Get your finances in shape before the end of the tax year
The end of the tax year is just around the corner. This year’s deadline is 5 April – and there’s no better time to prepare for it than now.
There’s often a rush to get one’s finances in shape in March. For most people, the end of the tax year is nothing to worry about, but it’s still always good to check your allowances – you may be able to find more tax relief on your savings and investments.
With less than a month to go, here is everything you need to do before the deadline.
- Top up your ISA allowance
You have a limit of £20,000 for your savings and investments to be put securely in an ISA account, which is a tax-free wrapper.
Crucially, if you haven’t already used your annual ISA allowance by the end of the tax year, the remaining allowance doesn’t roll over – you lose it forever.
With stocks and shares ISAs and the Lifetime ISA (LISA), there is no tax to pay on income or capital gains from your investments. With a cash ISA, the interest is tax-free.
Also, don’t forget about investing in a Lifetime ISA if you’re looking to invest in a property or in your pension. People aged 18 to 40 can invest money in a Lifetime ISA, which benefits from a 25% government bonus. For example, a maximum saving of £4,000 a year into a LISA will become £5,000 with the bonus.
- Use your pension allowance
It may be useful to consider topping up your pension to increase your savings for retirement.
You can claim income tax relief on pension contributions up to a limit of £40,000 a year according to HMRC, but the exact amount depends on your personal circumstances.
You can also claim unused allowances from three previous years if you were a member of a registered pension scheme during that time.
- Capital gains allowance – for 2021/2022
The Capital Gains Tax (CGT) allowance , or ‘Annual Exempt Amount’, is £12,300 in the 2021/22 tax year. This means you won’t be taxed on profits below £12,300 if you sell your assets such as property or stocks and shares.
It’s worthwhile considering using as much of this allowance as possible each year if you have a large portfolio of shares outside an ISA, for example, by selling assets that have risen in value, or you could be storing up a large exposure to capital gains tax for the future.
- Inheritance tax planning
Don’t leave inheritance tax planning until it’s too late – it’s always good to have your finances in check in preparation for life’s unfortunate events.
Inheritance tax planning is not just for elders. Families should focus on not letting excess income build up in their accounts if they don’t need it.
The money can be gifted to dependents or through a trust. You can give away £3,000 each year or as many gifts of up to £250 per person as you like without being subject to IHT. Parents can also give £5,000 to each of their children as a wedding gift, while grandparents can give £2,500.
- Dividends
If you own investments that pay a dividend, you will be exempt from paying tax on those dividends up to the level of the income tax personal allowance, which is currently £12,570. This could however be eaten up by salaried income if you are still in work.
Beyond this, taxpayers can reduce their dividend allowance by using tax efficient wrappers and tax allowances. For example, basic-rate taxpayers can gain interest of up to £1,000 in their savings allowance while not paying income tax. Taxpayers on a higher rate can earn up to £100 interest tax-free.
Be wary that dividend tax is also set to rise from 6 April. The higher rate of dividend tax will go from 32.5% to 33.75%. This will mean that for every £1,000 dividend received, an extra £12.50 will need to be paid.
- Think about the children
If you have children, a good idea is to start saving money as soon as possible. This way, by the time they turn 18, the children can enjoy a larger pot of money to accomplish their next objectives, whether that be heading off to university or even saving up for a deposit on a property.
Parents and guardians can open a Junior ISA (JISA) on behalf of their children, and they can only access the money after they turn 18.
The returns on money made within a Junior ISA are free of UK tax. However, there’s a limit to how much you can put into a JISA of only £9000 per year in 2021/22.
Does ‘Isa season’ still matter?
ISA season is the period just before the end of each tax year when time is running out to use up tax-free allowances.
Each year, much is made of the final few weeks before the deadline, which this year is 5 April. But how do the various benefits stack up in the current high-inflation climate, and which allowances are most effective?
Allowances
ISA allowances have changed in the past, but in the last few years they have been set at one level both for normal cash and for stocks and shares ISAs.
Unlike other types of account such as the Lifetime ISA (discussed below), the limit is pretty generous, relative to the average working income.
Anyone looking to save into one of these accounts has an annual allowance of £20,000. Prior to this, the limit was £11,800 before it rose to £15,000 in July 2014. It was then boosted to the £20,000 level three years later.
This means that the level hasn’t changed since 2017, which some critics describe as a form of stealth tax. As with income tax rates, if the bands don’t rise with inflation, then effectively the Government is benefitting at the top end from any money an individual can’t put into the allowance.
