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

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.

Pension Scams – How to spot them

People aged 55 and over are receiving phone calls, letters and texts from people wanting to “help” them access their pensions. How can you tell a bona fide adviser from a fraudster? Here are some tips which should help you spot the difference.

Scammers generally try to lure you with promises of one-off investments, pension loans or upfront cash. Once you have signed any forms and the transfer has gone through it’s too late. You could lose all your savings and on top of that be landed with a hefty tax bill to pay.

Common tactics used by scammers

  • A cold call, text message or website pop-up or someone knocking on your door and offering you a free pension review, a one-off investment opportunity, or talking about a legal loophole.
  • Promises of returns of over 8% on your investment – if it sounds too good to be true it probably is.
  • Paperwork delivered to your door by courier that requires immediate signature. Never be pressured into signing anything.
  • An offer that gives you access to your pension before you turn 55 by transferring funds overseas.
  • A proposal that puts all your money into a single investment. Most financial advisers recommend a range of investments to spread the risk.

Don’t become a victim of pension fraud

Do not be pressurised or rushed into signing anything until you are certain. A genuine financial adviser will never rush you into a decision.

If you are consulting a financial adviser, which is a sensible thing to do, make sure that they are registered with the Financial Conduct Authority at www.fca.org.uk/register.

If you’ve already signed papers and suspect a scam, report it to Action Fraud at www.actionfraud.police.uk or call
0300 123 2040.

Read the FCA’s Scamsmart warning list at www.fca.org.uk/scamsmart. This lists the names of investment schemes that are known scams. Further information is available from The Pensions Advisory Service.

If you are approaching 55 or about to retire, Pension Wise can tell you more about what you can do with your retirement pot, www.pensionwise.gov.uk. However, what Pension Wise won’t do is give you advice specific to you, your circumstances and objectives. For that you need to talk to a professional financial adviser.

When can you legally access your pension pot?

You can release funds from your pension as soon as you reach the age of 55. If you’re under 55 you cannot access your pension unless you are certified as being too ill to work. When you do access your pension you could have tax to pay, depending on how much you take and any other income you have. Professional financial advisers can help ensure you don’t pay tax needlessly.

Why seek professional advice from Lighthouse?

A qualified professional financial adviser can guide you through the sometimes confusing world of Financial Services, helping you to protect your family, income or business interests in the event of illness or death. Help you save towards a particular goal such as educational costs for your children or a lump sum to help them buy their 1st home, or maybe a round the world cruise for yourself. Or perhaps relieve the stresses involved with finding a suitable savings and investment solution to save towards a comfortable retirement, plus plan for a sustainable income for you and your family throughout your retirement years.

Professional Financial advisers can also help you structure your investments so as to reduce a potential inheritance tax liability for your family when you are no longer here, or cover the cost of long term care for you or a loved one, along with many more scenarios which are unforeseen.

Our financial advisers can explain your current circumstances and how you can plan for these scenarios in a simple and straightforward way. Helping you to understand their recommended solutions and how they will work towards achieving your goals is central to the advice they provide. Our advisers can also offer regular reviews to check the solutions they have recommended stay on track to meet your goals, and also to react when your goals or circumstances change. These services come at a cost, which will always be discussed and agreed with you prior to the adviser carrying out any work on your behalf – but a good adviser is worth every penny especially when you can rest easy knowing that your financial goals are being supported by an appropriate financial plan.

Lighthouse Group Financial Solutions, through its various divisions, operates a hybrid model allowing advisers and firms to chose whether they want to offer independent or restricted advice.  Some of our advisers have chosen to go restricted as they feel that certain high risk products are not suitable for their clients. Regardless of the type of financial advice offered both will advise and make recommendations for you after your needs have been assessed. Some advisers and firms are also authorised to give advice and make recommendations on mortgages and general insurance products.

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

Gifts with added benefits

Did you know that when you help your family financially you could also be reducing the inheritance tax that may be payable when you pass away?

With the inheritance tax threshold, which includes the value of your home, currently £650,000 for married couples and £325,000 for single people, many families are now finding that there is inheritance tax to pay when their loved ones pass away. However, it is possible to reduce the likely bill.

The annual gift allowance

You can give away cash and items worth up to a total of £3,000 a year and the amount will immediately be exempt from inheritance tax. You can carry forward up to £3,000 of unused allowances from the previous year. If you give away more than £3,000 a year, the excess amount will only be exempt from inheritance tax if you live for a further seven years.

Other gifts that are exempt:

  • Gifts of up to £250 to as many people as you want, although not to anyone to whom you have given the £3,000 gift allowance in that year.
  • Wedding gifts to your child worth £5,000 or less, to your grandchild or great-grandchild worth £2,500 or less, or to another relative or friend worth £1,000 or less.
  • Money that pays the living costs of an ex-spouse, elderly dependant or a child under 18 or in full-time education.
  • Excess income, over and above your normal outgoings, that you give away.

Find out more

There are many ways you may be able to reduce the amount of inheritance payable when you pass away. This is a complex area and it is easy to get things wrong. If you are concerned that you may leave your loved ones with an unnecessary tax bill you should talk to one of our professional financial advisers.

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

Imagine living on roughly half your current income

It may come as something of a shock to realise that when you retire, your income could fall – perhaps by nearly half – even if you have been paying in to a pension scheme for all your working life.

The need for people, and especially younger people, to take personal responsibility for building their pension pot is becoming ever greater. This is particularly true for people in public sector pension schemes that have moved from final salary to career average benefits.

A recent survey by BlackRock* found that the average person in the UK says they would like an income of around £26,000 a year when they retire. What many don’t realise is that to generate this they will need a pension pot of £525,000, even when the state pension is taken into account.

The truth is that if you don’t make additional contributions you are likely to see your income drop significantly when you retire.

Pension – a highly tax-efficient way of saving

Pensions are one of the most tax-efficient ways of saving. Your employer pays into your pension on your behalf (unless you have opted out, which is generally not a sensible thing to do), your statutory contributions are deducted directly from your salary at source and the government tops them up.

The government tops up your contributions

You receive tax relief on the money you pay into your pension scheme. What this means is that the government gives back the tax you have paid on your contributions, paying the equivalent of basic rate tax directly into your pension pot. So if you are a basic rate tax-payer it only costs you £80 to save £100. Higher rate tax-payers can reclaim the additional tax they have paid via their self-assessment tax return.

How much can you pay in?

The maximum you can pay in to a defined contribution pension in the current tax year is £40,000. However, if you have already started drawing your pension you can only pay in up to £10,000.

Start boosting your pension pot now

  • Do not opt out of your employers’ scheme.
  • Try to pay in more than the minimum contribution each month. Set up a standing order. Even paying in just £5 or £10 a month can make a considerable difference over the years.
  • Work out how much you need in your pension pot when you retire to give you the income you need.
  • If your pension scheme is investment-based and offers a choice of investment options make sure your money is invested in funds aligned with your circumstances and objectives.

Get professional advice – one of our professional financial advisers can help you work out how much income you are on track to get from your pension and how much more you need to save to give you the chance to achieve your target income. They will look at all options, beginning with your workplace pension. Also, if you are in an investment-based pension that offers a choice of funds, they can recommend funds that are suitable for your specific requirements.

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.

* Source:https://www.blackrock.com/uk/individual/insights/investor-pulse/retirement?siteEntryPassthrough=true&locale=en_GB&userType=individual