Stay on the right side of the law with Lasting Power of Attorney

Whilst Lasting Powers of Attorney can be the ideal way to safeguard the financial affairs of someone who has unfortunately lost the capacity to do it for themselves (the donor), it does come with some important and onerous responsibilities. 

If you are not fully aware of these, then there is a danger that you could end up with a court judgment against you. In fact, in 2018/2019 court judgements against people acting outside their permitted powers more than doubled on the previous year.

It’s a complex area of law. However following a recent ruling by the Court of Protection (COP), which was referred to them by the Office of the Public Guardian (OPG), new guidance is now available. In order to save you the job of sifting through the Court’s judgement and summary, I’ve highlighted the main points in this blog.

The majority of cases under review contained compulsory instructions given to the person with the power of attorney (an attorney) on how they should act. The court rules that the use of compulsory instructions was incompatible with the notion of having to ‘act in the best interest’ of the donor and that an attorney should not be bound by such instructions.

In terms of an attorney using the donor’s money for the benefit of others, without the need of gaining approval from the COP, the judge also made the following important comments:

How to make gifts 

The Mental Capacity Act 2005 clearlysets out what gifts an attorney is able to make. With restrictions in place to protect the donor’s assets from being ‘gifted away’.

As an attorney, you are able to make gifts on birthdays, Christmas or to charities the donor may have previously been a supporter of; with the value of that gift been seen to be reasonable and not detrimental to the donor’s future financial needs.

Obviously this hinders any estate planning that hopes to use large gifts as a mechanism for reducing the value of the estate.

It is possible to make gifts outside of these restrictions by applying to the COP. However this will add costs and delays, with no guarantee of a successful outcome.

If the donor is still capable of making the gifts themselves, then this should be supported. Although, if the donor has any intentions of making substantial gifts this is best done prior to incapacity becoming an issue.

Can an attorney provide for others?

If a payment is deemed to meet the needs of someone the donor was obliged to provide for, such as a spouse or any dependents, then this has always been viewed differently to that of a gift.

However, the recent ruling by the COP has extended this. The Judge commented upon the requirement to act in the ‘best interests’ of the donor, so felt that an attorney shouldn’t just be limited to ‘needs’, but should also take into consideration the donor’s ‘past and present wishes and feelings, beliefs and values’. Which broadly means that an attorney can do whatever he or she believes that the donor may have reasonably done themselves; but you may need to provide some evidence of this. 

Providing evidence of intention

The best evidence of intent comes from a donor’s past behaviour. Or, better still, an expression of intent included within the power of attorney document. 

When making decisions an attorney need only take evidence into account, they are not bound by it. As an attorney’s main consideration should always be the best interest of the donor and not the interest of the recipient.

Be aware that justifying an action on the basis of saving Inheritance Tax (IHT) is unlikely to be deemed to be in the donor’s best interest. There needs to be other factors and motives, although the size of the donor’s estate and associated costs of lifestyle and care can also influence decisions.

As a general rule, and to avoid misinterpretation, any money transferred to an individual that falls outside the definition of a gift under the Mental Capacity Act 2005, will be deemed to be a transfer of value for IHT, unless it’s covered by an exemption.

Scottish independence!

If you are in Scotland, then the legal position is a little different.

An attorney is able to make gifts, including those for estate planning purposes, just as long as the donor has specifically included this within their power of attorney document.

To sum things up

The ruling by the COP provides greater opportunity for an attorney to provide for the needs of family members, without being confined to only providing gifts on birthdays or Christmas. However, these provisions need to be made in conjunction with a clear expression of wishes by the donor along with a belief, by the attorney, that these actions are in the best interests of the donor.

Any uncertainty should result in an application to the COP for further clarity and permission. 

As always, if you have any questions regarding Lasting Powers of Attorney, or if you need to put an LPA in place, then please contact us at Bridgewater Financial Services, where we will be delighted to guide you through the complex process.

Don’t sleep through the changes in your pension statement

Wake-up packs and how NOT to lose sleep over them

“Pensions Statement” is possibly the right word for those of us who have thought about these things. Wake-up pack feels a little more like a hysterical last minute plea!

However, whatever your thoughts on the name, as of Friday 1 November 2019, The Financial Conduct Authority (FCA) has determined that every pension customer should receive a Wake-up pack, from the age of 50 onwards. The pack will be provided by the pension provider and will contain a one-page summary of the pension details and should be updated every five years until the pension is eventually cashed in.

The one-page summary will include:

• The value of your private pension
• Your assumed retirement date
• The contributions made that year by you and your employer
• General information on retirement planning

All Wake-up packs will also carry a risk warning that is tailored for the individual that the packs is being sent out to. So as you will imagine, the risk warning to a 50 year old will be different to that of someone who is 75 years plus. These warnings will be tailored according to the information that the pension provider holds on the client receiving the pack.

Although providers will have free rein to include whatever risk warnings they want, most will cover the risks of pension scams, contributions and investment risk as well as an explanation of tax issues.

