Financial Planning

According to recent research carried out by Canada Life, half of the UK population has not made a Will. Whilst uptake in the older generations is understandably higher, one in three people aged over 55 do not have a Will in place. These statistics are alarming, as dying without a Will can place an additional burden on loved ones at a difficult time. Where a Will has been left, this usually provides clear instructions, including such matters as funeral arrangements, or how possessions are to be distributed, which can ease the burden on family members. Dying without a Will also leaves no named executor to deal with the estate, and family members or other individuals will need to decide amongst themselves who will be appointed as administrator.

Intestacy rules

Many are also not aware of potential issues that can arise by relying on the laws of intestacy, which are a standard set of legal rules that apply in England and Wales if an individual dies without having made a valid Will.

For those who are married, or in a civil partnership, the surviving spouse or civil partner will receive the full value of the estate, unless there are surviving children. In this instance, the surviving spouse or civil partner will receive the first £322,000 of the estate and an absolute interest in one-half of the remainder above this level. The other half is divided equally between surviving children.

For those who are not married or in a civil partnership, the situation is even more complicated.  If the deceased had children, they receive everything split equally between them. For those without children, assets first pass to any surviving parents, then to siblings (if parents are deceased), then to grandparents (if alive), and then to wider blood relatives, such as aunts and uncles. Where an individual dies without any surviving blood-related relatives, the estate is deemed to be Bona Vacantia, and assets are passed to the Crown.

Modern life

The laws of intestacy are particularly complicated, and not widely understood. Indeed, couples that have lived together for many years but are not married or in a civil partnership, can often wrongly assume that this affords each other protection under the law. It is crucial to remember there is no such thing as a “common-law partner” under UK law, and in this situation, an unmarried partner of an individual dying intestate would not be entitled to anything under the intestacy rules.

As financial planners, we see this as a key risk that many are exposing themselves to unnecessarily. The best-laid financial plans for the future could be changed in an instant by the death of a partner who hasn’t made a Will and can leave surviving partners in financial difficulty at a time of great distress. For example, this could mean the unmarried partner being forced to move out of the family home, or funds being left to an estranged spouse. It could also lead to investments and savings being left to surviving blood relatives of the deceased partner.

Making a Will can also deal with important aspects such as guardianship of children, and how funds that children inherit are dealt with. Whilst the legal age of majority is 18, many would consider this too young an age to inherit assets. It may be a good idea to consider whether this should be delayed to, say, 21 or 25 when the beneficiary is potentially more financially aware and in a position to use the funds wisely for further education costs, or a house deposit.

Business owners at risk

Irrespective of the business interest you hold, not holding a valid Will can have serious implications in the event of the death of a sole trader, partner, or director. This could mean that the business assets could be passed to someone who may have no interest in running the business or lack the necessary ability, leaving the business at significant risk. It could also lead to conflict and disputes amongst business partners.

The link to financial planning

Whilst we do not write Wills, we regularly remind our clients of the need to prepare a Will or ensure an existing Will is up to date as part of a wider review of their financial planning objectives. Not having a valid Will, or holding a Will that is out of date, could potentially undermine financial planning strategies, or potentially lead to higher levels of tax being paid.

We recommend speaking to a suitably qualified solicitor when making a Will. This should ensure that the Will is drawn up correctly to reflect your wishes, as mistakes and errors in a Will, which are usually only uncovered after the death of the individual, can lead to disputes and legal expenses in rectifying the position.

Getting over the inertia

Most people understand the importance of making a Will, though many do not see it as a priority, or feel uncomfortable thinking about their own mortality. Given the potential risks many are facing, potentially unwittingly, by not holding a valid Will, we recommend everyone takes the time to make a Will or review an existing Will to make sure that it still reflects your wishes.

Please speak to one of our experienced team here if you would like to discuss the implications in more detail.

Whatever your plans are for retirement, it pays to begin planning well in advance, to give you the best chance of meeting your goals in later life. We often meet clients who are beginning to consider the end of their working career, but find choosing the right path difficult, for fear of making the wrong choice. Financial decisions taken at retirement are one of the most important many people make. This is largely due to the fact that the path chosen can have lifelong implications.

When beginning to consider retirement plans, there are a number of fundamental questions that need to be answered.

When to retire?

Deciding on the right time to retire may be down to personal choice, or it may be as a result of changes in the workplace that push you to reach a decision. For some, decisions will need to be reached some time in advance of the retirement date, due to contractual obligations, or the need to train a new member of staff to fill the role. In other instances, the decision may sadly be reached due to ill-health or inability to continue in the role.

An increasingly common choice is to reduce working hours gradually over time and ease into retirement, and this is where financial planning can help in determining alternative income sources that could be accessed to fund the reduction in salary or self-employed income, and maintain your lifestyle. Tax planning is often vital at this stage, as individuals are juggling employment and retirement income at the same time.

What kind of lifestyle do I want?

The most important factor that often determines the point at which an individual retires is affordability. The ongoing costs of maintaining the home, paying utility and other bills, and covering necessary spending such as food and transportation need to be considered. In addition, some may need to clear any outstanding debt prior to retirement, such as a mortgage, whilst others may wish to undertake home improvements.

