Reflecting on Coronavirus uncertainty

 

Reflecting on Coronavirus uncertainty

We understand the evolving Coronavirus situation can be unsettling for investors. Whilst there is some uncertainty regarding the economic and market impacts of the virus it is important to remember the basic principles of long-term investing remain unchanged and in particular that short-term falls do not necessarily impact long-term goals.

Unsure or concerned?

If you do have any concerns regarding the ongoing suitability of your investments, your financial planner is best placed to discuss these with you.

Our preparedness in the event of a widespread outbreak

If a widespread outbreak occurs and has the potential to disrupt businesses, we are well positioned with robust business continuity processes, and we are well placed to continue to service clients and advisers. We actively rehearse to mitigate multiple scenarios that could impact our operations, so our business is as resilient as possible.

Virus dominates Spring Budget agenda

The story of the Spring Budget 2020 has been long and complicated, with further measures likely in the coming months in response to unfolding events. The Budget was originally scheduled for delivery on 6 November by former Chancellor of the Exchequer, Sajid Javid, as his predecessor Philip Hammond had moved the annual occasion from spring to autumn.

With the 12 December general election announced shortly before Budget Day, a delay was inevitable and the new date chosen was 11 March; but on 13 February Mr Javid resigned unexpectedly and deputy Rishi Sunak was appointed Chancellor. With little time to prepare, Mr Sunak faced exceptional challenges: not just Brexit but also the developing threat from COVID-19, which spelt disaster for struggling UK airline Flybe.

Pre-Budget rate cut

Support measures began ahead of the Budget speech. Firstly, the three waiting days to qualify for Statutory Sick Pay (SSP) were axed to help keep COVID-19 from the workplace. Then, on Budget Day morning, the Bank of England announced a cut in its base rate, from 0.75% to 0.25%, and a new Term Funding Scheme to encourage lending. So, even before Mr Sunak rose to speak, underpinning the economy was clearly on the agenda.

Asserting that ‘’we will get through this together’’, the Chancellor outlined a £30bn fiscal stimulus package. This included a £5bn emergency response fund for the NHS and social care services, plus a £1bn Coronavirus Business Interruption Loan Scheme to assist affected firms. Business rates would be suspended in 2020-21 for retail, leisure and hospitality firms with rateable values under £51,000; many smaller businesses could qualify for £3,000 cash grants and SSP refunds.

National Insurance threshold rises

Whist the £12,500 personal allowance for Income Tax and the £50,000 higher-rate threshold are unchanged for 2020-21 in UK nations where the tax is not devolved, the National Insurance threshold rises from £8,632 to £9,500 UK-wide. The new State Pension rises 3.9% from £168.60 weekly to £175.20 and the older basic pension from £129.20 to £134.25. There is a £90,000 uplift to tapered Annual Allowance thresholds for pensions; and the Lifetime Allowance rises with inflation to £1,073,100. 

On matters affecting investors, the £20,000 ISA allowance (and £4,000 Lifetime ISA allowance available within it) remains unchanged for 2020-21, but the Junior ISA and Child Trust Fund annual limits rocket from £4,368 to £9,000. The annual Capital Gains Tax exemption increases from £12,000 to £12,300 (£6,150 for trusts). However, Entrepreneurs’ Relief on eligible gains is cut from £10m to £1m, effective 11 March 2020.

Virus forces £350bn post-Budget measures

The post-Budget week saw coronavirus cases escalate and economic prospects worsen, as the public were advised to avoid pubs, restaurants and other places of social contact. On 17 March, Mr Sunak announced urgent measures to help firms and individuals through the crisis. His plan included £330bn in loan guarantees and £20bn in other support, with grants for firms in worst-affected sectors, more business rates holidays and possible help for airlines and other transport operators. A three-month mortgage holiday was promised for strapped homeowners, with help for renters also on the radar. On 18 March, the pound fell sharply against the US dollar and euro.

Mr Sunak said he would take further action if necessary in the ensuing weeks and the general expectation was that more would indeed be required.    

Written on 18th March 2020. 