And with inflation currently above 5%, this effect will be stronger now than at any time under the current allowance.
Achievable?
That being said, the major criticism levelled at ‘ISA season’ is that actually, although the allowance hasn’t moved for a few years, realistically it isn’t relevant because most people won’t be able to fill it each year anyway.
Were you to meet your allowance each year by making monthly contributions, you’d have to put away around £1,667 a month. This is indeed unlikely to be met by most people, when average wages are still around £31,000 a year before tax, according to the Office for National Statistics.
Nevertheless, it remains relevant for anyone dealing with larger sums, which may occur through work bonuses, inheritances, or other such windfalls.
Rates
There is also evidence that cash ISA rates do increase in the run up to the end of the tax year, according to Moneyfacts.
This means that if you’re looking to take advantage of a cash account then it could be the best time to start shopping around.
Even so, cash ISA rates are extremely low at the moment – much below levels of inflation. This means that generally speaking, unless you’re looking to put money in an easy-access account for rainy-day reserves, then it is generally better off invested for the long term in stocks, bonds and other investments.
Lifetime ISA
There is, however, one account where ISA season really does matter. That is in the Lifetime ISA (LISA).
Unlike typical ISAs, the LISA has a limit of just £4,000 per year for you to contribute. Anyone between the ages of 18 and 39 can open one and it comes with an extremely generous 25% bonus from the Government.
This means that if you put the maximum of £4,000 in, you’ll get a bonus of £1,000. That is on top of any interest you accrue through a cash LISA or a stocks and shares LISA.
There is an important caveat with the LISA, though: you have to use the money for a deposit on a house, strictly as a first-time buyer; otherwise, the money must stay in the account until you turn 60 – on pain of a hefty withdrawal penalty, similar to a pension.
If you’re considering which accounts might be best, or whether you should try to top up your ISAs before the end of the tax year, don’t hesitate to get in touch with your financial adviser.
Storm Eunice has shown the importance of robust insurance protection
At a time when finances are strained and climate-related events threaten to make things worse, not having the right insurance cover could lead to major setbacks.
Storm Eunice was a timely reminder for us all that we need insurance cover to help protect us against a range of aspects we encounter in our daily lives. Being financially resilient is more important than ever, and insurance plays a key role in helping us build that resilience.
Here are a few key areas to consider.
Home and buildings
Not only is having buildings and contents insurance typically a condition of most UK mortgage offers, but it is also absolutely critical to protect your home against a range of possible risks.
These include extreme weather events such as Eunice, but even more everyday issues such as burst pipes, burglary, or fires.
Really basic issues can invalidate your home insurance, so it is important to keep on top of your policy. Leaving a home unoccupied for a length of time (often around 30 days), not updating your provider when you make alterations to the property, or not using an intruder alarm are all things which can invalidate your cover.
Another major one, which has become more prevalent during the pandemic, is using your home for business purposes. ‘Working from home’ if you have an office job is typically not a problem, but it can become an issue for occupations which involve selling products online from your house, or having customers come to your property for any reason.
The value of your contents should also be scrupulously accounted for. Overestimating the value of the content of your home can lead to policies being invalidated. Items of specific high value such as collectibles, jewellery or electronic equipment should be explicitly accounted for.
Travel
Storm Eunice caused the cancellation of hundreds of flights in the UK, underpinning the importance of travel insurance.
But the need for it to protect your holidays is much broader than just foul weather, and the pandemic has made getting the right policy more important than ever. With travel ramping back up in the wake of government restrictions being lifted, it is essential to ensure you’re fully covered from the moment you leave your house, to stepping off the plane in your destination and back again.
The most important thing to be mindful of is travel advice warnings. During the pandemic major issues arose for travellers where the Foreign, Commonwealth & Development Office (FCDO) would issue travel warnings for certain countries, but flights would still be operating to those regions.
If the FCDO advises against all but essential travel to a region and you still go – it can invalidate your insurance. But if the airline is still operating the flight you’re booked on and you don’t have insurance – they are under no obligation to refund you.
Many airlines improved their booking and flight change policies as a result of the pandemic, but some are now returning to their less flexible pre-pandemic state.
Life and illness
Life and serious illness protection is a major policy that many people unfortunately forget.
Life insurance is essential when you have dependents such as children, or co-own property and have a mortgage in place. Were something to happen to you, without cover in place, your partner would be liable to cover the mortgage payments despite losing your income.
