Financial Planning

We would all like to think that we are able to manage our affairs successfully, and will continue to be able to do so in the future. However, an increasing number of people are affected by illnesses such as Alzheimer’s or Dementia, which can mean that individuals are no longer able to make decisions for themselves.

According to Alzheimer’s Research UK, almost 950,000 people in the UK are living with Dementia,  with this number projected to rise to 1.6 million people by 2040. A person’s risk of developing Dementia is 1 in 14 over the age of 65; however, this illness sadly affects younger people too, with over 42,000 people under the age of 65 being diagnosed with Dementia.

These very sad statistics underline how important it is to consider what would happen if you lost capacity to manage your affairs. Setting up a Lasting Power of Attorney (LPA) is straightforward and can make sure your loved ones can make the important decisions about your health and your financial wealth on your behalf, should you become incapacitated through ill health or accident.

What is an LPA?

An LPA is a legal document that lets you appoint someone you trust to make decisions on your behalf, should you become unable to make those decisions for yourself in the future. There are two different types of LPA, one covering Property & Affairs (e.g. property, investments and assets) and Health & Welfare (which covers health care and medical treatment).

You can choose to set up one or both types of LPA, and you can nominate the same person or elect to have different attorneys for each. Preparing an LPA doesn’t mean that you instantly lose control of the decisions that affect you. For the Property & Affairs LPA, you can be specific about when the attorney can take control when preparing the LPA, and in respect of the Health & Welfare LPA, this can only be used once capacity to make decisions has been lost.

All LPAs must be registered at the Office of the Public Guardian, which is the government body responsible for the registration of LPAs before they can be used.

Who to appoint as your attorney

Choosing the right attorney or attorneys is an important decision to reach. You can nominate anyone to be your attorney, provided they are 18 years old or older, and are not bankrupt.

The person, or people, you choose needs to be someone that you trust to make decisions for you, and will be able to act responsibly and in your best interests.

The risk of not preparing an LPA

If you lose mental capacity and don’t have an LPA arranged, this can leave loved ones with significant worry, and could potentially have ramifications for the individual’s personal finances.

If an LPA has not been prepared, and mental capacity is lost, an application will need to be made to the Court of Protection, for an individual to become your appointed ‘deputy’. This deputy will then make financial decisions on your behalf. The Court has the final say as to who is appointed, and this may not align with your wishes.

The process of making a Court application is long-winded, with applications taking many months to be heard and then approved. This could lead to significant issues for ongoing financial transactions, such as investment management, or the purchase or sale of a property. Directors and Business owners are at particular risk, as loss of capacity could lead to the situation where no individual is authorised to run the business.

Furthermore, using a Solicitor to support a Court Deputyship application can lead to expensive costs, that could be avoided by preparing an LPA in advance.

LPAs and Investment Advice

When an individual loses capacity, attorneys will often seek independent financial advice in respect of assets held by the donor of the power. For example, we are often asked to provide investment advice to attorneys where the donor has moved into long term care, and their property has been sold, leaving a cash sum upon which investment advice is needed.

It is important to recognise that an attorney appointed by an LPA is generally not permitted to delegate responsibility to another individual, without express permission by the Court of Protection. This has an impact when an individual holds investments that are managed under an existing Discretionary Management agreement, and then loses capacity to manage their affairs.

This can be overcome by inserting specific wording in the LPA document when it is prepared, which provides express permission to delegate investment management decisions to an existing or new discretionary investment manager. The view of the Court has, however, changed over the course of the last year, and it appears the Court is taking a more practical view when these situations arise.

Don’t leave it too late

Given the sad prevalence of cognitive decline in the population, we can’t stress enough the importance of preparing an LPA document. Most people appreciate the importance of making a Will to deal with affairs and assets on death, but perhaps don’t place the same emphasis on preparing an LPA. Failing to take this step can lead to unnecessary stress for loved ones, and potentially leave the individual exposed to significant risks in respect of investments, property or business assets. We strongly recommend that all individuals consider preparing an LPA, either in conjunction with a review of their existing Will, or separately.

How we can help attorneys

Whilst the focus is often placed on the importance of ensuring an LPA is in place, attorneys appointed under an LPA can often find themselves thrown in at the deep end when trying to manage the finances of the donor. At FAS, we have considerable experience in assisting attorneys to understand assets held by the donor of the power, and can provide independent advice on existing investments, or how best to invest cash funds held by the donor. Give one of our experienced Advisers a call if you require assistance.

If you would like to discuss the above further, then 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.

Simply announced as a “fiscal event”, the series of announcements made on Friday may well have more impact than many full-blown Budgets have had over recent years. Aimed at delivering growth, the Chancellor reversed a number of policy decisions and announced some surprise measures in the statement, too.

Additional Rate scrapped

Perhaps the most eye-catching of the announcements was the removal of the 45% Additional Rate Income Tax band. This rate is currently payable on income earned over £150,000. From 6^th April 2023, the maximum rate of Tax payable on income will be 40%.

