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Clarke Nicklin Financial Planning

'protecting your wealth and helping your investments grow'

Passing on wealth without further tax charges

On 6 April 2017, a new additional main residence nil-rate band (RNRB) was introduced, which allows for less Inheritance Tax to be paid in situations when a family home is left to children, grandchildren or certain other ‘qualifying beneficiaries’ – including stepchildren and foster children.

Previously, if an estate of a married couple was left to any descendant, anything above the £650,000 combined threshold would have been taxed at 40% Inheritance Tax.

However, from 6 April 2017, the RNRB has been introduced with an RNRB of £100,000 per person, taking the total maximum individual personal allowance for Inheritance Tax from the current level of £325,000 to up to £425,000, or a total of up to £850,000 for married couples and registered civil partnerships.

The allowance for the family home is set to increase by £25,000 per tax year, so by 6 April 2020 onwards a couple with a family home may potentially be able to leave their children or other direct descendants a combined estate of up to £1 million without any Inheritance Tax to pay.

However, if the same couple were to leave their family estate to a sibling, the Inheritance Tax of 40% would apply on the difference between £650,000 and £1 million, leaving an Inheritance Tax bill of up to £140,000.

You may need to amend your Will

The majority of the people surveyed (72%) don’t know of or understand the changes that have come into force in this new tax year. If appropriate, you may need to amend your Will to ensure your estate can benefit from the increased allowance.

Even among those who do know about the changes, half (53%) didn’t realise that the increased tax-free amount can apply to cash proceeds from the sale of the home if you downsize or have to go into care.

Well-thought-out estate plan

Worse still, many people living ‘as married’ with partners – who would want their wealth passed to each other – don’t have Wills (44%). Therefore, unless assets are jointly owned as ‘joint tenants’, their estate will pass to their children who would have no obligation to provide anything to their father or mother’s partner.

It has never been more important to have a well-thought-out estate plan; complete with an appropriate Will and supporting documentation, to ensure your assets can pass to your loved ones in a tax-efficient manner.

The RNRB rules can be complex. Getting the right professional advice and amending your Will could take a few hours, but with potential to save a lot of money it’s time well spent.

LEVELS, BASES OF AND RELIEFS FROM TAXATION MAY BE SUBJECT TO CHANGE, AND THEIR VALUE DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF THE INVESTOR.

Source data: LV= commissioned Opinium Research to conduct bespoke research among a sample of 1,000 UK residents who are over 55 years of age. Surveys were conducted online between 8 and 14 December 2016 and are nationally representative.

 

New Lifetime ISA – save for a new home and or retirement

The start of the new tax year on 6 April 2017 saw the launch of the Lifetime ISA (LISA). A new type of Individual Savings Account (ISA) to help save for a first home or towards retirement at the same time. To be eligible, you have to be aged between 18 and 39 years old.

You can save up to £4,000 which will be supplemented by a government bonus of 25% of the money you put in up to a maximum bonus of £1,000 each year.

You’ll obtain a bonus on any savings you make up until you reach 50 years of age, at which point you won’t be able to make any more payments into your account.

If you already have a Help to Buy: ISA, you’ll be able to transfer your balance into a LISA at any time if the amount doesn’t exceed £4,000. In the tax year 2017/18 only, you’ll be able to transfer the full balance of your Help to Buy: ISA – as it stood on 5 April 2017 – into your LISA without affecting the £4,000 limit. Alternatively, you could keep your Help to Buy: ISA and open a LISA, although you’ll only be able to use the bonus from one of these accounts towards buying your first home.

You will be able to use funds held in a LISA after 12 months to buy a first home valued up to £450,000. You must be buying your home with a mortgage.

Alternatively, after your 60th birthday, you will be able to take out all your savings from your LISA tax-efficiently for use in retirement.

A LISA can be accessed like a normal ISA at any time for any reason, but if not used as above, you’ll have to pay a withdrawal charge of 25% of the amount you withdraw (being the government bonus plus a penalty of 5%). However, this withdrawal charge won’t apply if you decide to cash in your account during the first 12 months after its launch.

If you want to use your LISA to save for a property as well as for retirement, once you’ve bought your first home, you will be able to continue saving into your LISA as you did previously. You’ll continue to receive the government bonus on your contributions until you reach the age of 50.

LISAs can hold cash, stocks and shares qualifying investments, or a combination of both. The option that is right for you will depend on your approach to risk, your investment time frame and how confident you are making your own investment decisions.

 

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.

THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.

STOCKS & SHARES ISA INVESTMENTS DO NOT INCLUDE THE SAME SECURITY OF CAPITAL THAT IS AFFORDED WITH A CASH ISA.

 

Pension freedoms – Retirement savers say they are still confused by the rules

It was over two years ago that the pension freedoms reforms took effect. Some retirement savers say they are still confused by the rules and want no more changes.