Some workplaces offer types of cover as a part of employment contracts, but this is not always guaranteed. Life and serious illness cover is therefore essential to protect against the most tragic of unexpected events.
Because these kinds of policies typically deal with such high levels of pay-outs, insurance firms can be extremely particular about the details of policies and information.
Failure to disclose information such as pre-existing medical conditions, missing premium payments, trying to claim too soon, and some types of death are reasons why an insurer may refuse to pay out.
The most common issue however is failing to purchase cover far enough in advance. Not only will you get a better premium the younger you are, but also the longer you hold a policy for, the less likely it will be turned down in the event of a serious, terminal illness or for other pre-existing conditions that might lead to your death.
Student loan changes increase pressure on The Bank of Mum and Dad
From 2023 future graduates will start to repay student loans sooner, putting more pressure on young people at a time when cost pressures are rising exponentially.
The threshold for repaying student loans will drop from £27,275 to £25,000 and graduates will continue to pay them back for much longer – up to 40 years.
With student loan changes in the UK set to exclude many young people from receiving financial support, The Bank of Mum and Dad will feel heightened pressure to support their children.
Here are some ways you can help your children financially in higher education and beyond.
- Look further than Student Finance
There are plenty of opportunities out there at the grasp of ambitious children. If you believe your child has the potential to apply for extra funding – such as a scholarship – why not encourage them to do it?
Postgraduate Search has a comprehensive list of bursaries and scholarships: don’t assume these are only for low incomes, top grades, or new starters – there are incentives for everything from subject choice and sporting talent to gender and nationality.
You can also search for hardship funds and advice for emergencies or managing debt at the university, too. University welfare teams, lecturers or simply a student adviser can be the best place to start.
- Be careful how you give
Most UK students don’t have to pay tuition costs until after graduation. After that, 9% will be taken monthly from their salaries.
Most won’t ever pay back their entire loans, and some will never pay anything at all if they don’t reach the income threshold. Student debt doesn’t function like normal debt such as a credit card or mortgage. You only pay if you can.
As a parent, you might be wondering how you can help your children financially, but using a lump sum to pay down student debt is not an effective solution. It would be more sensible to put that towards a child’s deposit on a house.
Alternatively, if you have extra monthly income you think can help, giving them money to deposit in a Lifetime ISA (LISA) can be an effective way to help them financially in the long term.
- Help them become organised
Good financial habits come naturally to some, but for your graduate child, they might not be the best with their money despite several years at university learning how to get by.
Helping them develop good financial habits and teaching them about important financial tools such as credit cards, savings accounts and insurance can be a really good way to help them without necessarily just giving them money.
Good financial habits will help them enter their new careers on a really strong footing and prevent disasters in the future.
- Use your Junior ISA (JISA) allowance
If you still have a few good years to wait for your children to go to university, try looking into opening a Junior ISA account.
That way, when they turn 18, your children can use a bigger pot of money to go to university, accomplish their dreams or even use it as a deposit for a house.
This account can also be a useful tool to help to educate your children about finance, as it offers the option to continue saving and investing the money after they turn 18.
Junior ISA subscriptions see their limit maintained at £9,000 per year. The JISA limit was last changed in early 2020, when it was doubled from £4,500 to its current level. So, there are plenty of resources.
Government under pressure to act over cost-of-living crisis: here’s what it might do
British households are facing an unprecedented cost-of-living crisis in 2022.
A harsh combination of factors have come together to make the business over everyday life more expensive for every household.
The Government, as a result, has come under considerable pressure to act to soften the blow of rising prices, energy bills and other areas of life which have become more costly.
But what has it done so far to alleviate the issue? And what could it still do to act?
The Chancellor Rishi Sunak has a Spring Statement coming on 23 March, which traditionally is fairly light on new policies, and generally contains updates on the UK’s economic performance, and the translating tax revenues for the Treasury.
But in recent days the Chancellor has been called upon to implement a full emergency Budget to tackle the cost-of-living crisis.
While he hasn’t at the time of writing gone so far, he has taken some measures to ease the pain for households.
What has the Government done so far?
- Energy bill help
On 3 February energy regulator Ofgem announced an unprecedented hike in the energy bill cap. The regulator rose the ceiling of what energy firms could charge customers on a Standard Variable Rate (SVR) by 54% – to £1,971 per year.
