Private trustees run risk of falling foul of new HMRC rules
Private trustees – so called ‘mum and dad’ trustees – are being warned to register with HMRC ahead of rules changes set to take effect on 1 September this year.
The ruling affects all trusts, but concerns are rising that those created by families, for a myriad of reasons, could be more likely to fall foul of the new rules.
While exact figures are difficult to obtain, around one million trusts are thought to be required to register.
The changes are being implemented by the Government in order to fight money laundering.
What are trusts?
Trusts are a legal structure designed to remove an individual or organisation from ownership of specific assets.
When it comes to private trusts, typically these are created by parents or grandparents to hold assets such as stocks for children or grandchildren who are, not as of yet, able to make their own financial decisions.
Trusts are also commonly used as a part of estate and inheritance planning, combined with life assurance policies. They can be used to provide financially for children or vulnerable adults, pay school fees or protect assets against divorce or bankruptcy.
I am a trustee – what do I need to do?
While the legitimacy and status of these trusts is not at risk, HMRC now wants all trustees to register their trusts with the tax collector by 1 September. All trustees are responsible for signing up to the register.
Trustees can register their trusts on the Government website. While HMRC says there will not be any financial penalties for not registering at this stage, it says trustees will begin to receive official requests to register if not done by 1 September.
There are exclusions for some trusts from these rules, however. This includes trusts for pensions, bank accounts held on behalf of minors, non-taxable charitable trusts and life insurance trusts that only pay out due to death, serious illness or disability.
Trusts which hold investments for minors are not exempt, however.
The process itself runs to around 100 pages of administration to register depending on the trust. Information required includes details about trustees, beneficiaries and settlors. This includes basic information such as passport details, addresses and National Insurance numbers.
Registering a trust can however be tricky, especially for those not well-versed with the process and rules.
Particular problems arise where for instance a trust has been in existence since 6 October 2020, when the new registration regime began, but has already been wound up. Although such a trust no longer ‘exists,’ HMRC still requires the former trustees to register.
Broadly speaking then it is a good idea to speak to professional financial, tax or legal advisers for help, especially if the trustee is unclear on any aspect of the process.
It is essential to register as soon as possible, especially in consideration of financial advice. Unregistered trusts will be barred from receiving financial advice, tax planning, legal advice or accountancy help from the date of the deadline.
If you have a trust you would like to discuss, or for any other issues or concerns raised in this article, don’t hesitate to get in touch.
One in four savers worried they won’t have enough in retirement – but how much is enough?
One in four savers worry they won’t have enough money to retire on, new data from the Pensions and Lifetime Savings Association shows.
The research, which canvassed people saving into workplace pensions, shows that there is considerable uncertainty over whether workers can put enough away amid issues such as the rising cost of living.
The current minimum contribution into a workplace pension is set at 8% – 5% from the employee’s earnings and 3% from the employer. This, many pensions experts argue, is a good start but ultimately inadequate when it comes to long-term saving for retirement.
But defining how much is ‘enough’ is tricky, because it is very dependent on individual circumstances.
Here are some of the key considerations to make.
How long do you plan to work?
Thinking about your working life is a key aspect here because your job is generally speaking going to be the number one way in which you accrue savings for retirement.
It is a very personal consideration, especially depending on what type of career you have. Professions such as trades (builders, plumbers, electricians, engineers) tend to be more physical and you may find your physical condition can’t keep up once you get older.
Likewise people who work a relatively comfortable desk job could conceivably keep going for longer. And with the increase in flexible and remote working, there’s less pressure to commute.
Another important consideration is how much you actually like working. Some people work until late in life simply because they love their job and find it rewarding enough to keep going. Others can’t wait for the day to hang up their boots and relax!
Alternatively, you might be considering decreasing your hours, but continuing to do some work to keep money coming in.
All that is to say, if you foresee circumstances in which you’ll want to retire sooner rather than later, then you need to make sure you’re contributing as much as you can as quickly as you can, to give your wealth time to grow in line with your goals.
Of course, you may be planning on working for longer, but this doesn’t mean you can just forget about pushing hard on the savings front.
What assets do you have?
Your asset mix will have a really important impact upon how much income you can earn in retirement.
It is very normal for people’s most valuable asset to be their home. But tying up all your wealth in property can become an issue once you’re looking to retire and generate an income.
Unless you’re willing to sell and downsize to generate cash, your house is a highly illiquid asset that isn’t easy to capitalise on.
The exception to this is if you have become a buy-to-let landlord and intend to use income from that in retirement. But of course, you’ll want to consider whether you want to be a landlord at all as you retire.