Retirement introduces significant change, and one important point to remember is that many will have more time on their hands, which may be filled with hobbies, pastimes or travel. These will all have costs attaching to them, which need to be taken into account.

Calculating a monthly budget is a useful first step to see what regular and discretionary expenditure is likely to arise. It is also a good idea to build in a contingency for unexpected outgoings.

What income can be generated?

It is important to start looking at existing pension arrangements well in advance of a planned retirement date, to begin to determine what income could be generated in retirement. As a result, any gaps can be identified and this will allow time to make further pension contributions, or other savings arrangements to help plug the gap.

State Pension provision is usually the starting point from which to build a retirement income, and obtaining a State Pension statement is a good idea. This will provide an estimate of how much State Pension you are likely to get, which will be based on your National Insurance contributions. It will also let you know the date at which State Pension becomes payable.

For those who wish to retire earlier than their State Pension age, thoughts turn to producing an income from elsewhere to fund ongoing living costs. It is important to note that State Pension alone is unlikely to provide a comfortable retirement, and making the most of existing pension arrangements built up through employment, or personal pensions, will be a key building block of your retirement income.

An important step to take is to understand what pension arrangements are held. Obtaining up-to-date valuations can assist; however it may well be necessary to undertake further research and analysis to get the full picture in respect of the options for drawing a pension income, and to discover if there are any special features within the pension contract that could affect the decision making process.

It may also be worth considering whether you have any additional pension plans that you have lost touch with during your working life. We often meet clients who provide documentation relating to an old pension, which turns out to provide additional retirement benefits that they were not expecting.

As part of the retirement planning service we offer, we write to a client’s existing pension providers, and obtain full details of their arrangements. We take the time to fully analyse the plan, which can often reveal features which may not necessarily be apparent. These can include guaranteed annuity rates, guaranteed plan values or protected levels of Tax Free Cash.

Retirement income can, of course, come from other sources, too, and at this point, we can review other savings and investments held to consider how best to generate an income. By making changes to an existing portfolio, we can look to generate a sustainable income, in a tax-efficient manner.

Financial advice can help define your plans

Once existing pension arrangements have been analysed, the question of when to retire has been answered and a target income identified, it is time to start to consider how these goals can be reached.

Taking financial planning advice can make a real difference to the decision-making process, as we can take a holistic and impartial view of existing pensions and other assets and begin to set out a plan to reach your goals and objectives. We can assess what income can be generated from existing pensions, in conjunction with other savings income or property income. Other important aspects, such as tax-efficiency can be considered, together with wider planning issues, such as Inheritance Tax concerns.

Speak to one of our experienced advisers here to discuss the options and start to formulate your retirement plans.

The start of a new school year brings the cost of education into focus. As financial planners, we are regularly asked to assist clients when planning to fund University or further education costs. Some parents take the decision to privately educate children, and budgeting and saving for these expenses also need careful planning. It is often the case that older generations want to lend a helping hand, too, and there are a number of factors that need to be considered when providing gifts to help with the costs.

We take a detailed look at some of the factors parents – and possibly grandparents – need to consider when planning to fund the costs of further education, or private education.

Meeting University costs

When a child goes to University, financial assistance is available in the form of Tuition and Maintenance Loans. The Tuition Fee loan covers the cost of the course, and as University Tuition fees are capped at £9,250 per annum, a three year course will mean a debt of almost £28,000 will accrue (assuming the cap remains in place).

The actual cost of the course is only one aspect of the overall cost of further education. Accommodation, food, travel, study material, and entertainment all need to be covered whilst a student is at University. Whilst the Tuition Fee loan covers a fixed amount, the Maintenance loan is means tested and based on household income. The amount a student can borrow via the Maintenance Loan is highly unlikely to be sufficient to cover all of these living costs, and parents or grandparents will need to make up the shortfall. The maintenance support loan has only increased by 2.8% for the 2023/24 academic year, and given that increases in the cost of living far exceed the increase in the allowance, this may well mean parents need to help cover a larger proportion of living costs.

Around the time that a child goes to University, there are likely to be competing demands on parents’ finances. It may be the time when a parent is starting to plan ahead towards the end of their career, and this is the time when maximising pension contributions typically takes a higher priority.

By establishing a regular savings plan years in advance of a child’s education starting, you will have more time to build the value of the accumulated savings, and ease the financial pressure at the time a child is ready to attend University. Selecting the most appropriate method of saving depends on a number of factors, such as the time horizon for investment and tolerance of investment risk. Cash savings accounts may be an appropriate method for some, but investing in a broad range of assets, such as Global Equities and Bonds, could mean that greater returns are achieved over time.

Tax efficiency is another important consideration. An Individual Savings Account or ISA is often a good choice, as the investment held within the ISA can provide returns that are free from both Income Tax and Capital Gains Tax (CGT). Exemption from CGT may be particularly valuable, given the need to draw down lump sums from investments at regular intervals to fund ongoing costs.

Whilst students do not need to start paying back loans until their earnings exceed £25,725 per annum, the rate of interest charged by the Student Loan company now stands at a minimum of 6.25% per annum. This means that students may well be saddled with debt for an even longer period of time due to the interest charges.