We await clarification in respect of the impact this could have on Trusts. Currently, Discretionary Trusts pay tax equivalent to the additional rate (45% on Trust income over the first £1,000 of income, and 39.35% on dividends) and it is not, at this stage, clear whether Trusts will realign with the new highest rate of Income and Dividend Tax. Further information is likely to be revealed when the Finance Bill is published.

With the removal of the Additional Rate Band, the Personal Savings Allowance of £500 will also become available to those whose income is currently within the Additional Rate Band. Under the current rules, anyone with income over £150,000 does not benefit from the Personal Savings Allowance, which covers the first £500 of savings income.

Income Tax cut brought forward

Previously announced as a policy measure due to come into force in 2024, Kwarteng has brought forward the 1p cut in the basic rate of Income Tax by 12 months, to take effect from 6^th April 2023. The basic rate of tax will fall from 20% to 19%, and this will apply to earned and savings income. The current rate of relief of 20% will be maintained for Gift Aid charity donations until April 2027.

Reverse over Social Care

Previously announced by former Chancellor Rishi Sunak, the Government have reversed the planned policy decisions designed to raise funds to help provide for the social care budget. The 1.25% National Insurance hike for Employees and Employers will be scrapped from November 2022, and the Dividend Tax rate hike, which was implemented in April 2022, will also be reversed from next April.

For Basic Rate taxpayers, Dividend Tax will revert to 7.5% from the current 8.75%, with Higher Rate Taxpayers paying 32.5% once again, rather than the current 33.75%. Coupled with the removal of the Additional Rate Tax Band, the maximum rate of Dividend Tax payable from 6^th April 2023 will be 32.5%, which could present opportunities for business owners to draw more from their business in a tax efficient manner from this date.

The reduction in Dividend Tax rate will also benefit those with large investment portfolios held outside of tax-efficient wrappers, such as an Individual Savings Account (ISA).

Pension changes

There were no major announcements in respect of Pensions. With the reduction in the Basic Rate, and removal of the Additional Rate, from 6^th April 2023, the maximum rate of Income Tax relief on pension contributions will fall to 19% for Basic Rate Tax payers, and a maximum of 40% for Higher Rate taxpayers.

Despite the Basic Rate Income Tax reduction coming into effect in April 2023, the Growth Plan suggests that pension schemes that arrange contributions on the relief at source method (i.e. personal pensions) will still be able to claim Basic Rate relief at 20% until April 2024.

This presents an opportunity to gain an additional 1p of Basic Rate relief on contributions in the 2023/24 Tax Year.

Venture Capital Trusts secured

A feature of European Union state aid rules was that a “sunset” clause on Venture Capital Trusts (VCTs) was due to come into force in 2025. This could have meant that new investments in VCTs may not have qualified for relief from 2025. However, in a move designed to boost UK entrepreneurship, this deadline has now been removed, which secures the future of Venture Capital Trusts.

In addition, Kwarteng announced an extension of the Seed Enterprise Investment Scheme (SEIS) limits, with companies being able to raise £250,000 of SEIS investment, rather than the current £150,000 investment.

The support of VCTs and other tax-efficient investments is welcome, as this has proven to be beneficial for small business looking to raise funding for expansion, together with offering attractive tax breaks for investors.

Stamp Duty Land Tax

As part of measures designed to help the housing market, the Stamp Duty Land Tax (SDLT) threshold for residential properties has been doubled from £125,000 to £250,000. This will mean that no SDLT will be payable on properties up to £250,000. For first-time buyers, the relief has been extended, with the first £425,000 – instead of the current £300,000 – being exempt from SDLT. This relief is available on properties up to £625,000 in value.

These changes may well support the lower end of the housing market; however, there has been no change to the rates applying for higher value properties. The 3% levy on additional properties purchased will also continue unchanged.

Corporation Tax changes axed

The intended increase in Corporation Tax, scheduled for 6^th April 2023, has been axed. The rate of Corporation Tax would have increased to 25% from next April; however, it will now remain at 19%, and presents an opportunity for business owners to rethink plans to draw profits over the current and next Tax Years.

In Summary

The announcements were certainly eye-catching and we wait to see whether the new legislation will have the desired impact on growth. The initial market reaction has been fairly clear, given the slump in the Pound against the Dollar immediately after the measures were announced.

From a financial planning perspective, these new rules present interesting opportunities for business owners, those with share portfolios and individuals saving through a pension, to review their current arrangements.

If you feel a comprehensive review of your financial planning objectives and plans would be beneficial, then speak to 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.

The Bank of England’s Monetary Policy Committee announcement of a 0.50% base rate hike last week would have been sufficient to cause headline news on its own, given that the increase was the largest single rate rise announced by the Bank for 27 years. However, it was the accompanying gloomy statement by Andrew Bailey, the Bank of England Governor, forecasting a prolonged downturn in the UK economy over the coming 15 months, that drew most attention.

