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Newsletter – March 2017

march_10

Inheritance Tax Myths Busted

One of the most common myths concerning Inheritance Tax (IHT) is that it is only paid on the estates of very rich families. However, with property prices remaining high, many more families are facing the prospect of their estates falling within the IHT threshold on their death.

The nil-rate band stands at £325,000 and will remain at that figure until 2021. Some people are under the impression that this has been increased to £1m for couples, the figure often given in newspaper headlines. However, that is not the case yet, and it won’t apply in every instance. The new additional nil-rate band covering main residences will initially be worth £100,000 per individual from April 2017 and be worth £175,000 when fully implemented in 2020. It only applies to family homes left to direct descendants. It doesn’t include properties left to nephews and nieces and excludes second homes and buy-to-let properties. See here for more details.

A Will is essential

Another myth that needs busting is that married couples or civil partners don’t need to worry about IHT as their partners will inherit everything free of IHT. However, without a valid Will in place, and under the rules of intestacy, if there are children a portion of the estate will go to them and could trigger an IHT charge that could have been avoided with a Will in place.

Whilst there are annual exemptions, for example you can make gifts of up to £3,000, you can’t simply give all your money away to avoid IHT. Making larger gifts of money or property is subject to the ‘seven-year rule’. This means that you need to survive for seven years from doing so for the gift to fall outside your taxable estate. If you die within seven years, the tax charge is tapered down, but there could still be a charge to IHT.

IHT is a complex subject, so professional help is advised.

Tax treatment depends on individual circumstances. Tax treatment rates and allowances are subject to change.

march_9

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How to Plan your Retirement Income

Someone once said that preparing for retirement was as big a challenge as starting your first job, and in many ways, it can be.

In the early part of the last century, retirement was sadly often very short. Thanks to increasing life expectancy, people retiring today could be looking at several decades. That’s why more and more people are taking advice on how to plan their income so that they don’t run out of money in their later years.

The changes in pension regulation that came into force in April 2015 mean that many individuals now have more flexibility at a younger age to use their pension savings in a way that suits them, and to have the type of retirement that they want.

One way to fund a potentially longer retirement is to put back the date at which it starts, and this is a path increasingly chosen by many people. This decision is often prompted by the increases in the age at which workers qualify for the State Pension; by 2020 it will be 66 for men and women and will rise to 68 by 2044.

Budgeting is key

It’s a good idea to take a critical look at your potential expenditure, consider your goals and decide the amount you will need to make retirement a comfortable period of your life. Don’t forget to factor in unexpected expenses, possible gifts of money to family members, the travel you’ve always wanted to do, and give some thought to putting aside some funds that could be used to provide nursing or residential care in the future.

Getting advice pays 

Working with an adviser will help you see the bigger picture. They will be able to take an objective view of your finances and can offer valuable advice on important issues such as how to use your pension pot to secure guaranteed income to cover your basic living costs, and how to invest the remainder in a broad-based portfolio to provide the level of income you’re looking for. They’ll ensure that you don’t expose funds you might need in the short to medium term to too much risk, but will consider your longer-term needs and consider factors such as the possible effects of inflation.

Retirement is a big step, so taking professional advice could be the soundest financial decision you’ll ever take.

If you’re making plans for your retirement and would like some professional advice, then please get in touch.

The value of pensions and the income they produce can fall as well as rise. You may get back less than you invested.

Inheritance tax

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Why More People are Writing a Power of Attorney

New figures show that Alzheimer’s disease and other forms of dementia are now the leading cause of death in England and Wales1. That’s why many people are putting a Lasting Power of Attorney (LPA) in place whilst they still have mental capacity, giving them and their families valuable peace of mind for the future.

How you can protect your interests

In the same way that a Will protects your loved ones after you pass away, an LPA is designed to protect your interests if you were to lose the ability to make financial or care decisions on your own behalf.

Making an LPA allows you to choose someone you know and trust to make important decisions should you be unable to do so.

If you lose mental capacity and haven’t made an LPA, then a family member would have to apply to the Court of Protection to be appointed as your Deputy.

The role of Deputy provides reduced powers and an annual fee is payable. If an acceptable Deputy can’t be found, the local authority is appointed. They will then be given access to your financial affairs and can decide matters such as where you live and what care you receive.

Peace of mind

There are two types of LPA, one covering property and financial matters, the other dealing with health and welfare. You can choose to make one or both types. You will need to appoint one or more people to be your attorney; these can be your spouse, partner, relatives or friends, or a professional adviser such as your solicitor.

The LPA documents will then need to be registered with the Office of the Public Guardian. This can be done by you or by your solicitor.

1 Office for National Statistics, 2016

march_7

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Residential Nil Rate Band

The much talked-about Residential Nil Rate Band will come into effect in the new tax year, in about a month’s time.  