Building a university fund from when a child is very young is an ideal way of looking to meet tuition costs and the costs of living during further education. By planning ahead early, parents could also potentially reduce the debt burden on their children, by reducing the amount of Student debt carried forward into their working life.

Funding private education

Parents – and grandparents – always want the best for their children or grandchildren, and for some this means choosing to give them a private school education. Evidence suggests that students from private schools outperform national and global academic averages, and the cost of private education can be seen as an investment in the child’s future.

Meeting the costs of private education can, however, look daunting, when you factor in not only the fees, but also the additional costs of school uniforms, and other activities such as trips, sports, and music lessons. For this reason, parents who wish to send their children to a private school need to start planning ahead, and build a strategy to save sufficient funds over time to cover the expected costs. In the same manner as saving for further education costs, ensuring that funds are appropriately invested, and in a tax-efficient manner, are key considerations.

Grandparents are often keen to help fund school fees as a way to invest in their grandchild’s future, while also making sure the parents don’t shoulder all the financial burden. It is, however, important to consider the Inheritance Tax implications of any gifts made. Annual gifts of up to £3,000 in total should be exempt, but additional gifts could be liable to Inheritance Tax unless the donor lives at least seven years from the point the gift is made. An alternative approach is to gift funds into a Discretionary Trust, with the grandchildren named as potential beneficiaries. The Trustees can then draw from the Trust to fund ongoing educational expenses.

If you are a parent or grandparent who wants to send their children or grandchildren to a private school, the best way to pay for it is to start the financial planning process as early as you can. Speak to one of our experienced financial planners here if you would like to discuss how best to plan for future education costs.

Firms have until 31^st July 2023 to fully implement the Consumer Duty requirements for new and existing products and services. The Financial Conduct Authority (FCA) introduced the new requirements last year and undoubtedly these are significant pieces of regulation that aim to improve how firms serve their clients.

In recent years, the FCA has considered several provider services and products unfit for purpose because they fail to provide fair value, ongoing support or exploit customer loyalty. To combat this, the FCA’s Consumer Duty aims to create a significant shift in culture and behaviour to ensure all firms offer a higher standard of care for its clients.

Underpinning principles

The underpinning principles of the new regulations set out how the FCA expects firms to act. In essence, a firm must act to deliver good outcomes for retail clients by acting in good faith and supporting them in pursuit of their financial objectives. The FCA wants to see these new principles applied to products and services, price and value, consumer understanding and consumer support. When designing a product or service, providers should also avoid negative barriers and anything that could impact on a consumer experience such as exit penalties or unreasonable terms that may make it difficult for a client to move to an alternative provider in the future.

FAS Consumer Duty analysis

Whilst it may be labour intensive and somewhat consuming at times, we welcome any regulatory change that raises the bar within our industry, which has come a long way over the past 20+ years. Far too often, we still hear and read about poor consumer experiences where clients have perhaps been “sold” a dubious product or service, have been charged an extortionate fee or are continuing to pay for a service they do not receive.

At FAS, good client outcomes are at the core of our everyday operations, and we are confident that the depth of what we do here is way above the industry standard. So, we hope it will come as no surprise to you that having undertaken a fair assessment of the services we provide in line with the new Consumer Duty regulations, incorporating the Concepts Discretionary Managed Portfolio Service, it has been comfortably demonstrated that FAS does indeed provide fair value and good outcomes for its clients. Furthermore, we will be reviewing the services we provide each year to ensure that this continues.

As part of our Due Diligence, we will also be monitoring the platforms and product providers we recommend to our clients to make sure they too meet all the new Consumer Duty requirements for clients.

Independent v Restricted

As many of you will know, there are two types of financial adviser, an independent adviser and a restricted adviser. At FAS, we choose to be completely independent so that we can research and recommend financial products spanning the whole of the market. In doing so, our advice is unbiased and unrestricted which contrasts with a restricted firm where advisers are limited to certain products from certain providers. In some cases, restricted advisers can only recommend products from a single company, which in our opinion is not providing a comprehensive service to clients or good value.

We are very proud of our independence, and the ability to recommend the most appropriate product or service from across the marketplace helps us to achieve our aim of providing the best advice to clients. By being independent, we can also aim to provide good value for money, by being able to access potentially more cost-effective options from across the industry.

Client awareness of restrictions?

Consumer Duty throws a shadow over a restricted advice service, and we wonder how such firms are faring with this regulatory review. Consumer Duty requires firms to demonstrate that they are providing good outcomes for clients, and value for money. There is a greater emphasis on the need for clients to understand the precise nature of the service they are receiving so we would be interested to know what percentage of restricted advice clients truly understand the restrictions they are faced with and the impact these can have.

By not being able to select funds from across the marketplace, this can dampen investment returns from the chosen investment funds, as a single fund house or manager is unlikely to be “best of breed” in all areas of the market. We have undertaken own our analysis and research of fund performance of the in-house funds offered by firms offering a one-stop shop and discovered that in many cases fund performance over the long term can be disappointing. Also, despite the restricted nature of the advice, clients opting for a restricted service may not receive good value for money, as fund solutions and management fees may be higher than those charged by firms that are independent.