Sandwich generation: The ultimate juggling act

Are you supporting financially dependent children while simultaneously taking care of an older family member? If so, welcome to the sandwich generation – a group of adults ‘sandwiched’ between the dual challenges of caring for younger and older relatives.

Plan for your financial future too

For the many people in this situation, it can be difficult to put in place the right plans for their own financial future, while taking care of others. Increased life expectancy, coupled with starting families later in life, means that more of us than ever are facing growing demands on our time and energy, which could be leading to implications for our finances too.

Provide and protect

In your middle years, the chances are that looking after your growing family means that the important things like everyday living costs, family holidays and possibly school fees, will all be taking a sizeable amount out of your disposable income. At this stage, you may also find yourself needing to take more financial care of your ageing parents too. 

With family members young and old depending on your support, it’s vital to have in place the right sort of protection policies so that if one of life’s unexpected events were to occur, there would be a pay out from a policy to help ease the financial burden. 

Engaging with your retirement planning 

Although retirement could be a while away yet, at this point in your life, these are likely to be your peak earning years, so it’s important to make sure you are on top of your financial situation. 

Even if it seems like years away right now, you’ll need to have a retirement plan in place; it will come around quicker than you think, so prioritise your pension. It’s important to know how much it’s likely to be worth, so that you can make plans to save more if you need to. 

Regular reviews

This is also the time to focus on your savings and investments. The significant outgoings associated with twin caring duties can have a direct impact on their ability to save for your own future.

Ensuring you review your portfolio regularly will mean your investment strategy remains in line with your goals and takes account of your attitude to risk, which may change over the years. 

There’s plenty to think about, taking financial advice at this stage of your life can make the difference between just about managing in your later years or enjoying the retirement you deserve.

How we can help

At Lighthouse we can continually review your finances as you confront new challenges such as this stage of your life. We aim to develop and adapt your financial strategies to cope with changes in life circumstances and keep your financial goals on track, even if you are time-poor. Get in touch to see how we can help.

The value of your investments can go down as well as up, so you could get back less than you invested.

A pension is a long term investment.

Some protection products may include an investment element. The value of your investments can go down as well as up, so you could get back less than you invested.

Future-proofing your wealth

Here are some of the wrappers and allowances that can help reduce the various taxes you, and possibly your parents and children, will pay now and in the future.

There are numerous ways of legitimately reducing the amount of tax you pay now, and in the years ahead, including the amount of inheritance tax likely to be due when you die. Most involve putting money in a tax-efficient “wrapper”, such as a pension or investment bond. Here we look at a few that are commonly used in sensible financial planning.

ISAs: no income or capital gains tax to pay

If you have savings or investments you should probably be holding them within one or more ISAs, making use of your personal allowance each year if possible. If they can, your partner should also make use of their allowance. A huge range of investment funds are available and it is important to choose ones that meet your circumstances and objectives.

Investment bonds: withdraw up to 5% a year

Investment bonds are provided by life assurance companies. A lump sum is paid in to the policy and can then be invested in a wide choice of investment funds. You can withdraw up to 5% of the amount you invested each year with no tax to pay until later. You can carry any unused allowances over to future years if you so wish. The idea is that the investments should grow each year by at least the amount you are withdrawing. However, you need to make sure that they are suitably invested. There should be no tax to pay when you cash in the bond unless you are a higher or additional rate taxpayer at that time.

Investment bonds can be a useful way of investing money if you expect to be a lower rate taxpayer later in life, for instance when you retire. Another advantage is that it is usually possible to give some or all of the bond away, for instance to people who pay little or no tax, such as your grandchildren.

Using inheritance tax exemptions

Each year you can give away up to £3,000 exempt of inheritance tax. Any part of the exemption not used can be carried forward to the following tax year. You can give away as much as you want to whoever you want and, so long as you live for at least a further seven years, the gift doesn’t count towards inheritance tax.

In addition, the government now allows money in pensions funds to be passed on free of inheritance tax. You can pass it on to whoever you wish by completing an “expression of wishes” form with your pension provider. Depending on how old you are when you die, your beneficiaries may have income tax to pay on money they withdraw from your pension. This means that for some people it can be preferable to take retirement income from other sources before taking it from their pension fund.

