readily meet the shortfall between income and care, although this is typically only for those with significant investment, pension, or property rental income. In most instances, there will be a shortfall between the cost of care and income received, which will lead to erosion of capital assets over time. Individuals, or their Attorneys, will, therefore, need to make decisions about how best to deal with cash savings, investments, and property, to help stem the rate of erosion.

Immediate Needs Annuities

One option that can bridge the gap between income and care costs is to use savings, or property sale proceeds, to purchase an immediate needs annuity plan. In exchange for a capital lump sum, an insurance provider will pay a monthly amount direct to the care provider to meet the shortfall between income and care fees.

As insurers underwrite each plan, the single premium payable on purchase is dependent on the age, health, life expectancy, and care needs of the individual. In our experience, the levels of premium payable on such policies can be expensive; however, despite this cost, some may value the certainty that a care fees annuity can bring.

Once an Immediate Needs Annuity policy is in place, there is no return of capital to loved ones in the event of death of the individual in care, unless capital protection insurance is purchased, which comes at an additional cost. It is also important to consider the average life expectancy of an individual who moves into care. According to data from the Office for National Statistics, the average length of stay in care before death of a man aged 85 is around 2.5 years, with a woman of the same age expected to live for another 3.5 years. The purchase of a care fees annuity could, therefore, potentially only pay out for a limited period, leading to returns that offer poor value from the large capital outlay used to purchase the annuity.

Investment options

Building a bespoke investment plan from capital assets, which aims to limit the erosion of capital due to the shortfall between income and expenditure, is often the most appropriate route to take. Factors such as the value of any existing investments held, the tolerance to investment risk accepted and income needs all require consideration, before deciding on an investment strategy. Tax-efficiency and ease of access to funds will also be important considerations.

Cash savings will inevitably have a part to play in any sensible investment arrangement when funding care fees. It is, however, important that cash deposits remain productive and held in a tax-efficient manner.

For larger sums not immediately required to pay for care, other investment options, such as Company Shares, Corporate and Government Bonds and alternative assets, aim to generate superior returns to those available on cash, and help stem the rate of erosion of capital, so that funds held can continue to pay for care provision for an extended period or leave capital to loved ones on death. Keeping an investment strategy under review is also vital, as it is often the case that care needs change over time, and care home fees tend to rise each year in line with, or above, the rate of inflation.

Independent advice

Our experienced advisers can provide independent and unbiased advice on the best way to fund care costs, tailored to an individual’s personal circumstances. We can look across the market at annuity solutions and regularly provide advice on sensible investment strategies to keep funds productive whilst funding care costs. Speak to one of our advisers to discuss how best to pay for the cost of care.