As a result, on the same day the Chancellor announced a package of measures to soften this hike for households.
The first of these measures is an energy bill rebate. This comes in the form of a £200 discount on energy bills, which households will get in October this year. This will then have to be paid back by paying an extra £40 a year on bills for the next five years.
The second measure the Chancellor Rishi Sunak has introduced is a £150 Council Tax Rebate for any households living in Band A or Band D properties. This will come through for those households in April, and will not need to be paid back.
The Government is also increasing the number of households which qualify for the Warm Homes Discount, which means some three million families will soon be eligible.
- Rate hikes
The second major step taken by the Government (albeit an independent arm of the State) is from the Bank of England, which is beginning the process of hiking interest rates.
The Bank Rate has been set at 0.1% since the onset of the coronavirus pandemic. Prior to this it was at 0.75%.
But the Bank of England surprised most analysts by hiking the rate to 0.25% in December, then again on 3 February – the first time it has done a back-to-back rate hike since 2004.
Although the absolute level of the Bank Rate is still low, it is a signal of intent from monetary policymakers to attempt to quell inflation.
By raising rates, the Bank of England makes it more expensive for households and businesses to borrow money, and more attractive to save. By doing this it hopes demand for goods and services will reduce, thereby slowing price rises.
In practical terms for households, this means debts such as mortgages and credit cards – unless fixed on a guaranteed rate – will get more expensive.
Investment markets now predict that the Bank of England could keep hiking rates for the rest of the year, at least four more times, with a rate of around 1.25% by 2023.
What could the Government still do?
- Energy bill VAT cut
Since leaving the European Union, the Government has been at pains to show off what it has been doing with its newfound post-Brexit powers.
One of the major policy levers that it has taken back from Brussels is the ability to set its own VAT rates – which were set centrally by the European Commission.
As a result, with the energy crisis, many MPs have called upon the Government to slash the VAT rate on energy bills.
The Government argues that doing so wouldn’t target savings in the right way, instead it would be giving a tax break to wealthier households.
But with the volatile political climate at the moment, it is still a lever that Sunak could reach for were it to become pressing to act again to help households.
- National Insurance climb down
The real elephant in the room during all the discussion around the cost-of-living crisis is the fact that the Government has already pushed through plans to hike National Insurance – dubbed a tax on working by critics.
The 1.25% hike was passed through Parliament last year, before the reality of the crisis took hold. But now the policy is gaining increasing criticism, considering the pressure households are under.
Many MPs in the Conservative Party, despite having voted the policy through, are now vocally calling for it to be reversed. While Rishi Sunak has so far resisted, a change in the political climate could soon make it untenable.
With the tax hike, earners on £30,000 a year will face an extra £255 to pay to HMRC, while someone earning £50,000 will pay an extra £505.
Dividend tax is also rising from April 2022. The basic rate dividend tax will be 8.75% up from of 7.5%. Higher rate dividend taxpayers will pay 33.75% up from 32.5%, and additional rate dividend taxpayers will pay 39.35%, up from 38.1%.
What are the inheritance tax implications for unmarried couples?
Marriage, once a staple social institution, is largely in decline. For those who choose to cohabit long-term with their partners, this creates tax and inheritance implications.
The number of unmarried cohabiting couples has risen considerably in the 21st Century. Between 2002 and 2020 (the most recent numbers available) unmarried cohabitation rose by around 78%, according to the ONS.
While in social terms, deciding against marriage or civil partnership is a perfectly normal part of modern society, it can create complications for those couples when it comes to financial planning, inheritance and taxes.
The purpose of this article is to explore those issues, and not make a judgement about the social choices!
Before going any further, it is important to clarify a common misconception. For legal purposes, there is no such thing as a “common law partner.” It is a very commonly held misconception about cohabitation. This extends to the point where some companies will allow you to pick “common law partner” when filling out forms. But it simply does not exist as a legal concept.
That being said, here are some primary things to think about if you are in a long-term cohabiting couple, and are concerned about the implications for your joint finances in the event a partner passes away.
Banking
Perhaps not considered in the same vein as broader inheritance, there is a basic legal issue which arises for couples that cohabit but are unmarried or civil partnered.
Many couples choose to do their banking through joint accounts, but others may choose to keep things separate. This can create a significant issue if one were to die, as the other would have no right of access to their accounts, and therefore money.
