Monthly Archives: February 2022

IT MAY BE TIME TO INVEST YOUR CASH

Is your wealth protected from the damaging eects of inflation?

Many people underestimate the damaging eect of low interest and high inflation on their cash savings. A continued period of low interest rates on cash savings and rising inflation could pose a real risk to savers in 2022, even if the Bank of England (BoE) moves to increase interest rates further in the coming months.

Savers with large amounts of money sitting in cash should not be lulled into a false sense of security if interest rates creep up, because of the threat of higher inflation throughout 2022. The damaging eects of high and rising inflation will likely more than wipe out any uplift a higher interest rate will give to the value of cash savings. Currently, 8.6 million consumers hold over £10k of investable assets in cash.

INTEREST ‘BASE RATE’ INCREASE

Inflation is expected to average over 4% this year, peaking at over 5%. The BoE may look to dampen the eects of soaring prices by further increasing the interest ‘base rate’. While this may oer some relief if passed on to savers, the average easy access savings account is currently sitting at just 0.19% and any upward change is expected to be small.

As the economy continues to recover from the COVID-19 pandemic last year, we are experiencing a sharp rise in the cost of living. During a period
of high inflation people will notice a dramatic decrease in their purchasing power over time, particularly if their wages don’t keep pace or if they have savings in cash.

DAMAGING HIGH INFLATION

The threat of inflation this year and beyond could far outweigh any small changes in interest rates for those with large amounts of money in cash savings. Following many years of low inflation, people may have forgotten how damaging high inflation can be. But in the coming months and years, savers should think carefully about where they put any additional cash that is not needed in the short term.

For money beyond your emergency fund, you may want to consider investing, which oers the potential for inflation-beating returns. If appropriate to your particular situation, you should be prepared to take some risk to preserve the value of your money if inflation continues to eat away at the value of your cash in savings accounts. We are best placed to recommend the best investment option based on your attitude to risk.

CONCERNED ABOUT HOW INFLATION IMPACTS ON YOUR SAVINGS?

After years of staying relatively low, it looks like inflation is on the up. So what does that mean for your money? To discuss how to mitigate the impact of inflation on your financial plans, please contact us – we look forward to hearing from you.

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

THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED. PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.

NEW YEAR’S TAX SAVING RESOLUTIONS

Make full use of your relevant tax planning opportunities

With the tax year end (5 April) on the horizon, taking action now may give you the opportunity to take advantage of any remaining reliefs, allowances and exemptions.

We have provided some key tax and financial planning tips to consider prior to the end of the tax year. Now is also an ideal opportunity to take a wider review of your circumstances and plan for the year ahead.

CHECK YOUR PAYE TAX CODE:

It’s important to check your tax code. Your tax code is based on the amount of tax you should be paying and the amount you can earn before tax applies. The tax code is the identifier that tells your employer how much tax should be deducted from your salary each time you get paid. If you have multiple employers or pension providers, you may get more than one tax code. If you’re on the wrong one, you could be paying HM Revenue & Customs (HMRC) more than you ought to be. On the other hand, you risk getting penalised if you’re paying too little.

TRANSFER PART OF YOUR PERSONAL ALLOWANCE:
Married couples and registered civil partners are permitted to share 10% of their personal allowance between them. The unused allowance of one partner can be used by the other, meaning an overall combined tax saving. The amount you can transfer is £1,260 for 2021/22 and a transfer is not permitted if the recipient partner pays tax at a rate higher than the basic rate of 20% (higher than the intermediate rate of 21% for Scottish taxpayers).

financial planning tips to consider prior to the end of the tax year. Now is also an ideal opportunity to take a wider review of your circumstances and plan for the year ahead.

CHECK YOUR PAYE TAX CODE:

It’s important to check your tax code. Your tax code is based on the amount of tax you should be paying and the amount you can earn before tax applies. The tax code is the identifier that tells your employer how much tax should be deducted from your salary each time you get paid. If you have multiple employers or pension providers, you may get more than one tax code. If you’re on the wrong one, you could be paying HM Revenue & Customs (HMRC) more than you ought to be. On the other hand, you risk getting penalised if you’re paying too little.

TRANSFER PART OF YOUR PERSONAL ALLOWANCE:
Married couples and registered civil partners are permitted to share 10% of their personal allowance between them. The unused allowance of one partner can be used by the other, meaning an overall combined tax saving. The amount you can transfer is £1,260 for 2021/22 and a transfer is not permitted if the recipient partner pays tax at a rate higher than the basic rate of 20% (higher than the intermediate rate of 21% for Scottish taxpayers).

