How Margaret helped her grandchildren through university

An exciting time for children but not so much for their parents if they have not budgeted to help fund this expense.

How much can university cost?

In a word – going to university is expensive. On top of major items such as tuition fees and accommodation, there is the cost of living – rent, bills, food, books, broadband, mobile phones, travel and let’s not forget the beer! The list is endless and unless you started saving early how are you and your children going to foot the bill?

According to “The Guardian*”, it can cost around £85,000 per child per degree, depending on where the university is.

Using a growth rate of 3% net, you need to save £608 per month over 10 years to get £85,000. Or if you have a lump sum, £60,000 invested for 10 years should give you £85,000. This is a huge expense and if you have more than one child the amount multiplies. 

A lot of people leave it too late to start saving, with the result that their children or grandchildren may be saddled with debt for a long time to come.

Meet Margaret, the grandmother

Margaret (not her real name) is an 80 year-old widow and much-loved granny who has decided to help her children fund the university fees for her grandchildren. She is comfortably off but is surprised when her financial adviser tells her that her total wealth is over the inheritance tax threshold and if she does not take action, her family will have to pay 40% inheritance tax on the amount above the threshold.

Margaret tells her adviser that she is very keen to help her sons and daughters with the cost of university for their children and wants to know if she can combine this with IHT planning. 

Control over who gets the money

She is not keen for her children or grandchildren to have direct access, she wants to be in control of her funds. One of her children is going through a tricky patch in their marriage and she certainly does not want any of her hard-earned cash ending up as part of a divorce settlement. Then there is her son’s gambling habit to consider, he cannot be trusted with a large lump sum.

Her adviser tells her that using a trust is a sensible way of keeping control of the money and that two types of trust are commonly used for university planning: gift trusts and loan trusts. As Margaret is more than happy to give up access to her capital as the income from her NHS pension is ample for her needs she opts for a gift trust.

Her adviser recommends using a discretionary trust, as it’s up to the trustees to decide who, among the beneficiaries, will benefit and when they will benefit from the trust fund.

He tells her that she will be the first named trustee and she should choose the other trustees wisely as ultimately they will be managing the trust fund. He advises her to give the trustees a letter of wishes, so that when she dies they will know how she wants the fund to be divided. He also reminds her that a beneficiary cannot demand money from the trustees and that while their share is in the trust it does not form part of their estate for divorce, bankruptcy or inheritance tax. On her adviser’s recommendation, Margaret, opts to put the trust fund into a single premium life assurance bond. This can be an onshore or offshore investment bond. 

Beneficiaries likely to be non-tax payers

As Margaret is setting this money aside for a long time to benefit her grandchildren who will most likely be non-taxpayers when they benefit from it, she opts for an offshore capital redemption bond. This will ensure that the investment lasts until all the grandchildren who want to go to university benefit from it. Her adviser also suggests that she choose to have the maximum number of segments within the bond, which can then, in due course, be assigned to the various beneficiaries. 

The trustees can assign segments once beneficiaries reach age 18. There is no tax to pay when segments are assigned to beneficiaries. If the beneficiary later cashes in those segments, they, not Margaret, will pay the tax on any gain.

Her adviser tells her that if Jenny, the oldest granddaughter, decides to go to university at age 18 the trustees can assign some segments to her. If Jenny is a poor student and has no income, under current rules she will be able to use her personal allowance, the £5,000 savings rate, the £1,000 personal savings allowance and any 5% tax deferred allowance, so it is very unlikely that she will have any tax to pay.

Margaret feels that with this solution, she is killing two birds with one stone. After seven years the gift will be outside her estate for IHT purposes and she is putting the money aside for a very worthy cause indeed: her grandchildrens’ future.

The value of your investments, and the income you receive from them, can go down as well as up, so you could get back less than you put in. Tax advice which contains no investment element is not regulated by the Financial Conduct Authority.

Find out more

If you would like to find out how you may be able to reduce IHT get in touch now. 

Call 08000 85 85 90 or email appointments@lighthousefa.co.uk.

