Wealth Management Update – September 2017
Does instant access mean low returns? – What to do with money on deposit
In the majority of circumstances, money held in instant access accounts is held as cash. As many of you are already aware, interest rates on cash accounts are such that you are technically losing money in the long term because of inflation!
In fact, interest rates are so low that some experts have likened savings in the bank as being as effective as savings in your piggy bank at home. Maybe this will boost sales of piggy banks, but we are not sure it will have any noticeable effect on savings returns.
Whilst it is always a sensible idea to have some emergency funds available in an instant access account (3–6 months of expenditure), if you want to grow your savings and beat inflation then instant access cash accounts are not for you.
If you would like advice on investments that have more growth potential and you are an existing client, just get in touch. Also, if you know someone who may benefit from such advice, please feel free to let them know about us. Our details are on our website and at the bottom of this Wealth Management Update.
Call to “ban the cold callers”
Some cold calls – those relating to mortgages – are banned. However, there are still areas vulnerable to exploitation by cold callers, and none more so than pensions.
Since 2014 nearly 3,000 savers have been swindled out of, on average, £15,000 each! Beginning the rapport that allows the thieves (because that is what they are) into the homes of those affected, could be as simple as a single email, call or text message.
We always like to remind you about being vigilant and, with so many ways for the fraudsters to get in touch, this is even more important.
The government are putting in place a ban to prevent cold callers trying to sell you a new pension scheme, including by email or text. This means that if anyone with no previous relationship with you contacts you, or if someone contacts you without your prior permission, they will face fines of up to £500,000. If you are contacted by any such person, do not respond via any means!
If you are suspicious of any communication you receive it should be reported to The Information Commissioners Office. Their website is: https://ico.org.uk/.
Worldwide dividends driven upwards
Dividend levels have not been the same since the financial crash of 2007/2008, but it seems their period of recovery and stress testing is finally ending and they are re-entering the growth race.
This increase in pace has been attributed to a more even spread of economic growth across the UK and the rest of the world. Underlying dividends, after taking currency exchange into consideration, rose by 7.2% April–June. This was way above the same period of 2016, and represents the strongest performance since late 2015.
In June, US companies were given permission to pay out nearly all their earnings to shareholders, a figure in the region of $100 billion.
Whilst the UK has not been the biggest winner because of the falls in the value of Sterling, this is definitely good news for shareholders, with dividend outlooks positive and the markets strengthening all round.
Tenants in Common versus Joint Tenants – It is important to know the difference
Property ownership by two people can be held in one of two main ways: as Tenants in Common or as Joint Tenants. But what is the difference? I’ll start by clarifying each of these terms:
Tenants in Common – each person owns a distinct share which can be left to anybody in a Will.
Joint Tenants – on their death, each person’s share automatically passes in full to the other person. It will still pass this way even if your Will states otherwise.
The choice of which of these ways to hold property is based on what you have and who you want to benefit from it, and so is very specific to your circumstances. However, some general scenarios can help clarify.
Scenario 1
You own property with your second spouse but you each have children from previous relationships. If you would like your children to benefit, then holding property as Joint Tenants is not necessarily the way to go. On your death, the property will pass in full to your spouse and will then pass via their Will down to their chosen beneficiaries. There are ways around this but, again, this will depend on your situation. Tenants in Common might be a better arrangement.
Scenario 2
You are a married couple with or without any children currently. If you would like all assets to be passed between spouses and then down to any children you may have, then Joint Tenants would work for you, as everything automatically goes to the spouse and, from there, passes according to their Will.
If you have set up Trust arrangements with us, then your property is more than likely held as Tenants in Common so that we can arrange your assets more flexibly. However, it is worth noting that if you sell your property and buy a new one this should also be held as Tenants in Common.
If you are concerned about how your property is held, or would like to discuss protection products and techniques for future generations, please give us a call and we’ll be happy to help.
Provident Financial crash
Provident Financial seemed to be doing very well indeed, with their chief executive promising they were “on the road to recovery” a mere month ago, and a profit forecast of £60 million. This is in stark contrast to the plunge in share values that we see today (24.08.2017), with shareholders’ worth being slashed by more than half and the company losing two-thirds of their profits overnight.
