Going away? Don't forget your travel insurance!
We're always talking about long-term financial planning, however, as we reach a time when those with children might be taking advantage of lower cost holidays, we thought it sensible to talk about travel insurance.
Did you know that almost half (49%) of British jet-setters don't take out travel insurance at the same time as booking their trip? And 23% don't take any at all.
There were 72.8 million overseas visits from the UK in 2017 (Source: Office for National Statistics (ONS)), and half of those were unprotected.
Cutting it close
While many aren't buying insurance at the same time as making travel arrangements, they won't all be completely unprotected, as some will buy at a later date. However, the closer to their departure they do leave it, the longer they are at risk of losing money if their travel is cancelled or needs to be rescheduled. According to research from Aviva:
- 24% buy insurance shortly before their journey: Putting them at risk of financial loss if anything goes wrong before that time.
- 2% buy their insurance at the airport, just before they take off: By this point, your holiday is already underway and there is not much time to consider the terms you are agreeing to, or to shop around for better coverage or prices. You are effectively given take-it-or-leave-it options.
However, some insurance is better than no insurance…
For the 23% of people who do not take out travel insurance at all, a cancelled flight, injury or illness means that they are likely to lose all the money they have put into the holiday, as well as potentially facing further costs if they need to access healthcare or re-arrange the return leg of their journey.
What do people believe about travel insurance?
The research has shown that there is a stark difference between the role travel insurance plays in holiday planning, and what travellers expect it to be able to do for them. For example:
- 12% of people believe travel insurance will cover the cost of their holiday if they are unable to go due to a pet dying the day before departure
- 6% think they will be able to claim a refund through their insurance if they oversleep and miss their flight
- 4% believe they are covered if they miss their flight due to an excess of drinking or shopping in the airport
Unsurprisingly, none of these situations is covered by travel insurance.
So, what does travel insurance do?
Travel insurance is usually offered as a package which covers:
- Travel interruptions, delays and cancellations
- Lost luggage
- Medical cover and evacuation
Other options may be available, but this will vary between providers.
Adam Beckett, Product and Propositions Director, Aviva UK General Insurance, explains: Travel insurance provides important protection before you go away, say if you, or a close relative, falls ill. It's also there for medical emergencies while abroad which can be very costly, or if your belongings are lost or stolen. It's important to get the right protection for your needs so you can relax on holiday knowing you are fully covered.
How big is the risk?
Travelling without insurance poses a risk to your wellbeing; physically, mentally and financially.
The research shows that the most common reason (33%) for making a claim on travel insurance is a medical emergency, at 33%. If you fall ill while in another country, you may be in for a shock. Most places do not benefit from the generous healthcare system we have in the UK. Even in countries where care is free 'at the point of service', treatment is often followed by large bills.
Of course, a European Health Insurance Card (EHIC) is useful when travelling within those areas, but, it may not be enough, and it is likely to be ineffective in a few years anyway.
Some examples of claims made last year include an individual who suffered from a stroke in the USA and claimed £182,000 in medical bills, and a pneumonia case in Malaysia, which was awarded £191,000.
Of course, if you can pay those kinds of bills out of pocket, you don't need travel insurance. But, if that kind of money makes your eyes water, make sure you're covered from the point of purchasing your tickets.
What should you do next?
If you have a trip planned and have not yet bought insurance, your first step should be to put that right, as soon as possible.
Once that is in place, you need to think about other decisions which might need to be made in your absence. As much as we hope your holiday goes smoothly and you return to the UK unscathed, it is a good idea to have a will and Lasting Power of Attorney (LPA) in place, to ensure that you are covered in all possible situations.
Why?
A will dictates what happens to your belongings, dependents and property when you die. It means that your family avoids the lengthy process of having your estate distributed according to the laws of intestacy. Having a will in place means that your assets are given to the people you want to have them.
LPA gives someone you trust the authority to make decisions on your behalf if you are unable to, due to mental or physical impairment. There are two types of LPA; those who make decisions about healthcare and those who are responsible for financial decisions. If you are in a coma or seriously ill, the people you have appointed LPA will make choices based on your wishes and in accordance with your best interests. It is important to make sure that you discuss your wishes with the people you appoint LPA to, so that you can be confident that any arrangements made on your behalf will reflect the things you want.