There is also a consideration for asset mix in investments as you approach retirement. Although there’s no hard and fast rule, broadly speaking as you close in on retirement age more of your wealth should move from faster-growing stocks to more stable bonds and other yield-paying investments such as income funds.
What do you see yourself doing in retirement?
This is again a very personal consideration. Many people are content to potter in the garden, nurture grandkids and play bowls at the local club.
But retirement is no longer a moment to necessarily have to slow down with your life! It is quite possible to take those trips of a lifetime, to buy the car you’ve dreamed of owning, or to buy that house by the beach.
The difference between the former and the latter is cost. Taking it easy is fairly cheap, seeing the world costs money! Both are laudable aims but how much you need to save to meet those goals is crucial to have in mind.
There is also another really important and often-overlooked consideration here. Spending in retirement tends to follow a U pattern. When you first retire you spend quite a lot (getting that new car), then as you settle down, it reduces.
But finally as you enter your latter years, your costs will start to increase again. This comes in the form of basic things like help in the garden, DIY around the house or other basic tasks. But it also comes down to a more serious consideration – care.
The sad truth is as we get old, we need more help from others to live our lives comfortably and with dignity. Care is one of the biggest underfunded social issues in the UK at the moment, so paying for it in later life must not be forgotten.
If you’d like to discuss your retirement planning and savings goals, or anything else raised in this article, don’t hesitate to get in touch.
Have you had your £150 Council Tax rebate? If not, here’s what to do
Households in Council Tax band A-D are expecting a £150 Council Tax rebate from the Government, as the cost-of-living crisis deepens.
But the actual deployment of the rebate is done on a council-by-council basis – leaving some households in the lurch waiting for the extra cash.
The cash is being given out in the main due to soaring energy prices, which have reached astronomic levels thanks to a mixture of increasing demand and reduced supplies.
The war between Ukraine and Russia has made the situation much worse, but is not in fact the only reason why gas prices are so high.
The energy price cap was hiked sharply at the beginning of April – an increase of £694 from £1,277 to £1,971.
However, this does not mean your bills will be exactly £1,971 for the year – the price cap is worked out per unit of energy used, which means you could still pay more – or less – depending on your household usage.
Why a £150 Council Tax rebate?
The Government has not been hugely forthcoming with help for households despite the severity of the cost-of-living crisis, with particular pressure on energy prices for families.
This is because it is concerned if it helps too much, this will undo the work of the Bank of England which is raising interest rates to dampen consumer demand and bring inflation back down.
Chancellor Rishi Sunak announced the rebate ahead of the Spring Statement. Paying it via the council tax system is seen as the easiest way to distribute cash to households. In practice this hasn’t been quite as simple – but there really is no specifically designed mechanism to give households money.
The money is not a loan, nor does it have to be repaid at any time.
How to get the £150
The cash is set to be paid to anyone living in a band A-D property. If you are unsure what band your home is in, the first thing to do is check your most recent Council Tax statement or annual statement. Alternatively, you can look up your band on the Government website.
If you have yet to receive the money but are eligible, do you pay by direct debit? The Government says deployment of the rebate will be fastest via direct debit, as this is the easiest way for it to send the cash out.
If you do pay by direct debit, but haven’t received the rebate yet, then the first place to look is your local council’s website. By now it should have clear information on there over when that money is due to be paid and how.
Anecdotally, many councils seem to be lining up payments for mid-May, so it might be a case of just waiting for now. If you do pay by direct debit but receive nothing by June, it would be wise to investigate if there is a reason why.
If you don’t pay by direct debit, then the process of getting the rebate is more complicated. Again, check the local council’s website where it should provide instructions on how to apply or register for the cash. However, not all councils are so organised, so a phone call could be necessary.
However, many councils are saying they are overwhelmed by phone calls about the rebate at the moment, so you may have to be patient for now.
Be wary of anyone who calls you out of the blue about the rebate as your council won’t try and contact you proactively. It is most likely that any sort of unsolicited contact about it will be scammers attempting to grift your financial details.
However, some councils are writing to households that don’t pay by direct debit, so you might get a letter in the post about how to receive your rebate.
Prices are rising – but insurance costs are one of the best ways to cut back
The cost-of-living crisis is squeezing household budgets and making it increasingly difficult to avoid, even for the best-off households.
This is because costs such as energy to power our homes and fuel to make our cars go are essentially unavoidable. A few scrimps here and there can be made, but ultimately, we have to use electricity and have to drive to work, or kids to school.
There is one area of personal finance however where you can still make some significant cost savings – insurance.
Insurance is an important aspect of our personal finances because it enables us to carry out tasks, activities and life in general, safe in the knowledge we’re protected from loss.