Built for income – how to fund a long-term retirement

With retirement often spanning decades rather than years, we explain an investment approach to consider for pension funds not based on defined benefits and other savings when looking for sustainable, long-term income.

Most people rely on the money they have built up in employer pension schemes over the years to provide them with the income they need when they retire. The question is, how do you generate that income?

Even if you are lucky enough to be a member of a defined benefits pension scheme that provides you with a guaranteed income for the rest of your life, you may be relying on additional savings, whether in pensions from previous employers, ISAs or other savings accounts, to supplement your retirement income. 

Providing a sustainable income

One key issue to think about if you are about to retire is how you can obtain a decent, long-term level of sustainable income that has the potential to last for the duration of your retirement. The traditional annuity with its guaranteed income may still be the preferred choice for many, but it is not necessarily the most suitable option for everybody. Increasing numbers of people are considering other ways of using their additional pension pots to generate income following the radical changes to pensions regulations that were introduced in 2015. However, the rules are complex and you should always consult a financial adviser before accessing your pension.

Monthly income from a variety of sources

Many people are now considering investing their pension funds in a multi-asset income fund. Multi-asset funds offer diversification by investing in a range of different asset classes, such as bonds, company shares, property, and alternative assets. 

This approach can be seen as a ‘not putting all your eggs in one basket’ style of investing. Investing in a fund that invests in many different types of assets and funds means that you are not overly reliant on a single asset or fund to provide the income.

Cashing-in units or shares versus natural income

Broadly speaking, there are two ways of obtaining “income” from an investment. One is selling units or shares. The amount of income you get depends on the number of units or shares sold and their price at the time this is done. Also, as you are selling some of your capital to get “income’, the number of units or shares you own will decrease over time, so your pensions pot may decrease in value faster than you expect, or even run out.

An alternative is to put your money into a fund that pays out natural income by investing in assets that generate income. The income can fluctuate over time but no units or shares have to be cashed-in, meaning that you will have your full number paying dividends for as long as you hold the investment. 

The value of your investment will fluctuate but because you are not selling parts of your capital, your fund should have the potential to grow over time. Crucially, a natural income can provide investors with a steady income stream even in troubled markets.

Find out more

If you have pension savings in schemes that are not based on defined benefits and would like to know your options for accessing them, get in touch now. 

Call 08000 85 85 90 or email appointments@lighthousefa.co.uk.

The value of your investments, and the income you receive from them, can go down as well as up, so you could get back less than you put in. 

Three tips to be tax-wise all year round

We’re into a new tax year so here are some tips to help you stay tax smart all year round.

A tax year runs from 6 April to 5 April, so effective tax planning needn’t be a mad March rush. It can be beneficial to review your tax opportunities now. Here are some ways of getting ahead. It isn’t exhaustive by any means, and if you would like advice on any of it, speak to your financial adviser.

1 Your ISA allowance: use it if you can! 

With a cash ISA or a stocks and shares ISA (or a combination of the two) you can save or invest up to £20,000 a year tax-free. To help you maximise the benefits of ISAs for you and your family, here are some things to consider when planning for the year ahead.

If you are in a position to, it makes sense for you and your spouse to take advantage of both ISA allowances, particularly if one of you has more financial resources than the other. That way, you can shelter up to £40,000 in ISAs in 2018/19.

Currently, 16- and 17-year-olds get two ISA allowances, as they’re able to open a Junior ISA (which for 2018/19 has a limit of £4,260) and an adult cash ISA. This means that you can put away up to £24,260 in your child’s name tax-free.

People aged 18-39 can open a Lifetime ISA, which entitles them to save up to £4,000 a year until they’re 50. The government will top up the savings by 25%, up to a maximum of £1,000 a year. However, the £4,000 counts towards the overall ISA allowance and there are likely to be penalties if you withdraw your money early.

Some cash and stocks and shares ISAs are flexible; meaning you can take money out and replace it within a tax year without it affecting your allowance. But not all ISAs are flexible, so check your terms and conditions.