It might sound a bit morbid, but once you have your protection and paperwork in place, you will be able to enjoy your holiday that little bit more, knowing that you have done everything you can to ensure you and your family are protected in all scenarios.
10 signs it's time to get financial advice
How often do you wake up with the intention of getting financial advice as your number one priority?
For almost everyone, the answer is never. Rather, the urge to seek financial advice is usually triggered by an event, or idea.
According to research from the Financial Conduct Authority (FCA), less than one in 10 UK adults (6%) have sought regulated financial advice relating to investments, pensions or retirement planning, while a quarter are likely to need it.
This is a shame, as we see on a regular basis the benefits our clients get from seeking advice. However, we recognise there are many reasons why people don't get in touch.
For example, across the country, an average of 34% of people do not know where to start looking to find a financial adviser, should they need one. If you are one of them, you'll find our contact details at the top of the page!
But what might push you to make the call?
It could be anything, but here are 10 of the most frequent 'triggers' we hear:
1. I've received a letter.
Whether it's a pension statement, valuation of investments or any communication regarding your finances, something landing on your doorstep could be the pivotal factor in deciding to seek financial advice. Whatever you've received, bring it to us and we'll explain what it means for you and your future.
2. I don't want to go to work today, can I retire instead?
In the years before the State Retirement Age, it can be tempting to pack it all in early. Especially if you've overdone it at the golf club over the weekend and are facing an early Monday morning start. We can help you to understand if your finances are in the right place to bring retirement to you, sooner rather than later.
3. My friend has been talking about their financial planning, can I do what they're doing?
Just because your friend, colleague or even spouse is doing something, doesn't mean it is the right decision for you as well. However, by seeking advice, you can find out whether it truly is the best option available, or if there are other methods and products which may be better suited to your needs and circumstances.
4. I want to buy a car/house/helicopter… can I afford it?
Making a large purchase is a great feeling, especially if you've been planning it for a while. But it is wise to stop and think before diving into a big shopping spree, let a professional walk you through the consequences of spending that money and project your financial position afterward to see if it is a sensible purchase to make.
5. A new baby has been born into the family, I want to put money aside for them.
Saving for the future is important, and the earlier money is put away for someone, the longer it will have to potentially perform well. Starting to save or invest for a new-born is particularly prudent and there are many options available, some of which may be better suited to your family than others, so why not let us talk you through them?
6. I've been diagnosed with an illness and I want to make arrangements just in case.
It's not a fun topic, but getting your estate organised is something everyone needs to do, regardless of age or health status. Talking to a financial planner or adviser can help you to make sure that your money and assets are not only given to the right people but that your estate is distributed in a tax-efficient way.
7. I want to start my own business.
If you have an entrepreneurial idea that you want to make reality, you will first need to find funding. It may be possible to source that yourself, using savings and investments, or you may need to access credit to get your venture off the ground. Either way, we can analyse your current situation and help you to find the right strategy to meet your goals.
8. I want to leave a business I own.
On the other hand, maybe you have already grown a business to success and now it is time to put your feet up and let the next generation take the reins. Navigating your way out of a business can feel like more hard work than building it up in the first place. Talking to a professional can give you the peace of mind of a second pair of eyes on the paperwork, as well as the confidence that you are in the hands of a professional who is on your side throughout the process.
9. I've received some inheritance, what should I do with it?
If you have received a large amount of money, you may be wondering how you can use it most effectively. Alternatively, you may simply want to know if you can afford to spend it all straight away and enjoy the freedom for a while. It is likely that the most sensible solution will be to put most of it away in savings or investments, while allowing yourself to spend a portion of it. The amount you can afford to spend right away will depend on your circumstances and plans for the future, so contact us for a more personalised answer to this.
10. I read an article that scared me!
The media is full of stories which can make you feel like the world is against you, or a financial scam is always just around the corner. A financial adviser or planner will be able to separate fact from sensationalism and give you advice on ways to protect yourself against any real dangers to your financial wellbeing.
Whatever it is that has you considering taking financial advice, please get in touch and let us know how we can help.
The 'pocket money economy': How an income in early life can increase your children's financial skills
Could the way you give your children pocket money improve their money-handling skills and better prepare them for the challenges of adult life?
It could certainly help them to develop strong saving habits, with research from Santander showing that 84% of children who receive pocket money prefer to save it for the future.
But, how can you help them to make sure that they are saving in the best way?