Such a situation can create ancillary headaches with issues such as how household bills, mortgage or rent payments get made. This can be rectified with some admin work, but bigger issues can arise if one partner held cash that the other then needs to access so that they don’t fall behind on those bills.
Property
Property ownership can be clear cut, but only if it is arranged correctly when purchased. If one partner owns a property in their name alone, the surviving partner has no clear right of ownership or habitation if the owner dies.
While broadly it falls under inheritance rules and will be governed by a document such as a Will, there is an easy way to protect against the problem, by making changes to the paperwork to incorporate both partners into ownership – either as joint owners or owners in common.
Common ownership can be a more practical solution, were the couple to split up, as essentially, they both own an agreed share of the asset. Joint ownership can be more complicated, because it means both parties share ownership of 100% of the asset.
Inheritance Tax
While the financial perks of marriage are fairly limited these days, there is one major benefit to being legally attached to your partner.
Inheritance rules make clear that married, or civil partnered spouses, enjoy far more protection and allowance against IHT than unmarried couples.
Everyone has an IHT allowance of £325,000-worth of assets. This is called the Nil Rate Band (NRB). IHT is payable at 40% of any assets above this level.
The Residential Nil Rate Band (RNRB) adds an extra £175,000 on top of the NRB when exclusively accounting for the value of the person’s main home. However, the rules are that in order to use this allowance, the person who died must have left their home, or a share of it, to their direct descendants.
For a married couple there is a spousal exemption when one of the partners dies. All the assets held by one can be transferred tax free to the other. Then, when the final partner dies, the entire sum of both people’s NRB and RNRB are combined to give a final allowance. This is potentially worth £1 million when taken in total.
Alternatively, for an unmarried couple, were one to die, the other would be liable for IHT on any assets they inherit worth above the other partner’s combined IHT exemption. Worse, the IHT will be payable before the assets can be transferred, potentially leaving the surviving partner with a hefty tax bill – one which they may have to sell their home to pay.
Finally, when the surviving partner dies, IHT is due again for anything over their personal allowances. This means those assets will potentially be taxed twice if their value still exceeds the allowances.
How to mitigate the issue of unmarried IHT?
It would be easy to suggest getting married or civil partnered would be the clear and easy way to mitigate the issues mentioned above. Ultimately this is true as at a stroke it takes away the issue of allowances, and gives special right of ownership and access to banking and property.
But in legal and social terms it may not be quite so easy, and that is understandable.
Having a Lasting Power of Attorney (LPA) and a Last Will and Testament (Will) in place is a great starting point. This will provide clarity on a partner’s inheritance, and their ability to access important resources such as bank accounts in the event of the other’s death.
Even if an unmarried couple has lived together for 50 years, without key documents such as Wills, there is no certainty that they will be the beneficiary of an inheritance. If someone dies intestate, inheritance of their property typically reverts to the nearest blood relative (next of kin), generally a child.
But there are also ways to structure wealth that can mitigate some of the issues, without resorting to tying the knot. If you would like to discuss this issue further don’t hesitate to get in touch with your financial adviser.
£250 work from home tax relief set to end – but still time to claim
A longstanding tax relief for anyone who works from home is set to be axed.
The Government has spent around £500 million giving cash back to workers who have had to stay at home during the pandemic.
Some 4.9 million workers have claimed the allowance since the pandemic began, according to HMRC. The Government has now set its sights on axing the relief as a result of its high cost, with HMRC conducting a review.
However, plans have not yet been confirmed, so for anyone who has worked at home – even for just one day – during the pandemic in the last two years can claim up to £125 per year, or £250 in total.
What is the relief?
Anyone who has to work from home can claim some of their tax back. The relief was introduced in 2003 to help home workers with bills such as internet, electricity, and other expenses they may incur.
For anyone paying the basic rate of income tax the relief is £62.40 per year. For higher rate payers, this rises to £124.80.
How can I claim it?
In order to claim you’ll need identifying documents such as a passport, National Insurance number, or payslips from your work.
You’ll need to go to the Government website, and go through the online process to claim, stating the date when you began to work from home.
The relief will then be paid to you through your normal pay, with up to £250 discounted from your tax bill as a lump sum if you’re claiming for backdated work. Your tax code will change directly with your employer.
There are some stipulations, however. If you’re self-employed or pay tax by self-assessment you cannot claim the allowance, as you must apply for the relief on your return instead.
If you receive expenses from your employer for working from home, this makes you ineligible.