2 Consider topping up your pension

Depending on how much you earn, between you and your employer, you may be able to pay up to £40,000 into your pension in a tax year (it’s called your annual allowance) before it becomes subject to tax. Take steps to maximise your pension pot if you can. Here are some things to consider.

If you don’t manage to make full use of your full pensions annual allowance this tax year, you can carry it forward for up to three years.

You can also boost your basic State Pension by paying voluntary Class 3 National Insurance Contributions (NICs).

3 Limiting inheritance tax

You can act at any time to help reduce a potential inheritance tax (IHT) bill when you’re no longer around. An IHT bill only applies if your estate is valued above £325,000**.

One way you can do this is by giving away up to £3,000 worth of gifts* (such as money or possessions) each tax year, so they are no longer included when the value of your estate (property, money and possessions) is calculated. This is known as the annual exemption.

The exemption applies to individuals – so as a couple you can make £6,000 worth of gifts. It can also be carried forward for one year so, if you didn’t do this last year, then you can, as a couple, make £12,000 worth of gifts before 6 April 2019. Who might the lucky recipients be?

Hopefully you can make use of one or more of these tax pointers in 2018/19 – and ideally before the end-of-tax-year dash!

Optimise the tax you pay

If you would like to find out how you may be able to optimise the amount of tax you pay get in touch now.

If you have any concerns about your pension savings get in touch now. 

Call 08000 85 85 90 or email appointments@lighthousefa.co.uk.

Sources: *https://www.gov.uk/income-tax-rates/income-over-100000 **https://www.gov.uk/inheritance-tax This is an abridged version of an article which first appeared on https://www.zurich.co.uk/magazine/six-things-to-do-before-tax-year-end.

The value of your investments, and the income you receive from them, can go down as well as up. A pension is a long-term investment and inflation will reduce how much your income is worth over the years. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation. Tax advice with no investment element is not regulated by the Financial Conduct Authority.

Six signs of a pension scam

Pension scams are on the increase in the UK and if you are taken in by a scam you could lose all of any defined contribution pensions you have and it would be very hard to get it back. We explain what to watch out for.

Usually, a pension scam begins with an unexpected phone call, email or text from someone claiming to represent a financial services firm or Government body. The tactics used are increasingly sophisticated, but there are a few simple signs that can help you avoid being ripped off:

1. You are contacted out of the blue

If you receive unsolicited cold calls, texts and emails from an individual or firm about your pension they are unlikely to be legitimate. You should be suspicious of anyone who contacts you to discuss your pension planning and claims to work for a Government body, such as Pension Wise or The Money Advice Service.

You should only discuss any defined contribution pensions with a pension provider, a regulated financial adviser or a Government body, contacting them using the details on their website. For the latest guidance on pensions visit www.pensionwise.gov.uk or www.moneyadviceservice.co.uk.

2. You receive an offer that’s too good to be true

Schemes that offer exceptionally high rates of returns are usually very high-risk, and fully guaranteed returns are rare. Treat such offers with caution. You should be wary and suspicious about language such as ‘pension liberation’, ‘loophole’, ‘limited time offer’ or ‘one-off investment’ as this kind of language is rarely used by legitimate advisers. Such offers are unlikely to be genuine.

3. Access to your pension before you turn 55

Only in very specific circumstances will you be able to access any defined contribution pension before you reach the age of 55. Participating in a scheme that provides access to any defined contribution pension before then is likely to result in severe tax penalties and possibly losing your funds.

4. You are asked to invest in an unusual asset

These types of pensions are usually linked to funds that invest in shares, fixed interest securities and cash. The assets in which your money is invested should be familiar and it should be easy to find information about them.

If you are told you must invest in an unusual asset – perhaps an offshore hotel development – to take advantage of a pension “opportunity”, you may be being scammed.

5. You’re asked to withdraw money first

Beware if you are asked to withdraw money from your defined contribution pension for an investment opportunity. It is important that your money remains within a pension wrapper until you decide to start drawing retirement income. Your defined contribution pension is likely to be already invested in a range of funds or investments that your pension provider makes available. This ensures your returns are tax-free and well protected. Furthermore, withdrawing money early could result in tax penalties.