Fifteen months of recession?

Mr Bailey warned that the UK would move into recession in the fourth quarter of 2022. Recessionary conditions represent a significant and prolonged downturn in economic activity, and is often defined by two successive quarters where Gross Domestic Product (GDP) falls. Mr Bailey’s comments that the Bank now forecast a contracting economy for the latter part of this year and for the whole of 2023 raised eyebrows amongst commentators and respected economists. Former Monetary Policy Committee member Professor David Blanchflower commented that Mr Bailey had been guilty of “loose talk” and the day of the announcement was “… as bad a day for the British economy as I can remember”.

The statement by the Bank, which accompanied the 0.50% base rate hike, cited sharply rising inflation over coming months as the reason behind the rate increase. The Bank now expects Consumer Price Inflation (CPI) to reach in excess of 13% later this year, largely due to the increase in wholesale gas costs. This would represent a further increase of 3.6% over the current CPI print.

We take an objective view of macro-economic conditions, and generally feel that central bankers perform a reasonable job, given the intense focus that markets place on every announcement or comment that is made. In this instance, however, we can’t agree with the Bank’s comments in respect of the UK economy, and would go as far as branding the pessimistic long-range forecast as being irresponsible.

Interest rate policy

Firstly, let’s consider the reason behind the rate increase announced by the Bank. Inflationary pressure is largely being caused by external forces that are beyond the control of the Bank of England. Energy and Fuel costs are all increasing as a result of the conflict in Ukraine, which has driven the price of wholesale gas to more than double since the start of the year. Sanctions on Russia, combined with threats to slow or even halt gas supply through pipelines, has led to a scramble to secure gas supplies, pushing prices higher. Crude oil prices have similarly seen a spike during the course of 2022, although prices have fallen back by 25% since the start of June. Food prices have been driven by a combination of increased costs of shipping and transportation, and increased costs and limited supplies of goods such as Sunflower Oil and Wheat.

Despite this Core CPI – which ignores energy, food, alcohol and tobacco prices – has actually fallen back from 6.2% in April to 5.8% in June. Core CPI tends to be a useful measure of domestically generated cost pressure, and perhaps should give the Bank more comfort that wage increases and prices for goods and services are not out of control.

We would argue that the strength of our currency is an area that should command more focus in decision making. Sterling has been weak against the Dollar, falling by more than 10% this year, which stokes inflation, as the cost of imported items priced in Dollars increase as Sterling weakens. Given the immediate reaction on currency exchanges to Mr Bailey’s comments, which saw Sterling weaken in the face of the 0.50% base rate increase (which would normally be seen as positive for the currency) we feel Sterling may remain under pressure for some time to come.

Growth will slow, but perhaps not stall

The dramatic drop in GDP expectations announced by the Bank is another area we feel demands further scrutiny. The Bank’s central forecast is for growth to be negative for the final quarter of 2022 and remain in negative territory for the whole of 2023, with a net contraction of 2.1% over this period. When divided by the five quarters of recession suggested by the Bank, this would represent a contraction of 0.4% per quarter, which is considerably more pessimistic than the OECD (Organisation for Economic Co-operation and Development) which suggested in June that UK growth would be flat during 2023, and the International Monetary Fund (IMF) which, in April, forecast 1.2% growth in 2023.

UK GDP increased by 0.8% in Q1 of 2022, and the preliminary reading for Q2, to be announced next week, is expected to continue to show the UK economy expanded, albeit by a lower rate of growth. April showed a decline of 0.2%, but May saw GDP increase by 0.5%. Given the reported rate of growth, compared to the grim projections by the Bank, growth is either going to slow dramatically, or (as we would suspect) the Bank is being overly negative in their forecasting.

As you can perhaps deduce from our analysis, we don’t agree with the Bank forecasts or the message that the Bank appear to be conveying. We find it hard to believe that Mr Bailey’s predecessors, Mark Carney or Mervyn King, would have made such predictions. It is clear that inflation will persist, although we expect the pressure to ease as we move into 2023. We also appreciate that growth is likely to slow as we move towards the end of the year, although we feel more positive that any recession in the UK will be more short-lived than the Bank suggests.

If you would like to discuss the above with one of our experienced advisers, please get in touch 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.

Life assurance is a crucial area of financial planning, particularly where there is a need to provide protection for young and growing families or where others are financially dependent on the life assured. It is, however, all too often ignored by individuals when they assess their financial priorities. According to research undertaken by Canada Life last year, 63% of those questioned have never thought about, or do not have, an active life insurance policy in place.

Lump sum cover

The most common form of life assurance is a term assurance policy, whereby the death of the life assured triggers a lump sum payment to beneficiaries. Often the policy will be established as a decreasing term assurance policy, which is designed to cover a repayment mortgage. These policies are set up so that the amount of cover falls over time broadly in line with the outstanding mortgage balance.