If you’ve always worked from home or if you weren’t obliged to by the pandemic, then you can’t claim either. You can only claim the relief if you didn’t choose to work from home but were told to by your employer.
This is why the cost to the Treasury has ballooned during the pandemic – as millions of workers have probably not been able to work from the office.
That being said, at the start of the pandemic the rules were relaxed so that you only have to show you’ve worked from home for one day to claim the entire year’s sum.
How long do I have left to claim?
While nothing has been made official, it is believed HMRC is actively reviewing the relief with a view to either making it less easy to claim, or shutting it down entirely.
The Chancellor will be making his Spring Statement on 23 March – this is probably the most likely time when the loophole would be announced as closing. Many policies announced at this point tend to come into effect at the end of the tax year on 5 April.
For now however, the scheme is still open and available. If you go online and go through the process, you can still get back a tidy sum for the past two years’ work.
How to spot an investment scam
Investment scams are nothing new, but scammers are becoming more sophisticated than ever.
With the internet and easy movement of money, there are far greater opportunities for a fraudster to part you with your wealth.
In the first half of 2021 alone, financial trade body UK Finance estimates that more than £107 million was lost to investment scams, a 95% rise on losses in the first half of 2020.
When it comes to investment scams, it pays to take a critical eye to almost anything you’re approached with.
And while it is impossible to always be fully alert to these tricks, knowing what they might try is a good way to protect yourself from losing money.
Cold calling
Cold calling is perhaps the go-to for investment scams and is a well-trodden way to swindle money. In the vast majority of cases, if you get a call out of the blue from someone who wants to talk about investments, just hang up.
Indeed, pensions cold calling is now illegal, and has been for some time. Generally if you get a call like this where someone wants to discuss how your pension is invested, it’s a scammer. They are either operating illegally within the UK, or from abroad where the authorities have limited power to stop them.
Even when someone purporting to be from your bank calls to discuss the matter, it is generally advisable to politely end the call and try contacting the institution directly using their customer service line. Chances are it was a scammer who knows who you use for your banking or other financial products.
Cold calling isn’t the only way that scammers will try to contact you. Emails, text messages, letters and social media are all avenues for attack. But cold calling can be one of the most harmful as the fraudsters are often expert verbal manipulators. Take a deep breath and tell them no.
‘Trustworthy’ sponsors
This is a growing issue, especially as a range of mainstream media personalities and outlets are often engaged in combatting scammers, and then are themselves used to target victims.
Perhaps the most famous is Martin Lewis of MoneySavingExpert, who routinely reminds his followers on social media that often his image, or even fake commentary, is used to promote investment scams.
In another recent instance, consumer group Which? found its logo and name being used by scammers to try and push investment scams via email.
The scam involved victims being forwarded to a fraudulent website advertising fixed-rate bonds, something Which? says it would never do. The firm warns that the biggest giveaway in this instance is strange email addresses associated with the email message.
‘Guaranteed’ returns or ‘risk free’
Scammers will use all manner of promises to try and lure you into a fraudulent investment. One of the biggest red flags to watch for is the promise of “guaranteed returns” or “risk-free” investments.
Neither is ever possible when it comes to investment, as all investments carry some form of risk, and the return you can make is generally impossible to fully guarantee.
Look at the level of returns on offer if you aren’t sure. Savings rates are very low at the moment so anything offering high returns for your money is likely a scam.
And anyone promoting a legitimate investment will know not to try and tell you you’ll definitely get a high rate of return – hence why ‘risk warnings’ are so common with many marketing materials of investment firms.
Unusual investments
Another common red flag to watch for is unusual investments. Perhaps the most well-known example of this was the storage pod investment pension scam.
In 2017 the Serious Fraud Office (SFO) launched an investigation into two SIPP firms Capita Oak Pension and Henley Retirement Benefit for selling ‘storage pods’ to investors.
The SFO estimated losses around £120 million for those scammed into the scheme since 2011 – which essentially involved storage containers being purchased with investor money, which were then rented out.
Investors later found the returns were not as advertised and they couldn’t withdraw their money either.
Similar variations of this scam exist to sell other outlandish investments, including hotel rooms in the Caribbean or palm oil plantations in Asia.
Report the scam
This list is not exhaustive but is designed to give you an idea of how scammers might try to part you from your cash.
If you feel like you’ve been contacted by a scammer it is really important to report it. Not only to protect yourself, but to protect others who they might try and target.
- Text messages should be forwarded to Action Fraud – using number 7726.