What’s the big idea?

The motivations and idea behind this new wake-up pack is to encourage you to consider your approaching pension and to give you the time to put more money aside to cover your retirement, if it seems necessary.

The wake-up pack will also contain information regarding the Government’s Pension Wise Service. Along with a summary of the possible advantages of shopping around when purchasing a pension in the first place, as well as the best practice to follow when exploring this. Assuming you haven’t already covered all of this off with your Financial Adviser.

Packs will start to arrive:
• Within two months of you reaching your 50thBirthday
• Four to ten weeks before reaching the age of 55 years
• After 55 they will arrive every five years until your pension is cashed in

Additional triggers for the packs are:
• When you ask for a retirement quotation (if it’s more than six months before you intend to retire)
• When you are considering, or have stopped, an income withdrawal arrangement
• When you decide to take further benefits from your pension.
• When you request to access your benefits for the first time

Although packs do not need to be sent out, if you have already received one in the last year. Which is good news for the trees, as all wake-up packs must highlight that guidance is available from Pension Wise and, apart from the one sent at aged 50, will also have to be accompanied by a brochure from the Money Advice Service.

So has your financial adviser been asleep then?

You would assume that all these issues and more would have been taken care of by your financial adviser – and in most cases, you’d be right (depending upon who your adviser is).

So don’t worry, as these new requirements are mainly aimed at helping non-advised clients make better decisions for themselves. If however there is anything in your wake-up pack that you have any questions about, then don’t hesitate to contact your adviser and ask.

As always, if you have any questions regarding your current or future pension strategies, then please contact us at Bridgewater Financial Services where we will be delighted to help.

Dealing With Redundancy – what to do right now.

What you need to do, if you are facing redundancy

With the shock collapse of Thomas Cook, leaving over 21,000 people now facing certain redundancy and countless thousands working in support industries with an equally uncertain future, I thought that I might share some thoughts on what to do if you are facing immediate redundancy.

What to do right now

Finding yourself facing redundancy may have a profound psychological effect upon you, but it’s also a time when you need to be strong and take some immediate action.

If you are being made redundant, then you should spend today doing the following things as a matter of urgency. Taking back control of things starts here:

Claim everything you are entitled to. Nobody want’s to sign on, but you’ve been paying into the system; and it’s there for your benefit too. So sign on today, as you may be eligible to claim benefits such as Universal Credit, whilst you are looking for a new job.

There are also other benefits such as Housing Benefits, Council Tax Reductions, Jobseeker’s Allowance and Tax Credits that may be available to you. Here’s a link to the Citizens Advice Benefit Checker, that will quickly show you what benefits you are entitled to:
https://www.citizensadvice.org.uk/benefits/benefits-introduction/what-benefits-can-i-get/

Deal with your mortgage. As you won’t know just how long you will be without an income, notify your mortgage lender (and other lenders) today. That way, if you have problems keeping up payments, they will likely work with you to overcome short-term difficulties and may offer things like payment holidays, or a switch to interest only repayments. They are usually helpful and sympathetic, but they can only offer assistance if they are aware of what’s going on – so tell them as quickly as possible.

Claim on any policies. If you took out insurance against being made redundant, that should cover your mortgage and loan repayments, so claim today. The process of being paid out may take some time, so start the ball rolling now, to help avoid missed payments whilst you wait for the insurance money.

Work out your budget. Calculate what your assets and liabilities are, along with other household income and expenditure. That way you’ll get a clear picture of your current financial standing. Cut any unnecessary expenditure and prioritise remaining expenses in order of importance. Knowing exactly where you are financially will significantly help with any negative emotions you may be having.

Once you’ve done the basics, then it’s time to tackle the rest

I can’t stress how important it is to have done the above points – for both your financial and mental health. Once you’ve dealt with immediate actions, then it’s time to think about the following:

Get professional advice. If the whole situation seems daunting, reach out for some help. Talk to a properly qualified financial planner. You don’t know what you don’t know – and getting expert advice could save you a great deal of stress and money.

Clear existing debts. If you can, clear any outstanding credit cards or loans. Especially because the cost of most debts vastly exceeds any interest you’ll be earning on savings.

But keep access to emergency funds just in case you need them.

Those you can’t clear, move to the cheapest rate. Your credit score may take a post redundancy knock, so now’s the time to move debt to the best possible rate, such as the interest free balance transfers of certain credit cards

Once you’ve received your redundancy payment

Following the receipt of your final lump sum, there are one or two things you may want to consider.

Top up your pension. You could choose to take advantage of the tax relief available on the first £30,000, as you top up your existing pension from your redundancy payment.

Invest for your future. If you cleared your debts, and have a nest egg, you may want to consider your redundancy payment as a windfall and use it to make some longer-term investments.

Early retirement. You may even be in a position that your financial situation allows you to consider an early retirement, or at least a significant step away from the world of work.

Redundancy is a strange and stressful time

Facing redundancy can be emotionally draining and it’s easy to try to avoid meeting it head on. However, if you want to lessen the impact it may have on you, both psychologically and financially, then early planning and preparation is the answer.