We believe Consumer Duty gives independent firms such as FAS a distinct advantage and as our day-to-day operations focus on providing a responsive, independent advice service, we feel confident that our business easily meets the requirements of the new regulations.

If you have any questions regarding our internal review or any other matter relating to your financial arrangements, please do get in touch here.

When we consider what the future may look like, many would place financial security high on their list of priorities. Once financial objectives have been set, it takes forward thinking and planning to achieve those goals. Whilst it is possible to create a plan yourself, using a financial planner can provide expert advice and reassurance, help identify areas that you may not have considered and save time too. In this article, we look at some of the key ways that financial planning can help achieve investment goals.

Setting the objectives

When people first engage with a financial planner, one of the key areas to agree upon are the financial objectives that need to be considered. Identifying a priority order is an important step to take, to obtain a clear view of the most important areas to tackle first. Objectives can change over time, and at different stages of our lives, our priorities will evolve. For example, a young family looking to purchase their first home may well be focused on obtaining a mortgage or protecting their family in the event of death or ill-health. Whilst long-term saving and pension planning would naturally be desirable at this time too, affordability may well dictate that these areas take a lower priority for the time being. Other life events that can lead to a significant shift in financial priorities are reaching retirement age, getting married or facing divorce.

Identifying opportunities

Financial planning is a personal process. Everyone has a different set of circumstances, goals and attitude to risk, and it is therefore not possible to create a financial planning template that best suits every possible situation. Engaging with a qualified financial planner can introduce solutions and opportunities that may not immediately be apparent. These solutions and ideas can vary from ways at which income tax liabilities can be reduced, to investment advice to reduce risk and diversify an existing investment portfolio. Taking a holistic view can also identify gaps in a financial plan, such as the need to arrange additional protection, to establishing a plan to fund school fees or university costs in the future.

Regular review and planning

None of us know what the future holds and even the best laid plans may need to adapt to a change in circumstances. Advice is perishable, and a particular course of action may need to be altered as circumstances change. This is why reviewing your finances on a regular basis is so important, as it provides the opportunity to consider whether you’re on track to meet your goals, and understand how existing plans and arrangements may need to adapt.

Holding a formal financial review at least once a year can also be the ideal time to look at annual planning opportunities, such as using the Individual Savings Account (ISA) allowance, making additional pension contributions, or selling assets to use your Capital Gains Tax allowance. It can also make sure that your finances are not affected by any changes in legislation that have occurred since the previous review.

Reassurance in difficult market conditions

Investment is a long-term process and markets will go through bouts of volatility from time to time. Behavioural finance studies show that investors can make rash decisions to sell investments when market conditions are difficult, which may not be the correct course of action to take. It is at this point that the true value of financial planning advice can be found. Speaking to an adviser can provide reassurance and a calm voice through market turmoil, helping you focus on the longer term and taking an impartial view of your overall financial position. A good adviser can also suggest changes to asset allocation if appropriate and highlight opportunities.

Saving time

Whilst some people are happy to create and manage their own financial plans, many would prefer to work with a financial planner to help achieve their investment goals. Life is busy and it can be difficult to find the time to properly review and consider existing financial arrangements. Engaging a financial planner can lighten the burden and provide peace of mind that a professional is keeping abreast of financial markets and reviewing the investment plan.

The value of advice

Holistic financial planning can add significant value in terms of guidance, planning and reassurance. Over the longer term, it could also boost returns. A study carried out by Vanguard in 2020 found that working with an adviser can help increase investment returns over time, through added value achieved by behavioural coaching, rebalancing of portfolios and use of annual tax exemptions. Vanguard estimate that these factors could potentially add around 3% per annum in additional returns. Naturally, there are some caveats, in that investment market performance can vary from year to year, and the monetary benefit of using an adviser will vary accordingly. The study is, however, an interesting attempt to quantify the benefits of engaging with a financial planner.

Engage the right adviser

Using a financial adviser to create a plan, and undertake regular reviews, can provide many benefits, from tax planning to guidance and reassurance. Using a Chartered firm brings further comfort that the advisers are highly qualified, and the business will aim to deliver the highest standards of professionalism.

Contact us here to start a conversation with one of our experienced financial planners.

Tax treatment varies according to individual circumstances and is subject to change. The Financial Conduct Authority does not regulate tax advice.

The diagnosis of any serious illness can be physically and emotionally draining for families, however, being diagnosed with dementia can be particularly challenging. As cognitive decline tends to be a progressive illness, the burden on finances over time can be significant and losing the ability to make decisions can lead to difficulties in managing money on a day-to-day basis. Any financial risk can be reduced by thinking ahead, as forward planning can keep your affairs in order and help family members organise your finances effectively, if you are unfortunate enough to lose capacity and the ability to make decisions for yourself.

Sobering statistics

Sadly, dementia cases are rising rapidly. According to figures commissioned by the Alzheimer’s Society, there were 900,000 people living with dementia in the UK in 2019. This figure is expected to almost double to 1.6 million by 2040. Looking at global figures, it is estimated that 139 million people around the World will be living with dementia by 2050.