But making sure you’ve got a good deal, and the right cover, from your insurance provider is essential – with many people paying well over the odds for their policies.
There are some basic tenets to insurance that you should always have in mind to cut your costs:
- Shop around at renewal time. When you get your renewal letter or email through, don’t just take the price at face value. Although ‘loyalty penalties’ – where insurers hike your premiums year-on-year are now largely forbidden, you could still get better prices elsewhere.
You should also shop around if buying for the first time and not just accept the first quote you see. Price comparison websites are a great starting place, but going direct to different well-known companies is a good idea too.
- Don’t pay for insurance you don’t need. It might seem like a good idea to get mobile phone insurance when you rake out a contract on a glossy new iPhone, but do you really need it? Most home insurance policies will cover such items, just check your cover levels and adjust accordingly. The same goes for expensive extended warranties.
Travel and mobile insurance are frequently offered as part of current account packages too, making buying it separately unnecessary. You might even consider switching your account to save the money on a policy.
- Provide the right information. This is a crucial issue when it comes to insurance. If you’ve got an expensive camera, laptop or other item which might not be covered under standard home insurance amounts, then make sure it is stipulated on the policy.
Likewise with car insurance, making sure the information about you such as job title and years driving are right, can make a significant difference. Insurers will treat some job titles very differently from a risk perspective. This isn’t to say you should lie for a ‘better’ job title, but be honest and careful.
When it comes to policies such as life, health and protection insurance it is also really important to be honest with your disclosures. Getting something wrong or being flexible with the truth could diminish pay-outs and even invalidate a policy completely.
- Invest to bring your premiums down. This tip is somewhat counterintuitive and shouldn’t be considered as a ‘quick’ cost cutting measure, but insurance on the whole is a financial expression of risk and the potential cost of loss. You can reduce the cost of this risk by reducing the actual risk itself.
But what does that mean in practice? When it comes to home insurance, it means getting better quality locks, installing a burglar alarm or other home security networks. This will bring your premiums down, but requires an outlay. It should however pay for itself over time.
The same is true in other areas. For life insurance, health insurance and income protection, living a better lifestyle will bring your premiums down. This includes losing weight, exercising more and quitting habits such as smoking. Fortunately this can be done for free but it requires time, and sometimes emotional investment.
And for something such as car insurance, having a policy which includes a ‘black box’ tracker or telematics can bring your premiums down significantly. The investment here being a commitment to driving in the most responsible way possible!
The World In A Week - Not all doom and gloom
Written by Richard Warne.
It has been a gruelling start to the year for both equities and bonds, and it would be very easy to get despondent with all the negativity that persists. Topics that have and will continue to generate headlines have become familiar to us all; continued supply chain issues, inflation, rates, and the human cost of the Ukraine war. Amongst all this, there are some bright spots, though you would probably not have known it from recent share price actions. Globally, the Q1 earnings season has been remarkably strong, with 80% of US companies reporting and beating expectations. Unfortunately, even companies beating expectations and raising forward guidance have not been able to escape negative share price moves.
We did see good signs from companies like Airbnb and Booking Holdings, beating expectations into what is expected to be a busy summer for the travel sector. Though it is clearly not all plain sailing. From a macro perspective, it was concerning that the Zillow (US real estate company) forward guidance was weaker than expected on broader concerns for the housing market. Inventory levels have significantly fallen year on year, interest rates are surging, and housing affordability remains under considerable pressure with no signs of letting up.
Though we are clearly on the rate tightening path from central banks on both sides of the pond, it was encouraging to see Jerome Powell, Chairman of the US Federal Reserve, potentially ruling out a 75bps rate hike in the future and remain committed to a flexible yet well-telegraphed plan for tightening.
Investing is certainly never easy; time and patience tend to be your only friends in times of shifting sands for markets. Through all the noise and volatility we are currently witnessing, this often creates good opportunities. To quote the wizard of Omaha, Warren Buffett “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 9th May 2022.
© 2022 YOU Asset Management. All rights reserved.
The World In A Week - April is the Cruellest Month
Written by Cormac Nevin.
April proved to be another challenging month for investors as the MSCI All Country World Index retreated -3.5% in GBP terms, which admittedly was better than the -6.5% return in local currency terms thanks to the weakening in Sterling. There was a wide spread of outcomes for global investors across different markets. Much of the pain was concentrated in the tech-focused NASDAQ Index of US Equities which lost -13.3% in local currency terms over the month. The UK Equity market, measured by the FTSE All Share Index, was something of a safe haven in this environment, returning +0.3% for the month. Alongside falls in the equity markets, traditional Fixed Income markets offered little by way of protection as the Bloomberg Global Aggregate Index of investment grade bonds fell -2.8% in GBP Hedged terms, while the High Yield Corporate Index was down -3.3%.
