Wealth Management Update – May 2018

Don’t forget the Marriage Allowance

The Marriage Allowance allows you to transfer £1,190 of your Personal Allowance to your husband, wife or civil partner, which can reduce their tax by up to £238 every tax year (6 April to 5 April the following year).

To be eligible to benefit as a couple, you need to earn less than your partner and have an income of £11,850 or less. Your partner’s income must be between £11,851 and £46,350 (£43,430 in Scotland).

You can backdate your claim to include any tax year since 5 April 2015 for which you were eligible for the Marriage Allowance. You can still claim even if your partner has sadly died since then.

To start the process simply follow this link: https://www.gov.uk/apply-marriage-allowance.

Inheritance Tax could be simpler in the future

The Chancellor has announced that a review of the UK’s Inheritance Tax (IHT) rules will be held in the Autumn of this year … and it’s about time.

IHT was first introduced in 1986 and, since then, has been subject to many modifications to keep up with changes in society and economics. More and more people are becoming liable for IHT charges because of the increases in property prices over recent years and, as we mentioned in last month’s Update, the government are certainly benefiting from this.

This review will highlight areas of administration and technical tax standpoints with a view to recommending how these can be simplified, including things such as:

• IHT returns and how the tax is paid
• gifting rules (annual gifts, small gifts and normal expenditure gifts)
• the probate procedure

We are likely to have put in place some form of IHT planning for many of you so you will know how complex this area of estate planning can be, therefore any simplification will be welcomed by us all. If you have also had to go through the probate procedure you will know how complex this can be at such a difficult time

We are also interested in any simplification regarding gifting, as this will hopefully prompt a review of the gifting allowances and lead to some potential increases. These allowances have not been raised in quite some time and so would benefit from an increase to match the changes that have occurred in the economy

Watch this space. We will report the outcome when it is released.

The pitfalls of managing your own investments

Managing your own investments is becoming easier as time goes on. There are many online apps that help you to move your stocks and shares around at the click of a button and while you are on the go. You have full control of how, when, where and in what you invest, and you are fully responsible for how well your portfolio of investments performs. For some people this is a positive and for others it sounds like a nightmare.

Obviously, there are many downsides to managing your own investments, otherwise we might be out of business!

• You could be taking too much risk: this is one of the most dangerous aspects of investing. Without knowledge of risk profiling and the tools to define what risk is appropriate for you, you could be taking far too much risk for the gains you receive.
• You might be putting all your eggs in one basket: investing in just one company, one sector or in one particular asset is never a good idea. Should this area take a tumble, your whole investments will follow. It will take time for them to struggle back to where they were at their high point.
• How do you choose?: there are an indefinable number of funds in which it is possible to invest. In addition, there are about a million ways to hold each one. Without the tools and knowledge to make a decision on which is right for you, you might end up with completely the wrong investment.
• Tax control: tax is a tricky subject and one that usually needs expert advice. Without such advice you may not be using your relevant allowances, or you may be paying too much tax that could be avoided.
• Charges: this is one of the biggest culprits for eroding investments. By investing bulk amounts, companies such as ourselves get big discounts for our clients. As a sole investor, charges are likely to be much higher. And how do you know whether you are getting a good deal?

This is not an exhaustive list but it does give an overview of the considerations that should be made when self-investing. In our opinion (typical, we know), investing should be done by professionals who have the time and resources to manage and monitor the investments properly, to get the best returns possible whilst not putting the investments at risk.

Retirement income warning

What is people’s biggest fear when it comes to retirement?

60% of “baby boomers” are more worried about running out of money than dying! The new pension freedoms mean that buying a guaranteed income is becoming less popular. Consequently, increasing numbers of retirees are at the mercy of the markets – raising anxiety that they might not have enough to see them through, or that they might suffer large and unrecoverable losses.

The important thing is to be realistic when saving for retirement – you can’t save next to nothing and expect to retire on a tidy sum, that’s just not how it works. Think about what you want your retirement to look like, work out how much you will need to achieve it and get saving towards that goal.

Remember, in retirement you’re supposed to spend your pensions and savings! So, make sure you have enough to be able to enjoy it, rather than worry about it running out. Leave yourself sufficient time to make sure you get the retirement you want and deserve.

If you are already in retirement, you must make sure your funds are protected. We develop our investment strategy for protection as well as growth, especially in later life and throughout retirement, when risk is reduced considerably. Retirement is usually the time to step away from focusing on growing your savings as much as possible – that should have already been achieved. The focus now should be on protection and enjoyment!

If you already invest with us, then you are likely on the right track. If this is something you are worried about, or think you might need help with, then let us know. We want to make sure that everyone gets the retirement they have worked so hard for.

Inflation sinking

The cost of living has eased over the last month or so, with the CPI falling to 2.5% in March, its lowest level for the year. Will it continue to fall?

The Bank of England is set to raise interest rates in May and there is much speculation about whether or not this easing will deter them from doing so or if they will be very British about it all and Keep Calm and Carry On. It is likely that we will see an interest rate rise to at least 0.75% in the next month or so, thereby giving the possibility to reduce interest rates again if necessary when we hit the next downturn. Probably a sensible move to try to get interest rates back to normality.

The fall in inflation has been attributed to a slowing in the cost increases in women’s clothing and footwear, which rose by 0.7% between February and March compared with a rise of 2% in the same period last year.

The fall in inflation and the expected interest rate rise are likely to affect exchange rates and the strength of sterling against other currencies. There was a slump in this measure, suggesting that we may be falling back into the exchange rate misery of the beginning of 2018. We hope not!

Notes on Brexit

The European Union (Withdrawal) Bill 2017–2019, designed to transfer powers from Brussels to the UK, has been overturned by the House of Lords because it was an attempt to give ministers the power to make changes to EU laws based on what they “considered appropriate”, rather than on what was necessary. This has caused a not-unexpected uproar from staunch Brexiters, who claim the Lords are being needlessly obstructive, and yet another petition calling for the abolition of the second House.

As this Bill would set a precedent for other legislation resulting from Brexit, we hope there would be a more robust consideration given to the laws being changed. We imagine that everyone, on both sides of the Brexit fence, expects “taking back control” to mean “under the sovereignty of parliament” rather than passing power to ministers willy-nilly (with the possible exception of those ministers themselves!). The government can continue to expect more challenges to the content of the Bill in the coming days, from the Lords as well as from the devolved Scottish Parliament in Holyrood.

Stage Three of the negotiations with the EU is due to begin shortly, with the next update due at the June Summit. New framework guidelines were published on 19^th April, outlining that avoiding a hard Irish border will be top of the agenda for this session, along with progress on how the economic relationship between us will look after the withdrawal. Mrs May rejected any “off the shelf” options in her Mansion House speech last month, so all we can say for now is that things will definitely be different and unlike anything else out there.

Book of the month

Other Minds: The Octopus and the Evolution of Intelligent Life is a book that most people will never read. After all, what a strange title, and what on Earth could you learn? Well, quite a lot actually.

Peter Godfrey-Smith is a superb writer and brings his unique and beautiful style to a subject that blends science and philosophy. What is intelligence? How do we know we are intelligent? What gives us the right to think we are more intelligent than other species? These are all questions that we would normally have shunned, on the grounds that we are the dominant species on the planet. However, after reading this book, we have a new sense of where we stand in the world and our real place.

Not a particularly easy read, but one that is well worth the effort.