Whilst often considered to be an illness developed by older individuals, 42,000 people under the age of 65 in the UK are living with dementia. Early-onset dementia can pose particular risk for family finances since those developing the illness may still be working and need to consider how to cover mortgage costs and pay for the upkeep of dependent children.

Make a Lasting Power of Attorney

It is important to consider what would happen to your affairs, if you suffered from cognitive decline, and were unable to make decisions that impact your finances or well-being. This is particularly important when an individual holds investments, property or other assets that cannot be managed easily.

Given the stark figures for dementia cases, it is important that individuals take responsibility and get their affairs in order by creating a Lasting Power of Attorney (LPA). This is a legal tool that lets you appoint someone (an attorney) you trust to make decisions for you if you are unable to make those decisions yourself.

There are two different types of LPA. The first covers your Property and Affairs and the second covers your Health and Welfare. In both instances, the attorney steps into the shoes of the individual granting the power and has the same legal status. For example, an attorney can undertake relatively simple tasks such as paying a bill or collecting benefits, as well as dealing with more complex decisions, such as selling a property or managing investments.

An attorney is duty-bound to always act in your best interests and consider your wishes in any decisions they make on your behalf. For this reason, most people will appoint a family member as their attorney, as this is someone who knows you well and you trust to make the right decisions for you.

Once the LPA has been created, it needs to be registered with the Office of the Public Guardian (OPG). In the case of the Property and Affairs LPA, this can be used as soon as it has been registered; however, the Health and Welfare LPA can only be used once you are unable to make decisions yourself.

It is not too late

Whilst forward planning can provide reassurance that your affairs are in order, many people do not make a LPA in advance of the diagnosis of dementia. It is important to note that a diagnosis does not prevent an individual from making a LPA, but it is advisable to get the documents prepared as soon as possible. A medical assessment by a qualified professional is likely to be required to ascertain whether the individual has the mental capacity to make an informed decision to be able to create the LPA.

The consequences of not taking action

If an individual loses capacity, and no LPA has been prepared, then typically an application is made to the Court of Protection, who will appoint a deputy to manage your affairs on behalf of the Court. Whilst a deputy has similar powers to an attorney, the deputy is appointed by the Court, and not by you. This appointment may, therefore, not concur with your wishes. Furthermore, the process of appointing a deputy is costly and long-winded and this could lead to considerable delays in being able to make financial arrangements, such as paying for care costs.

In addition, a deputy is placed under greater control and supervision by the Court, and needs to prepare an annual set of accounts, covering decisions and financial transactions taken. A deputy may also need to arrange a “security bond”, which is an insurance policy that protects the assets of the patient.

Keep your Will up to date!

In addition to preparing a LPA, everyone should make a Will. This sets out an individual’s wishes on death and helps make life a little easier for family members at a time of great stress and sadness. As with the LPA, the diagnosis of dementia would not prevent an individual from making a Will; however, it may well be advisable, or even necessary, to obtain expert medical evidence that an individual has the capacity to make the Will.

How FAS can help attorneys

At FAS our advice is that all individuals should consider making a LPA. It is sensible planning which can avoid significant cost, delay, and worry for loved ones. You can either prepare LPA documents through the Government web service or contact a Solicitor who can provide advice and prepare the documents and application for you.

We are very familiar with providing advice to attorneys, where planning decisions such as covering the cost of ongoing care, or managing existing investments are needed. Our financial planning team have extensive experience in dealing with dementia cases. If you have any queries or concerns, please do give us a call.

If you would like to discuss the above in more detail please contact one of our experienced advisers here.

Tax treatment varies according to individual circumstances and is subject to change. The Financial Conduct Authority does not regulate tax advice.

The start of each tax year brings a new set of tax allowances and is traditionally a time when investors take stock of their existing arrangements and look for planning opportunities. The series of measures announced in the Budgets in November and last month herald some significant changes that will now come into effect, with a number of potential planning opportunities to consider.

Pensions overhaul

A range of new pension legislation comes into effect from 6^th April, and provides significant opportunities for individuals looking to accumulate their pension pots, anyone whose pensions are close to the Lifetime Allowance, or indeed those who have already begun drawing a pension flexibly.

The pension Annual Allowance, which is the maximum that an investor can contribute to a pension each tax year, has increased from £40,000 to £60,000. It is important to remember that any contributions made are always capped by the level of relevant earnings (salary or self-employed income). The new allowance of £60,000 provides much greater scope for individuals to make a higher level of contribution, and in particular, provides a valuable opportunity for Directors to arrange substantial Employer Pension contributions.

Anyone who has flexibly accessed a pension in the past, has seen the limit for further pension contributions limited to just £4,000 each year, as they are subject to the Money Purchase Annual Allowance. This allowance has been increased to £10,000 from 6^th April 2023, and provides scope for those returning to work after taking retirement to make a more meaningful level of pension contribution.

The biggest single change in the March Budget was the announcement that the Lifetime Allowance for pension savings is to be scrapped. In the 2023/24 tax year, this allowance remains in place; however, the tax charge for breaching the Lifetime Allowance has been reduced to 0%. The level of Tax Free Cash available when taking a pension hasn’t been increased, but the removal of the punitive tax charge for breaching the Lifetime Allowance provides new opportunities for those wishing to pay more into their pensions, or for anyone with pension savings above the allowance, to draw more out of their pension. As ever, planning around these areas can be complex, so we recommend speaking to one of our experienced independent financial planners for advice.