Sorting out your existing finances and planning for the short and long-term future are fundamental and very wise moves. Talk to your financial adviser about the points I’ve highlighted in this blog. Then explore those areas of your individual finances that will also be impacted.

It’s not the end of the world, on the contrary, it’s a new beginning; and taking charge of the situation is your first step down the road to a brighter future.

As always, if you have any questions regarding your current or future financial situation, especially if you think that redundancy may be a future possibility, then please contact us at Bridgewater Financial Services where we will be delighted to help guide you through your individual options and strategies.

Some helpful links:

https://www.citizensadvice.org.uk/work/leaving-a-job/redundancy/preparing-for-after-redundancy/

https://www.gov.uk/redundancy-your-rights

http://www.executivestyle.com.au/what-they-dont-tell-you-about-being-made-redundant-gwacfd

Market Volatility a lesson from NASA

Don’t Take A Giant Leap

Back on the 20thJuly we celebrated the 50thanniversary of the moon landings. I was totally in awe of Neil Armstrong, who took over the piloting of Eagle, from the computer once he noticed that the preselected landing place wasn’t going to be suitable.

Both he and Buzz Aldrin calmly worked together, whilst the vital fuel that would get them home was used to pilot Eagle over the rocky surface to a safe point of touchdown.

It was this calm, panic free approach that saved their lives, the mission and the hopes of the whole planet.

They trusted what they knew to get them through what must have been a terrifying descent. But they stuck to the plan established by NASA and they achieved what they’d all set out to accomplish.

I can’t help thinking that this idea of sticking to a plan, no matter how appealing it may be to abandon it, is a lesson for us all in the current investment markets, as we go through periods of increased volatility.

I say this because, unlike Apollo 11, we are not actually in uncharted territory. History shows us that volatility is a normal function of the markets.

Our long-term journey as investors will have highs and lows. However we should no more emotionally jump from a growing market than we should from a declining one. As reacting emotionally to market volatility could be far more harmful to your portfolios performance, than the market drop itself.

Here’s something to remember

This interesting graph showing the Dimensional UK Market Index returns by year (from 1956 – 2018*), should help put things in some perspective. As we can see, the markets have provided positive returns for investors for 47 of the 62 years shown (that’s 75% of the time).

So whilst it is sometimes difficult to remain calm during a market decline, it is however important to remember that volatility really is a normal part of investing.

Investors, who do seem to be able to time the market, usually do so with more luck than judgment. With the general wisdom suggesting that the big returns in the total performance of individual stocks over time, are usually produced in a small handful of days.

As investors can never really accurately predict when these days will come along, the prudent strategy would seem to suggest that remaining invested during these periods of volatility, rather than abandoning the stocks, means that investors won’t be on the sidelines on the days when the strong returns occur.

Screen Shot 2019-09-23 at 19.53.06

In a changing market, knowledge is power

Hear are the most frequently investment questions I get asked in times of volatility:

I’ve been looking at funds with strong past performances; can I assume that they will do well in the future?
Whilst some investors are known for selecting mutual funds based on past returns, research suggests that most US mutual funds in the top 25% of previous five-year returns did not maintain that ranking in the following five years.

So the short answer would be: No, past performance is just that, history. It offers little insight into possible future performance.

Is being a successful investor all about out-thinking the market?
The short answer is to let the markets do the thinking for you. It’s a fair assumption that people want a positive return on any capital they invest. Over time history shows us that the equity and bond markets have provided growth of wealth that has more than offset inflation. So instead of fighting the markets and trying to out-think them, let them work for you. Remember, financial markets reward long-term investors.

Should I think of stepping out of the UK and exploring international investing?
It’s a good question. We all know that diversification can help reduce risks and that diversifying only within your home market limits that benefit. Not only does global diversification extend your investment opportunity; but by holding a globally diversified portfolio, you are better positioned to seek returns wherever they occur.

To give you an idea of the opportunity, according to MSCI UK and ACWI Investable Market Index (IMI), the UK is one country with 364 stocks; whilst the global opportunity for investments ranges across 47 countries with 8,722 stocks.

Will constantly changing my portfolio help me achieve better returns?
As it’s almost impossible to know what market segments will outperform the others, it’s better to avoid unnecessary changes that can be costly.

Can my emotions affect my investment decisions?

There is a vast body of psychological research that shows that we struggle to separate our emotions when investing our money. Just remember that markets go up and down. So kneejerk reactions are usually poor investment decisions.

Every time I hear the news, I’m tempted to make changes to my portfolio,
is that a good idea?

Day to day commentary can make us question our investment discipline. Some news will stir anxiety about the future, whilst other news tempts us to chase the latest faddy investments.

My advice is to always consider the source and to keep your long-term objectives in focus.

I feel like I need to do something – so, what should I be doing?

Get another perspective on things, especially and independent and expert one. Talk with your financial adviser who can help you focus on actions that add value.
Sticking to actions that you know you can control can certainly lead to a better investment experience.