Whilst holding life cover over an outstanding mortgage balance is obviously sound financial planning, a lump sum payment would do little to provide additional funds on an ongoing basis to cover day-to-day living costs and other expenditure for family members left behind. This is where a different type of life insurance – family income benefit – can be very useful.

Providing a regular income

The main feature of family income benefit is that the policy is structured to pay a monthly tax-free income to beneficiaries for the remainder of the policy term, rather than paying out a lump sum. It is designed to replace earnings or income that would have been generated, in the event that the policyholder dies, thus allowing surviving family members to maintain their standard of living. The policy is structured at the outset over a specific term, and in the event of a claim being made on the policy, the payments will be made for the remainder of the term. For example, if a policy was established for a 20 year term, and the policyholder died in the 9^th year, the monthly benefit payments would continue to be paid for the 11 years remaining on the policy term.

Benefits paid by a family income benefit policy can either be paid on a level basis (i.e. the monthly premium and benefit payments are fixed at the same amount for the life of the policy) or indexed, where the level of benefits, and monthly premium, are inflation linked. This can protect the real value of the cover provided, and the cost of living increases we have seen over recent months are a timely reminder of the importance of protecting future payments against rising inflation. Many family income benefit policies also pay out on diagnosis of a terminal illness, and some policies allow the monthly payments to be commuted to a lump sum payment, if the surviving family feel this would be more helpful in their circumstances.

Cost-effective cover

Many people consider affordability as being one of the main barriers to holding adequate life insurance. Indeed, research carried out by Canada Life in 2019 confirmed that 27% of respondents felt the cost of the premiums was the main reason for not taking out cover. Family income benefit is often more cost effective than lump sum term assurance, as the total amount paid out by the policy depends on when the policyholder dies. If they die in the early years of the policy, the total payout will be more than if they die nearer the end of the term of the policy. Because the total amount paid decreases over time, it’s cheaper than an equivalent single lump sum life insurance policy which runs for the same period.

Specific situations where cover can assist

As we have established, the most common use of a family income benefit policy will be to provide families with cost-effective cover to enable the surviving family to maintain their standard of living in the event of death. Typically, policies would be put in place to provide a term of insurance until the youngest child leaves higher education.

In addition, however, there are many scenarios where family income benefit could be a very sensible solution for specific protection needs. One such situation is to cover divorce maintenance payments, which would potentially cease in the event of the death of a divorced parent. By taking out a family income benefit policy, the benefits could continue to provide the maintenance payments, thus enabling the ongoing standard of living the children enjoy to be maintained.

In a similar vein, family income benefit can be useful to cover education costs, in particular if a child is privately educated. By taking out a policy that covers the ongoing educational costs, this could mean a child being able to stay in private education or could potentially even provide ongoing funding through university.

Another scenario where family income benefit could be helpful is to cover the cost of care. Many individuals are full-time carers for loved ones, and in the event of death of the carer, this could leave the individual being cared for facing the need to pay the cost of finding alternative care. By taking out family income benefit, the monthly payments for providing ongoing care could be covered.

Seek our advice

Whilst many individuals hold adequate cover to pay off outstanding mortgages and other liabilities, the ongoing costs of living are often ignored. Family income benefit can be a cost-effective way to provide a regular income in the event of death and help maintain a family’s standard of living. If you would like more information on this type of policy, then speak to one of our advisers at FAS, who can take an independent look across the whole of the protection market, and provide advice on the most appropriate solution.

If you would like to discuss the above with one of our experienced financial planners, please get in touch 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 circumstances.

Buying your first home has never been easy, and the increase in house prices over recent years has made the task even harder for first time buyers. As a result, prospective house buyers are turning to parents, grandparents and other relatives for help. Indeed, it is a scenario we come across regularly; and, by and large, parents are keen to give their children a helping hand to provide a deposit to enable them to buy their first home, or trade up to a larger property.

The UK’s 10^th largest lender

If the Bank of Mum and Dad was a business in its own right, it would be the UK’s 10^th largest lender measured by total loans issued, according to research carried out by Legal & General in 2019. This research, undertaken in conjunction with the Centre for Economics and Business Research (CEBR) also showed that 23% of all housing transactions undertaken in that year involved parental or family assistance, with 65% of buyers questioned saying that they would not be able to proceed with the purchase without the financial assistance. Legal & General’s research also showed the average gift made for this purpose was £25,800 for buyers in London.

By providing a gift by way of deposit, parents can enable their children to increase the amount they can borrow on a mortgage, helping them to buy a home which would be impossible without the financial assistance. Alternatively, the gift could mean that the child borrows less on their mortgage, leading to lower monthly repayments and potentially access to lower mortgage interest rates.

Beware the pitfalls

Despite the good intentions that parents often have to help their children, they would be well advised to consider the pitfalls before gifting funds to their children to enable them to buy a home.