We can help

Part of our role as professional financial advisers is to make sure that your investments are as tax-efficient as possible. To book a no obligation initial consultation call 08000 85 85 90 or email appointments@lighthousefa.co.uk or contact your usual Lighthouse Financial Adviser.

The initial consultation is designed to discover whether or not you would benefit from financial advice and there is no obligation on either side to proceed further. Any advice related fees will be clarified with you before any commitment to proceed.

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. Tax advice with no investment element is not regulated by the Financial Conduct Authority.

How Peter and Jane will be able to help their sons with university costs

Whatever you are saving for – your wedding or to help your children through university – it is important to have a clear financial plan that can help you achieve your goals. Here is how we helped Peter and Jane.

Peter, who is in his late 40s, works as a senior engineer at a major power company. He earns a good salary, as does Jane, his wife, who is a few years younger than him and is head of science at their local secondary school. 

Financial seminar

Peter happened to see one of our financial planning seminars advertised at work and signed up. The seminar gave him a good overview of what to think about in terms of general financial planning, covering topics ranging from savings and pensions, to retirement planning. He realised that he and Jane needed to have a proper financial plan and so he booked a financial review with one of our advisers.

“I was relieved when Stuart immediately set us at ease. He asked what had prompted us to see him and a few questions about our income, expenditure, work, family and financial goals.

“We explained that we would like to use the money to help our children through university – the eldest will be going in three years’ time and the youngest in five. We also wanted to help them get on the property ladder in due course.”

Little left over at the end of the month

Stuart takes up the story. “Both Peter and Jane have, very sensibly, been topping up their pensions, and, all being well, are on track for a comfortable retirement. They have a bit of emergency money in a cash account but otherwise have little in savings. They are keen to maintain their current, active lifestyle while the boys are still at home, with a skiing holiday in the winter, a beach-based activity holiday in the summer and plenty of days out and city breaks in-between. This leaves them with next-to-no spare cash at the end of each month.

Equity in the family home

“They had bought the family home around 13 years ago when their second son was born. Thanks to the increase in value combined with 13 years of mortgage repayments, they now have a fair amount of equity in their home. I therefore suggested that when their first son goes to university they could buy a small property for him to live in (possibly rent-free) and rent out the other rooms to fellow students. I explained that the cheapest way of funding the purchase would be to remortgage the family home. I said that I would explain the various tax consequences of buying the property, and of possibly transferring it to their sons’ name at some future date.

TIP : You can withdraw funds from your ISA and if you replace them during the same tax year the replacement funds won’t count towards your ISA allowance for that year.

 

Likely to exceed the lifetime pension allowance

“I also suggested that they both stopped topping up their pensions. Jane is clearly a high flyer and could be close to exceeding the lifetime allowance for pension savings by the time she turns 50. Peter is fortunate enough to probably be in a similar position by the time he turns 55. I recommended that instead they put the money into ISAs (one each), invested in funds aligned to their attitude to risk and that aim to give a reasonable return over five-to-ten years. This should enable them to build flexible nest-eggs, with no tax to pay when they withdraw money. In due course they could use the money for whatever they want, for instance, as a deposit on a property for their younger son, treating themselves to the holiday of a lifetime when they retire, or even to generate additional retirement income.”

Financial review

This is just one of the ways we can help. Everyone’s circumstances and goals are different. To find out how we may be able to help book a review with one of our professional financial advisers.

Call 08000 85 85 90 or email appointments@lighthousefa.co.uk or contact your usual Lighthouse Financial Adviser.

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. Tax advice with no investment element is not regulated by the Financial Conduct Authority. Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.

* We have changed real names and other details to preserve anonymity. All financial details reflect the circumstances. 

Make tax-efficiency a family affair

Making the most of tax-efficient opportunities in the context of the wider family – from children through to grandparents – can make a significant difference over time.

Here we explain a few of the ways it might be possible to take advantage of the allowances and opportunities the government has created for family units.