Investment tax changes

Anyone who holds investments outside of an Individual Savings Account (ISA) should look to consider how tax efficient their portfolio is, as changes to the taxation of dividends may lead to more individuals paying tax on their dividends. The Dividend Allowance, which covered the first £2,000 of dividends in the 2022/23 tax year has been halved to just £1,000 for 2023/24 and a further halving of the allowance will follow in the 2024/25 tax year.

Consider the position of an individual who holds £30,000 in investments (either directly held stocks or Unit Trusts) outside of an ISA, that generate a dividend yield of 4%. In past tax years, the Dividend Allowance would have easily covered this income, thus avoiding any tax liability. With the smaller allowance now in place, this would mean that £200 of the dividend income would be subject to tax at 8.75% for a basic rate taxpayer, or 33.75% or 39.35% for a higher or additional rate taxpayer respectively.

By placing the investments inside an ISA, dividends would be tax free; however, investors need to be even more careful to consider the Capital Gains Tax (CGT) consequences of any actions taken, as the CGT allowance has more than halved from £12,300 to just £6,000 in the new tax year.

The start of a new tax year is also an ideal time to consider the existing investment strategy, and if you hold investments that have not been reviewed for some time, now would be the ideal opportunity to overhaul an existing portfolio.

Tax tune-up

Whilst the amount we can earn in a tax year before paying Income Tax hasn’t changed, more people may well find themselves subject to Income Tax on their earned income, or from pension sources, from the start of the new tax year. Pensioners in particular need to pay attention to the impact of the 10.1% increase to the State Pension coming into effect, on the amount of Income Tax they could pay on other income, such as private pension or investment income.

Other tax traps exist, including the lowering of the starting point where Additional rate Income Tax is paid. The reduction from £150,000 to £125,140 will mean that higher earners will end up paying an additional 5% Income Tax on income between £125,140 and £150,000. Coupled with the taper on the Personal Allowance (which isn’t new, but is nonetheless painful) this is the ideal time for higher earners to take stock of their financial position and consider planning opportunities to reduce their tax bill.

Take a holistic view

We have outlined just a handful of the most important changes that come into effect from 6^th April, but there are more that should be considered, depending on your particular circumstances. This is where holistic financial planning can provide significant value, in assessing the bigger picture and taking into account your personal circumstances to look for ways to improve tax-efficiency and streamline investment strategies. A conversation with one of our experienced independent planners could well help identify changes that take full advantage of the new opportunities.

To discuss the above in more detail please contact one of our experienced advisers here.

The value of investments and the income they produce can fall as well as rise. You may get back less than you invested. Past performance is not a reliable indicator of future performance. Investing in stocks and shares should be regarded as a long term investment and should fit in with your overall attitude to risk and your financial circumstance.

We have commented on the prospects for house prices on a number of occasions over the last year, and highlighted the immediate headwinds that are likely to face the housing market. Recent data published by Nationwide has supported this view, as their House Price Index has now fallen by 3.2% from the peak in August 2022 to January 2023, and further weakness is likely over coming months. A recent report commissioned by Schroders on housing affordability has underlined how stretched current property valuations are and suggests that house prices could correct further in the near term.

High earnings multiples

The Schroders report analysed the average UK house price as a multiple of average UK earnings, and at nine times earnings, the last time UK house prices were this expensive relative to earnings was over 150 years ago. Apart from a blip during the 2008-9 Great Financial Crisis, the last 20 years has seen home ownership becoming steadily less affordable.

There are a number of reasons why affordability has been steadily falling. For many years, demand for housing has outstripped supply, and according to data from the Office for National Statistics (ONS) the UK population increased by 3.4m between 2011 and 2021, but only 1.9m new dwellings were built.

Wages have also lagged behind the pace of house price increases. Between 2012 and 2022, prices across the UK registered an average increase of 5.3% per annum (according to Rightmove), compared to average wages, which increased by an average of 2.7% per annum over the same period (Source ONS). More recently, however, wage inflation has picked up, with average earnings increasing by 6.4% over the three months to November 2022, compared to the same period in 2021.

Mortgage pressures starting to ease

Borrowers have become conditioned to low interest rates since 2008, and as a result, covering mortgage interest payments has not been a major concern for many holding a mortgage. Over the last 15 months, the UK Base Rate has increased sharply, increasing from 0.15% to 4%, which means that those borrowers on a variable or tracker rate will have experienced a series of hikes in their payments.

Fixed mortgage rates also increased during the first half of 2022, but the very sharp acceleration in fixed mortgage rates last October has added to the pressures on the housing market. As a result of the ill-fated mini budget, announced by former Chancellor Kwasi Kwarteng just six months ago, Gilt yields increased rapidly, which in turn pushed up the cost of securing long-term debt for mortgage lenders. As is often the case, however, the market reaction has turned out to be an over-reaction; at one point, the market rate was implying that the Bank of England Base Rate would hit 6% by the middle of this year. This is looking increasingly unlikely, and indeed, the Bank of England may actually be close to reaching the end of the rate hiking cycle, with Base Rates sitting at 4%.