Any gift – be it by way of a deposit for a house or for another purpose – could have inheritance tax consequences. Each individual can make gifts of £3,000 per tax year and therefore a married couple could gift £6,000 of capital (plus £3,000 each from the previous tax year if not used) without any inheritance tax concerns. As shown by the research above, this is less than 50% of the average financial assistance provided by parents. Any amount gifted above the gift exemption is treated as a potentially exempt transfer (PET). No inheritance tax is due immediately; however, the person making the gift needs to live seven years from the date the gift is made for the gift to fully escape inheritance tax.

If a parent makes a gift to a child who is buying with an unmarried partner, the consequences of relationship breakdown could mean that the funds are unprotected if the property is subsequently sold. It is an important scenario to consider, and this can be avoided if the solicitor dealing with the purchase prepares a suitable Declaration of Trust, which stipulates that the amount of the gift is paid back to their child from the proceeds of sale.

Be careful with co-ownership

Some parents decide that rather than making a gift of a deposit, they would prefer to buy the property with their children. Whilst this allows parents to enjoy an equity participation in the property, the tax consequences need to be considered further. Firstly, assuming the parents already own a home, the purchase would be seen as being a second home, and therefore be liable to the additional rate of stamp duty (3% of the purchase price).

Secondly, the share of the property owned by the parents would not benefit from Principal Private Residence Relief, and if a gain is made on sale of the property in the future, the proceeds on the share owned by the parents would potentially be liable to Capital Gains Tax, at a rate of 18% or 28% (depending on their overall tax position).

Lastly, if a mortgage is being arranged for the purchase, the parent would be jointly responsible to meet the mortgage payments if the child was unable to make the repayments.

Looking after your interests

Whilst there are plenty of valid reasons for the Bank of Mum and Dad to remain open for business, parents need to carefully consider their own financial needs in later life before gifting funds to help offspring onto the housing ladder. The same research undertaken by Legal & General showed that 17% of parents passing money to their children via the Bank of Mum and Dad are materially worse off financially as a result.

Giving away capital when retirement is looming can diminish the amount of savings or investments, but also reduce the level of income that could be generated by the gifted capital. The gifted funds are also no longer available to cover any unexpected expenditure, and children will often not be in a financial position to return the favour if the parents require funds.

Parents would also be well advised to consider the effect of unequal gifts made to children. If one child receives a helping hand onto the property ladder, friction within the family could be caused, in particular if the parent is not in a financial position to equalise the gift to children at the same time. It may well be sensible to consider recording the gift in your Will, and making provision so that all are treated in an equitable fashion over time.

Engage with financial and legal advice

Many parents are happy to open the doors of the Bank of Mum and Dad, and do the best they can for their children. There are, however, a number of financial and legal considerations that need careful thought. A good solicitor should be able to provide the necessary advice to protect the gift in the event of relationship breakdown, and any changes that may be appropriate to your Will.

At FAS, we can provide assistance to parents who wish to use their funds to help their children. We can advise on which assets are gifted, and the potential financial impact of any actions taken on their financial security. Speak to one of our experienced advisers for assistance.

If you would like to discuss the above with one of our experienced financial planners, please get in touch 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 circumstances.

The so-called “cost of living crisis” is never out of the news at the moment, with the hike in energy prices, petrol, and food costs causing concern for many. Headline UK Consumer Price inflation rates have now exceeded 6% per annum, and with expectations that annual inflation could reach double digits by the autumn, many are considering how to give their income a welcome boost.

Feeling the squeeze

One group in particular who are likely to feel the effect of the price hikes more than others are retired individuals, where income levels are not keeping up with the general rising prices. The reference point that sets the annual increase in State Pension is the rate of inflation at the September preceding the end of the tax year, and as a result, the State Pension has only increased by 3.1% this year, lagging behind the current rate of inflation by some margin.

Retired individuals who hold savings on cash deposit have had to live with low interest rates for more than a decade, so in some respects conditions at the moment represent the status quo. However, the big difference this year to previous years is the fact that the gap between savings rates and inflation has widened, and this trend is only likely to strengthen during the remainder of the year.

The quest for better rates

A simple option for those who are receiving a disappointing rate of interest on their savings is to look to move funds to an account paying a better rate. The Bank of England have increased base interest rates on three occasions since December last year, and in an attempt to tackle the persistent higher rates of inflation, are likely to increase rates further during the remainder of this year. Our current expectations is that the Bank of England will hike rates a further three times before the end of the year, although the continued uncertainty over the price hikes and growth could see the Bank take a more aggressive stance if necessary.

That being said, the pursuit of improved cash interest rates remains an exercise in frustration, despite the likelihood of cash interest rates offered by banks and building societies improving during the course of year. As much as cash savings rates improve, the prevailing rate of inflation is likely to have risen further, maintaining and even increasing the difference between the cost of living and savings rates.

Look to alternative options

So what can investors do to generate much needed income and also aim to add some growth into the mix to offset the rising prices?