There are two key factors to effective childhood savings:
- The types of account used
- The age and aims of the child
There are a wide variety of saving accounts for under-18s, but it is the way they are used which will determine how much your child benefits from them. Some accounts have great advantages, such as tax relief, but come with age and deposit restrictions. That means that you will need to create a strategy which makes use of them at the right time in your child's life.
Saving accounts for children
The accounts available for children's savings include:
- Child Trust Fund / Junior ISA: If your child was born between September 2002 and January 2011, they may have qualified for a Child Trust Fund. This is a long-term savings account which offers the opportunity for under-18s to deposit up to £4,260 each year, tax-efficiently. Parents and grandparents can contribute to this.Child Trust Funds are no longer available but those children who had them can continue to save in their account until they turn 18. However, those born after January 2011, when the scheme was cancelled, will have to turn to a Junior ISA (Individual Savings Account).Junior ISAs offer similar benefits, with an annual deposit limit of £4,260.
- Regular Saving Accounts: These require a minimum deposit each month and often come with limitations on withdrawals. However, these accounts may offer more competitive interest rates to encourage long-term savings.
- Instant Access Accounts: A more flexible option, with the ability to make withdrawals without incurring penalties or facing limitations. These accounts are likely to have lower interest rates than Regular Savings Accounts.
- Help to Buy ISA: A government-backed savings account which is designed for first-time buyers to save toward their deposit. This account is available from the age of 16 and offers a 25% bonus on your child's annual contributions. However, there are limits as to how much can be put into the account each month. During the first month, it is possible to put up to £1,200 into the account. After this, a monthly limit of £200 applies.
Help to Buy ISAs are like Lifetime ISAs, which are available for over-18s. It is possible to open a Lifetime ISA and transfer any Help to Buy ISA savings in, without affecting the annual deposit limit.
Why encourage children to save?
The earlier you begin to teach children about money, the better their understanding of it will be as they grow up. Unfortunately, the financial education provided by schools is lacking, or non-existent and our kids are not leaving school as financially savvy as perhaps we would hope. Research from The Halifax shows some worrying trends among children aged eight to 15, including:
- Believing that a loaf of bread costs an average of £15, with a pint of milk at £17
- Estimating the average income for a teacher is £110,000; £87,000 more than the actual starting salary
- Expecting to retire at 56, 12 years prior to their current projected State Pension Age, which could be later by the time they reach retirement
Of course, we can't expect children and young teens to understand everything about money and managing a budget, but it is never too early to start instilling some valuable life lessons - and it doesn't have to be boring, either!
Making saving interesting
If your child is still of an age where they want to do everything with you, make the most of the opportunity to involve them in the household budgeting or have them assist with the weekly shop. This will help them to see how much adults really spend on bills and food and to understand the financial demands they will face in later life.
Saving is always easier when there's an end goal. Start with something which will take a relatively short amount of time and have your child calculate how much they will need to save each week/month to afford it, then work with them each week to show them their progress toward their goal. The goal can then grow gradually, as they get older, and is likely to teach them both how savings work, and give them a frame of reference for saving for bigger things; which will eventually include a housing deposit and retirement.
It is also important for children to understand the practical side of saving; this includes the options available to them and learning how interest rates work, in terms of both saving and borrowing.
For more information and help with introducing your children to the world of saving, why not bring them to your next appointment with us?
Are you in a financially compatible relationship? And does it matter?
Almost two thirds (60%) of people believe that financial compatibility is one of the most important factors in a successful relationship, according to Scottish Widows.
But what is financial compatibility?
Like any part of a relationship, financial compatibility is multi-faceted and will look different for every couple. However, the research states that incompatibility includes a lack of shared financial aspirations and different attitudes to spending and saving.
Signs of financial incompatibility
You may be in a financially mismatched relationship if:
- You wish your partner was better at saving
20% of people feel this way and it could be a sign of differing priorities where money is involved. It may also signify that you see the future differently to one another, if one of you values spending over saving, you're likely to feel the friction.
- You feel like your savings have been impacted by your partner's spending
Being unable to reach your financial targets can be frustrating, especially if the reason is your significant other. This feeling is shared by more than a quarter (27%) of people and rises to 41% for couples who are working toward living together.
- You have a lack of shared financial goals
The feeling of taking different approaches to finances can easily put a wedge between partners. 17% of people have felt that they and their partner have different financial goals and that their relationship has been strained as a result.