Given the downward adjustment in base rate expectations, it is possible that the effect on the housing market will be lower. There are, however, a large number of mortgage holders, whose fixed rate mortgage deal is coming to an end during 2023. These individuals are highly likely to see a jump in their mortgage payments, although as fixed rates have fallen back from their peak, the effect is now likely to be less than was feared only 3 months ago.

Deposit concerns

For many first-time buyers, gathering a deposit still remains the biggest hurdle to home ownership. We have previously covered how the “Bank of Mum and Dad” is the UK’s 10^th largest lender measured by total loans issued, and our previous article highlighted some of the potential issues that can arise by gifting funds for a deposit.

With house price affordability so stretched, parents and grandparents may well be tempted to provide larger gifts to help family onto the housing ladder. However, parents and grandparents need to consider their own financial position carefully before making a gifted deposit.  For example, giving away capital sums when retired, or close to retirement, can not only diminish the amount of savings or investments held, but also reduce the level of income that could be generated by any capital that is gifted. In addition, this could mean that funds are also no longer available to cover any unexpected expenditure that faces the parent or grandparent, and children will often not be in a financial position to return the favour if the parents require funds.

Solving the affordability conundrum

House price affordability can only improve by an increase in house construction (thereby easing the supply issues) an increase in earnings, or a fall in prices. In reality, it may well be a combination of all three factors that eventually improve house price affordability. However, we feel this may take many years to correct, and in the meantime, house price affordability is likely to remain stretched.

For anyone looking to gift a deposit to help ease the affordability conundrum, we can provide advice on the implications of gifting capital. We also highly recommend parents and grandparents seek independent legal advice before taking any action to help a family member with a deposit.

If you would like to discuss the above in more detail, please speak to one of our Financial Planners here.

The value of investments and the income they produce can fall as well as rise. You may get back less than you invested. Past performance is not a reliable indicator of future performance. Investing in stocks and shares should be regarded as a long term investment and should fit in with your overall attitude to risk and your financial circumstance.

Taking financial advice can make a real difference in helping you achieve your aspirations, at all stages of life. As a Chartered, independent advice practice, we view our independence as being a vital component of the service we offer to clients, and we are proud of this status. Of equal importance is our ability to take a holistic approach to financial planning, whereby we consider your wider financial planning concerns and focus on your financial goals. In this article, we will explain why we value our independent status, and how taking a holistic view can help us tailor the advice that we give.

Restricted vs Independent Advice

Financial Advisers and Planners fall into one of two camps, ‘Restricted ‘and ‘Independent’. Being ‘Restricted’ means an Adviser can only recommend products from a limited selection or product range. For example, this could be an Adviser in a bank or other product provider, who can only consider and recommend products and services from that company. It could also mean an Adviser who can only advise on a limited number of areas of financial planning or is unable to review existing arrangements that you may have in place.

This contrasts with an ‘independent’ Adviser, such as FAS. As independent Advisers, we can consider products from a wide range of companies across the market and will give unbiased and unrestricted advice.

In practice, being independent means that we can take a totally impartial view when it comes to selecting a solution or product and can take into account all relevant criteria – such as cost, features and ease of administration – so that we can recommend products that provide the most appropriate fit to a particular set of circumstances.

Using a Restricted Financial Adviser doesn’t necessarily mean you run the risk of receiving poor advice. All Financial Advisers must have a similar minimum level of qualifications and meet the same standards. Using a Restricted Adviser, however, does mean that the choices available to you may be limited, and the advice they give you may not be the best available, or meet your needs.

Taking a holistic approach

At FAS, we always take a holistic approach to financial planning with our clients. This means we really take the time to understand all aspects of the complex picture that makes up a client’s financial circumstances. Of course, as part of the initial assessment, we will need to understand the current arrangements a client holds, such as existing pension plans or investment accounts, life assurance and other protection arrangements. This analysis is crucial to understand how appropriate the current plans are and whether they can be improved. However, a holistic planning approach goes much deeper, to look at how these arrangements fit into the “bigger picture” that makes up an individual’s current financial position and their aims for the future.

Holistic planning also aims to help clients define their financial goals and objectives, so that the advice we then give is tailored to help achieve that goal. Often clients have several objectives and goals, and using a holistic approach can help clients place those targets in a priority order.

Of course, life doesn’t always go according to plan, and circumstances change from time to time. For example, a client could lose their job, receive an inheritance, face divorce, be diagnosed with an unexpected illness, or welcome a new addition to the family, any of which could force a shift in those priorities. By reviewing a holistic plan regularly, we can look to adapt existing arrangements to meet the challenges or opportunities presented by the change in circumstances.

One particular area that benefits from taking this approach is when we meet a client who is considering their retirement options. For example, we help clients to identify the level of retirement income with which they will feel comfortable, by considering all aspects of a client’s position. This can help focus a client on the affordability of the kind of retirement that they wish to achieve, and also potentially help them come to a conclusion on other planning decisions, such as whether early retirement is a sensible decision.