Use both sets of allowances

As each person is taxed separately, make sure that you and your spouse or civil partner are making best use of both your personal allowances, plus both your basic rate tax bands, savings allowances and dividend allowances.

For instance, putting savings plans in the name of the lowest earner may enable the higher earner to pay less tax. Such transfers must be outright gifts and must be completed by 5 April to count for the current tax year.

Do you pay high income child benefit charge?

If you have children and your or your spouse’s or civil partner’s income is more than £50,000 you may have to pay the high income child benefit charge. To retain the full allowance you could consider making additional pension contributions in order to keep your taxable income below this threshold. Alternatively, you can elect to stop receiving child benefit.

 

TIP : Could you keep each parent’s income below £50,000? If one income is just above the threshold, maybe they could consider paying a bit more into their pension to reduce their taxable income. If both parents’ income is £50,000 or less, the household can receive full Child Benefit.

 

Saving for children

Did you know that children have their own allowances and tax bands? This can be helpful if you want to give money to your children or grandchildren. There are also a number of tax-efficient ways of saving for children.

For example, Junior ISAs are available to children under the age of 18 who live in the UK and do not have a Child Trust Find. Parents, other family members and friends can pay in up to £4,368 in the current tax year. They can pay the same amount in to a Child Trust Fund (a similar account which preceded Junior ISAs). Also, it is possible to transfer Child Trust Funds into Junior ISAs, which can give more choice and flexibility in terms of investment options. 

TIP : Could grandparents or other relations pay directly into a child’s savings account? This is likely to be more tax-efficient than a parent paying in or the money going via the parent.

 

Strange as it may sound, setting up a pension for a child is another useful tool for family financial planning. Up to £2,880 a year can be paid in to a child’s pension each year and, as it qualifies for tax relief, this is topped up to £3,600 by HMRC (or the equivalent if a lower amount is paid in). Not only does this give the child a head start in the funding of their pension, it also enables grandparents to pass on money without the beneficiary being able to access it for a good few years. Of course, third parties can contribute to pension schemes of people of any age, (not just children) within the annual limits.

While it makes sense to make your finances as tax-efficient as possible, a decision should rarely be made on the basis of tax alone – it must also make sound financial sense and you should always take professional financial advice before acting.

Tax and divorce

There can be significant tax consequences when you separate or divorce. Often assets such as the family home or share of a pension fund are transferred between spouses or civil partners. The timings of these transfers needs to be carefully thought through in order to avoid potentially costly tax consequences.

If an asset is transferred between spouses or civil partners up to the end of the tax year in which marital separation occurs no capital gains tax is payable. However, if the transfer takes place after the end of the tax year of separation, capital gains tax may be payable.

Book a review of the family finances

To book a review of the family finances with one of our professional financial advisers call 08000 85 85 90 or email appointments@lighthousefa.co.uk or contact your usual Lighthouse Financial Adviser.

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. Tax advice with no investment element is not regulated by the Financial Conduct Authority.

Act now to make your finances more tax-efficient!

The current tax year ends on 5 April 2020, so you need to act now to take advantage of the various allowances the Government gives us each tax year to ensure we do not pay more tax than we need to.

The Government gives us a number of allowances each year, many of which were created to encourage people to save for their financial futures as tax-efficiently as possible. It therefore makes sense to use them if you can. Here we look at how you may be able to reduce the amount of income tax you pay in the current tax year and beyond.

You do not pay income tax on your first £12,500 of income in this tax year, but you are likely to be taxed on income above this amount, at a starting rate of 20%, a higher rate of 40% on taxable income over £50,000 and an additional rate of 45% on taxable income over £150,000.

TIP : Check that any savings you have are in tax-exempt accounts, such as ISAs. If not and you haven’t used your full ISA allowance for the year, consider moving them in to a suitable account before the 5 April.

 

What counts towards your income?

Among other things, the following count towards your taxable income:

• money you earn from being employed

• other money you make, for instance, a second job

• some state benefits 

• most pensions, including the state pension

• rental income, unless you use the rent-a-room scheme

• benefits you get from your job

• interest on savings above your savings allowance.