By considering alternative assets to cash, such as fixed interest securities and equities, more attractive levels of income can be generated. Naturally, moving away from cash deposits introduces investment risk, which is not present when holding cash (although as we have shown above, cash is not risk-free, as inflation risk can be significant). Investment risk can be mitigated in a number of different ways. By holding a diversified portfolio, with allocations to different assets that look to balance out assets that have potential for greater returns, with those that offer more predictable returns. In addition, stock specific risk can be avoided by investing in pooled funds (such as Unit Trusts or Open Ended Investment Companies) that spread the investment across a wide range of different individual positions.

Let’s take a look at those alternative asset classes in more detail. Corporate bonds, government bonds, and other fixed interest securities are loans, where the investor lends capital to the issuing company or government. In exchange, the bond provides a regular income for a fixed period of time, with a set return of capital offered when the bond redeems. These investments tend to be more predictable than equities (company shares) but they do still carry risks. These risks include default risk, where the issuer of the bond is financially unable to repay the capital or interest. This risk can be minimised by careful selection of who to lend your money to.

Dividend income generated from equities (company shares) are regular distributions of capital to shareholders. The ability of a company to pay dividends relies on the company having sufficient capital to make the distribution, and are not fixed. Dividend yields came under significant pressure during the early stages of the pandemic, but more recently, dividend yields have improved. Unlike fixed interest securities, equities tend to be more volatile in terms of their capital value, which shows greater fluctuations over time. That being said, equities have greater potential to provide capital returns, and once again, with careful management, the risks can be managed through diversification into assets held in different sectors of the economy and geographic locations.

It’s all in the blend

By blending these assets classes, together with other assets that complement the overall strategy (such as infrastructure or property) cash savings could be better employed to generate more attractive levels of income and over the longer term, aim to provide some capital appreciation. Holding these assets in an individual savings account (ISA) can enable a tax-free income to be generated and this is often a sensible way of generating additional income, particularly for those who rely on fixed incomes, such as in retirement.

Moving away from cash and into investments such as fixed interest securities and equities can be a big step and this is where expert financial planning advice can add significant value. The advisers at FAS can provide impartial advice on the options open to you and construct a discretionary managed or advisory portfolio designed to meet your income needs.

If you are looking to make cash worker hard for you, then please get in touch with our experienced 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 circumstances.

It was just over two years ago since Prime Minister Johnson announced the first national lockdown to combat the spread of Covid-19. Global growth slumped and a deep recession ensued, as businesses and individuals relied on Government and Central Bank support for survival. Following a sharp slowdown in property transactions during the Spring of 2020, Chancellor Sunak announced a Stamp Duty holiday, removing Stamp Duty on properties up to £500,000. This helped reflate the flagging housing market, together with a trend amongst homeowners to look for properties with gardens and home offices.

Last year saw house prices continue to post significant growth following the rebound later in 2020. According to Nationwide, the average UK house price increased by 10.4% in 2021, the highest rate of growth recorded for 15 years. Considering the further lockdown seen in the first quarter of 2021 and continued uncertainty over new Coronavirus variants, these gains appear somewhat irrational. That being said, the extension of the Stamp Duty holiday, low borrowing costs and an imbalance between supply and demand appear to have combined to drive prices higher still.

How sustainable is house price growth?

Fast forward to 2022, and in the first two months of the year at least, the trend appears to be continuing, with Nationwide reporting house price growth of 0.8% in January and 1.7% in February. But is this really sustainable, or are we on the verge of a rapid slowdown in the housing market?  According to the Building Societies Association (BSA) Property Tracker March survey, it would appear buyers are becoming increasingly concerned.

The BSA Property Tracker survey, which is carried out quarterly by YouGov PLC, showed just 18% of those surveyed in March thought it is a good time to buy property in the UK. This is the lowest figure reported since the survey was introduced in June 2008. Perhaps unsurprisingly, fears over the increasing cost of living generally, the conflict in Ukraine, and the impact of sanctions on Russia on global energy and fuel prices were highlighted as key concerns.

Higher costs squeeze affordability

We have warned clients that inflation was likely to increase since early in 2021, although our early estimate that inflation could peak in the Spring or Summer of this year now looks highly unlikely, largely due to the effect of the Russian invasion of Ukraine on global commodity prices. UK Consumer Price Inflation reached 6.2% in the 12 months to February 2022 and this is likely to go higher still as the year progresses.

Given the higher inflation numbers, the Bank of England has now raised Base interest rates at three successive meetings, from 0.10% to 0.25% on December 16^th 2021, and agreeing two 0.25% increases in February and March, with the Base Rate now standing at the same level as it was before the pandemic. There are six further Monetary Policy Committee (MPC) meetings scheduled for 2022, and given the heightened inflationary expectations for the remainder of this year, we would not be surprised to see at least three more hikes in Base Rate before the end of the year.

The increase in Base Rates will, of course, feed into higher mortgage rates, both for those on variable rates and those with fixed rate deals that come to an end. Just over seven months ago, five year fixed rates could be obtained at just 0.99%, whereas the best deals in the market are almost double the rate at 1.82%.