These market ructions are likely symptomatic of the ongoing transition we have witnessed this year from the market exuberance and easy financial conditions which characterised the post-pandemic environment, to an environment with higher interest rates, higher inflation rates and more realistic equity valuations. One of the most notable developments this year has been the continued deflation of speculative equity valuations which reached levels reminiscent of the dot.com boom of the early 2000’s, while the bust has been eerily similar too. Cathie Wood’s much hyped Ark Innovation ETF is now in a -70% drawdown from its pandemic peak. Names that might be more familiar to UK investors, such as the Baillie Gifford suite of products, have experienced similar outcomes.
However, much like in the opening lines of T.S Eliot’s poem from which our title is sourced (ironically written at the twilight of the last great pandemic of 1918), April is also the month in which hope springs eternal. Value equity performance has been robust in recent months, active Fixed Income management has been hugely important and high-tech growth equities are now priced at more reasonable levels. Diligent and open-minded research will likely assist long-term investors to plant the seeds for future returns.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 3rd May 2022.
© 2022 YOU Asset Management. All rights reserved.
The World In A Week - Return of the Mac-ron?
Written by Millan Chauhan.
Last night saw the conclusion of the French Presidential election, with Emmanuel Macron delivering a convincing victory over his far-right challenger Marine Le Pen. Macron has become the first French leader to win a second term in 20 years, taking 58.5% of the vote. Macron stated, “our country is beset by doubts and divisions”, which is well supported by the highest abstention rate in 50 years @28% and the immediate rise of the far-right nationalist party. Macron faces several tests going forward, including reconciling the indifference of opinion in France and trying to work towards a ceasefire between Russia and Ukraine.
Elsewhere, we are in the middle of US earnings season where companies report on their results from Q1 of 2022. With US inflation currently at 8.5% and supply chains remaining tight, we will begin to see the impact of rising prices and slowing consumer demand on bottom-line financial results and forecasts. One stock that was a direct beneficiary of the global pandemic was Netflix, as the world was forced to stay indoors. Netflix grew its subscriber base by 18.2m in 2021 and is the world’s leading entertainment service with approximately 222 million paid memberships. However, slowing growth, price rises, and fierce competition from rivals such as Disney+ and Amazon Prime Video saw the share price of Netflix fall 35% cent on Wednesday, erasing all its gains during the pandemic. Netflix reported they had lost 200,000 subscribers in the first quarter of 2022 with the market becoming more saturated, particularly in the US and Canada. Netflix is set to clamp down on the ability to share passwords which was a component of the slowing demand for its service.
The S&P 500 returned -1.2% last week in GBP terms, a week that also featured the largest one-day loss since March on Friday as investors anticipated the raising of interest rates by central banks. The Federal Reserve’s Chair, Jay Powell, stated that the Fed could raise rates more aggressively and begin raising rates in increments of 0.50% compared to its previous stance of increasing by 0.25%.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 25th April 2022.
© 2022 YOU Asset Management. All rights reserved.
The World In A Week - Tournez à droite?
Written by Shane Balkham.
The Federal Open Market Committee (FOMC) will meet at the beginning of May, and we are already seeing the rhetoric in order to manage market expectations. From the minutes and forecasts from the March meeting, we know that there is the prospect of six further rate rises this year.
Setting the scene for these rate hikes, we had a speech from James Bullard, President of the St. Louis branch of the Federal Reserve, and most importantly a voting member of the FOMC. On the back of March’s inflation reading in the US of 8.5%, he is calling for an increase in the speed of executing the hikes and is likely to vote for a larger hike than the previous 0.25% move. It is expected that several members will call for a rise of 50-75bps next month. For Bullard, there is a critical importance of the Fed maintaining its creditability in combating inflation, as monetary policy decisions walk a difficult and fine line in taming inflation without causing a recession.
The Bank of England also faces the same navigation problem, as inflation in the UK rose to 7% for March adding pressure for interest rates to rise. In the minutes from March’s Monetary Policy Committee meeting, the Bank of England expects inflation to peak at around 8% in Q2, recognising the large shock to the economy from the war on Ukraine. The Bank of England also meets at the beginning of May, and we might have a fourth consecutive meeting where interest rates are hiked.
Before the central banks have their next meetings, we have France deciding on their next President. On Sunday, French voters will choose between the incumbent President Emmanuel Macron, or the far-right rival of Marine Le Pen. It is expected to be an extremely tight election race, with both contenders looking to secure the voters from the ten eliminated candidates from the first round. Will Le Pen’s manifesto of protectionism and localism see France turning to the right?