The changes of April 2015 represented a complete shake-up of the UK’s pensions system, giving people much more control over their defined contribution pension savings than before. There are now more options, enabling some people aged over 55 to have greater freedom over how they can access their pension pots.

Still confused by the reforms

Independent research* from Prudential highlights that two thirds of over-55s – the age from which retirement savers can utilise the new rules – say they are still confused by the reforms.

Government figures** highlight the cost of this confusion for retirement savers, as tax bills related to the pension freedoms are now greater than anticipated.

It was initially estimated that the changes would mean a total of £900 million being paid in both tax years 2015/16 and 2016/17. In fact, a total of £2.6 billion in tax is now expected to be paid.

Having an impact in other ways

Nearly one in ten over-55s say they have made changes to their retirement plans as a result of the reforms.

However, concerns that pension rules may change again in the future persist, with a high percentage of over-55s worried that the State Pension might be reduced or abolished.

Nearly two thirds also believe that tax relief on pension contributions will be reduced at some time in the future.

Increased flexibility brought about by the reforms

Nearly 550,000 people have accessed more than £9.2 billion in funds since the launch of pension freedoms***, demonstrating that there is popular demand for the increased flexibility brought about by the reforms.

Importance of advice and guidance

This widespread confusion underlines the importance of advice and guidance in ensuring that the pension freedoms are a long-term success, and many savers recognise how advice can help them to make the most of their retirement pot.

How you take your pension could have many consequences, including putting you in a higher tax bracket – even if that is not normally the case.

First step towards having sufficient income for a happy retirement

The pension freedoms provide a framework of rules, but it is down to individuals to seek help where needed to enable them to plan how to meet their financial goals. Saving as much as possible as early as possible during your working life is the first step towards having sufficient income for a happy retirement.

Source data:

* Consumer Intelligence conducted research on behalf of Prudential between 17 and 24 February 2017 among a nationally representative sample of 867 people aged 55-plus

** https://www.gov.uk/government/publications/spring-budget-2017-documents

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/597335/PU2055_Spring_Budget_2017_web_2.pdf

*** https://www.gov.uk/government/statistics/flexible-payments-from-pensions

A PENSION IS A LONG-TERM INVESTMENT. THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.

YOUR PENSION INCOME COULD ALSO BE AFFECTED BY INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS. THE TAX IMPLICATIONS OF PENSION WITHDRAWALS WILL BE BASED ON YOUR INDIVIDUAL CIRCUMSTANCES, TAX LEGISLATION AND REGULATION, WHICH ARE SUBJECT TO CHANGE IN THE FUTURE.

 

Untying the knot – Divorcees twice as likely to have no savings

A daunting part of a separation or divorce for most couples is sorting out the finances. Financial disputes can be a major stumbling block in the divorce process and could take longer than the divorce itself.

The choices and decisions that you make will have an important influence on your financial well-being for many years to come. Divorced or separated people are twice as likely to have no savings or investments compared with those who are married (32% vs. 14%), according to research by Zurich UK.

Post-divorce financial considerations

1. Create a new budget
With your household income being impacted, it’s essential to go through your finances. Creating a budget sheet will help you to keep track of your in-comings and outgoings.

2. Protect your credit score
You’ll be surprised at how many financial products and agreements you share with your ex-partner, from utility bills to mortgage repayments and credit cards, so it’s worth checking your credit record. Your credit report will list the details of every financial agreement you have. This will help protect your credit score from anomalous payments on the part of your former spouse.

3. Close joint accounts and open new ones in your name
It’s really important to make sure that all joint credit cards and accounts are closed, paid off in full or at the very least changed to either your name or your former partner’s.

4. Think about your pension
Your pension is probably the last thing on your mind, but it’s essential for your future that you plan ahead. You and your partner may have built up a strong pension pot, so it’s important to pay particular attention to how this is divided, to make sure you are getting the best outcome. It’s particularly important for women who may depend on their husband’s provisions for their retirement, as they could be in for a nasty shock.

5. Make the most of your protection cover
Many protection policies contain valuable support or counselling benefits that can provide vital help or advice if you are going through a divorce. This support can cover areas from financial to legal to emotional support. Protection can also play a key role in covering any maintenance liabilities for an agreed period, such as when children reach 18, in the event of severe illness or even death.

7. Update your Will
Once you are divorced or separated, your existing Will is unlikely to be appropriate to your new circumstances. Make sure you update this as soon as possible to ensure that your wishes are followed.

Taking a long-term view
Divorce can be an incredibly challenging time, both emotionally and financially. Understandably, the focus is naturally on splitting immediate assets, but it’s important that the long-term is also part of the planning. In fact, after the family home, a pension can actually be the biggest asset at stake, so protecting this in the first instance is crucial.