6. You are told to act quickly for the best deal

Decisions about your defined contribution retirement fund should not be rushed and any offers of immediate investment for a one-time offer can be risky. You should take your time and obtain suitable advice and guidance about managing any such pension properly. If you are contacted about an opportunity, research the scheme and its promoters thoroughly. Being pressured to reach a decision before the offer closes could indicate that it is a scam.

Find out more

If you have any concerns about your pension savings get in touch now. 

Call 08000 85 85 90 or email appointments@lighthousefa.co.uk.

The value of your investments, and the income you receive from them, can go down as well as up, so you could get back less than you put in. A pension is a long-term investment and inflation will reduce how much your income is worth over the years. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation.

Edison Research: Strategic agreement to broaden product offering

Lighthouse (LGT) has announced a strategic agreement with Tavistock Investments (TAVI) that will provide it with access to Tavistock’s investment solutions. This will help deliver the broader offering Lighthouse seeks for its in-house asset management arm, Luceo. In conjunction with this agreement, Lighthouse has subscribed £1m to Tavistock’s £1.25m equity fund-raising giving it a 5.3% stake. Our valuation (c 44p) and estimates are unchanged at this stage.

Strategic agreement to broaden product offering

Lighthouse launched Luceo Asset Management in 2016 to offer in-house funds of funds tailored to a range of risk profiles. Octopus acts as investment adviser to the funds. In H118, the AUM of the five funds increased from £37m to £53m, with one fund reaching the break-even level of c £20m. Lighthouse has been considering broadening the fund range further and was introduced to Tavistock recently, leading to the strategic agreement which will be formalised in the coming months. This will give Lighthouse access to Tavistock investment solutions, including in particular two recently launched capital protection funds. These funds are mainly invested in BlackRock iShares, and the guarantee is provided by Morgan Stanley and scales with the value of the fund. Tavistock also has a risk-graded fund range, a model portfolio service and plans to launch an app next year allowing consumers to buy a guaranteed fund provided by a large investment bank. Lighthouse sees a good opportunity here to provide products that meet common customer requirements and help Luceo funds reach a profitable scale.

Subscription to Tavistock fund-raising

In conjunction with the agreement, Lighthouse has subscribed £1m to a £1.25m equity fund-raising by Tavistock (at a 10% discount to the previous day’s closing share price). The issue is designed to facilitate the replacement of an expensive loan with an interest cost of 9% due for repayment in April 2019. The £1m investment in Tavistock deploys part of the c £5m free cash Lighthouse has available and at the same time reduces the potential requirement for seed capital that would arise if Luceo launched new funds itself. Tavistock appears to be at an inflexion point in terms of profitability. At end September it had FUM of £941m (up 26% over a year) and total assets under advice of £3.5bn. Half-year gross revenue was £14m (+14%), EBITDA £0.5m (+227%) and there was a small operating loss. It is also in the process of implementing a £0.5m cost reduction programme and this, together with the increase in FUM, is supportive of the consensus expectation of a sustained move into net profit.

The full article is available to view here

Why Lighthouse Group and Tavistock Investments formed a strategic alliance

Lighthouse Group (LON:LGT) and Tavistock Investments (LON:TAVI) announced today a strategic relationship with Lighthouse taking a 5.3% holding in the company. CEO’s Malcolm Streatfield and Brian Raven join DirectorsTalk to discuss the news.

Brian explains what it is that Tavistock do, how it will be using the proceeds and the rationale behind the partnership, while Malcolm tells us how Tavistock is going to further develop the Luceo Asset Management range of investment solutions, what it means for advisers and customers and also what we can expect to see from the relationship over the coming 12 months.

Lighthouse Group and Tavistock strategic alliance from DirectorsTalk on Vimeo.

Lighthouse Group Plc has been listed on AIM since 2000 as an integrated financial services company for investors, coupled with significant scale in terms of distribution through financial advisers and wealth managers and its fully diversified business model.