CONTRIBUTE UP TO £9,000 INTO YOUR CHILD’S JUNIOR ISA:
The fund builds up free of tax on investment income and capital gains until your child reaches age 18, when the funds can either
be withdrawn or rolled over into an adult ISA. Relatives and friends can also contribute to your child’s Junior ISA, as long as the £9,000 limit for 2021/22 is not breached.

TAX FREE SAVINGS AND DIVIDEND ALLOWANCES:
For 2021/22, savings income of up to £1,000 is exempt for basic rate taxpayers, with a £500 exemption for higher rate taxpayers. The tax-free dividend allowance is £2,000 for all taxpayers. Married couples and registered civil partners could save tax by ensuring that each person has enough of the right type of income to make use of these tax-free allowances.

INDIVIDUAL SAVINGS ACCOUNTS ISAS:

You can put the entire amount into a Cash ISA, a Stocks & Shares ISA, an Innovative Finance ISA, or any combination of the three (or up to £4,000 out of the overall £20,000 allowance into a lifetime ISA if aged between 18 to 39). Usually when you invest, you have to pay tax on any income or capital gains you earn from your investments. But with an ISA, provided you stick to the rules on how much you can pay in, all capital gains and income made from your investments won’t be taxed. Every tax year you have an ISA allowance, which is currently £20,000 for the 2021/22 tax year.

UTILISE ANY CAPITAL LOSES:

If you realise capital gains and losses in the same tax year, the losses are oset against the gains before the capital gains tax exempt amount (£12,300 in 2021/22) is deducted. Capital losses will be wasted if gains would otherwise be covered by your exempt amount. Consider postponing a sale that will generate a loss until the following tax year, or alternatively realising more gains in the current year.

MAXIMISE PENSION CONTRIBUTIONS:

The annual allowance for 2021/22 is £40,000. To avoid an annual allowance tax charge, the pension contributions made by yourself, and by your employer on your behalf, must be covered by your available annual allowance. If you haven’t used all your allowances in the last three tax years, it might be possible to pay more into your pension plan by ‘carrying forward’ whatever allowance is left to make the most of the tax relief on offer, though bear in mind that your own personal tax-relievable contribution amount is still capped at 100% of your earnings. However, different rules apply if you’ve already started to take money flexibly out of your pension plan and you’re aected by the Money Purchase Annual Allowance, or if your income when added to your employer’s payments are more than £240,000 and your income less your own contributions is over £200,000.

PAY PENSION CONTRIBUTIONS TO SAVE NICS:

If you pay pension contributions out of your salary, both you and your employer have to pay National Insurance Contributions (NICs) on that salary. When your employer pays a contribution directly into your pension scheme, the employer receives tax relief for the contribution and there are no NICs to pay – a saving for both you and your employer. You could arrange with your employer to cover the cost of the contributions by foregoing part of your salary or bonus. You must agree in writing to adjust your salary before you become entitled to that salary or bonus and before the revised pension contributions are paid for this arrangement to be tax-eective, although pension contributions are not caught by the clampdown on salary sacrifice arrangements.

MAKE A WILL AND REVIEW IT:

If you die without making a Will, your assets will be divided between your relatives according to the intestacy rules. Your surviving spouse
or registered civil partner may only receive a portion of your estate, and Inheritance Tax will be due at 40% on anything else above £325,000 (up to £500,000 if the Residence Nil Rate Band is available).

LEAVE SOME OF YOUR ESTATE TO CHARITY:

Where you leave at least 10% of your net estate to charities, as well as the gift to charity being free from Inheritance Tax, the Inheritance Tax on your remainder estate is charged at 36% instead of 40%. The exact calculation of your net estate is quite complicated, so it’s important to receive professional advice when drawing up or amending your Will.

MAKE REGULAR IHT-FREE GIFTS:

As long as you establish a pattern of gifts that can be shown to be covered by your net income, without reducing either your capital assets or your normal standard of living, these gifts will be free of Inheritance Tax. The recipients of the gifts need not be the same people each year.

USE THE IHT MARRIAGE EXEMPTION:

If your son or daughter is about to marry, you and your spouse can each give them £5,000 in consideration of the marriage, and the gift will be free of Inheritance Tax. The marriage exemption can also be combined with your £3,000 a year Inheritance Tax exemption to allow you to make larger exempt gifts. You can make an Inheritance Tax-free gift of £2,500 for a grandchild’s wedding. Registered civil partnerships attract the same exemptions. Make IHT-free gifts each tax year These gifts are free of Inheritance Tax and, if you forget to make your £3,000 gift one year, you can catch up in the next tax year by giving a total of £6,000 but you can only carry forward the £3,000 allowance for one tax year and must fully use the current year’s allowance as well.

