Blog Fullwidth

Bymapfinancesadmin

Tax Planning for Spouses

Capital

As mentioned in a separate article in our January 2019 Professional Newsletter, as transfers between husband and wife are ignored for Capital Gains Tax (CGT) purposes, why not use this as much as you can to reduce a clients’ tax bill for any gains?

Pensions

Many a time when looking at a couple’s finances, everything seems to be done in the husband’s name and very little in the wife’s. If you are wanting to reduce long-term tax, this needs to change.

Let’s say all pension planning is done in the husband’s name alone, and he ends up with a pension of £60k p/year. This will obviously be well into 40% tax whereas, if it was done jointly and evenly, such that each party had £30k pensions p/year, only 20% tax would be payable. That represents a big tax saving and shouldn’t be ignored. Planning must be started early on to achieve this – and that’s where MAP comes in.

If you are doing accounts for a self-employed person, is it possible to do the same thing as a partnership, by introducing a wife into the planning? Perhaps through setting up a Limited Liability Partnership?

Inheritance

Every individual now gets £325k basic exemption from Inheritance Tax Planning (IHT), and then on top of this is the residence nil rate band which in due course will bring the exemptions up to £500k per person. The same applies with CGT – if assets were owned jointly, then maximum exemption could be obtained, and so significant savings on tax could be made.

A lot of these simple exemptions need a bit of planning as they just don’t happen overnight. Care has to be taken every step of the way to ensure compliance with the legislation, and that is what we do at MAP.

One of our IFAs is also a qualified accountant (and ex-Inland Revenue employee), who has many years’ experience as a financial adviser, and his work is all about planning. If he can help your clients, just let us know.

If you would like to find out more information or would like to start investing today, please contact Money Advice & Planning Ltd on 0345 241 1808 or e-mail us at enquiries@mapfinances.co.uk.

The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Links to external sites are for information only and do not constitute endorsement. Always obtain independent professional advice for your own particular situation. Money Advice & Planning Ltd is authorised and regulated by the Financial Conduct Authority.

Bymapfinancesadmin

CGT Planning

More and more clients need to do some Capital Gains Tax planning (CGT) as investment valuations rise. So here are some things you may wish to consider as an accountant or solicitor.

Personal Allowances

The current CGT allowance is £11,700 per person, and it is always logical to make gains up to this value each year, because the allowance is a use it or lose it one.

If your client is looking at a big gain one year, try and flush out any smaller gains beforehand and do this under the limit, as these could be covered by the allowance.

Another thing to remember with allowances like this is that for married people, both husband and wife get the same allowance. If one spouse is looking at a gain and the other isn’t, is there anything to be done by transferring ownership of some assets between spouses, or indeed making some assets jointly owned? Gifts between husband and wife are exempt from any CGT, so this should be utilised as much as possible.

Rates

The entrepreneur’s rate is only 10% and the more we can allocate to this, if selling a business or part of a business, would be very helpful.

The main rates of course are 10% if someone is a basic rate taxpayer, and 20% if a higher rate taxpayer, so once again if you are looking at planning for spouses and the gain is being made by the higher-taxed person, see what you can gift between spouses, to reduce the tax payable.

This is especially true of residential property which is rented out, where gains made by basic rate taxpayers are charged at 18%, and higher rate taxpayers at 28%.

Basic Planning

Although it mainly affects investors, perhaps more attention should be paid into putting more and more money into ISAs, which are not liable at all for CGT.

CGT deferral can also be made by investing in Enterprise Investment Scheme (EIS) companies, so this could give your clients time to plan. If an EIS company is invested in and held for three years, there is no CGT on a later disposal.

As independent IFAs who have done EIS investments for clients, we can look over the whole of the market to see the best one for your clients.

What not give us a call and let us help in your client’s overall tax planning?

If you would like to find out more information or would like to start investing today, please contact Money Advice & Planning Ltd on 0345 241 1808 or e-mail us at enquiries@mapfinances.co.uk.