  • Create an investment plan to fit your needs and risk tolerance.
  • Structure a portfolio along the dimensions of expected returns.
  • Diversify globally.
  • Manage expenses, turnover, and taxes.
  • Stay disciplined through market dips and swings.

Stay on mission

Neil and Buzz didn’t panic. They didn’t cancel the mission, because things looked tough. They trusted in the plan. They stuck to a pre-agreed course of action and rode out the challenges that faced them on the descent to their ultimate goal.

I totally appreciate that market volatility can be a nerve-racking time for investors. However, reacting with your emotions and altering long-term investment strategies could prove more harmful than helpful.

Sticking to a well-thought- out investment plan, ideally agreed upon in advance of these periods of volatility, you’ll be better prepared to remain calm during periods of short-term uncertainty.

As always, if you have any questions regarding your current or future investment strategies, then please contact us at Bridgewater Financial Services where we will be delighted to help.

* Past performance is not a guarantee of future results.

A new prime minister, European negotiations, uncertainty and mass speculation. The Markets have seen it all before!

Growth of a Pound Invested in the Dimensional UK Market Index January 1956 – December 2016*

What’s that old Chinese curse?…. “May you live in interesting times.”

Well they’re certainly interesting all right. The funny thing about that curse however is that no actual Chinese source has ever been produced. It’s another example of speculation, gossip and assumption working their way into our lives; and whilst these kinds of idle speculations prove to be great pastimes of us all, they can also be three of the most destructive influences on your long-term investment portfolio.

We’re getting closer to the end of the tunnel.

Whilst we hate uncertainty almost as much as the markets do, there seems to be some new movement in the world of politics. We now have a new prime minister in the form of Boris Johnson, along with a new cabinet. There will be new domestic and international relationships to smooth and cultivate; along with the attempted renegotiation of Brexit. With the future holding either a deal or no-deal exit, as well as the possibility of a general election.

And guess what?… The more things change the more they stay the same.

Whilst it’s fair to say that the markets don’t like change, if we look at the long-term performance of the markets in terms of the growth of £1 invested in the Dimensional Market Index from January 1956 through to December 2016; then we can see a much bigger picture emerging.

Obviously this is not suggestive of long-term market performance, based upon which political party command the majority in the House of Commons. But what it does show us however is, as far as the markets are concerned, it really doesn’t seem to matter who occupies Number 10 Downing Street. No matter how troubling, exciting or boring the World or the UK domestic scene is, the markets seem to just get on with things, suggesting that long-term growth is inevitable.

So the important point now, is not to sell long-term investments during these ‘wobbly times’. As the historical evidence seems to suggest that there is an on-going trend for growth despite moments of turmoil, like joining the Common Market in 1973 or the banking crisis of 2008.

What was it that Corporal Jones used to say?… “Don’t panic!”

And it’s really good advice!
It doesn’t really seem to matter who lives in number 10, or whether we are in out or shaken all about with regard to Europe. The economy and markets are robust and seem to be determined to grow in the long-term.

Bear in mind too that there have been recessions and wars during the 60 years the graph covers; so turbulence a plenty in the economy. But just like the aircraft whizzing you away for your holidays, turbulence a small part of the flight and the seasoned professionals on the flight deck and the ones serving your drinks are never fazed by it. As they understand that, no matter how disconcerting it is at the time, turbulence is just part of the journey that gets us to the destination we’ve been looking forward to arriving at.

So with all of that in mind, it’s probably not the right time to react hastily and make any significant changes to your long-term investment plans.

As always, if you have any questions regarding long-term investment planning, or any other aspect of your finances, then please call Bridgewater Financial Planning, where we will be delighted to help in anyway we can.

* For illustrative purposes only.
Dimensional indices use CRSP and Compustat data.
Past performance is not a guarantee of future results.
Index is not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual fund.

A review of the 2018 Budget and what it could mean for you

In his latest and last pre-Brexit budget, the Chancellor Philip Hammond has declared an ending of austerity and has appeared to open up the public purse and do his best to spread some fiscal happiness.

The headline view of the budget suggests that most people will be paying a little less tax from April onwards, with some of the higher earners seeing that cancelled out by a rise in national insurance.

On the whole this should mean that you’d find the Chancellor has left an extra £155 a year in your pocket, if you earn between £12,500 and £50,000 – with an extra £566 for those earning between £50,000 and £100,000.

So let’s dive a little deeper into things and see what the budget might mean for you:

INCOME TAX

From April 2019 the personal income tax allowance will increase to £12,500, with the higher rate threshold climbing to £50,000.

Any changes to income tax rates and tax bands in Scotland will be announced by the Scottish Government in their budget on 12 December.

PENSIONS

Once again the Chancellor is raising the pensions lifetime allowance, with an increase to £1,055,000 from April 2019.

There are no changes to the pension annual allowance, with the standard rate remaining at £40,000 and the money purchase annual allowance (MPAA) staying at £4,000, (which applies where a drawdown pension income has been taken). There are also no changes to the high-income annual allowance taper rules.