DO I NEED PERSONAL TAX ADVICE?

It is crucial that year-end tax planning reviews are undertaken as soon as possible, as you will need time to consider all the options available. Many of the allowances and reliefs cannot be applied retrospectively after 5 April 2022. We can provide a comprehensive review, tailored to your individual needs and circumstances. Don’t delay, please contact us if you require further information.

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

THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED. PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.

GET READY TO BEAT THE ISA DEADLINE

Time to give your financial future a boost?

Savers and investors have less than three months to use the £20,000 they can put into their tax-ecient Individual Savings Account (ISA) before the end of the financial year on 5 April. The current tax year started on 6 April 2021 and ends on 5 April 2022.

ISAs enable you to minimise the amount of tax you pay on your hard-earned cash. Some ISAs give you instant access to your money and can be used to plan your finances for the short term. On the other hand, if you have longer-term savings goals, you can invest in an ISA for your future.

DON’T LOSE YOUR ISA ALLOWANCE

There is a limit you can pay into ISAs each tax year and this is called your ISA ‘annual allowance’. For the 2021/22 tax year, your ISA annual allowance is £20,000 and you have until midnight on 5 April 2022 to use this allowance. If you don’t use your ISA allowance, you will lose it as it cannot be carried forward.

However, you will have a new annual ISA allowance available from 6 April 2022 in the 2022/23 tax year, so if you have already put £20,000 into an ISA in the 2021/22 tax year, you could put another £20,000 away on or after 6 April 2022. You can only pay into one of each type of ISA in a tax year, within the ISA annual allowance.

ISA OPTIONS:

CASH ISA

If you are a UK resident over the age of 18 (age 16 for a Cash ISA only), you can open one of each type in a tax year, providing you don’t exceed the annual allowance. Cash ISAs are suitable for your short-term savings goals as they don’t invest in the stock market but, with current low interest rates, your savings won’t grow much and you might not be keeping up with inflation. You might consider a Cash ISA as your ‘emergency’ pot of money for any unexpected expenses or a last-minute holiday.

STOCKS & SHARES ISA

This is a tax-ecient investment that allows you to invest your money in shares, government bonds (gilts) and property with peace of mind that you won’t pay any capital gains tax or income tax on the proceeds. This type of ISA is more suitable for your longer-term goals as it has the potential to out- perform Cash ISAs over the medium to long term, but with varying levels of risk.

The three main factors to consider when choosing between a Cash ISA and a Stocks & Shares ISA is the length of time you’ll be saving or investing, your appetite for investment risk and the impact of inflation over time.

INNOVATIVE FINANCE ISA

This is a type of investment account that allows you to lend your money through peer-to-peer lending platforms to receive tax-ecient interest and capital gains. You could be lending money to serve personal loans, small business loans or property loans, or a combination of these.

Interest rates can often be much more attractive than Cash ISA rates, but peer-to-peer lending is a higher-risk form of investing and your capital is entirely at risk as there is no protection from the Financial Services Compensation Scheme (FSCS).

LIFETIME ISA

If you are aged 18 to 39, and are looking to save for your first home or for later life, you could consider a Lifetime ISA. You can hold cash in a Lifetime ISA or choose to invest it just as you would with a Stocks & Shares ISA. You can put in up to £4,000 each year up to and including the day before your 50th birthday but remember that this £4,000 allowance contributes to your full annual ISA allowance.

The government will pay a 25% bonus on your contributions (£1 for every £4 you put in), up to a maximum of £1,000 a year but you must be aware that a charge of 25% will be applied to any withdrawal if it is for any reason other than buying your first home, at age 60 or if you are terminally ill.

JUNIOR ISA

A Cash or Stocks & Shares ISA account, or both, can be opened for a child subject to the annual Junior ISA (JISA) allowance which is £9,000 for the 2021/22 tax year.

The account must be opened by the child’s parent or guardian, but anyone can contribute once the account has been opened. Savings in a JISA account cannot be withdrawn until the child reaches 18.

Any child owning a Child Trust Fund (CTF) can’t hold a JISA unless the CTF funds are first transferred to a JISA and the CTF closed.

READY TO MAKE THE MOST OF YOUR ISA ALLOWANCE BEFORE ITS TOO LATE?

With interest rates still at very low levels, you might be looking at investing for the potential to achieve a bigger return from your savings. For more information about how we can help you invest to enjoy a brighter future – please contact us.

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

THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED. PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.