Taxable income over £100,000?

If your taxable income is more than £100,000 you lose £1 of your personal allowance for every £2 you earn above £100,000. So if you earn £125,000 you lose all your personal allowance – which means that you are taxed at an effective rate of 60% on this tranche of income. However, you will be pleased to know that there are ways you may be able to reduce your taxable income.

How to reduce your taxable income

Not only are pensions a good way of saving for retirement, they also provide significant tax planning opportunities, as the contributions you make reduce your taxable income.

Therefore, if you are likely to lose part or all of your personal allowance, you may be able to retain it in full by paying more in to your pension. Likewise, if you earn more than £150,000, paying more in to your pension could keep your taxable income below the additional rate tax band. 

You can pay up to 100% of your relevant earnings in to your pension each tax year, up to an annual limit of £40,000. If you are already drawing your pension this falls to £4,000. Relevant earnings include income you earn by working, but exclude some other income, for instance from pensions, most rental income and dividends.

Finally, you may not realise that you can reclaim higher and additional rate tax on donations you make under Gift Aid.

Optimise your tax now!

To book a financial review with one of our professional financial advisers call 08000 85 85 90 or email appointments@lighthousefa.co.uk or contact your usual Lighthouse Financial Adviser.

Tax advice with no investment element is not regulated by the Financial Conduct Authority.

The ISA celebrates its 21st birthday

Launched on 6 April 1999, the Individual Savings Account (ISA) has helped millions to save for their future. Introduced to replace the PEP (Personal Equity Plan) and TESSA (Tax-Exempt Special Savings Account) schemes, ISAs are accounts that meet the needs of individuals saving for a wide range of purposes. With the versatility and tax-efficient saving opportunities they offer, it’s no wonder they have proven to be so popular; 10.8 million adult ISAs were taken out in the 2017/18 tax year, along with around 907,000 Junior ISAs (JISA).

The growth of the ISA

At first, the ISA annual allowance was £7,000, but this has steadily increased over the years and now stands at £20,000 for the current tax year. Initially, there was a limited range of ISAs available, including the cash and stocks and shares ISAs. Now, a variety of ISAs are available to savers: 

Junior ISA (JISA)

These were introduced in November 2011 to replace Child Trust Funds. Initially launched with an allowance of £3,600, this has increased to £4,368 for the 2019/20 tax year. They are available to children under the age of 18 and convert to regular ISAs after this age.

Cash ISA

This is a savings account paying interest free of tax. You can only open one per tax year, but you can transfer to another cash ISA or stocks and shares ISA with a different provider. 

Stocks and shares ISA

This ISA offers a way of investing in a diverse range of funds – up to a maximum of £20,000 per tax year currently – while ensuring you don’t pay any tax on any income or capital gains earned. 

Innovative Finance ISA (IFISA)

These were introduced in April 2016 to allow investors to make peer-to-peer lending investments with any interest earned tax-free. Peer-to-peer lending is where investors with money to lend are matched up with borrowers. IFISAs are managed by peer-to peer lending platforms rather than financial institutions and the investments are not covered by FSCS protection, so your money is at risk. As a result, the FCA has warned anyone considering investing in an IFISA should carefully consider where their money is being invested before purchasing one.

Lifetime ISA

This account, the most recent to be introduced, in April 2017, is especially for those between the ages of 18 and 40 who are saving up for a property purchase or retirement. The government pays a 25% bonus on contributions up to £4,000 each tax year until the age of 50. This could be a suitable option for those who missed the deadline for applying for a Help to Buy ISA. 

You should be aware that you will have to pay a penalty if you withdraw the cash and don’t use it for a first home or your retirement, but no withdrawal charge would be payable if you died or became terminally ill. 

Save smart

If you want to make tax-efficient savings, an ISA could be an ideal choice. Of course, with so many options available, you may be unsure which is best suited to you, so talk to Lighthouse for advice on which ISA might work best for your personal circumstances.

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/797786/Full_ISA_Statistics_Release_April_2019.pdf

The value of your investments can go down as well as up, so you could get back less than you invested.