The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Links to external sites are for information only and do not constitute endorsement. Always obtain independent professional advice for your own particular situation. Money Advice & Planning Ltd is authorised and regulated by the Financial Conduct Authority.

Bymapfinancesadmin

Why Accountants should do Tax Planning

As an accountant myself, I know that many accountants don’t want to stray into the financial advice market in case it goes wrong. It doesn’t need to be as black and white as that though.

When doing clients’ accounts and tax returns, it is easy enough for an accountant to recommend that someone see an Independent Financial Adviser (IFA) and potentially concentrate on pensions. You may have noticed when doing their accounts, that their tax bill has increased, and just about the only way to reduce that is contributions into pensions. This means you are at least helping your clients whilst not actually giving advice. They get the best of both worlds and is something that you won’t be held accountable for, but may get an income yourself from.

Accountants today should only recommend independent advisers, and that’s what MAP are. Moreover, the way we do our investing process keeps it that way, because we don’t outsource our investment process. What we invariably do for each client is invest in a spread of 10 investment funds through an investment platform, and then monitor those funds quarterly thereafter to ensure the client is always invested in funds on our approved Recommended Funds List.

In other words, we don’t let things drift, which is important when doing anything like this. Most people – even those that do their own investing – will treat investing as a one-off exercise, when in fact it needs to be a continuous exercise. MAP looks at all the funds that clients use every quarter, and if we are not happy with any fund, we will look to switch to others that we are happy with; so it is constant reviewing.

What could be better for your clients than using this kind of process, and your clients will love you for recommending this to them. They will then feel you are really looking after them with this kind of recommendation, and this will increase loyalty and client retention. Bear in mind we will also give you a percentage of the initial fee so that you can benefit from this as well as your client, and enable you to build an additional income stream for your business.

If you would like to find out more information or would like to start investing today, please contact Money Advice & Planning Ltd on 0345 241 1808 or e-mail us at enquiries@mapfinances.co.uk.

The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Links to external sites are for information only and do not constitute endorsement. Always obtain independent professional advice for your own particular situation. Money Advice & Planning Ltd is authorised and regulated by the Financial Conduct Authority.

Bymapfinancesadmin

Why MAP use investment funds?

Some people over the years have asked us why we don’t use shares when we invest money for clients, and only stick to funds.

Basically, we think funds represent a safer way of doing things. If you were to invest in a company’s shares, you need to do a lot of homework on that one company, whereas if you invest in funds it is very different. Now each fund manager has their own ideas of course of how many companies they wish to invest in but, I would estimate an average of about 60 per fund; this is just to give you an overall idea.

When MAP places your investments, we usually use about 10 funds, so it doesn’t take too much to work out that you will be invested in about 600 companies, although there may be the odd duplication. This gives you a far better spread of investments than just one or two.

Working on the law of averages, you should anticipate some of those companies will do very well, some average, and some not so well; everyone cannot perform brilliantly (unfortunately). The simple fact that you have a good spread to start with will reduce your overall risk, unless of course you have started off with high risk funds only. It’s very much a case of not putting all your eggs into the one basket.

What MAP attempts to do for all clients is what we call in financial services as a good allocation. What this means is that we don’t put all your funds into the UK, America, Japan, etc. A good allocation will reflect the risk category that you have chosen. For example:

  • Low Risk will be interest-based investments and then low volatile equities that tends to be UK based, although it can be some other countries or indeed global.
  • Middle Risk will be mainly equities and could be from UK or Europe, or some global funds as well. In this category you can get financial investments and also UK Smaller Companies, to give a specific example.
  • High Risk tends to be areas deemed to be high risk and this could be Asia, Japan, or indeed America. It would also include high-risk investment types like Global new companies (what they call Alpha) or specialised investment areas like Healthcare.

In summary therefore, when MAP allocates your money to 10 funds, it is actually to hundreds of different areas. What we are hoping to achieve is a good spread of investments in countries, in investment types and in risk such that we can reduce your individual exposure as best we can.