- If you think you’ve fallen victim to a scam, in England, Wales or Northern Ireland, report it to Action Fraud online or by calling 0300 123 2040. In Scotland, report to Police Scotland by calling 101.
- You can also report a phishing attempt using the Action Fraud site, or by forwarding an email you think is suspicious to report@phishing.gov.uk.
If you have any concerns or issues you’d like to discuss further relating to scams, don’t hesitate to get in touch with a financial adviser to discuss.
Financial goals 2022: how to prepare your money for the year ahead
2022 is here, so it’s time to sit down, put the kettle on, and think about the year ahead for your money.
While it might seem a bit hackneyed setting New Year’s resolutions and such, thinking about how you want your financial situation to develop will give you a good head start in achieving both short-term and long-term goals.
But what should that thought process look like?
It can be easy to get bogged down in the minutiae of financial decisions, but this should be primarily a big picture process.
Is this the year you buy a house or move up the ladder? Is it time for retirement? Or are you just looking to continue growing your wealth as much as possible?
There’s no doubt you’ll have an idea already, and life can also get in the way, but a solid direction of travel is key.
Once you’ve got that ‘big picture’ in mind, then you can set yourself targets, goals and outcomes you’d like.
Reaffirm your goals
When it comes to financial planning, wealth growth and management, it all ultimately comes down to what your goals are.
Without goals, you can have no direction in your planning. It is likely you have a goal, or at least an idea in mind to begin with.
Think about what it is going to take to achieve that goal. If it’s a long-term aspiration, one year ahead might just be a minor part of that bigger picture.
But ultimately even the small choices we make have profound effects. Whether it’s putting money down on a new car, or socking it away in an ISA instead, that will change your outlook and strategy.
Be it a new car, retirement or a house, or any other financial goal, being clear what it is, is massively important.
Having this in mind will help define important aspects of wealth building such as timeline, risk appetite, and structure of your wealth.
Review your costs
Once you’ve got a clear idea of what you want from your personal finances and wealth in the next year, it’s time to look at how you can eke more out of what you’ve already got in front of you.
It is true that every year prices go up – but in 2022 we’re under particularly significant price pressures from inflation, and now the added issue of rising interest rates too.
Reviewing your spending in light of these problems is a tried and tested method for inoculating your money against shocks.
Reviewing bills, bargaining new deals, cancelling unused subscriptions, finding ways to be more frugal with everyday and non-essential spending – these are just some of the things you can do.
Think of it as a Spring cleaning for your finances – you make decisions every day of the year that accumulate and end up changing the face of your budget over a year.
Taking time to review and reset that is essential.
Reallocate resources
Once you’ve thought carefully about your costs, where cuts can be made or money spent more efficiently, you’re ready to look at how to reallocate what you have left each month.
This also counts for what you’re already saving. Is it going into the right place?
Cash is a viable place to keep wealth, but only if you plan on using it on a short time horizon. Everything else should be invested in one way or another.
But investing is an ever-changing beast to tackle. You should have long time horizons in mind when investing, but making adjustments and reassessing investment cases regularly is important, even if you don’t make any changes.
And where it goes matters too. Pensions may be a good long-term vehicle but having an ISA, or even a LISA can be really effective for wealth growth too. Thinking about the best way to allocate to those different accounts can make a big long-term difference to your wealth growth.
Get a check up
Once you’ve got a clearer idea of your costs, and your resources that you’re ready to deploy through savings or investments, consider getting a financial health check with an adviser.
Independent financial advisers have the benefit of being able to take an overarching view of where your wealth is, and what needs to be done to maximise its potential.
Get in touch with your financial adviser and talk about the above discussed topics, and you’ll be well-set for the year ahead.
Interest rates are going up – how it can affect your finances
The Bank of England surprised everyone in December by raising interest rates.
It did so from the all-time low of 0.1% to 0.25% – still a relatively low level by historic standards. For example, look back to 1990 and the bank’s interest rate was 15%.
More recently though – pre-2008 financial crisis – rates hovered above 5% for nearly a decade. So we’re starting from a low base with rate rises now.
But this will still affect your finances. And the Bank of England could keep hiking this year, with rises up to 1% possible.
Why raise interest rates?
The Bank of England’s primary objective for its ‘monetary policy’ is to keep inflation at bay. Unlike the US, it has no particular mandate regarding employment.