ISA’s

Annual ISA limits remain at £20,000 per person, with the Junior ISA limit being raised to £4,368.

CAPITAL GAINS TAX

There will be an increase of £300 from £11,700 to £12,000 on the annual exemption for Capital Gains Tax, effective from April 2019.

INHERITANCE TAX

The nil band rates for inheritance tax will remain at £325,000 until April 2021, with the residence nil rate band increasing from £125,000 to £150,000 from April 2019.

TRUST

Once again, and following a similar announcement in last year’s budget, a consultation into the tax treatment of trusts was announced.

This consultation will examine ways to make the taxation of trusts simpler, fairer and more transparent. However, no date has been set for its publication.

Google and Amazon

During his budget speech, the Chancellor announced, “Digital platforms pose a real challenge for the sustainability and fairness of our tax system. The rules have not kept pace with changing business models.”

With that Philip Hammond then introduced a Digital Services Tax, which is estimated to raise £1.5bn over four years.
This new Digital Services tax will have an obvious impact on the tech giants, whose revenues are over £500m (such as the FAANG companies).

Following the announcement, shares in Google and Amazon dropped 2.3% and 4.5% in mid-afternoon trading. Although the FTSE 100 was up 1.3% to 7,026 points.

CURRENCY MARKETS

The Chancellor revealed that the Office for Budget Responsibility has increased its projections for GDP growth for 2019 from 1.3% to 1.6% next year.

Despite this, as well as having been up prior to the speech, sterling was down 0.11% at €1.1239 against the euro, while against the US dollar it also dropped 0.19% to $1.2804.

2017 BUDGET SUMMARY

Apart from a few corny jokes, Philip Hammond delivered another steady budget in terms of its implications in the world of financial services, with no radical changes to the landscape. That said, the future really depends on what happens with Brexit and that is looking very precarious. The Chancellor has indicated that he would need to revisit the a budget if the UK crashes out of the EU without a deal. Time will tell how that pans out!

As always, if you have any questions regarding a specific area of the budget, or your own personal circumstances, then please don’t hesitate to get in touch with us. We will be happy to help.

Ten reasons why you should consider using your pension to purchase your business premises.

As you may have spotted, I love lists. Especially when they are reasons to seriously think about a financial approach to things you may not have previously considered; and when they make as much sense as this list does!

If you are a business owner or interested in commercial property investment, then you need to read on. There are some real opportunities that you may not be aware of which could add a boost to your business and your property investments.

1. Your SIPP can invest in your own business’s property, or one for another business

One thing you can do with a SIPP is to take advantage of the opportunity it provides for you to buy and invest directly in UK commercial property.

This is obviously ideal if you are self-employed and wish to use your SIPP to assist you in buying your business premises. What you may not know however is that the property doesn’t actually have to be linked to the business you own.

2. The Tax Man – he’ll even help you buy the place!

Get the Tax Man to chip-in for the purchase of the property.
I don’t think I’ll ever get tired of writing that sentence, so I’ll
repeat it… “Get the Tax Man to chip-in for the purchase of the property”.

That’s because your SIPPS or SSAS pension contributions qualify for tax relief. So they automatically boost your own contributions, help purchase the property and make mortgage repayments too.

As you can imagine the system of tax relief is often complex. Put basically the rules hinge upon whether it’s your company, or yourself that’s making the contributions.

To try and simplify it here a Personal Pension Contribution of £10,000 would get £2,500 in tax relief – meaning a pension contribution of £12,500 would be made in real terms. With high rate taxpayers able to then claim an extra 20% with additional rate taxpayers able to claim even more.

If it’s a Company Pension Contribution, then all contributing amounts are treated as a business expense when calculating company profits and subsequent Corporation Tax liabilities.

3. Renting just makes your landlord wealthy

Lining your landlord’s pockets with rent, whilst repairing and up-keeping their property is only ever a fabulous deal for your landlord!

With rent and repairs often seen as dead money, more and more business owners are seeing the advantages of owning their own premises; and are utilising their SIPPS or SSAS to make this a reality.

4. The more you pay in rent – the more your pension grows

If your SIPPS or SSAS owns your company’s premises, your company is still a tenant, but it’s now your pension that will be the landlord. Which means that it’s your SIPPS or SSAS that receives all of your rent.

Not only does the rent increase your pension, but it’s also tax-free when there is a formal lease in place arranged on current commercial terms. Best of all, it’s treated as a business expense in the company’s accounts, reducing your profits and Corporation Tax bill.

5. Pay NO TAX on the sale of the property

Owning your own business premises personally, or through a limited company means that when it comes to a sale, any profits would potentially attract tax. Obviously there would be the normal Capital Gains Tax exemptions if you owned it personally – but there would usually be something to pay.

Owning your property through your pension means that no tax is payable when you come to sell the property.