This crash is a result of a number of elements, but is mostly due to the reorganisation of their self-employed agents. Provident was originally set up to provide affordable credit to lower income families, where the sales force would knock on doors to collect repayments. This sales force was made up of 3,800 part time staff who mostly took the job as secondary employment. Following the reorganisation, staffing numbers decreased to 2,500 full timers who were tied into contracts, etc. The uproar from the previously flexible and self-managed workforce was enormous and caused tidal waves throughout the firm. It resulted in the loss of many experienced agents and affected Provident’s ability to both collect and issue their loans.
Add to this the fact that their credit card unit, Vanquis, is currently being investigated by the Financial Conduct Authority over one of its products and the situation is a very sticky one indeed!
Provident Financial have announced that they will not be issuing their half year dividend and a full-year payout is equally unlikely given the circumstances.
This just shows how quickly things can change in the world of business and investing, that such small changes can have such ripple effects across not only one company but also the markets in general, and that projections don’t always come true.
British legend lost
On Friday 18th August Sir Bruce Forsyth passed away at the age of 89, a British legend who will be sorely missed from our TV screens.
With a fortune of £17 million when he died, saving tax would have been an important consideration, and this is something Bruce has publicly commented on in the past. It would seem that this is the reason he left his entire fortune to his wife, Lady Wilnelia; as you are probably already aware, any assets passed between spouses, no matter the amount, are free from Inheritance Tax as part of a ‘spousal exemption’.
As Bruce did not use any of his Nil Rate Band (NRB) when he died, Wilnelia can apply for ‘carry forward’, which means she will get her full NRB when she dies (which may be larger than it is now), as well as Bruce’s full NRB (based on when Wilnelia dies, not when he died). As an example, if when Wilnelia dies the NRB is £500,000, then she will get her own £500,000 and also Bruce’s £500,000, meaning she would get a total exemption from IHT of £1,000,000, an increase on the £650,000 that makes up their two NRB today.
Using the spousal exemption is a wise move and can mean that you get potentially greater IHT savings. Wilnelia can gift large amounts of the estate to Bruce’s children, grandchildren and other relatives in her lifetime and, providing she lives for a further seven years, these gifts will fall outside of her estate. As, at 59 years, she is a lot younger than Bruce was, it is certainly more likely that she will live for a further seven years than it would have been for Bruce.
Obviously, a strong sense of trust must exist between spouses. Technically, Wilnelia could keep the money for herself, after all it is her money – Bruce gave it to her, and no conditions can be attached to the money unless it was left via a trust or other arrangements, which wouldn’t save any tax anyway.
This situation is not generic and cannot be applied to everyone, but if you are interested in saving IHT and protecting your assets then that is something we can definitely help with.
Notes on Brexit
With the last round of negotiations over and the next round starting a few weeks ago, headlines are full of political soapboxing once more. We are seeing regurgitated headlines and content comprising calls for another referendum, speculation on soft and hard Brexit and numerous MPs taking a “firm stand” on a position they will invariably have a very different opinion on in a few brief months’ time. Actual progress has been on continuing constructive discussions on a wide range of topics and understanding what each side needs as part of the final outcome.
David Davis’s recent letter to the Lords’ EU Committee summarised the progress of the negotiations so far. As we previously outlined, the first session was focused on agreeing the process of withdrawal. The second round, which took place across four days from 17th July, he described as intending to build trust in the process and understanding where there is room for compromise, rather than to achieve any firm agreements. His letter mentions they “achieved a high degree of convergence” around key concepts such as residence and social security issues. He acknowledges that there are areas of disagreement that they did not expect to resolve in the July session and future discussions are required, specifically mentioning the cut-off date for the agreement, and compliance and enforcement. For the next round, which began at the end of August, he outlines the talks will consider the mutual recognition of professional qualifications and economic rights, as well as a technical analysis of social security provisions. His closing remarks are quite clear on his position that it will be our post-Brexit relationship with the EU that needs to drive our exit from the Union.
Book of the month
This month’s book is both inspiring and sad. It is about a modest, yet driven man called Buzz Aldrin who went on to become one of the first men on the moon. His book Return to Earth charts his progress from youngster all the way to the aftermath of his lunar landing, and things didn’t quite turn out how you would expect.
It talks about the euphoria of such a milestone but also about dealing with what poets’ call “the melancholy of all things done”; asking the question, where do you go when you reach the top?
