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Goodbye 2020… Hello Brexit!

As we say goodbye to 2020, we usually look back and take stock of the events that have unfolded in the last 12 months. Well, I think we’ve all had a pretty miserable year, so let’s look forward instead. But let’s do that with this maxim in mind…

Plan for the worst, but hope for the best! 

This particular piece of wisdom comes from Maya Angelou’s book “I Know Why the Caged Bird Sings.” With the actual quote being
“Hoping for the best, prepared for the worst, and unsurprised by anything in between.”
Which seems incredibly apt considering what we’ve been through and what we currently face.

With this in mind, this article concentrates on what the new Brexit deal might specifically mean to your finances. So once you’ve read this, hopefully you’ll be ‘unsurprised by those things in between’.

A flying start to your holiday?

The one massive ray of sunshine gleaming down the tunnel, is the vaccination program that should see us all safely immunised against Covid-19 by around Easter. This of course opens up foreign travel and holidays once more. So if you’re worried about the effect Brexit may have on the value of your pound abroad, then there’s a simple strategy you can follow to help reduce the impact of Sterling possibly dropping in value.

It’s important to remember that no one knows what the effect on the pound will be. It could end up stronger, weaker or it may stay the same. However, if you’re worried about it’s value against foreign currency for upcoming holidays, then follow this strategy. Purchase at least half of what you need at the best rate you can find today. Then get the rest nearer the time of travel.

Your European Health Insurance Card (EHIC)

EHICs will remain valid until their expiry date with a new and similar Global Health Insurance Card eventually replace the old EHICs.

Currently your (EHIC) entitles you to the same treatment as the locals are entitled to throughout the EU and includes Switzerland, Norway, Iceland or Liechtenstein.

It was expected that the EHIC cover would end after Brexit. However things aren’t as bad as we all expected. If you are a UK national, then you can continue to use your EHIC card in the EU, until it expires, which may be years away. However, you will not be able to use your EHIC in Switzerland, Norway, Iceland or Liechtenstein, as they are not part of the EU.

Once your EHIC card expires, a Global Health Insurance Card (GHIC) will replace it, but you must apply for this new card. Holders of the GHIC will be entitled to emergency or state required medical care for the same cost as a resident in the EU country. Again your GHIC will not cover you in Switzerland, Norway, Iceland or Liechtenstein. 

£85,000 Financial Services Compensation Scheme (FSCS)

Any deposits you have with UK regulated banks will still be protected for up to £85,000 per person per financial institution, under the current FSCS protections.

It’s been widely reported that Financial Services has yet to be negotiated and is not included in the current Brexit deal. Which means that much of the UK’s financial service’s legislation comes from EU directives, with the FSCS continuing post-Brexit and post the transition period. 

There are no significant changes expected to the FSCS, with the only thing that might alter being the amount covered. This is because EU rules state that all member states must provide €100,000 protection and currency fluctuations may cause changes in the current UK amount of £85,000.

Expat Pensions and Bank Accounts

The current system known as ‘Passporting’, where any UK or EU financial firm (including those in Norway, Liechtenstein and Iceland) can offer their products and services to UK customers and Expats has now stopped.

If you are an Expat, this means that UK IFAs can NO LONGER advise you based upon their UK authorisation. As they now have to also hold an EU authorisation.

If you are an Expat with a UK based Private Personal Pension or bank account, you may also have a problems obtaining service and advice, due to the failure of the government to negotiate any aspects of Financial Services during the recent trade deal.

Single Euro Payments Area (SEPA)

Post Brexit the UK will remain part of a key Euro payments system. Which means that payment service providers based in the UK will still have access to the central payments infrastructure such as SEPA. So those of you who wish to make cross border payments will be able to continue doing so, at the current low costs or free of charge where applicable.

Slightly closer to home – your Mortgage & Savings rates

One happy or sad result of Brexit, depending on whether you’re a mortgage customer or a saver, is that the Bank of England dropped interest rates to 0.25% following the EU referendum result, in the hope of holding off a recession.

Right now, because of the pandemic it’s at its lowest rate ever, at just 0.1%.

It has been reported that the Bank of England recently did an exercise with UK banks to check they could cope with negative interest rates; and there’s little doubt that, even with our new deal, Brexit is likely to fuel this further.

However, even if the short-term impact of negative interest rates is detrimental to the economy, it pales into insignificance when we stop to count the financial cost of fighting the pandemic.

As always, rather than second-guessing the shifting economic sands, it may be better to simply focus upon your own personal circumstances. Make sure that you have the best mortgage and savings rates possible and hopefor the best, prepare for the worst, and try not to be surprised by anything in between.