Confidence on the wane

With higher costs of living impacting on household finances, it is little surprise that UK consumer confidence is starting to falter. The GFK Consumer Confidence barometer fell to -31 in March 2022, to stand just above the levels seen at the start of the pandemic, and when asked about their forecast for personal finances over the coming 12 months, respondents indicated that they were more negative now than at the height of the pandemic and also more pessimistic than they were during the Financial crisis in 2008.

Supply imbalance about to correct?

Much of the house price growth seen over the last decade has been a result of cheap borrowing costs, but also an imbalance between demand and supply, as housebuilding generally failed to keep up with demand for housing.

With prices potentially coming under pressure due to increased costs of living, could we see a increase of properties on the market as sellers hope to cash in before confidence weakens? It is too early to tell, although some investors with Buy to Let properties may decide to take advantage of current prices, particularly given that rental yields are likely to have fallen over time.

As a reminder to those who are considering selling second homes or investment properties, Capital Gains Tax on disposal needs to be paid to H M Revenue & Customs within 60 days of the property sale completing. This is less onerous than the 30 day payment window in place between 6^th April 2020 and 26^th October 2021, however sellers should be aware that tax due needs to be settled within the 60 day window to avoid penalties adding to the tax due.

Time to reassess property portfolios?

The UK housing market has defied gravity since the start of the pandemic, although it is becoming apparent that confidence could weaken significantly as 2022 progresses. Higher inflation and hikes in borrowing costs could see the imbalance between demand and supply ease and slow down the pace of growth. For anyone holding property investments, it may be time to reassess existing portfolios in light of the extraordinary gains seen over recent years.

If you are interested in discussing the above with one of our experienced financial planners, please get in touch 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 circumstances.

While it’s estimated that by 2025 around 60% of UK wealth will be held by women, the Covid-19 pandemic has exacerbated some basic inequalities for some. The challenge for women across the board is making the most of their financial resources – whether stretching a smaller amount to last longer or growing surplus wealth to best effect.

Financial planning for women guide

In our newly launched guide, we explore the specific needs across every stage of life so that you know your money is working for you…

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If you are interested in discussing the above with one of our experienced financial planners, please get in touch here.

The value of your investment and any income from it can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.  The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice.

With the deadline for registration now just six months away, we look at the steps trustees need to take to ensure they remain compliant with the regulations.

Trustees have to perform a number of duties to fulfil their role effectively; however, some may not be aware of the Trust Registration Service (TPR) and the additional requirement for trustees to comply with the new registration process.

Set up in 2017, the HMRC Trust Register was introduced to improve transparency of the beneficial owners of trust assets. Under new Anti-Money Laundering Directives adopted at the time, trustees will need to provide details of the trust, as well as information relating to the settlor (the individual or individuals creating the trust), trustees, and potential beneficiaries of the trust assets. For each interested party to the trust, the service will ask for the name, date of birth, national insurance number, and address to be registered, and if the trust is being registered for the first time, details of the assets held in the trust will need to be provided. You should be able to find these details in the trust deed.

As it stands currently, only those trusts who have UK tax to pay need to register using the Trust Registration Service. These are known as Taxable Trusts, and these include trusts that are liable to income tax, capital gains tax, inheritance tax, or stamp duty land tax.

The introduction of the Trust Registration Service casts a wider net, with many trusts that do not incur a charge to UK tax now faced with having to register for the first time. October 2020 saw the expansion of the Anti-Money Laundering Directives and as a result, so-called “Express” Trusts – even if there is no tax to pay – are now caught under the Trust Registration regime.

The term “Express” Trusts does not relate to their speed, but instead relates to those created intentionally by a Deed, by an express, or inferred declaration of trust. These are trusts that do not have an immediate liability to any UK tax, such as those used in estate planning.

One common type of Express Trust that will be caught by the expanded Registration Service are Bare Trusts. These are perhaps the most common form of trust, which are often found written into wills, when assets are left in a simple form of trust for a beneficiary who is below the age of 18. Assets in this type of trust are held by the trustees until the beneficiary reaches the age at which they automatically become entitled to the assets held in the trust. There is usually no tax liability to report on Bare Trusts as the UK tax liability is incurred by the beneficiary and not the trustee, and in the past trustees have not had to be involved in reporting to HMRC.

This all changes with the introduction of new rules, and Bare Trusts are caught within the remit of the Trust Registration Service. Bare Trusts created by way of deed, such as a gift from a grandparent during their lifetime into a trust for the benefit of grandchildren, will need to be registered on the service by the deadline, whereas those created by a will need to be registered if the trust is still in existence two years after death of the settlor.

For these Express Trusts, the deadline for registration has been pushed back a number of times since the measures were first announced. The deadline has now been confirmed as 1^st September 2022, and all Express Trusts in existence on 6^th October 2020, or created after this date, will need to have registered by this date. Trusts created after 3^rd June 2022 will have 90 days to register on the service.