The RNRB will allow you to pass down your main residential home to your direct descendants, which includes children, adopted children, step-children, foster children or children under guardianship with you, if you die after 6 April 2017.

The RNRB will start at £100,000 in 2017 and will increase as follows:

  • £100,000 in 2017–2018
  • £125,000 in 2018–2019
  • £150,000 in 2019–2020
  • £175,000 in 2020–2021

After 2021 it will increase in line with inflation.

It is worth noting that the “carry forward” spousal rule that applies to the Nil Rate Band also applies to this new allowance, and is based on the RNRB level at the time that the second person dies. So, even if your partner passed away before April 2017, you could still use their allowance when you pass away at some future point.

As always, there are rules! For those with an estate worth more than £2 million, the RNRB will start to reduce by £1 for every £2 above £2 million. This means that on an estate worth £2.35 million, one person’s RNRB will be lost, and on an estate worth £2.7 million, the RNRB will not apply at all. Unlike the NRB, the RNRB allowance cannot be tranferred to trust or utilised in any way during your lifetime.

So what do these changes mean to you? Well, if you have Wills that direct your estate into trust on your death, then you will need to make some changes to your Will.

Those of you who receive our Annual Trustees Minutes every year (around December normally) do not need to take any action, as these minutes cover the additional legislation required. For those who do not receive our Annual Trustee Minutes, additional changes will be needed and these are the responsibility of the person appointed to complete your Trustee Minutes.

Financial Planning advice Process

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Pension advice allowance

The Treasury have announced that it is now possible to withdraw up to £1,500 from your pension pot, tax free, in order to pay for financial advice.  

This rule change comes into effect in April this year and allows you to withdraw £500 at a time, three times per year, to use in payment for financial advice and retirement planning. It can be used to pay for any regulated financial advice in relation to any type of Personal Pension, but it does not apply to Defined Benefit or Final Salary schemes.

This move was inspired by the fact that those who take financial advice save an average of £98 per month more into their pension pots. The government are clearly attempting to encourage pension saving by allowing the public to become more educated on the benefits of retirement planning.

Whilst this allowance may be most beneficial to those who find paying for financial advice more of a financial burden than yourselves, you may be able to pass on the information to your children, friends or family who may benefit from accessing financial advice regarding their pensions.

march_5

UK growth forecasts are rising

Last month inflation was up to 1.6%, the highest since June 2014, and it is expected to rise to 2% throughout 2017 because of the rising cost of imported goods. The Bank of England originally forecast 1.4% growth back in November last year, but the growth outlook for 2017 has been upgraded to a solid 2% because of higher spending and more investment than expected since Brexit.  

The colossal slowdown in consumer spending that many people were expecting in the aftermath of Brexit had not happened, and so growth throughout the UK has remained strong. The Bank of England also credits growth in the USA and Europe with its more positive predictions.

The Bank of England is, however, being reserved in its predictions for 2018 when the effects of Brexit may be seen more widely, with a projected growth of 1.6%. This represents a slight slowdown from this year and, paired with an expected inflation rate of 2.7%, means times are sure to get somewhat tougher as the years go on. I am sure this prediction will change throughout 2017 as nobody can be certain about how and when the markets will react, or to what degree.

The Bank of England has said that they will watch closely to ensure the situation doesn’t become unmanageable and I certainly don’t envy them their job. They probably have the most difficult balancing act in the world, and the twists and turns of things such as Brexit only make keeping the balls in the air that much more difficult.

march_4

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Have you read the small print?

It would seem that, with the scrapping of pension exit fees, providers will always have other ways of applying fees that are to their advantage. One of those ways is servicing fees. Now, we fully agree with servicing fees – providing the service justifies the fee. However, in reality the so-called ‘service fee’ generally involves no advice, no active management from the provider and no advantage for the client. 

One reported case disclosed how one man’s pension was reduced from £8,740 to £0 at 65 years of age, solely by service fees levied by Friends Life. This gentleman paid into his pension over the late 1990s and early 2000s but, being unable to continue contributing, ceased payments soon after. However, a clause in the small print of his agreement stated that he had to contribute at least £5,000 per year or face “additional charges”. A further clause stopped him from transferring to another provider, as doing so would reduce his entire pension fund to £0. The gentleman involved was never advised of these restrictive clauses and was victim to the doorstep selling that was rife in the 1990s, and which goes on to some extent even today.

Transferring to another provider offering the same level of management would have reduced his annual payments from £425 per year to just £10 per year, because this “service fee” was in fact for no service at all. Fees of this type are simply not justifiable, and would leave someone with no pension to draw upon in retirement.

After much negotiation, Friends Life did agree to rectify the situation and awarded the individual a revalued pension pot of £16,249 and a 2.49% exit fee if he wished to move to another provider (until April, obviously, when exit fees will be capped at 1%).

