Wealth Management Update – May 2016
The importance of Wills & Trusts
It is essential to have a valid Will in place before undertaking any other form of inheritance tax planning, because how can you even think about protecting your assets if you cannot be sure who will receive them on your death?
A very relevant and real situation has been reported in the media over recent weeks concerning the estate of Lynda Bellingham, who sadly passed away in 2014. Her immediate family, which consists of her husband (her third marriage) and her two sons, are now locked in a bitter feud over how her assets should be distributed.
Lynda did have a Will, which allocated all of her assets to her third husband. Reports suggest that he was left instructions to distribute set amounts to her sons and to others. Her sons have stated that they have received no benefit from their mother’s estate and that their stepfather is using the control he now has over Lynda’s estate to deprive them of their inheritance.
This situation highlights the importance of putting planning in place during your lifetime to make sure that the people who you want to benefit, actually do!
If Lynda had put in place Beneficiary Protection Trusts for her sons, the money she wanted to gift to them would have passed into these trusts immediately, and would have been protected from her husband’s claims or control. This type of protection becomes especially important if an estate involves more complicated circumstances, such as second or third marriages, children, stepchildren, and any other variations of the modern-day family. It is vital to put clear Will and trust planning in place in your lifetime so you can be sure that the people you want to benefit from your estate will not be bypassed or overlooked but will have control and access to their inheritance, and your estate will not be lost to your extended family.
Unfortunately, it is sometimes the case that those we think we trust in life do not always act as we expect or hope after death. If you are worried about a similar situation, or want to find out more about Beneficiary Protection Trusts, please let us know.
Inflation … again
It seems that every month there is something and nothing to be said about inflation. Inflation has been so low for so long that a small rise of 0.2% is almost insignificant.
The increase has been attributed to rising costs of air fares and expensive clothing, driven up by the recent Easter break and the slowly rising cost of fuel. Whilst this is not great news for us as consumers, it is a step in the right direction for our economic target of 2% and for the economic growth the Bank of England is desperately trying to sustain.
Despite the rise in inflation, reports suggest it is highly unlikely that interest rate increases will be announced any time soon, with rises not expected until 2020! Many are calling for interest rates to begin to rise sooner than this, to start the lengthy process of “normalising rates” and encouraging stability after our economic recovery. Whether or not these requests will be recognised, we cannot be sure.
We can be almost certain, however, that no rises will be announced before the referendum in June, as all of the current plans will be heavily affected by a ‘Brexit’ vote and it will certainly make the balancing act much more complicated.
Oil is on its way up
As much as we all enjoyed being able to fill up the car without it making the usual dent in our wallets, oil prices are on the rise and in some ways that is a good thing.
Low fuel prices are definitely a positive for companies, who are able to produce or transport goods more cheaply than before, and are especially positive for the gas-guzzling airlines.
However, although as consumers we may once again feel a pinch in our wallets, the rises are good news for investments. Any funds that invest in oil companies such as Royal Dutch Shell or BP (and there are quite a few) will see their investments strengthen as prices rise and the company receives a boost in income. And this benefit, of course, makes it way down to us in some way eventually! But what about everyone else?
Well, for those trying to be more ‘green’ who have invested in renewable energy resources, it is less than ideal; for the oil rig workers whose rigs have been closed down it is terrible news.
It is very much six of one and half a dozen of the other – if prices rise, it’s good and if they fall it’s good. Consumer pricing and inflation are heavily correlated, so the balancing act that we use to manage inflation needs to be applied here to make sure we do not see the extremes that we have before.
David Cameron offshore scandal … or is it?
You cannot have missed the revelations in the news recently about many high-profile individuals caught taking part in large-scale tax dodging using offshore schemes.
One such person was reported to be David Cameron, which obviously sent the media into a frenzy. Whilst Cameron did not make his position clear as quickly as he could have done, and he may have been quite cryptic in his first responses, love him or hate him he has most definitely not broken the law!
There is no denying that Cameron did hold a stake in an offshore investment fund that was set up by his late father and which he inherited on his father’s death. These shares were then sold before he became Prime Minister, making a profit of £19,000 – a small gain when you consider how much he actually makes in a year! Full income tax was paid on the dividends of the investment, but no capital gains tax was due as it fell within the available exemptions.
Cameron has also come under attack for accepting gifts of £200,000 from his mother, which she passed to him from her own estate after his father died. This is something that we encourage many of our clients to do, to take advantage of the seven year rule (where any gifts fall outside of your estate if you live for more than seven years after gifting) in an attempt to avoid future inheritance tax whilst passing down your assets to your children.
So what exactly has he done wrong?
Cameron has taken advantage of many of the legal avenues of tax planning that we recommend to our clients and which are fully supported by HMRC. He has paid all the tax he owes and has been very transparent with his personal tax accounts. The “crime” that he seems to have committed is being a high-profile member of parliament with strong views about tax evasion, who was vaguely connected to an offshore investment account – a situation that many of his competitors seem to have taken advantage of to publicly criticise him.