A small number of Express Trusts can avoid the registration process, with these being limited to Charitable Trusts, UK registered pension schemes, and trusts where a disabled person is a beneficiary.

Following the first registration, the trustees will need to ensure that the Register is updated each tax year, and in addition trustees need to be aware of the need to inform HMRC each time there are changes to the beneficial ownership of a trust, for example whenever a trustee retires from their position or is appointed, or when beneficiaries change.

Trustees need to be aware of the requirements of the Trust Registration Service and if the trust needs to be registered, ensure that they comply with the registration process by the deadline. HMRC have provided an online registration service, or trustees may wish to ask their accountant to register the trust if they act as agent for the trustees. For more information on registering a trust visit Register a trust as a trustee – GOV.UK (www.gov.uk)

At FAS, we have long provided independent investment advice to trustees and guided them in respect of their duties. Whilst the responsibility rests with the trustees to register the trust correctly, we are on hand to give guidance to trustees if required.

If you are interested in discussing the above with one of our experienced financial planners at FAS, please get in touch here.

The value of your investment and any income from it can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.  The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice.

Transition from work

Money concerns are never welcome when entering retirement, particularly if the opportunity to earn your way out of them is no longer open to you. For many, the transition from work to retirement is often a gradual process. We frequently speak to clients who do not want the instant change from full time employment to retirement, and indeed, it is now quite common to see employees reduce the number of days they work prior to retirement.

The latest data from the Office for National Statistics shows that 14.0% of men and 8.0% of women still work beyond age 65. With the State pension age increasing this is perhaps not a surprise. However, it is unwise to assume that you can rely on continued earnings for a long period of time. Factors such as your health, your partner’s health, your enthusiasm and the type of work you’re engaged in, could mean you have to stop work at some point. If you think you will have to continue working indefinitely, then your (non-) retirement plans almost certainly need a serious review.

The role of pensions

Pensions, both state and private, are usually the main source of income in later life. For growing numbers of people,  private pension income will be via income drawdown, rather than the traditional pension annuity. The drawdown approach offers flexibility suited to gradual retirement, when individuals reduce the number of days they work and replace employment income with pension income, so that standards of living can be maintained. This flexible approach can also assist in wider planning, such as considering when to take tax free cash from personal and workplace pensions, and how best to use these funds to supplement the reducing income from employment.

It goes without saying that ongoing management of pension funds in drawdown is vital. The level of withdrawals needs regular review to ensure that the correct amount is being drawn. Taking too much from a fund can mean you outlive your pension, potentially forcing you to reduce the withdrawals in much later life, or even worse exhausting the fund. In addition, taking excessive income withdrawals could also lead to unnecessary income tax charges on pension income.

To help analyse the correct rate of withdrawal, it is important to consider life expectancy, which has continued to improve over time. Since 1981, life expectancy at age 65 has increased by six years for men (to age 85) and four years for women (to age 87). Drawing too much from the plan in the early days of retirement could seriously reduce the chances of the fund sustaining the level of income throughout your life.

Inflation is also an important consideration, and one that is very topical at present due to the elevated levels we are seeing around the world. For example, the buying power of the pound has dropped by about one third since the start of 2000, and static levels of income over time are likely to lead to a significant drop in standards of living as the years progress.

For some, pensions can be a powerful tool to pass wealth between generations, if retirement income can be obtained from other sources, such as investments. Taking lower withdrawals from a pension – or indeed no withdrawals at all – can allow pension funds to build up over time, which could then be passed on your children, grandchildren, or chosen benefactors who will ultimately benefit. This can be a particularly tax efficient way of passing assets between generations for those with substantial estates, as pension assets do not normally aggregate with the remainder of the estate when inheritance tax is calculated, thus potentially saving an inheritance tax charge of 40%.

Investment management

If you hold investments – including those underlying your pension arrangements – they need to be managed. What you require from your investments could alter over time and investment horizons naturally tend to shorten as you get older. For example, you may wish to increase the emphasis on security of income rather than income growth. Regular reviews of asset allocations can be very helpful in identifying areas of risk and ensuring that the portfolio continues to meet your needs and objectives.

Investments can also be a useful source of retirement income, which can be used as part of an overall strategy when combined with pension income to generate a tax efficient income stream. Collective investments and direct investments can generate attractive levels of natural interest and dividends, which are tax exempt if held in an ISA wrapper.

Pulling it all together

To maintain a coherent approach to planning, it is important to engage with advisers who take a holistic approach to planning. Considering each aspect as part of the whole, rather than individual components, can often lead to better outcomes. A global strategy can ensure that investment risk is monitored across all aspects and income levels can be altered from flexible sources to hit precise income targets in a tax efficient manner. At FAS, holistic financial planning is at the heart of our process.

If you are interested in discussing your retirement income strategy with one of our experienced financial planners at FAS, please get in touch here.

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