Bear in mind of course that we only ever use funds that have been researched and are in our Recommended Fund List (RFL). There are of course no guarantees that these will always work the way we think they should, but regular research and analysis will help to reduce risks over time.

If you would like to find out more information or would like to start investing today, please contact Money Advice & Planning Ltd on 0345 241 1808 or e-mail us at enquiries@mapfinances.co.uk.

The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Links to external sites are for information only and do not constitute endorsement. Always obtain independent professional advice for your own particular situation. Money Advice & Planning Ltd is authorised and regulated by the Financial Conduct Authority.

Bymapfinancesadmin

October 2018 Budget

I know that when it comes to Budget time, I sit very close to the radio and try to gather as much information on changes as I can. The last one on Monday 29th October 2018 was no different.

What you should not do however is merely listen to it to see how it affects you today, and nothing else. You need to sit back after the event and decide what planning you need to do as a result.

What I will be looking at for clients is:

  • Where clients are withdrawing money from their pension and merely using up their allowances, then from April 2019, the basic allowance we all get changes from £11,850 to £12,500. This is a change from £987.50 per month to £1,041.67 per month, so why not take advantage of this. After all, it’s tax-free money.
  • The other big change in income tax is that the basic rate band which started at £46,350 is now pushed up to £50,000, and for those liable, this is a saving of £730 per year. So, before this change you would get £3,862.50 per month taxed at 20% before you were moved onto 40%, and now this is changing to £4,166.67 a month. That allows you another £304.17 taxed at 20% that previously was taxed at 40%.
  • National Insurance thresholds, which wasn’t really covered in the budget, will also rise as well.

We need to remember these rates will apply to the bulk of the UK but not to those who live in Scotland, as the Scottish Government have still to declare how much they intend to deviate from the UK Government. Once we have the rates from the Scottish Government, then we all need to sit down and see how much more we can get out of the system without tax, or before we get to 40%. Thereafter, it’s time to sit back and see what tweaks you can make to your own situation, to squeeze the maximum benefit out of the system.

One thing mentioned in the Budget was that pension cold calling will be made illegal from this Autumn, so if you are contacted by anyone asking you to move your pension, take down their details and we can inform the regulator about this, as this should not be happening.

Finally, the annual ISA allowance is staying at £20,000 per year, so no change. If you can afford a wee bit more into your ISA, as long as you don’t go over the £20,000 limit, this is worthwhile doing. Maybe even divert some of the tax savings above?

If you would like any advice or assistance in planning out how the budget has affected you, for good or for wose, contact Money Advice & Planning Ltd today on 0345 241 1808 or e-mail us at enquiries@mapfinances.co.uk.

The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Links to external sites are for information only and do not constitute endorsement. Always obtain independent professional advice for your own particular situation. Money Advice & Planning Ltd is authorised and regulated by the Financial Conduct Authority.

Bymapfinancesadmin

How long will your pension last?

From April 2015 when the then Chancellor George Osborne changed the rules and brought in pension freedoms, people have suddenly switched from buying an annuity to flexible drawdowns, where they can take out what they want when they want.

Now the FCA doesn’t have a problem with this, but they do have a problem with education more than anything else. They reckon that people are just walking into a nightmare, as there could very well be a problem at some time in the future when they will run out of pension money.

What on earth do these people do then, apart from telling a tale of woe? Pensions, as the FCA see it, are for when you retire, and if you take out a lot of money before you retire, then you won’t have it later. You can only spend it once after all!

If you run out of pension money in retirement – what are you going to live off? The State pension is certainly not enough for a comfortable life-style. How long are you going to live? Have you taken into account housing costs? What about care costs?

What we attempt to do at MAP is create a simple spreadsheet that shows your pension fund through the years to come, taking into account modest growth and withdrawals. Based on this information, we give a best effort at telling you how many years it might last. We only ever use low rates of growth to be pessimistic – 3% for cautious investors, 5% for middle risk investors and 7% for high risk investors – and we tend to work on an average of 6% withdrawals per year. So if you are a cautious investor, you can expect your fund to go down by about 3% per year, and therefore we need to look at longevity.