The lesson here is to always read the small print, keep track of your pensions and, above all, use a reliable and trustworthy adviser who would not let something like this happen to their clients.

Trust Tax Returns

So we are well into March. Where did that time go? We are therefore only a few weeks away from Trust Tax Return letters winging their way from HMRC to you in April.   

As always, we are here to help with any queries on your Tax Returns relating to any trusts you may have put in place with us. If you need guidance, please contact us as soon as you receive your HMRC notification to allow us plenty of time to complete the forms.

Paper returns are due by 31 October 2017. As we will not be completing any Trust Tax Returns online for any of our clients this year, please be aware of this deadline and make sure your paper returns are submitted on time to avoid incurring fines from HMRC.

If you have any questions about this, please contact the office and we will be happy to help.

march_3

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How to be a Scamsmart Investor

A recent study by the Financial Conduct Authority revealed the increasing risk of retirees being scammed via investment fraud. Low interest rates were cited as a key driver as investors seek higher returns. Over 65s with savings in excess of £10,000 are three and a half times as likely to fall victim to investment fraud.

FCA advice about how to be a ScamSmart investor

1. Reject any unsolicited contact about investment opportunities

There are ways that fraudsters can pretend they aren’t calling you out of the blue. They may, for example, refer to a brochure or an email that they have sent you. That’s why it’s important you know the other tell-tale signs that suggest the investment opportunity is likely to be very risky or a scam.

Investment fraudsters typically target experienced investors. They may do one or more of the following:

  1. Apply pressure on you to invest in a time-limited offer, offer you a bonus or discount if you invest before a set date, or say that the opportunity is only available for a short period of time.
  2. Downplay the risks to your money, or use legal jargon to suggest the investment is very safe.
  3. Promise tempting returns that sound too good to be true, offering much better interest rates than those offered elsewhere.
  4. Call you repeatedly and stay on the phone a long time.
  5. Say that they are only making the offer available to you, or even ask you to not tell anyone else about the opportunity.

If you ever receive a call offering you the investment of a lifetime, just put the phone down.

Go by the rule that if it sounds too good to be true, then it probably is.

2. Check the FCA Warning List

Do your own checks before investing; check the Financial Conduct Authority Warning List and the Financial Services Register to see if those that are asking for your money are the real deal.

The FCA Warning List is a list of firms and individuals the FCA knows are operating without its authorisation.

3. Get impartial advice

Think about getting impartial financial advice before you hand over any money. Seek advice from someone unconnected to the firm that has approached you, such as your financial adviser.

If you have been affected by this, or any other scam, report it to Action Fraud by calling 0300 123 2040, or by using the online reporting tool at www.actionfraud.police.uk

march_1

Moonwalk Challenge

Picture Above: Nicky & Donna during the London Moonwalk in 2015

Nicky Borman and will be taking part in a midnight MoonWalk in Iceland in June 2017, for a unique and demanding Summer Solstice Marathon! Nicky will be walking with Donna Hiscock and this will be their second Marathon having done the London Moonwalk in 2015. Raising awareness for Cancer is a cause close to her heart. 

The MoonWalk Iceland is an exciting overnight challenge that will bring together a team of women and men to Power Walk a marathon in a remote area in the North East of Iceland. In true Walk the Walk tradition, everyone taking part will be showing their solidarity for the cause by wearing brilliantly decorated bras, but it is their strength, self-determination and resilience to the surroundings and unpredictable weather that will see them through this rewarding challenge and across the Finish Line. Those that have completed The MoonWalk Iceland previously have described this unique challenge as life-changing!

The 7th MoonWalk Iceland will get underway at Midnight on Saturday 17th June 2017. 84 women and men, including Nicky, will Power Walk 26.2 miles around the remote Lake Myvatn, enjoying the beautiful wilderness of the land where the sun doesn’t set at this time of year, through a dramatic landscape of hot lava pools, volcanoes, and mirror-like lakeside reflections. Unlike Walk the Walk’s other amazing Midnight marathons, this MoonWalk is completed totally in daylight!

This event is organised by breast cancer charity Walk the Walk, creators of the famous MoonWalks in London and Scotland. All the Walkers are united in raising money and awareness for Walk the Walk and the vital breast cancer causes it grants money to, and an incredible total of £113 million has been raised by Walk the Walk over the last 20 years. Currently grants are focused on funding research into secondary cancers and with 1 in 8 women in the UK expected to experience some form of breast cancer in their lifetime, and statistics showing that 38% of breast cancers could be avoided by changes to lifestyle*, Walk the Walk is passionate about encouraging the importance of maintaining good health, which includes being active and eating a healthy diet. Joining a Walk the Walk challenge, for many, is often the first step to making important lifestyle changes.

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