This approach often identifies areas that need close attention that the client hasn’t given any thought to. These can be as varied as looking at the implications for Inheritance Tax if the client were to die, to looking at financial planning to help children and grandchildren or considering alternative ways of generating an income in a tax efficient manner.

Getting the most out of financial planning

We feel that choosing a Financial Adviser that takes a holistic approach can help tailor the advice and solutions to an individual’s precise requirements, and take into account important aspects that are relevant that could be overlooked by traditional financial advice. We also are firm believers in the benefits that true independence can bring to the advice proposition.

If you would like to obtain holistic advice, speak to one of our experienced Advisers to discuss your requirements, here.

The value of investments and the income they produce can fall as well as rise. You may get back less than you invested. Past performance is not a reliable indicator of future performance. Investing in stocks and shares should be regarded as a long term investment and should fit in with your overall attitude to risk and your financial circumstance.

As we head into the festive season, the focus of many at this busy time of year will be on buying gifts for loved ones. It may also be a good time for grandparents to think about the benefits of making gifts to help set grandchildren up for adult life, and help with future expenses they may face, such as education and university costs, or funds towards a deposit on their first home.

Gifts made to grandchildren under the age of 18 will need to be held in Trust for them, and perhaps the simplest form of Trust arrangement, a Bare Trust, is ideal for this purpose. The Trust is a separate legal entity, and Trustees will need to be appointed to administer the money. The Trustees could be the donor of the gift, the child’s parents, or other responsible individuals.

The Bare Trust continues until the beneficiary reaches 18, although it is important to note that at this point the beneficiary has the right to request that the assets are transferred to them. Some parents and grandparents may see this as less than ideal, as 18 is quite a young age to receive a substantial capital sum. That being said, if the purpose of the gift is to help pay for further educational expenses, funds will be handed over at the time that they are needed.

In addition, Bare Trusts can allow Trustees to advance funds to a child earlier than age 18, however funds must be used for the child’s benefit, such as education costs.

Bare Trusts can be tax-efficient

Bare Trusts can often be a tax-efficient way of gifting funds to the next generation, as income or capital gains arising on assets held in the Trust are taxable on the beneficiary, i.e., the grandchild. As they are unlikely to have any other taxable income at that age, if the amount of Trust income generated is below the child’s personal allowance (which is £12,570 in the current Tax Year) then no income tax will be due. Similarly, capital gains on investments realised are also taxable on the minor beneficiary, and therefore if the gains fall within the Capital Gains Tax (CGT) allowance, there will be no CGT to pay.

It is important to note that these exemptions do not apply when a parent makes a gift for their minor child, as the parental settlement rules may mean income remains taxable upon the parent.

Gifting to reduce an Inheritance Tax liability

Gifts into a Bare Trust are treated in the same way as any other gift and are therefore subject to the same tax rules as any other transfer by way of gift. Each individual has an annual gift allowance of £3,000 and if the allowance from the previous Tax Year has not been used, then this can be carried forward. A couple could therefore potentially make a total gift of £12,000 without any immediate Inheritance Tax (IHT) considerations. Any amount above this would be a Potentially Exempt Transfer and the donor of the gift would need to survive seven years from the date of the gift for this to fully escape their Estate for IHT purposes.

Making use of the annual gift exemption, or making larger gifts, can be a useful method of reducing a potential IHT liability, although the decisions around IHT planning in general are often more complex and require careful consideration. Holistic financial planning can help those in later life consider their potential IHT liability and look at a range of options that can reduce the amount of tax that would be payable by their Estate.

Deciding on an investment strategy

Whilst it is possible for money to remain as cash within a Bare Trust, for example held in a deposit account, most Trustees will opt to look to some form of other investment, such as Equities (Company Shares), Bonds and other assets, such as Property or Infrastructure, to try and achieve better returns than those that can be generated from deposit accounts. Trustees need to make sensible decisions in respect of how funds are invested, and as the responsibility rests with the them, many Trustees opt to receive independent investment advice to devise an appropriate investment strategy.

In addition to the initial investment decisions, Trustees have a duty to review the investments to ensure that they remain suitable. Other than reviewing investment performance, Trustees need to consider whether an investment strategy should be altered as a child moves closer to age 18, in particular if funds will be used at this time.

Bare Trusts need to be registered

A further responsibility that Trustees need to undertake is to register the Trust with the Trust Registration Service. This service is managed by H M Revenue and Customs and is the government’s way of keeping a record of Trusts in the UK.

The Service records the beneficial ownership of assets held in trust, together with the Trustees’ details. When first established, only Trusts that suffer tax on a regular basis had to register, but now Bare Trusts fall within the category of Trust that need to comply with the registration process.

Trustees can register using the Government online portal, and Trustees do need to be aware that they must register a Trust within 90 days of the Trust being established. Failure to register can lead to financial penalties, and whilst HMRC are likely to take a more lenient approach initially, persistent offenders are likely to face fines.

FAS can provide holistic and independent advice to grandparents looking to set up a Trust, including the most appropriate Trust to consider, together with advice on a suitable investment strategy. Speak to one of our experienced advisers for further details here.