What we do in these spreadsheets is put in an estimate based on the information we have of how many years we think you have left to make your pension last. Having this kind of information is priceless to our clients and helps them to plan things out a bit better than they were before.

So, if you need some help in planning your retirement, please ask us for a forecast tailored for you. If you would like to discuss any aspect of retirement planning with Money Advice & Planning Ltd, please contact us today on 0345 241 1808 or e-mail us at enquiries@mapfinances.co.uk.

The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Links to external sites are for information only and do not constitute endorsement. Always obtain independent professional advice for your own particular situation. Money Advice & Planning Ltd is authorised and regulated by the Financial Conduct Authority.

Bymapfinancesadmin

Global Fund Markets

At the beginning of October, the tariffs Mr Trump hit China with finally had their effect on fund prices and values. To be honest, these tariffs had been in existence for a wee bit of time, so it wasn’t a surprise that they now hit home. What was a surprise was that the Dow Jones fell as well.

Admittedly. the Dow Jones fell because of people’s fears about interest rate rises, but there must have been an element of worry about global trade, which the USA plays a big part in. Personally, we think what Mr Trump is doing is wrong, and we reckon this will come back and bite him at some stage.

All of this however merely reinforces what we have said a few times now; that we reckon for the next few years, the world markets will be more unsettled and therefore more volatile. At the time of writing this article, we haven’t got a deal on Brexit agreed and through Parliament, Mr Trump is fighting with the Chinese, and we know we are in for a hard time when the current bull run finishes. The current run has gone for about 3–4 years more than it should have done; an end is inevitable, but we don’t know when.

These factors are over and above all ‘normal’ trading challenges, so as you can imagine, there is a lot going on at the moment to unsettle investments.

At MAP we will watch the markets carefully on our clients behalf, but there is no need at all for knee-jerk reactions. Everything will be planned and organised. The funds we put in our Recommended Fund Lists (RFL) are those with a reasonable amount of consistency, which is by far the best way to go.

There are no guarantees that this consistency will be maintained, but in using such funds and monitoring their ongoing performance, to ensure the consistency remains, there is in our eyes, no better approach to investing in the current climate.

If you would like to discuss any investments with Money Advice & Planning Ltd, please contact us today on 0345 241 1808 or e-mail us at enquiries@mapfinances.co.uk.

The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Links to external sites are for information only and do not constitute endorsement. Always obtain independent professional advice for your own particular situation. Money Advice & Planning Ltd is authorised and regulated by the Financial Conduct Authority.

Bymapfinancesadmin

IHT Planning Case Study

We always talk about IHT planning and what we can do for clients, but sometimes it is difficult to see the substance behind our words. So, what better way to explain things than by taking an example case:

Mr & Mrs Smith are both retired and aged 64 and 67 respectively. They have a house valued at £450k with no mortgage and have no children. Mr Smith has pension funds valued at £950k and Mrs Smith at £458k. They have £43k in the bank, approx. £26k in premium bonds and £450k in investments.

Scenario if they do nothing: Total assets for IHT is £450k + £43k + £26k + £450k = £969k.

IHT exemptions are £650k (£325k each), and of course pensions are excluded, meaning they are potentially liable to IHT for £319k, which at 40% = £127.6k.

This one is straightforward; if the clients invest £319k (minimum) into a bond and write it in trust, after seven years that money will be out with their estate and not chargeable to tax. If the clients wanted some income, they could take 5% of this £319k from said bond each year, which is also not taxable.

Seven years should be OK for this couple as they are ‘young enough’ (in relative terms), but if you have clients who are that bit older and may not have that seven years, they can invest in an AIM ISA which only takes two years to wash out the system. That may be better for your clients although it has more risk to it. You cannot take any 5% withdrawals from the ISA, so if your clients needed an income, then they shouldn’t go for this option.