Communication could be the key
A lack of communication and shared planning could be the main reason why so many people feel that their partner's attitude towards finances is so different from their own.
The research shows that people who form relationships in later life are more likely to discuss finances from the beginning, with 34% of over-55s doing so, compared to just 8% of 18-to-34-year-olds. Furthermore:
- 11% of people do not tell their partner how much they earn
- 57% of people don't know how much their partner has in the bank
- 25% of married people admit to keeping money separate from their spouse's
So, more communication is necessary.
Should financial incompatibility be a deal breaker?
Not necessarily.
However, it may simply be down to a need to talk more openly and communicate with one another. It is nonsensical to expect your financial aspirations to be perfectly aligned if you have never sat down and discussed how you think money should be treated.
Catherine Stewart, retirement expert at Scottish Widows, said:
It's important that couples - at any age - have open and honest conversations about their finances to make sure they have an understanding of their individual longer term financial goals.
Some people may be more inclined to focus financial conversations on big life events like buying a house, having a family, or taking time out from work to travel together. Life after retirement should also be on this list; having a good understanding - early on - of each other's retirement goals will help to ensure couples can work towards a realistic joint financial plan.
A meeting of minds
Creating a joint financial plan is an important step in any relationship. It could be signal of commitment, or that big changes are planned. Either way, the simple act of talking about your finances, both as individuals and as a couple, will strengthen your bond and give you the opportunity to address any differences of opinion.
Speaking to a financial planner or adviser as a couple will give you the opportunity to combine your goals with professional insight into the strategies and methods available to help you to achieve them.
For more information, or to speak to a financial planner or adviser, get in touch.
Time to act if you have a 'Pensioner Bond'
For those who invested in 65+ Guaranteed Growth Bonds in 2014 and 2015, it is time to think about what to do with the returns.
What are 65+ Guaranteed Growth Bonds?
In 2014, NS&I (National Savings and Investments) released a series of bonds for those aged 65 and over. Known as 'pensioner bonds' they offered 4% taxable interest per year, for three years (Source: NS&I). As this was much higher than the market average, they were very popular, and 1.1 million people invested a total of £13.7 billion (Source: NS&I)
The first bonds, launched in January 2015, are now due to mature.
Those who invested the maximum of £10,000 will have a total of £11,300 to reinvest once their bonds mature.
That means that, if you were one of the thousands who invested in these bonds in 2014/15, you have an important decision to make; and you may not have long to act.
So, what are the options?
1. Do nothing
You may wish to leave your money invested in NS&I bonds. However, once the current bonds mature, it will automatically be reinvested into Guaranteed Growth Bonds. These offer a much lower return of 2.2% per year. But, once transferred, your savings are locked in for three years; early access incurs a penalty of 90 days' interest. (Source: NS&I)
This might seem like a suitable option. Your savings are secure and appear to continue growing. However, with inflation hovering around 3%, interest of 2.2% means that your money will lose value over the three years it is invested.
On the other hand, the 2.2% growth is guaranteed, so it may be a viable option if you are more risk-averse and just want to keep your money safe, rather than inflation-proofed.
2. Put your returns into a savings account
Of course, your money needs to be held somewhere, but with most guaranteed interest rates sitting below 2%, the returns on your savings currently won't beat inflation and you will lose value in real terms.
Why is this?
Put simply:
- Inflation is the rate at which the cost of goods and services increases year-on-year.
- Interest is the rate at which your money grows year-on-year.
If your money is growing at a slower rate than the cost of items you want to buy, your buying power is reduced.
3. Invest the cash
You can take the cash out of the bond once it has matured and invest it as you wish. Of course, all investments carry risk and there is a possibility that you could end up with less than you put in to begin with.
But, if you want the higher growth and returns, it may be a favourable option. Especially if you have other capital in savings and a stable income which supports your lifestyle. If you have money which has been tied up for three years already, which you have not needed to access, you may be more willing to take the increased risk.
What to do if you have 65+ Guaranteed Growth Bonds
Whilst we cannot tell you here how to manage the returns you will get from your matured 65+ Guaranteed Bonds, we can tell you that acting soon is a must. NS&I are sending letters to those people who invested in the bonds when they were available, to ensure that they are aware of the upcoming maturities.
