Wealth Management Update – December 2015

IHT planning more important than ever

The recent introduction of changes to Inheritance Tax has highlighted the importance of good IHT planning. Our recent seminars regarding the new updates had an overwhelming response, proving that the new rules are definitely not as easy to understand as the Chancellor has made them out to be.

We now have more detail on the changes than we had when this was first announced. We know that the amount that will avoid IHT will effectively be increased to £1 million for a married couple through the introduction of the Residential Nil-Rate Band (RNRB) that will come into full effect in 2020.

However, there have been projections that show that as a result of steady increases in house prices until 2020 (see the figure below), the taxable proportion of the house will remain largely the same, resulting in no extra savings in IHT at all.

This has been referred to as ‘Window dressing at its sneakiest’. We can understand this statement, as the new allowance has been marketed as saving families and married couples large amounts on their family home.

The use of a staggered increase over three or four years has definitely made this less attractive and, as you can see above, less effective than first thought!

And of course, if your estate exceeds £2 million, then the RNRB is reduced until it becomes zero at £2.3 million. That is the total for the whole estate, not just the house.

We are currently working on putting on some Briefings in March/April 2016 to go through these changes with you – if you think you would want to attend, please do email us and register your interest.

Be careful what you invest in

We have many emails and calls each month from people who have received details of various investments offering big returns. One scheme in particular has come to light, where people are being encouraged to invest in renewable energy.

Elysian Fuels is a scheme investing in renewable energy projects in the UK and the USA, in particular a renewable transport fuels refinery and technical centre in Grimsby. The scheme has attracted more than £240m in investment, the majority from SIPPs.

However, the scheme has recently been valued at zero. This means that everyone who invested in it  has lost all of their money.

Last year we pointed out the risks of investing in foreign property schemes, which, as they are unregulated, pay as much as 15% commission to the ‘adviser’. The largest of these, Harlequin, is still under investigation by the Serious Fraud Office.

If you are offered an investment that promises unexpectedly high returns, please please please let us, or another adviser, check it out for you. In today’s climate of 0.5% interest rates, zero inflation and with the FTSE at a lower level than in 1999, there is no such thing as a big return, or a quick buck.

Will the bankers ever learn?

It was widely reported in November that Barclays will be facing fines of up to £100m. Why? The fine is a result of alleged electronic trading abuses in relation to foreign markets. This fine is on top of the £485m they paid in May to the New York banking regulator for further manipulations.

It was established that this was an intentional manipulation – the bank was not just lax in compliance (which may have been slightly more forgivable!). Will the banks ever learn that they will not get away with it? After the previous HSBC scandal, this is just yet another in a long line of different strategies of ‘cutting corners’ that the banks seem to use on a regular basis. Barclays are not the first and we are sure will not be the last.

Apparently the investigation is ongoing and so even more exploitation could be discovered, hidden within … Watch this space!

So, the next time a bank gives you advice, or tries to sell you something, DON’T ACCEPT IT! Please call us and ask our opinion, we’re always happy to help.

HMRC – you want me to wait how long?

It was impossible to miss the news over the last month that HMRC is planning changes. It was reported that HMRC will be closing 170 tax offices across the country and replacing them with 13 regional centres. Although this is due to happen over the next decade or so, we cannot ignore the effect that the mass redundancies will have on the already stretched service HMRC provides.

Since March 2014, call wait times have increased from on average 3 minutes to a staggering 15 minutes. We all know how frustrating it is to receive poor service; it wastes our time and usually costs us money. I think the tax system in the UK is already so horribly complicated that we do not need them to make it worse by having us struggle to get through to the people who manage it.

So, if you do have to contact them, be sure to do it sooner rather than later! Don’t leave your tax returns or queries until the last minute. You don’t know how long you might be on hold!

Oh, and one other thing: we promise NEVER to have an automated phone answering system. If we are all busy, please leave a message on the answerphone and we will call you back. We think it’s just a better way of doing things.

A movie night you may regret

You may have heard recently how more than 100 retired footballers face huge losses of up to £100m after investing in film and property deals. After huge investment, these schemes are now in jeopardy, having either failed entirely or been deemed by HMRC to be tax evasive. These schemes are extremely high risk and are considered inappropriate for most people.

Film schemes are intended for sophisticated investors – not a term that comes immediately to mind when you think of footballers. So what on earth were their advisers doing, other than pocketing the commission that these schemes paid?

As a company we prefer to focus on not losing money, rather than on how much money can be made – especially when that would involve taking unreasonably high levels of risk. As you are all aware, the use of the AIS for managing our investments means that we consider the risk of potential investments, not just their performance, and try to make sure that we do not put your money in danger just for the possibility of making that little bit extra.

£2.7 billion or £4.7 billion of pensions?

Reports on how much was withdrawn from pensions in the 6 months from April this year vary quite considerably. From the lowest estimate of £1 billion all the way up to £5+ billion, all they agree on is that there has been a massive influx of requests for withdrawals because of the new rules.

Using the quoted figure of £2.7 billion, and the cheapest Lamborghini advertised in Autocar at £125,000, those over the age of 55 have together purchased 21,600 Lamborghinis in six months! To break that down, that is 182 cars per day and roughly five per hour! It is anyone’s guess what has actually happened to the money that has been withdrawn. I think it depends on the recipient as to whether it will have been blown on luxury holidays and cars or whether it has been reinvested wisely for retirement.

As clients of Penguin you are lucky in that you can pick up the phone and ask our advice on how and when you should access your pension. Some of those who have accessed their full pension may well wish they had had the same service 10 years down the line, when they may end up with nothing left to show for their hard work.

Book of the month

We have something quite different for you this month…

In early 2016 we hope to be publishing the first book on Financial Planning by Penguin Wealth. Titled ‘The Wealth Secret’, our book will exlain how to create, build and protect your future – the Penguin Way.

We have always believed that creating and preserving wealth is remarkably simple – if you know how and it has always been our goal to share this knowledge with as many people as possible.

This book has been a project for a while now and we are delighted that we are nearing a position where we will be able to share our knowledge with more people.

Please keep your eyes peeled for more news in 2016!

Best Savings Selections

Top Three No Notice Accounts without Bonus

Top Three Monthly Interest Accounts

Top Three Cash ISA’s

Please check with the terms and conditions before opening any account. If in doubt consult with your financial adviser directly as the above are for information only.

Source: Moneyfacts Magazine December 2015 Edition