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 19th April 2022.
© 2022 YOU Asset Management. All rights reserved.
Is long-term wealth building at risk from inflation and interest rate rises?
The wealth landscape has not been this tough for many years. Inflation is perhaps the trickiest issue for wealth growth right now, but interest rates have an effect too. Plus, the radical risk of geopolitical trouble has the effect of compounding both of these problems.
Inflation
Inflation is a problem we’ve not had to deal with in more than a decade. Since the financial crisis of 2008-2009 levels of inflation have, in historical terms, been extremely low.
But it has bounced back with a vengeance in the wake of the pandemic. At the time of writing CPI inflation is at 7.0% – its highest level in 30 years.
The effect of inflation on wealth is simple – if your assets are growing more slowly than the rate of inflation, then in real terms they are diminishing in value.
While it is recommendable to keep a certain amount of wealth in cash for rainy day emergencies, particularly in light of the rising cost of living, anything beyond that should be working harder elsewhere.
Savings rates in cash accounts are rising but are still well below inflation. The current top easy access account comes from Chase Bank at 1.5%.
While inflation is currently high on paper, averaged over many years, the level looks a lot more manageable. In the past 30 years inflation has averaged 2.8%, according to the Bank of England.
With this in mind, the goal of beating inflation over time seems far less unwieldly, through careful investments.
Interest rates
Interest rates have two key impacts on long-term wealth. The first is on debts.
Any kind of debt that is unsecured – be it via credit cards or variable rate mortgages – will get more expensive as rates rise. This makes wealth building harder, because you’ll have less money each month to put away.
In that context, credit cards should be paid down as quickly as possible, and variable rate mortgages should be fixed to protect you against further rate hikes.
Interest rates also affect investments. Riskier investments such as stocks tend to start performing less well when rates go up. This is because as rates rise the yield on bonds – Government and company debts – increase and become more attractive to investors.
But this risk is manageable with careful wealth and investment management, which can blend the best approach for the climate.
Wealth building
Ultimately, despite the twin risks of inflation and interest rates rising, it’s still possible to build wealth over the long term. Considerations of course need to be made, but adjustments are part of the process, and sticking to a course over time will still yield significant benefits.
Of course, with geopolitical catastrophes such as the war in Ukraine, things can look pretty bleak in the short term. But it is essential that anyone interested in building their wealth for the future, should focus on the long-term benefits and goals, rather than worry over short-term issues.
If you’d like to discuss any of the issues raised in this article, don’t hesitate to get in touch with your financial adviser.
The World In A Week - Walking the tight rope
Written by Shane Balkham
Inflation concerns are still the hot topic for investors, politicians, and policymakers. The US published its inflation data last week for April and it was a mixture of good and bad news. The relatively good news was that the headline Consumer Price Index (CPI) fell from an annual rate of 8.5% to 8.3% and that core inflation, a measure that excludes certain volatile and seasonal prices such as energy and food, fell from 6.5% to 6.2%.
The bad news was that these data points were still higher than markets had expected. The decline in used vehicle prices helped the reduction in core inflation, however services inflation picked up, showing demand shifting from goods to services. It is the uptick in the stickier parts of the inflation basket that will be of greatest concern to the policymakers within central banks. With the next policy meetings for the Federal Reserve and the Bank of England just four weeks away, one month’s worth of data showing a slight downturn will not be sufficient for policymakers to change their current course of interest rate hikes.
In the UK, the Bank of England Governor Andrew Bailey will be meeting the Commons treasury committee today, ahead of the UK’s inflation data which is due to be published on Wednesday. Expectations are for April’s inflation data to show another sharp increase in prices and add pressure on the Government to help ease the spiralling rise in the cost of living.
Inflation has become a political hot potato and Governor Bailey can expect a hostile reception from MPs, who will want some reassurance that the independent central bank has control over the path of prices. The Bank of England considers inflation to be less entrenched than in the US and that price rises will slow as the economy contracts later in the year. That is a difficult narrative to promote when they also think that this temporary level of inflation has yet to reach its height of 10% in the coming months.
One country that does not have a rampant inflation problem is China, with headline CPI @2.1%, year-on-year for April 2022. China’s core inflation dropped to 0.9%, evidence of weaker demand as China continues its zero-tolerance policy for COVID-19. Retail sales have dropped over 11%, year-on-year in April, highlighting the toll that lockdowns are having on Chinese growth.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 16th May 2022.
© 2022 YOU Asset Management. All rights reserved.