Please note that if this couple had had children, they probably wouldn’t have needed to do anything, since they would each get £125k exemption on top of their £325k for Residence Nil Rate Band.

If you would like to discuss any investments with Money Advice & Planning Ltd, please contact us today on 0345 241 1808 or e-mail us at enquiries@mapfinances.co.uk.

The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Links to external sites are for information only and do not constitute endorsement. Always obtain independent professional advice for your own particular situation. Money Advice & Planning Ltd is authorised and regulated by the Financial Conduct Authority.

Bymapfinancesadmin

Divorce and Pensions

We all know that when a couple divorce, any pension funds need to be included in the final settlement. But at what value?

Whether you look at pension sharing, earmarking or indeed offsetting, you still must work to a value, and that’s where the difficulties might come in. If you are talking about a money purchase scheme or defined contribution (DC) scheme, the value is based on the underlying value of the assets it is invested in. That part is straightforward.

The difficulties come from a defined benefit (DB) scheme; sometimes known as an occupational or final salary scheme. Values given for a DB scheme are based on a whole series of assumptions that the scheme actuaries will make. You need to remember they make these assumptions based on the whole scheme and all of its members. It may be necessary therefore to ask if the actuary could provide a specific valuation based on current information, as opposed to historical data.

Once this has been done and you have more up-to-date information on the scheme as well as a value, it may be worthwhile considering moving a DB scheme into a DC one. That could make the whole separation proceedings a lot easier. This would also clarify values in the process, so may be beneficial.

When you are looking at a DB to DC transfer, you need to involve what is called a Pension Transfer Specialist (PTS), which is someone who has passed the PETR examinations and knows exactly what the FCA are looking for in terms of quality of advice. We are pleased to say MAP has advisers who are PTS’ and so can help you and your clients decide on the best route to go.

If you would like to discuss any investments with Money Advice & Planning Ltd, please contact us today on 0345 241 1808 or e-mail us at enquiries@mapfinances.co.uk.

The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Links to external sites are for information only and do not constitute endorsement. Always obtain independent professional advice for your own particular situation. Money Advice & Planning Ltd is authorised and regulated by the Financial Conduct Authority.

Bymapfinancesadmin

Interest Rates and Changes

Earlier this month, the Bank of England raised interest rates from 0.5% to 0.75%. This is not a big increase admittedly but bearing in mind the 0.5% was in existence in March 2009, and hasn’t changed at all since then, I suppose this is a big change, in a kind of a way. There are two sides to look at this from however.

From a savers point of view, the additional 0.25% won’t make any kind of serious difference unless you have millions of pounds stashed away, and even then, if you had this all in interest-bearing stock, you would be losing out anyway. When you take into account the fact that the current inflation rate is 2.5%, savers will still be losing out if they have money in a bank or building society getting only 0.75%. In real terms though, savers will still be worse off as they are not getting more than the inflation rate, but the rate increase has very slightly helped them, and we use that word loosely.

Borrowers on the other hand though will find that very shortly, lenders will increase their borrowing rates, because they in turn will have to pay more for the money that they borrow. This increase  of course will be passed on. Mortgages will be dearer, and we have started to see some lenders withdrawing previous deals and re-arranging them and offering ‘new’ ones. Needless to say, they are a bit more expensive.

The reason that the Bank of England has raised interest rates is to take some heat out of the economy. We saw the effect of this, as inflation (which had been pretty steady) at 2.4% p/annum has just increased to 2.5% p/annum. Interest rates are used to albeit slowly reduce the amount of money available in the market today, and it is hoped that this reduces inflation going forward.

If you would like to discuss any investments with Money Advice & Planning Ltd, please contact us today on 0345 241 1808 or e-mail us at enquiries@mapfinances.co.uk.

The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Links to external sites are for information only and do not constitute endorsement. Always obtain independent professional advice for your own particular situation. Money Advice & Planning Ltd is authorised and regulated by the Financial Conduct Authority.