However, if you have moved to a new house or have a loved one who purchased bonds but has since passed away, you will need to contact NS&I to access the returns.
You can get in touch with NS&I here.
The importance of advice
Talking to an independent financial adviser should be your first port of call when making any financial decision. However, if you haven't thought about talking to a professional before, this is an ideal reason to start.
A financial adviser will be able to analyse your circumstances. They will then take your aspirations and objectives into account when offering advice and products which will help you to continue to grow your assets.
Whether you're hoping to increase your income, supplement a loved one's living costs or leave a legacy when you die, a financial adviser will help you to make decisions to work towards those goals. This means that you can be comfortable and confident in your financial decisions and stability.
So, why not give us a call?
Please note:
The Financial Conduct Authority does not regulate NS&I products.
Pension Freedoms: Ignorance isn't bliss
Real knowledge is to know the extent of one's ignorance.
Attributed to Chinese philosopher Confucius, this timeless phrase has never been more apt than when applied to the topic of Pension Freedoms.
A new report, from Old Mutual Wealth has revealed that many 50-60-year olds are uninformed about Pension Freedoms, with:
- 45% not knowing about Pension Freedoms at all, or not knowing how the new rules affect them
- 37% not knowing how or when they should access Pension Freedoms
Why is knowledge important?
Pension Freedoms are perhaps the biggest revolution to take place in the retirement arena in the past 20 years. Used well, the reform means that you can retire early, in a way which is more flexible and suits your lifestyle.
That freedom has given many people more control over their finances. It means that you can take lump sums from your pension pot for big purchases, or to help loved ones financially, as well as planning ahead to leave larger legacies to your loved ones.
However, the new-found freedoms come with potential dangers and pitfalls. For example, withdrawing too much, too soon could leave you facing financial difficulties later in life.
Current concerns
Research from AJ Bell has shown that some pensioners may run out of money within 12 years, due to three factors:
- Withdrawing too much each year
- Underestimating how long they will live
- Spending money frivolously
44% of over-50s choose to withdraw over 10%, a figure usually considered to be unsustainable, of their pension savings annually. Worryingly, the biggest group of people doing so (57%) are aged 55 to 59. As well as over-withdrawing, more people are taking money without planning for the future, as:
- 47% take ad-hoc lump sums
- 35% rely on an income of regular withdrawals
In addition, the same age group (55-59) severely underestimate how long their pension will need to last, with:
- 51% estimating that their pension will need to last for 20 years or less
- 24% believing that they will need to make their pension last for less than 10 years
The combination of large withdrawals and a lack of planning for the future means that many people are at risk of running out of money part way through their retirement. According to the Office for National Statistics (ONS), the life expectancy for someone who is currently 55 is:
- 81 for men
- 85 for women
That means that pensions may need to last for more than 25 years for both sexes.
Another concern is the reasons behind the withdrawals. Whilst Pension Freedoms means that you can access the whole pension fund for any reason; it doesn't necessarily mean that you should.
AJ Bell's research shows that 40% of 55-59-year olds make withdrawals for day-to-day living costs (a pension's intended purpose). Meanwhile, a quarter (25%) have used Pension Freedoms to make luxury purchases, including holidays and cars.
Using your pension wisely
Pension Freedoms are in place to give you more control over the way you use your pension savings. However, it has never been more important to plan ahead and make sure that you are using them in a way which benefits you both now and in the future.
It might be tempting to withdraw large amounts and go on a spending spree; but that could potentially leave you exposed to financial danger for the rest of your life.
So, how can you use the Pension Freedoms reform to meet your needs?
There are four key points to remember:
- Have an open mind: Old Mutual's research revealed concerns that consumers may be choosing the "path of least resistance" by accepting the drawdown option offered by their pension provider without shopping around. It can be all too easy to stick to what you know and reject any new options out of comfort. But a little research could go a long way toward making the most of your pension savings.
- Avoid the threats: Unfortunately, the new rules have inspired a range of new scams and fraud attempts. Stay vigilant and never accept an unsolicited offer. Always verify companies through the Financial Conduct Authority (FCA). Secondly, remember that your pension pot may have to last for 20, 30 or 40 years. Spending too much, too soon could cause you financial difficulty in the future.
- Take advantage of the opportunities: taking advantage of pension freedoms could help you retire early, or more flexibly, in a way which suits your preferred lifestyle. It can also help you leave a legacy to younger generations.