6. Become the master, or mistress, of your own destiny

As long as you continue to pay yourself the rent on time and any borrowing commitments are met, you are in complete control. We’ve all heard stories about businesses being priced out of their premises by massive rent rises, or simply having the premises sold up from under them.
Owning your own premises through your SIPPS or SSAS pension puts you in the decision making seat and provides the certainty that you’ll always know what the plans are for the building you occupy and pay for.

7. A business asset you can bank on

Your SIPPS or SSAS pension can borrow up to 50% of its value to help fund the purchase of a property. That can be the one you’re in right now, or an additional property in the future.
With SIPPS or SSAS pensions able to borrow from a bank, just like your business would. In fact, pretty much all the banks are now used to lending to SIPPs and SSASs and have specialist departments dealing specifically with these types of loans.

8. Keep your options open

If you don’t have enough in your pension to buy your property outright, there are options available to help bridge that gap.
You could consider:
• Additional pension contributions
• Multiple pensions, multiple owners
• Joint purchases

Not having the capital right now shouldn’t mean you should rule out purchasing your property. To get an idea of how these work, speak to your financial adviser.

9. A cash injection for your business

If your business has already bought its own premises, then arranging to purchase it from your company via your pension can provide your business with a significant cash injection. As once the transaction is completed any cash held in your pension would transfer to your business and the property would now be owned by your pension, with all of the tax advantages that come with that.

Just be aware that this option isn’t for everyone. As any transaction has to be on commercial terms and at market price, determined by an independent valuation.
If any profit has been made on the sale, then that could trigger a tax charge. You will also have fees to pay like stamp duty, plus you won’t be able to access the income from the property until you’re at least 55 years old.

10. Lower taxes to pay when the door finally closes

Owning your business premises personally, outside a pension, means that it will be included in your estate when calculating any Inheritance Tax due on your death.

However, assets held in a pension are outside of your estate for Inheritance Tax purposes. There are other tax advantages too, which depend on when you die, but you need to consult your financial adviser for further advice on this.

Our office door is always open

If you have any questions regarding buying a commercial property with your SIPP or SSAS pension, then please contact us at Bridgewater Financial Services where we will be delighted to help guide you through the options available to you.

Wishing you a long, happy life AND a good ending

birthday cake 100

As we all live longer, we’re presented with more and more new challenges that previous generations never had to think about.

One of the key areas for concern has been highlighted by the organisation Solicitors for the Elderly (SFE), who have recently published a study warning that we are slowly drifting towards an ‘incapacity crisis’ throughout the UK.
With an ever-widening gap between the rising numbers of us likely to lose our mental capacity through dementia and the relatively small number of us who have arranged a health and welfare lasting power of attorney (LPA’s).

We might be living longer – but what kind of lives will we be living?
According to the SFE report, dementia diagnosis in the UK increased by over 50% from 2005 – 2016, to 540,000 cases. Add to this the undiagnosed cases and we’d likely be closer to 850,000.

This number is set to keep rising, with estimations putting us at over 1 Million diagnosed with dementia by 2025, with a further 300,000 going undiagnosed. Put simply, of the 12.8 million Brits over the age of 65, one in fourteen of us will develop dementia.

The chief concern raised in the SFE report focuses upon that part of the study carried out by the Centre For Future Studies. Who found that just 928,000 health and welfare (H&W) LPA’s have been registered with the Office of the Public Guardian (OPG) throughout England and Wales.

This means that there are currently a staggering 12 Million people at risk of developing dementia, with no proper arrangements in place to govern their care in old age.

As we drift toward a crisis in care provision and arrangements, the SFE is urging us to focus upon and take-up our own H&W LPAs, to avoid the potential ‘huge disparity between our wishes and what will happen in reality’.

The taboo that surrounds the subjects of medical decisions and end of life care must be conquered. The subject of H&W LPA’s must become a common-place discussion around any dinner table.

As it’s widely recognised that this emotive issue is far easier to swerve than face, I thought I would try and help by giving you a three-step guide to the whole process.

The first three steps

1. Think
Have a good think about what you wish to happen should you lose your mental capacity and are no longer capable of making decisions for yourself. Write the key points down, so you get a real understanding of what you would want and how you would want to live.

2. Talk
It’s very important that you share your thoughts with the person, or people, whom you wish to make decisions on your behalf, should you lose your capacity to do so for yourself (these are usually a family member or close friend).

It’s a difficult but important conversation to have. As a staring point, you need to let them know that you want your future wellbeing to be placed in their hands, as that’s quite a responsibility in itself. You also need to explain to them what you would like to happen around key decisions. It’s better in the long run if they have heard it from you and that they understand the thoughts behind your wishes.

It’s also important to make sure you pick the right person to act for you. Ideally it will be someone who knows you well and who will feel confident to make decisions on your behalf.

3. Act
There’s nothing worse than leaving the person you appoint with a wishy-washy and legally flawed document at the time that it’s needed most. Emotions will be running high with your loved ones and a binding and rigorous LPA will be worth it’s weight in gold.

