Wealth Management Update – June 2016
Brexit or no Brexit?
And so June has arrived! It seems so long ago we were told there would be a referendum in June on our EU membership, but it is now only three weeks away!
We hope that by now you have all done some research and will be at the polling stations on 23rd June to have your say. I must say, however, that it is difficult to determine hard facts amongst the constant political rivalry of the “he said, she said” that is rife across the tabloids. Rather than giving people the information they need to make an informed decision, the politicians seem to be focusing on one-upmanship. Not like them at all!
We have our own views on how you should vote, but this is not the place to share them or to try to convince you, other than to say vote on the facts, not with your heart. If we vote out, the decision will be final. We will not get a second chance to say ‘oh, we changed our mind, can we join the club again?’.
Facts are hard to find, but probably the best place is the BBC website, which seems to be well balanced with decent information. To take a look, follow this link:
Whilst thoughts throughout our business vary broadly, the consensus is that we believe the majority of voters will move “away from pain” rather than “towards pleasure” and this will result in a vote to remain.
We cannot be sure of the effects a Brexit vote would have, as this is an untrodden path. However, we can be almost certain that the markets will become volatile in the lead up to the referendum, and those of you who have investments with us will be aware that we have taken steps to minimise the risk whilst maximising the potential gains from this unique situation. We are confident that we have covered as many bases as we can.
Watch this space. We certainly will be.
Joint Tenants versus Tenants in Common
The majority of you will be aware of the difference in these terms in relation to property ownership, but for those of you who are not, a quick reminder. Joint Tenancy is where you each own the whole property, which means that when one of you dies their half of the house automatically passes to the spouse – that is the law, no arguing. Tenants in Common is where you each own an identifiable percentage of the property (it could be a 50/50 split or an unequal portion), which means that when one of you dies, the deceased’s share of the property will pass according to the deceased’s Will.
If we have set up Life Interest Trusts for you (which we have done for a lot of you), we will have changed your property title to be held as Tenants in Common. Therefore, on first death, half of the property is available to be passed into your Trust for future protection – be that from future remarriage, care-home fees or potential inheritance tax savings.
If you move house, the default for your solicitor will normally be to select the ownership of the property as Joint Tenancy. It is vital that you ensure any new property is held as Tenants in Common if you have this planning, as otherwise this important Estate Planning cannot be used to its full advantage. The entire property will pass to the surviving spouse and half of the property will not be available to be used in your trust arrangements. In most circumstances this could be rectifiable; however, not purchasing any new property as Tenants in Common would result in additional legal fees of up to £1,500 or more which can easily be avoided.
If you have any questions on this or want to learn more about protecting your half of your home, how they work and what the advantages are, then please get in touch.
Great so see someone else talking about this sensitive topic – for those of you who don’t know we actually work with Mills & Reeve via Solidus so great to see them talking publicly about the planning we have discussed and arranged for many of you.
The bank of Mum & Dad
It has been reported that two-thirds of first-time buyers would be unable to afford a home without help. Typically, they buy at aged 30 and put down a 17% deposit (on average £26,000). So, depending on how many children you have, that could amount to an awful lot of money being passed down to your children in the form of property.
Whilst gifting to your children during your lifetime can be an excellent way to reduce your inheritance tax liability (provided you live for seven years after the gift), it would be reckless to do so without exploring the protection that could be put in place for your money.
A Beneficiary Protection Trust is one of the most efficient ways of protecting assets passed to your children, either during your lifetime or on your death. Although you still have to abide by the seven-year rule for gifting (so no IHT benefit until further through the generations), it provides invaluable protection against such things as divorce, bankruptcy or any other claims on your children’s estate.
Whilst you may not see such things as divorce or bankruptcy – or indeed any claim against your children – on the horizon, it does not mean that these events may not occur in the future. By putting such protection in place now, you, as well as your children, are saved any future battles with ex-partners or banks over the gifts you may make to help with first-time house purchases. In the eyes of the law, once money has been given as an outright gift to your children, you have no further claim to it and so it could easily be lost in a number of future circumstances.
If you would like further information about Beneficiary Protection Trusts, please call the office and we will be more than happy to help.
Should I overpay my mortgage?
This is a common dilemma for those with disposable income: do they squirrel it away in a savings account or pay more off their mortgage to become free of one of the biggest debts they have during their lifetime?
With interest rates so low it would definitely be preferable to overpay on your mortgage rather than keep your savings in a low-interest cash savings account. Your mortgage rate is no doubt currently at one of the lowest levels it ever has been, so if you overpay at 5% you will save yourself interest and reduce the length of the mortgage by a good few years. By overpaying you will also protect yourself against a shock to your expenditure when interest rates do eventually rise.
If you have more than one mortgage, the rule of thumb would be to overpay the one with the highest interest rate to get rid of the most expensive debt first.