- Seek advice: Research from Unbiased has shown that people who take financial advice save an average of £98 more each month, which leads to an additional £3,654 in annual retirement income.
For more information on Pension Freedoms and how your retirement could be affected, feel free to contact us.
The effects of inflation - and how to combat the latest rise
November 2017 saw inflation hit 3.1%; the highest it has been since 2012, as reported through the Consumer Price Index (CPI).
As 2018 gets underway, thousands of households will be feeling the squeeze and looking for ways to combat the shrinking value of their income or capital.
What is inflation?
According to the Office of National Statistics (ONS), inflation is The rate at which the cost of goods and services rises year on year.
Over time, goods and services increase in price, if income and capital fails to grow at the same rate, household budgets can feel tighter as a result.
Inflation cannot be avoided, it is a necessary factor in any successful economy. The resulting increase in demand for products and services drives production and manufacturing, which ensures that there are enough jobs and that people can afford to live.
As individuals, we can't impact the rate of inflation. However, it is necessary to monitor the rate at which it is increasing, as this is what will affect our living standards.
The Consumer Price Index (CPI) measures and reports the rate of inflation. It does so through fluctuations in the price of everyday products. It does not show the effects on individual markets, but it does offer a great overview of the cost of living for an average person or household.
Consider everything you buy throughout the year; from food staples, to clothing, holidays and hobbies. The CPI works by comparing the total cost of the products and services year-on-year.
The effects of inflation
As inflation rises:
- The cost of living increases
- Interest rates could potentially rise
- Capital is de-valued; and so is your income
- It becomes more difficult to make big purchases
- The value of your savings is eroded
When inflation rates are high, almost everyone is affected in some way. However, different groups see different outcomes, for example:
- Savers: If the interest rate is lower than the rate of inflation, the real value of savings will decrease. Therefore, savers, who are more risk averse by definition, could very well experience the one thing they are trying to avoid; a loss of capital value.
- Annuity holders: An Annuity provides a guaranteed income for the rest of your life, and potentially, your spouse or partner's. When bought, the consumer is able to choose between a level or Index-linked product. Level Annuities are the most commonly purchased. As the cost of living rises, a pensioner receiving a flat pension income may find it harder to meet their financial needs over time.
- Employees: If your pay rises are not in line with inflation, the buying power of your income is diminished. This, combined with the rise in interest rates, designed to offset the effects of inflation, can put a squeeze on household budgets.
Offsetting the effects
Combatting the effects of inflation is an ongoing battle. However, with careful planning and by staying informed, you can remain financially stable. Nine things you can do to help yourself are:
- Shopping around for the best savings account: putting in the effort now could save you a lot in the long term, as well as helping you to maintain the value of your capital.
- Hold savings tax efficiently: utilising products which allow you to collect the returns tax free, will mean that you see more of your returns than if you had to pass some of the interest on to the taxman. Cash ISAs are the best example of these. Use your Personal Savings Allowance (Up to £1,000 of interest tax free for basic-rate taxpayers and £500 for higher rate).
- Consider investing rather than saving: Over a longer term, investing has the potential to produce higher returns than saving. Of course, this comes with a risk to your capital and the value can fluctuate over time. However, currently saving accounts are almost guaranteed a real-term loss of value for your money. So, now might be the time to consider becoming an investor.
- Retiring: Fewer people are buying an Annuity when they retire, due to Pension Freedoms. However, if you do decide to purchase an Annuity, think long and hard about the effects of inflation.
- Budgeting: While inflation may not be having an immediate effect on your budget, if the gap between price rises continues for a long period, you will notice it. Therefore, preparing now will pay off in the long term. The price of living may be going up, but the best way to stay financially secure is to plan your finances in advance.
- Increase your income: Put yourself in as good a position as possible for pay rises, bonuses and other financial incentives which may be available from work.
- Build a safety net: Most experts advise having an emergency fund which could cover three months to one year's living expenses. Having this in place gives you an added layer of financial security which will be extremely useful in the event of an emergency, illness or unexpected rise in the cost of living.
- Mortgage: Mortgage rates should be monitored constantly to ensure that you have the most competitive rate available. Interest rate rises are common when inflation is high, and that means a rise in monthly payments for tracker and variable rate products. Make sure that you can afford repayments if interest rates rise and your budget is squeezed further.