Whilst you may support or condemn Cameron depending on your political views, he cannot be criticised for lawfully using the avenues available to him.
Dividends and savings Income … the real deal
Last month’s Wealth Management Update gave details of the new allowances for dividend and savings income that have been introduced for this tax year.
Basic rate taxpayers now have a £1,000 savings allowance and higher rate tax payers a £500 savings allowance; sorry additional rate tax payers – you don’t get anything! Everyone also now has a £5,000 dividend income allowance. Any income from savings or dividends within these brackets is tax free. A good thing, right?
Well, one of the things that was glossed over was that this income will still count towards your total income for the tax year, even though it is tax free. This means it will not reduce your taxable income in any way, nor will it affect the thresholds between basic rate, higher rate and additional rate tax.
It also means that savings income and dividend income will no longer be taxed at source by banks and building societies, but will be paid out to you gross. Therefore, if you have savings income in excess of £1,000 (basic rate) or dividends in excess of £5,000 (all tax rates) you will need to pay the tax on this income via a Self-Assessment Tax Return.
It is also worth noting that the savings allowance does not apply to trustees. Trusts have their own savings allowance of £1,000 (this amount is split between all trusts you have to a minimum of £200). Higher rate tax is then due on anything above this allowance, so trusts will be paying the revised high rate of dividend tax, which is 38.1%, on any income over their allowance!
This is a great deal more complicated than it was made out to be when the changes were announced. If you need help in working out what you do and don’t need to do, please let us know.
Chat bots … the future?
According to Mark Zuckerberg (the boss of Facebook), ‘chat bots’ are set to replace all customer services assistants in the next decade! Now that is a scary thought.
As much as we love technology, we also know how it is sometimes a nightmare to get it to do what you want; imagine what happens when it all malfunctions!
Daily activities such as booking restaurants or ordering flowers will be done through conversation with a chat bot, to give you the feeling of speaking to a person with technological efficiency.
This could already be in place! In fact, we were at a conference a few weeks ago where one of the speakers told a story about using a ‘chat’ system for their online banking, a kind of messaging system that meant you didn’t have to be on hold waiting to speak to someone for half an hour. A lady introduced herself as Rachel and so the speaker decided to test her by asking ‘are you a robot or a human?’. The response was ‘I am Rachel’. Spooky!
I don’t think robots could ever replace us totally, but the way that the world and technology is evolving I think they will give it a good go!
There has been ongoing debate in the media about the Tata Steel situation. Some think the government should step in to bail out the UK steel industry, which was once important to the country’s economy; others think we should let things run their natural course if the industry is no longer sustainable.
However, the government is not allowed to make its own decision regarding this. The EU tightly controls state aid in member states and does not allow a government to intervene if this would distort market competition. The only reason the government was allowed to bail out the failing banks is because the banking industry was considered a ‘sustainable industry’ – they do not believe this is the case in the steel industry, considering it is supposed to be losing £1M per day!
This situation highlights the control that the EU has over decisions made in the UK and will fuel the debate over the ‘in or out’ EU referendum. Should we be able to consider, discuss and make these decisions ourselves? Or is having the tight EU control over these decisions what keeps us plodding on?
The decision about whether the government will offer support to Tata Steel will be made in May or June, but the government has already suggested that it is willing to take a stake of 25% to keep Tata Steel running in the UK. With 15,000 jobs in the balance, it is an important decision, and one I am sure will receive much deliberation.
Book of the month
This month’s book will certainly get you thinking. The Copernicus Complex: The Quest for Our Cosmic (In)Significance by Caleb Scharf asks questions about our place in the universe. It asks how we came to be here, and if it was all an unlikely accident.
Scharf explores astrophysics, metaphysics and the frontiers of science. He looks at how special we are and how special this little ball of rock and water we call Earth really is.
It is an easy read if you don’t know much about physics, biology or chemistry, and it will certainly help you be more informed for the next pub quiz!
Best Savings Selections
Top Three No Notice Accounts without Bonus
|Name||Contact||£1 Gross %||£500 Gross %||£1k Gross %|
|West Brom BS||Via branch||1.25||1.25||1.25|
|Yorkshire BS||Via branch||1.20 (min £100)||1.20||1.20|
|National Counties BS||Via branch||0.5||1.26||1.26|
Top Three Monthly Interest Accounts
|Name||Contact||£1k Gross %||£5k Gross %||£25K Gross %|
|Charter Savings Bank||www.chartersavingsbank.co.uk||1.44||1.44||1.44|
|RCI Bank UK|| www.rcibank.co.uk
|Charter Savings Bank||www.chartersavingsbank.co.uk||1.54||1.54||1.54|
Top Three Cash ISA’s
|Name||Contact||£1 Gross %||£10 Gross %||£100 Gross %|
|Yorkshire Bank||Via Branch||n/a||n/a||1.50 (min £15,000)|
|Coventry BS||0800 121 8899||1.40||1.40||1.40|
|Al Rayan Bank||0845 6060 786||n/a||n/a||2.00 (min £250)|
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.