The pros and cons of this would obviously need to be considered in relation to your circumstances, as there is no right or wrong answer. There are also other options that may be more beneficial: instead of overpaying on your mortgage, you could pay into your pension if you are able to, as this will receive tax relief from the government. Also, there is no guarantee that your mortgage provider will allow you to underpay if you run into financial difficulty and need access to the additional cash – property is obviously less accessible than cash or investment savings.
Definitely something to consider and possibly take advantage of whilst interest rates remain at such a low level.
Easy switching … coming soon
It has been reported recently that it will become much easier to switch such things as your mortgage to alternative providers than is currently the case. You will all have struggled to switch providers in the past, and not necessarily your mortgage provider – just attempting to switch your TV package becomes a battle of wills with certain providers!
New government plans will give homeowners the legal right to switch mortgage providers within seven days – an improvement on the current switching timescales, which on average are about two months. This means people will be better able to take advantage of lower-priced deals with other providers. This move is designed to bring the mortgage market more in line with energy, broadband, phone and bank account switching, the rules for which were revised recently.
There are concerns that it will encourage irresponsible lending, as there may be insufficient time to carry out the appropriate checks. Whilst this is obviously an important consideration, a reduction in the time it takes to process mortgage switching applications would be indispensable to ensure that customers benefit from better deals and are not locked in a paperwork battle for months on end.
No plans have yet been finalised so who knows if this will come to fruition, but fingers crossed.
France vs Google
As I am sure we are all aware, Google are notoriously bad at paying their taxes! In fact, in 2014 they paid France just 5 million Euros in tax from their 225.4 million Euro revenue. Something doesn’t quite add up there!
Well, France are not taking it, and are turning up the heat in the tax war against the technology giants. An early-morning raid by 25 data experts was carried out on Google’s Paris office at the end of May. This raid was part of a much larger ongoing investigation into Google’s tax affairs in an attempt to crack down on their aggressive tax avoidance schemes. A previous raid was carried out in 2011 as part of an investigation similar to the one going on now.
It is reported that France is aiming to claim back 1.6 billion Euros in backdated tax, starting from 2005. It is not only France who has issues with Google: Italy, Australia and the UK have all previously argued with them about the dismal tax payments they make in relation to their huge profits.
It is a hard fight to take on such a large corporation, so kudos to France for persevering. Let’s hope they are successful in ensuring the tax that is due, is paid.
Beware – unauthorised investment schemes
It would seem that the pension freedoms introduced last year are making it increasingly easier for unregulated investment schemes to target the over 55s. It is reported that, since the new rules were announced, nearly 5 million people over the age of 55 have paid into unregulated investment schemes that are basically doomed to fail.
Those taking advantage of this will normally be selling high-risk investments, such as land, diamonds and wine, which are specifically aimed at older savers with new flexible access to their pension funds. Of these schemes, 75% will lose money, and the odds of getting any kind of return are pretty slim. The risks are extremely high that all of the money will be lost, and investors will also be subjected to “secret fees” of up to 20% that they conveniently forget to advise you of.
Although not all unregulated investments are based on scams, the majority of them will be unsuitable for investors such as us, not only because of the reasons given above but also because they are not insured by the FSCS, meaning you have no comeback if you lose your entire savings. In contrast, regulated investments are insured by the FSCS up to £50,000 per investment fund.
Stay alert and be sensible; the main thing to keep in mind is that if it sounds too good to be true, then it probably is. And if you are still not sure, then let us know.
Book of the month
This month’s book is not a book, but a podcast. For those of you not familiar with such things, a podcast is simply a recording that you download from a website onto your phone, tablet or PC, to listen to at your leisure.
We recommended a podcast once before, and this month’s recommendation is from the same stable. The Desert Island Discs interview with Tom Hanks last month is a real pleasure. The interview was specially extended because of its popularity. Whether or not you like Tom Hanks, his thoughts and life history will be interesting to all, especially when he talks about keeping mentally sharp in your old age.
Follow the link below to download the interview; sit down with a glass of wine and enjoy a really decent interview where no one is plugging anything.
Best Savings Selections
Top Three No Notice Accounts without Bonus
|Name||Contact||£1 Gross %||£500 Gross %||£1k Gross %|
|RCI Bank UK||www.rcibank.co
|1.45 (min £100)||1.45||1.45|
|Yorkshire BS||Via branch||1.20 (min £100)||1.20||1.20|
|Chelsea BS||Via branch||1.20 (min £100)||1.20||1.20|
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 %|
|Bank and Clients||01935 609600||n/a||n/a||1.50 (min £1,000)|
|Nationwide BS||Via branch||2.00 (fixed rate)||2.00 (fixed rate)||2.00 (fixed rate)|
|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.