Source data:
All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 2,073 adults. Fieldwork was undertaken between 25 and 26 October 2016. The survey was carried out online. The figures have been weighted and are representative of all UK adults (aged 18+).
900 adult participants (19-55+) who are representative of the general population took part in the Mindlab experiment in the UK from 25-26 October 2016.

Career kick-start – Parents feel it is their responsibility to support their children

Despite footing the bill for further education, almost a quarter of parents worry their children’s qualifications won’t be valuable in the workplace.

Parents in Britain are spending on average £17,400 to help kick-start their children’s careers, new research from Scottish Widows’ think tank, the Centre for the Modern Family (CMF), has found.*

Footing the bill

Spurred on by concerns that their children will struggle to find a secure job, almost half of parents claim to have paid for smart clothing for their children to wear to interviews, while almost a quarter have paid for additional training courses and 17% helped their offspring with student loans.

Whilst over a third of parents provided this support because they believe it is their responsibility, one in seven admits to helping their children due to concerns they won’t be able to find a job otherwise.

University tuition fees

Parents with one or more children contribute on average more than £6,000 to university tuition fees in total, with almost four in ten also funding their children’s accommodation while studying, costing £5,000 on average. This is despite the fact that almost a quarter are worried their children will gain qualifications which won’t be valuable in the workplace.

The research shows that young people entering the world of work need more practical support and parents feel it’s their responsibility to offer this, therefore adding an additional layer of financial and emotional pressure.

To ease the burden on parents and the next generation of Britain’s workforce, we need to find ways to offer more support, such as improving access to career support and financial guidance and, crucially, at a younger age than it’s currently offered.

Source data:

* Among those who have paid for something for their children towards their future career. The £17,400 figure was calculated by adding up the mean amount that parents said they spent on each of the following for their children: university degree tuition fees, additional training courses, student loan, smart clothes for job interviews, accommodation while they were studying, practical equipment to help with studying and training e.g. books. This was then divided byte average number of children amongst respondents, 2.205, to arrive at a figure of £7,900 per child.

This report is based on both quantitative and qualitative inputs, including a nationally representative YouGov survey of 2,305 adults, with an added boost of 16–18 year olds, interviews and discussions with the Centre for the Modern Family panellists and a series of focus group sessions also conducted by YouGov. Fieldwork was undertaken between 23 May and 2 June 2016.

 

A little today, a lot tomorrow – Managing investing risk during turbulent markets

A common mistake some investors make is not diversifying their portfolio enough. To make sure investments are spread across different asset classes, it could contain a blend of equities, bonds, cash and property to benefit from their changing investment cycles.

Market timing

One of the biggest dilemmas some investors face is market timing. Jumping in and out of markets on a regular basis not only requires constant monitoring of daily events but also requires expertise to act on such events.

Many investors invest in lump sums, whether it’s a few thousand hurriedly put into an Individual Savings Account (ISA) before the end of the tax year or an annual bonus or similar payment. Another approach, however, is to invest smaller amounts regularly.

Volatile times

This can be achieved by drip-feeding lump sums into the market as opposed to investing it all in one go. In fact, during volatile times, this strategy allows one to benefit from what is known as ‘pound-cost averaging’. So how does it work?

The concept involves investing on a regular basis, and most funds whether they are Open-ended Investments Companies (OEICs) or investment trusts are available through regular savings plans (such as ISA schemes) allowing you to invest on a monthly basis.

‘Pound-cost averaging’

• It’s a good habit to get into that helps you develop discipline as a saver
• It can help you stay focused on your long-term goals, as instead of seeing the value of your portfolio change dramatically, it ideally grows steadily over time
• You reduce your chances of making a mistake trying to time the markets (i.e. investing all your money when prices are high and then seeing prices fall in the ensuing volatility). Instead, you invest the same amount of money monthly – when prices are low, you will acquire more units for your money, and when prices are high you will receive fewer. Over time, this can reduce risk and provide more stable returns.

Meeting your aims

This can also be a good way to invest when you’re just starting out, and you may be less likely to have a large lump sum at your disposal. But whatever your circumstances, goals or financial aspirations, you can be confident that we have the know-how to help you meet your aims. That applies today, tomorrow and for the years ahead, which is ideal when you’re thinking about building up wealth through regular, continued investments.

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.

THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.

PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.

Planning financially for long-term sickness

How would you pay the bills if you were sick or accidentally injured and couldn’t work? According to research by Unum and Personnel Today, just 12% of employers support their staff for more than a year if they’re off sick from work.

Given the low level of state benefits available, everyone of working age should consider Income Protection (IP). IP is an insurance policy that pays out if you’re unable to work due to injury or illness and will usually pay out until retirement, death or your return to work, although short-term IP policies are now available at a lower cost. IP doesn’t usually pay out if you’re made redundant but will often provide ‘back to work’ help if you’re off sick. But when Which? asked the public, just 9% said they have some form of IP, compared with 41% who have life insurance and 16% who have private medical insurance (PMI).