Any capital growth and income you receive from your ISA are free from Capital Gains Tax and Income Tax, and you don’t have to pay tax on any withdrawals from your ISA.

Tax rules may change in the future and will depend on individual circumstances.

Make 2020 the year to get the protection you need

As part of your new year resolutions for 2020, don’t overlook the importance of having the most suitable protection plans in place to protect yourself, your family, your valuables and your home, in case an unexpected event should happen.

Changing needs

Your protection needs will change as you reach different stages in life, such as getting married, having children or buying a home. You also need to take into account any protection policies you might have through workplace schemes, as you might find that your workplace benefits already include some income protection, private medical insurance or other protection cover. 

Regular reviews

Once protection is in place, it should be reviewed regularly to ensure you have the most suitable cover as your circumstances change over the years. A 2019 survey8 reveals that just 27% of consumers are confident that the protection policies they have in place are suitable for their needs. 

Perceptions can be wrong

The survey also found that people’s perception of certain events happening is often wrong. For example, people tend to overlook potential health issues, instead thinking that an early death is more likely than a serious health condition. Participants to the survey also believed they were twice as likely to die during their working life than have an accident that could stop them from working.  

Peace of mind 

Financial pressures caused by unexpected events can cause huge strain. If you had to stop working, how would you keep a roof over your head? More than 50%8 of 18 to 35- year- olds say they would cope for less than three months on their savings or investments, if they couldn’t work due to illness or injury. 

Insurance cover isn’t just about a pay out when you die. It can also give you peace of mind in knowing that you would be able to cope financially if you were ill, have an accident, lose valued possession or suffer damage to your home. 

We can help

We can review your existing plans, help you understand your risks throughout life and arrange the most suitable products and level of cover, all within your budget. Get in touch to see how we can help.

10 ways to refresh your financial habits in 2020

Have you made new year resolutions for 2020? Perhaps to get fit or take up a new hobby? The start of a new year is also the perfect opportunity to review your finances and ensure your goals and existing policies remain relevant to your current needs and future plans.

  1. Consider your goals

It’s a good idea to review your short and long-term goals and consider how much money is required for each of them. This could be taking your family on the holiday of a lifetime, moving to a new home, planning your retirement or passing capital on to your family. 

  1. Save More

The end of the tax year is 5 April 2020 and the annual ISA allowance is a generous £20,000, allowing you a tax efficient way to build your savings.

  1. Check your State Pension position

The State Pension rules have changed, so check your retirement date and the amount you’ll receive by going to www.gov.uk/check-state-pension 

  1. Review your pension planning

To ensure you’re on track for a comfortable retirement, you should keep your pension planning under regular review.   

  1. Refresh your investment portfolio

You should review your investments on a regular basis to ensure these still match your risk profile and your life plans.

  1. Consider your Inheritance Tax (IHT) position

You don’t have to be particularly wealthy to find your estate could be liable to IHT. Taking advice about IHT planning could save your heirs from paying too much tax.

  1. Revisit your mortgage 

If it’s been a while since you took out your existing mortgage, there could be a better, more cost-effective deal out there for you. We research the market regularly and can recommend the right product for your needs.

  1. Have a Will in place

If you haven’t made a Will, writing one should be at the top of your 2020 to do list. If you have a Will but your family circumstances have changed, then it makes sense to ensure those you wish to benefit are included.

  1. Think about a Lasting Power of Attorney (LPA)

Think about arranging an LPA so that a trusted friend or relative could look after your affairs if you lost capacity.

  1. Review your protection policies

Life insurance and other forms of protection should form a vital part of everyone’s financial planning. So, if you’ve had an addition to the family, moved house, retired or changed jobs and you want to provide for your spouse, partner or family, then ask us to recommend the right plans for you.

A successful financial strategy involves regular reviews, so why not contact your financial adviser. Regular reviews are an important step in helping to grow and protect your wealth and an opportunity to ensure that you’re on course to meet your goals.

The value of your investments can go down as well as up, so you could get back less than you invested. 

A pension is a long-term investment. 

Tax advice which contains no investment element is not regulated by the Financial Conduct Authority.