- Seeking advice: An Independent Financial Adviser will help you to make the most of your income. By getting to know you and your circumstances, they can point you toward the best products, methods, and budgets for you and your family.
For more information about inflation, or to discuss ways to protect your finances, contact us.
Families to pay an extra £900m Inheritance Tax by 2022
The Office for Budget Responsibility (OBR) has revealed figures which show that the estimated Inheritance Tax (IHT) payable on estates over the next five years is due to rise by almost £1 billion; from £32.4 billion to £33.3 billion.
This rise is due, in part, to a larger population; more people are dying, therefore more IHT is being paid.
However, other research shows that an improved understanding of IHT regulations could result in many people paying less IHT. Currently, the figures show that, due to a lack of knowledge, IHT is being taken from estates which could have otherwise been avoided.
More information needed
A worrying number of people do not know how the assets that they leave behind will be affected by IHT, according to research from WAY Investments. In fact, almost half (48%) described their understanding of IHT as 'not very good' or 'terrible'. Meanwhile:
- 25% did not know whether their assets would incur IHT when they die
- 48% did not know that IHT can be as high as 40%
- 22% did not know that ISAs can be subject to IHT
As well as lacking information and understanding surrounding IHT, many people showed that they are very disorganised where their assets and estate are concerned. When asked if they had made and updated their will:
- 35% admitted that they do not have a will
- 47% of people who do have a will, have not updated it within the past five years
What difference does it make?
The advantages of knowing how IHT will affect your assets should be obvious. If you know how your estate will be taxed, it is easier to make tax-efficient arrangements. That way, you can leave more for your loved ones and lose less to the taxman in IHT.
Similarly, ensuring that you have a will and keep it updated and valid ensures that your estate is distributed according to your wishes. Without a valid will, your assets will be distributed according to complex intestacy laws, which will lead to two things:
- Your assets will not necessarily be given to the people you would choose to benefit from them
- Your assets may be divided in a way which is not the most tax-efficient. This will mean that your loved ones will lose more than is necessary in tax and will benefit less from the savings and property that you leave behind
Avoiding unnecessary IHT
Making sure that you have IHT-efficient plans in place for your estate is better done sooner rather than later. Unfortunately, none of us has a crystal ball, and whilst we would all like to believe that we will live forever, we do not know what is around the corner.
Seeking professional financial advice is the first step toward mitigating as much IHT as possible. We can help you to explore the ways in which IHT will affect you, and find solutions which ensure that your loved ones see the benefits of your legacy.
For more information, please take a look at our free resources on our 'Focus On' page of this website. Alternatively, feel free to get in touch.
Please note:
The Financial Conduct Authority (FCA) does not regulate Tax Planning and Estate Planning.
The unexpected financial influence of 'The Bank Of Mum And Dad'
Recently released data suggests that The Bank Of Mum And Dad will lend out £5 billion this year to children looking to get on the UK property ladder. Parents will therefore be assisting in financing one in four of all UK mortgage transactions in 2016. The average loan amount will be £17,500, around 7% of the average purchase price, and parents are expected to provide deposits for more than 300,000 mortgages on homes worth a total of £77 billion this year. All of this means that, if The Bank Of Mum And Dad were to become an actual banking business, it would appear in the top ten mortgage lenders within the UK.
These figures strongly suggest that current house prices are severely misaligned with the average wage of first time buyers. This method of funding is also close to its tipping point in several areas of the country, not least in London where over 50% of the average household net wealth (not including property assets) is being used to help children buy their first home.
The choices that parents are making in order to help their offspring vary. Some are choosing to downsize, selling a larger home and buying a smaller one (often in a less desirable area) to free up funds. Others are choosing to use inherited assets to help pay all or part of their child's deposit on a home. Parents often benefit from having finished paying off their own mortgage as well, leaving them with greater freedom to allocate funds to their children.
However, also worth considering is the imbalance of who can actually access The Bank Of Mum And Dad. Not every young homebuyer will be in a position to have such support from their parents, whilst others will still be unable to afford to buy even with such financial assistance. It has been suggested that the only way to reduce parental contributions to their children's homes is to fix the housing market through increased building, allowing prices to stabilise and become more affordable, thanks to demand being met sensibly.
Sources
http://www.bbc.co.uk/news/business-36181318
http://www.bbc.co.uk/news/uk-36194594