Please also be aware of the shortfall of DIY LPA’s. As they often cause more trouble and arguments than they fix, as they may not consider all the outcomes and may be legally inaccurate. All of which causes significant emotional and financial strain just when you come to rely upon it.

A proper plan is the best form of protection
Put simply, nothing will provide more control and protection than putting a robust H&W LPA in place.

So put the three-step plan in place and start those conversations, as it’s far easier to have them now rather than later. They aren’t easy subjects to broach, but it’s really important that you are able to talk your decisions through, and explain your feelings behind them, if your wishes are to be understood and followed with conviction.

If you don’t have a H&W LPA, you can talk to us and we’ll help you get the cover in place.

As always, if you have any questions regarding Health and Welfare Lasting Power Of Attorney, please call Bridgewater Financial Planning, where we will be delighted to help in anyway we can.

Death And Taxes – The Top 10

As far back as 1789, Benjamin Franklin wrote a letter to Jean-Baptiste Leroy where he famously said…“in this world nothing can be said to be certain, except death and taxes”.

As both of these don’t appear to be going anywhere, even The Office of Tax Simplification (and yes, there really is one) has been conducting a review of how the Inheritance Tax (IHT) process can be improved.

No doubt this will take some time to conclude, but as there is a current spotlight on IHT, I thought I’d write something on the top ten areas of confusion, I am often asked to explain.

  1. Transferable nil rate band

Under the current system, introduced in 2009, the standard nil rate band is set at £325,000. However, when someone dies, their executors can claim the unused nil rate band form any spouse or civil partner who passed away before them. So this could mean that the deceased’s estate can climb to £625,000 before IHT is applied.

The amount you are allowed to utilise from former partners will be reduced if gifts were made to the partner, or other people, in the 7 years prior to their death. This in itself can be complex, as copies of original wills and grants of probate will be required to determine the gifts made, when claiming the allowance of a former partner.

  1. Residence Nil Rate Band (RNRB)

As things currently stand, there is an extra £125,000 (rising to £175,000 by 2020/21) nil rate band available when the family home passes to direct descendants. However if you don’t have children or grandchildren, then you cannot take advantage of this. Estates valued over £2 million can also lose all or part of this allowance.

If you have downsized, or sold your home to pay for residential care, or moved in with relatives, then you can still benefit from RNRB, despite the fact that there isn’t a physical property that is passing to your direct descendants. Just watch out for the complex adjustment calculations though, as they can be particularly complicated when a number of beneficiaries are involved, especially when they are not direct descendants.

  1. Pensions and IHT

Most of the time any lump sum death benefits from a pension scheme will be IHT free. However, if you are in poor health and you transfer benefits to another scheme, or pay contributions, or place buy-out plans or retirement annuity contracts in trust – then this can result in IHT becoming payable.

As long as you are healthy when you make these changes, then the value transferred will be nil. HMRC will also assume someone is in normal health if they survive the above actions by 2 years.

  1. Lifetime gifts – who pays the tax?

Gift giving can be a successful way to help avoid IHT, however any responsibility for IHT belongs to the gift recipient. So it’s worth reminding ourselves of the different scenarios that can arise.

Any gift to a spouse or civil partner is exempt from IHT. Gifts to others are free from IHT as long as the gift giver survives for 7 years after the gift is made. If they pass away before 7 years, then the gift becomes chargeable and is added back into the estate for IHT.

Gifts made into trusts are seen as Chargeable Lifetime Transfers (CLT’s) and can be complex and worth chatting to a qualified financial adviser about, especially as they can often lead to uncertainty as to who ultimately has the potential tax liability.

  1. CLTs and the ’14 year rule’

If there’s one area that creates questions it’s the way that gifts impact on one another, especially how a gift made up to 14 years ago can still have an effect upon the tax paid on subsequent gifts.

As all prior CLT’s will continue to reduce the nil rate band available to chargeable transfers within the 7 years before death. This means that any recipient of a gift 7 years before death may have tax to pay due to another transfer made up to 14 years before the person passed away.

  1. Taper relief

Don’t fall into the trap of assuming that taper relief can reduce the value of a gift made within 7 years of a donor’s death, as it can’t. It simply reduces tax payable on the gift, but not the gift itself.

If the gift was made between 3 and 7 years before death, then taper relief is available, reducing the tax payable by 20% for each complete year from year 3 onwards.

  1. Gifts with reservation

To be effective for IHT, a gift must be just that – a real gift.

The donor can’t benefit from the outcome of the gift. For example if the donor continues to benefit from the gift of a property, then it will be classed as part of their estate. This means that you can’t give away your family home and continue to live there, unless you pay the full market rent to stay, or only part of the property is gifted and the co-owners share the running costs.

  1. Normal expenditure out of income

Regular gifts made out of surplus income are immediately exempt from IHT.

But what counts as income isn’t the same as taxable income and it’s well worth having a conversation with your financial adviser to fully understand the definition of income and to identify the opportunities available.