IMPROVE YOUR FINANCIAL LIFE

Setting a financial New Year’s resolution you’ll actually keep

Heading into the New Year, it’s the perfect time to take stock of your budget, liabilities and investments – and check them against your financial goals. The New Year brings an opportunity to reflect on the past year and to set new goals for the year ahead.

But before setting financial goals, it helps to understand your financial priorities and your overall plan to achieve the financial life you want. Think about your financial plan, and what you are hoping to accomplish, not only this year, but in years to come. Think about what you can do this year to help reach your longer-term goals.

SECURE YOUR FINANCIAL FUTURE

Whatever situation you find yourself in, it’s important to be realistic about your goals. We all have dierent financial goals and aspirations in life. Yet often, these goals can seem out of reach. In today’s complex financial environment and with the challenges of the COVID-19 pandemic, achieving our financial goals may not be that straightforward. This is where financial planning is essential to help secure your financial future.

The benefits of setting financial goals all work together to boost your financial health. You’ll gain more confidence in your money management decisions and significantly decrease money-related stress. If you want to take control of your money and create more security, you need to set some financial goals.

KEEP YOUR GOALS REALISTIC

A financial plan seeks to identify your financial goals, prioritise them, and then outline the
exact steps that you need to take to achieve your goals. Figuring out your objectives and matching them with timelines are the keys to setting financial goals. Your financial goals are specific and unique to a number of factors related to you, like your age, your interests, your current financial situation and your aspirations.

Based on these, you need to develop your goals and establish a plan to achieve them. Any goal (let alone financial) without a clear objective is nothing more than a pipe dream, and this couldn’t be more true when setting financial goals. However, it’s important to keep your goals realistic as it will help you stay the course and keep you motivated throughout your journey until you get to your destination.

MONETARY VALUE TO THAT GOAL

You need to be crystal clear about why you are doing what you’re doing. This could be planning for your children’s education, your retirement, that dream holiday or a property purchase.

Once the objective is clear, you need to put a monetary value to that goal and the time frame within which you want to achieve it. The important point is to list all of your goal objectives, however small they may be, that you foresee in the future and put a value to them.

SHORT, MEDIUM AND LONG TERM

Now you need to plan for where you want to get to, which will likely involve looking at how much you need to save and invest to achieve your goals. The approach towards achieving every financial goal will not be the same, which is why you need to divide your goals into short, medium and long-term time horizons.

As a rule of thumb, any financial goal which is due within a five-year period should be considered short-term. Medium-term goals are typically based on a five-year to ten-year time horizon, and over ten years, these goals are classed as long-term.

DEVELOPING A CLEAR PICTURE

This division of goals into short, medium and long- term will help in choosing the right savings and investments approach to help you achieve them, and it will also make them crystal clear. This will involve looking at what large purchases you expect to make, such as purchasing property or renovating your home, as well as considering the later stages of your life and when you’ll eventually retire.

Creating and implementing a comprehensive financial plan will enable you to develop a clear picture of your current financial situation by reviewing your income, assets and liabilities. Other elements to consider will typically include putting in place a Will to protect your family, thinking about how your family will manage without your income should you fall ill or die prematurely, or creating a more ecient tax strategy.

ITERATIONS AS LIFE CHANGES

There is little point in setting goals and never returning to them. You should expect to make iterations as life changes. Set a formal yearly review at the very least, to check you are on track to meeting your goals.

We will help you to monitor your plan, making adjustments as your goals, time frames or circumstances change. Discussing your goals with us is highly beneficial as we can provide an objective third-party view, as well as the expertise to help advise you with financial planning issues.

FINALLY, MAKE SURE YOUR FINANCIAL GOALS ARE SMART
Thinking about ‘SMART’

Goals can help give direction to your financial aspirations and make those goals more achievable.

Specific – Rather than pledging to ‘save money’ or ‘reduce debt’, thoroughly analysing finances and targeting specific areas for improvement could boost your chances of reaching your end goal. Measurable – Having benchmarks can help you track your progress, letting you make changes if you need to.

Attainable – Setting a realistic goal can help keep your confidence up as you feel the achievement of getting close to your desired result.
Relevant – Ensuring your goals are appropriate to what you are trying to achieve can help you avoid wasting time.

Time Sensitive – If you know when you want to achieve your goal, this can allow you to pace savings and ensure you put the right amount of money aside.

BEEN PUTTING OFF PLANNING FOR YOUR FUTURE?

For many people, the New Year often brings around an opportunity for change. We’re here to help you achieve your money resolutions and plan for the financial future you want. The start of 2022 is the ideal time to review your financial situation.

To discuss your plans or for further information, please contact us.