Too ill or disabled to work

As research published by insurer Zurich highlights, only one in five of us in the UK have IP cover in the event of becoming too ill or disabled to work. This is despite the fact that as many as 42% have experienced income loss in their working lives due to serious illness.

Should the worst happen?

In the absence of cover, just under half expect to rely on savings should the worst happen. Just under a quarter also report having savings to last them just one month in such a scenario, while 21% say they have enough to last them up to three months.

Income loss in the event of illness

Nearly half of UK respondents also reported being willing to accept a better benefits package including IP benefits rather than higher wages, suggesting a greater role for employers in helping to protect their employees’ financial well-being.

Growing challenge for individuals and families

The IP gap is a growing challenge for individuals, families and society as a whole. For a family, the impact of the main breadwinner not being able to work through illness or disability can be devastating, with financial hardship resulting in the loss of the family home for those worst hit.

A protection policy every working adult in the UK should consider is the very one most of us don’t have – income protection.

Smooth out your investment planning

If you are looking for a sustainable medium to long term investment approach then a smoothed investment plan may be worth exploring.

Scott Herbert Partner and Independent Financial Planner, Clarke Nicklin Financial Planning discusses the benefits of smoothed funds.

He comments ‘Put simply it is investing in a range of assets such as equities, bonds, cash and property. When the returns are particularly good a portion is put aside for when they take a downturn and when markets are down then growth from years of upside are added giving a potential smoothed investment growth.

‘We all know that stock markets and other investments can go up and down. These movements can be quite extreme and understandably this can deter some people from investing. Smoothed investing can provide cautious/balanced investors an opportunity to invest without the volatility normally linked to UK and overseas stock markets.

Ensure you speak to a qualified Independent Financial Advisor who will ensue you are informed fully of any risks before you make the decision to invest.

Our team are offering a free hour consultation for anyone interested to offer practical advice on the subject. If you would like further information, please contact Katha@cnfp.co.uk or call 0161 495 4700.

Whilst smoothed investments are designed to provide a smooth growth rate, the value of investments and income from them may go down and you may not get back the original amount invested. Past performance is not a reliable indicator of future performance.

Who will be opening a new ISA in 2017?

5 million over-50s looking to make their money work harder

Savers have had it extremely tough over many years now, and yet many still feel uncertain about making the switch to investing. This is largely because people don’t know quite where to start, and they are wary of the risk. However, people need to make their money work harder for them – not just to give them a higher level of income, but also simply to stop their money losing value in real terms.

Investing should be a long-term plan

Ultimately, holding cash which earns less interest than the rate of inflation means that people are losing spending power. And the compounded effect of this over a number of months or years could be much bigger than they realise. If people have a good cushion of cash savings – say, enough to cover 6-12 months’ worth of living expenses – then it may make sense to try investing with some of their additional cash savings. Investing should be a long-term plan, we suggest 3–5 years as a minimum to help even out the rises and falls in the market.

Savers continue to be punished by ultra-low interest rates

Many people look to their savings to boost their income as they move towards retirement or retire completely, but even though savers continue to be punished by ultra-low interest rates, the over-50s continue to believe that cash is king when it comes to their Individual Savings Account (ISA) allowance, according to new research by Saga.

Taking advantage of a tax-efficient account

When asked about their ISA plans, a quarter say they plan to open a new ISA in 2017. Amongst those who plan to take advantage of a tax-efficient account, a third say they will look at a Stocks & Shares ISA, but almost half say they will be opting for a Cash ISA. One in five say they will be looking to open both a Cash and a Stocks & Shares ISA.

Choosing between cash and investing

There are big differences between the sexes when it comes to choosing between cash and investing, with women strongly favouring cash over shares ISAs (58% vs 27%). There is a more balanced view amongst men, with 41% wanting cash and 38% shares ISAs.

Taking out a Stocks & Shares ISA

Regionally, there are also big differences in opinion: more than twice as many Londoners are willing to take out a Stocks & Shares ISA (39%) than those in the North East (24%), While those in the north east (61%), Yorkshire and the West Midlands (53%) are the most likely to opt for cash ISAs.

Reason behind the decision to invest

Just 2% of over-50s say they will be looking to open a Stocks & Shares ISA for the first time. For more than three quarters of these people, low interest rates are the reason behind their decision, while one in ten say they have inherited some money which they would like to invest.

Want to look at the options available to you?

When it comes to making important financial decisions, obtaining professional advice is essential. If you would like to look at the options available, please contact us.

Source data:

Populus interviewed 9,128 people aged 50 over, online between 13th and 19th December2016. Populus is a member of the British Polling Council and abides by its rules.

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.

THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.

PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.

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