  1. Reduced rate for charitable trusts

Making any gift to charity in a will, where the gift is more than 10% of the net estate, will reduce the rate of IHT from 40% to 36%, if the will is carefully drafted to ensure the 10% test is met.
However, it’s worth noting that the amount given to the charity will always be greater than any tax saved.

  1. BPR – trading businesses

Business property relief (BPR) on a trading business is available for transfers of unlisted shares and the business property itself, if the property has been owned for 2 years or more prior to the transfer.

IHT can be complex – but great advice is always the best place to start.

I hope that I’ve shed some light into the complex workings of Inheritance Tax Planning. With the on-going focus upon the various aspects of IHT currently being undertaken by the Government, it may be worth consulting with your financial adviser to ensure that your IHT plans are up-to-date and conform with changes in legislation.

As always, here at Bridgewater Financial Services Ltd, we would be happy to answer any questions you may have, so please don’t hesitate to get in touch.

As a New Tax year begins, let’s have a wander through your plans

On 6 April 2018 we moved into a new financial year. Okay, it probably wasn’t marked with street parades or fireworks, but it’s certainly worth taking note of. Especially as all of your allowances were re-set and a fair few new rules and regulations will be put in place during the following twelve months.

Like most sensible people you may have some form of plan in place that delivers an end result for your future. However you’d be surprised at how many of us don’t have a proper map of how to attain our desired retirement. If that’s you, don’t panic – you’re not alone, but this may be the time to seriously start thinking about putting some plans in place.

Start the new financial year with this new thought

What I tell all of my clients is this: Your financial plan should be seen as a journey, much the same as if you we’re going to go hiking in the mountains. Just like when you set out into the mountains, your financial plan is going to need some specialist equipment and an expert guide to make sure you reach your goal safely, successfully and within your timescale.

There’s a saying in the hiking community that is mirrored in financial services: “Hope for the Best – but Plan for the Worst”. So that’s exactly what we need to do.

The first step of your journey

No one sets out on a journey without knowing where he or she wants to get to. It’s exactly the same with your financial plans. The most important part of your journey is identifying precisely where you want to end up. In terms of your financial plans, this should be a clear idea of the goals you are aiming to achieve at the end of your endeavours.

Once you have worked out a realistic destination, with the help of your guide in the form of your Independent Financial Adviser (IFA), then you can ensure that you have the right route mapped out to achieve your financial goals.

Keep your eye on the path

A critical part of any hike is making sure that you are headed in the right direction. Your IFA should be there at regular agreed intervals to sense-check everything is still on-track for you. They will, if necessary, make course-corrections and adjustments.

Should your circumstances change, but your goals remain, then they are there to re-plot your course to help make success achievable.

Don’t be put off with changes in the weather

Any hiker will tell you to pack your rucksack for spring, summer and winter – and expect it all in the same afternoon. It’s the same with a long-term financial plan. You will enjoy bright sunny days as well as stormy ones. The trick is to remember that just like the weather, things change. As long as your IFA has planned properly, then the ups and downs of investment returns will be as planned for as the ups and downs of hill walking.

Enjoy the places of interest – just don’t stray from the path

If we see a crowd gathering and pointing at something eye-catching on a hike, there’s nothing wrong with stopping to take a quick look.

It’s the same with your financial plans. You’re going to be distracted with countless bandwagons trundling exotically up and down the path. What we don’t do however is re-define the purpose of our journey and build a new route around jumping on the back of one of them.

Distractions can send us off course and often mean that there is a price to pay in getting back on the right path. A good IFA is there to keep your attention off the many distractions that, once you’ve notice them, have usually already been priced into the market.

There are multiple paths on the mountain, so be flexible

There are many routes to the summit and more often than not, you will come off an established path to take advantage of a shortcut, stop and eat your sandwiches or to avoid an unexpected change in the terrain. It’s the same with your long-term financial plan. It’s ok to come off script, if and when your IFA advises that it’s the right thing to do. It maybe a reaction to interest rate fluctuations, or the temporary movement of investments into or away from higher risk profiles. Whatever the changes, just think of them as adjustments in the route, designed to ensure you reach your goal.

The thing to remember is that unpredictability and uncertainty are a part of your financial journey. A good guide, in the form of an Independent Financial Adviser, is aware of that and they will plan accordingly; and have contingencies ready to put in place.

Everyone is on the mountain for different things

Next time you go hiking, just remember that all those you’re sharing the countryside with are there for different reasons. Some for the view, some to beat a record, some to collect ‘peaks conquered’ and some for the escape from their daily lives. Well it’s the same with your financial plans. No two are ever alike, as we all have different goals we wish to achieve.

The one thing everyone always has in common however, is a respect for the mountain and a sensible approach to the task ahead. It’s the people who set-off without any real goals, the wrong equipment and no map, that are the ones the brave men and women of mountain rescue get called out to find.

Build a bridge to your financial future

As ever, if you have any questions regarding any aspect of planning for your future, then please contact us at Bridgewater Financial Services where we will be delighted to help guide you through the options available to you.

Happy Hiking!