As one of the UK’s largest autonomous financial advice and wealth management groups, Lighthouse provides a comprehensive range of services to businesses and individuals and is retained by most of the major trades unions and other affinity groups to advise their combined memberships of over 6 million members.

The Group aims to increase its relationships with, and the benefits it derives from, its affinity group and professional partners.

In addition to a wide range of financial advice, the Group has developed innovative products to meet the specific needs of its retail and corporate customers.

Lighthouse operates from its headquarters in London as well as having principal operating offices in Stockport and Woodingdean, near Brighton.

Lighthouse Group plc: A very healthy 26% increase to EBITDA

Lighthouse Group’s CEO Malcolm Streatfield talks to DirectorsTalk about the interim results for the six months ended 30 June 2018. Malcolm discusses the highlights for the first half of the year, how LFA and affinity partners are progressing and the strategy for LFA. Malcolm also explains about how the second half of the year has started and the expectations for the year.

Lighthouse Group plc has been listed on AIM since 2000 as an integrated financial services company for investors, coupled with significant scale in terms of distribution through financial advisers and wealth managers and its fully diversified business model.

As one of the UK’s largest autonomous financial advice and wealth management groups, Lighthouse provides a comprehensive range of services to businesses and individuals and is retained by most of the major trades unions and other affinity groups to advise their combined memberships of over 6 million members.

The Group aims to increase its relationships with, and the benefits it derives from, its relationships with affinity groups and professional partners.
In addition to a wide range of financial advice, the Group has developed innovative products to meet the specific needs of its retail and corporate customers in the asset management and workplace solutions sectors.

Malcolm Streatfield discusses the Lighthouse results for the first half of 2018

Lighthouse Group’s main focus is on providing financial advice to ‘Middle Britain’ and is differentiated by contracts with 21 affinity partners. In this interview CEO Malcolm Streatfield discusses the results for the first half of 2018, highlighting good overall progress with revenues up by 5% from H117, PBT 12% and earnings per share 13%. The interim dividend was increased by 67%. Malcolm also outlines the group’s dividend policy, progress in the affinity business, an increasing level of recurring income and a positive start to H218.

 

ISAs, Lifetime ISAs (LISA) and Junior ISAs – what’s the difference?

ISAs LISAs Junior ISAs
Age criteria. Anyone over the age of 18 (over 16 for cash ISAs) Anyone aged between 18 and 40 Anyone under 18.
Allowance
for
18/19
tax
year
£20,000 £4,000. The amount paid into a LISA counts towards the account-holder’s ISA allowance. £4,260
Bonus None The government adds a bonus of 25% to the amount paid in each year until the account holder turns 50. None
Conditions You do not have to keep an ISA for a specific duration, although some accounts have a fixed or minimum term. Account holders can continue paying in until they are 50. They can use the money at any time as a deposit for their first home costing less than £450,000. They can withdraw money for retirement purposes at age 60. The child can take control of the account when they reach the age of 16 but can’t withdraw the money until they are 18.

ISA facts

Transfer savings or investments you have

If you have investments or savings that are not already tax-efficient you should consider cashing them in and transferring the proceeds into an ISA. However, it is essential to consult a professional financial adviser before you do so.

One ISA every tax year

You can take out one ISA every tax year, so if you don’t take out an ISA by 5 April 2019 you will lose the opportunity to shelter up to £20,000 from tax. The allowance applies to all adults resident in the UK for tax purposes, so a couple can shelter up to £40,000 from tax in this tax year.

CEO Malcolm Streatfield talks to Edison Investment Research about the Lighthouse divisions.

Lighthouse Group’s main focus is on providing financial advice to ‘Middle Britain’. Contracts with 21 affinity partners are a differentiating feature and make an important revenue and profit contribution. Wealth management serves a high net worth client base, while Luceo Asset Management provides an in-house fund offering.

Chief executive Malcolm Streatfield introduces the business and discusses the opportunities in its markets and the group’s strategy for growth.