It is tasked by the Government to keep inflation to as near to 2% as possible. At the time of writing, inflation is a wallet-busting 5.1% on the consumer price index (CPI) measure.
By hiking interest rates in response to this, the Bank of England is attempting to quell demand. The ‘real world’ effect of this is that borrowing becomes more expensive, leaving businesses and households with less money to spend – forcing people to tighten their belts and slow down consumption.
At least, that is the economic theory. In practice the economic picture is more complicated. But for the purposes of our personal finances, this is the most important element to have in mind.
Impact of inflation
When thinking about how interest rate rises might affect your money, it’s first essential to consider why those rates are going up.
As mentioned above, rates are hiked because inflation is intolerably high. Inflation is the measure of how fast consumer prices are increasing, based on a balance of supply and demand.
You can have two core feeders into rising prices – either demand goes up, or supply becomes constrained. We have inflation now because of a mixture of both.
Lockdowns in 2020 and 2021 saw household spending plummet, leading to people having bigger than usual savings pots. Plus, the financial assistance from the Government in the form of the furlough scheme and other aid helped keep a lot of workers’ incomes relatively stable. This means when the economy opened up people had more money to spend.
This in turn caused a surge in demand for products and services which complex supply chains around the world struggled to fulfil. In combination then, the two effects have forced inflation much higher, quickly.
The net result of this is a range of goods and services we buy every day have become more expensive, faster than anyone expected. Everything from grocery bills, to clothes, fuel for our cars and energy supply to our houses has shot up in cost.
With this the state of the economy then, hiking interest rates becomes inevitable. But how does that in turn impact your personal finances and wealth?
Essentially, unless your earnings are rising to match the rise in the cost of living, you will find it harder to pay for the things you need each month.
It is likely that inflation will fall back down as a result of the rate hikes, and goods and services will rise in price less quickly. But it takes time for the effects to be felt in this sense.
There is however a more immediate impact of interest rate hikes on our personal finances.
Debt
The first, and usually most immediate impact of a rate rise, is to make the cost of debt rise.
When the Bank of England hiked rates in December, banks almost instantaneously announced they were hiking mortgage rates on new products, and those products which had tracker rates.
The same is true for personal loans without a fixed rate (although these are uncommon), and credit cards too. It is unfortunately quite cynical, but like when petrol and diesel prices rise, the banks pass on rate rises almost immediately to their customers.
It can be tricky to avoid these rises. If you have a mortgage which tracks the base rate, now would be an excellent time to consider remortgaging to a fixed rate. If you’re looking to get a new mortgage, then there really isn’t much you can do other than making sure you try to get the best deal possible, or have the biggest deposit you can to minimise the debt you take on.
If you have unsecured debts such as credit cards, try to pay off as much as you can as soon as possible. This will save you significant future costs to servicing that debt. Typically, providers have to give you 30 days’ notice if they do hike their rate, and you have 60 days to pay off the balance before it kicks in.
Savings rates
When interest rates go up, savings rates should go up too. Indeed, before the bank rate was hiked, savings rates were beginning to rise.
But there is a big caveat in this. The part of the cash savings market that saw rises was only in the top end with niche smaller providers.
Big retail banks such as HSBC, Lloyds and NatWest have continued to keep their average rates on offer extremely low. The current rate of interest offered by NatWest, for example, is 0.01% in its Instant Saver account, an extraordinarily miserly offer.
That compares with the current top rate instant savings account (at the time of writing) which is offered by Harpenden Building Society and comes with a rate of 0.75%.
Essentially the message here is that savings rates will go up now the bank rate is going up too. But if you want your money to work harder, it has to be placed somewhere where it will get the best rate possible.
For comparison of rates, a useful resource is Savers Friend, which is operated by financial data firm Moneyfacts.
But in reality, unless it is short term cash or a rainy-day fund, it’s likely to be better placed in investments to grow over time.
Investments
Finally, although indirectly, rising interest rates affect investments.
This happens through a more surreptitious process though and isn’t as obvious as a bank hiking rates. But some investments will begin to underperform once interest rates rise.
This happens for a multitude of reasons, but largely comes down to the bulk of investors moving away from fast growth stocks, such as tech, and into companies that benefit from rising rates, including (ironically enough) banks, manufacturers which benefit from lower material prices, home builders, and others.
Ultimately predicting how interest rates will affect particular investments is a difficult process. If unsure, then speak to your financial adviser who can help you figure out the best solution to your investment needs.