As always, if you have any questions regarding any aspects of your finances in general, then please don’t hesitate to contact one of our team at Bridgewater Financial Services; where one of our independent experts will be on hand to help in any way.

 

Stay Safe!

How safe is your cash post Brexit?

The impact of Brexit on Financial Services and the FS Compensation Scheme

As we stand right now (December 2020) The UK is leaving the European Union (EU) on 31 December 2020. EU law will continue to apply to the UK financial services regulations through the existing agreement for UK firms to do business throughout the EU without obtaining further financial services authorisation (something known as Passporting) until then. 

Passporting has allowed firms authorised in the European Economic Area (EEA) to conduct business within the EEA based upon member state authorisation. The FCA has given guidance to firms that we should NOT expect these current arrangements to remain in place once the transition period ends on 31 December 2020. As current negotiations regarding a trade deal never included any discussions regarding financial services, you should assume that any financial interests you may have abroad, will no longer be protected by the FSCS once passporting arrangements between the UK and the EU end.

You may need to take action, in order to be ready and protected following Brexit. Which is why I have outlined a number of likely scenarios that UK customer with funds invested in EU jurisdictions may be facing. Obviously this also applies to EU citizens with funds invested in the UK.

Either way, there are things you may wish to consider to ensure that you and your money remain protected from 1 January 2021 onwards. 

Financial Services Compensation Scheme post Brexit

The FSCS is there to provide protection and compensation to customers or investors of authorised financial services companies that fail or go out of business.

For UK based customers of firms authorised in the UK, the FSCS will not change post Brexit. However, for customers and/or firms based in the EEA (including Liechtenstein, Norway and Iceland) there maybe changes to the protection and compensation available. 

Deposit Protection with the FSCS

Protection via the FSCS will depend upon where the firm in question is authorised and which jurisdiction the firm uses to hold your deposits. My advice is to check with the firm for more information. In order to find where a financial services provider is based or authorised, the Financial Services Register is a good place to start,

Any deposits held in a UK branch of an EEA bank will be covered by the FSCS and your funds will be protected up to £85,000 post Brexit.
Deposits held in UK branches of firms based in Gibraltar are seen differently and are not covered by the FSCS; and will continue to be the responsibility of the Gibraltar Deposit Guarantee Scheme.  

Deposit Protection outside of the FSCS

At 11pm GMT on 31 December 2020, any FSCS deposit protection for funds held in EEA branches of UK firms will cease.

Although there should be an automatic transition to protection provided by an EEA deposit guarantee scheme. However this will be dependent upon the specific rules that apply to each EEA jurisdiction. Any change in, or loss of, protection should be notified to customers by firms prior to this date, but it’s always worth being proactive and checking things out yourself. 

Post Brexit, anyone with funds in EEA-authorised firms within the EEA will see no changes in their current deposit protection, as laid out in the EEA deposit guarantee scheme. 

Further information is available by contacting the firms in question, or visiting www.efdi.eu/full-members for a full list of EEA deposit protection schemes. 

Investment protections covered by the FSCS

If you are currently a UK based customer of an EEA authorised investment firm that operates within the UK, then you are currently protected by EEA compensation schemes.  Following Brexit, the protection that the FSCS provides will be extended to customers of EEA firms with UK branches; in the same way that cover is currently provided to customers of UK firms.  

However, it’s important to note that all customers of EEA authorised firms without a UK branch will no longer have access to the FSCS. The only exception is where there is already established FSCS cover for the operations and activities of certain fund managers. If you are in any doubt, my advice would be to contact your provider and find out for sure if your investments are covered by a relevant compensatory scheme.

Whether you live in the UK or the EEA,customers of a UK branch or of a UK authorised investment firm, will continue to benefit from the protection provided by the FSCS pre and post Brexit. This is because the FSCS has no residency requirements in order for investors to qualify for cover.

Investments no longer covered by the FSCS

If you are a customer of a local EEA branch of an existing UK authorised investment firm then you may not be protected by the FSCS post Brexit.

It is probable that the FSCS will not protect customers of defaulting (insolvent) EEA branches of UK authorised firms after 31 December 2020.

However, you may be protected by the local jurisdiction’s investor compensation scheme, but it may not provide the same protections as the existing FSCS scheme (up to £85,000 of cover). If you are in any doubt, please contact the provider and seek clarification prior to the Brexit deadline.

As always, if you have any questions regarding current FSCS protections, or if you have any questions regarding any aspect of your finances, then please don’t hesitate to contact one of our team at Bridgewater Financial Services; where one of our independent experts will be on hand to help in any way.

Stay safe

 

 

 

Annuities and the importance of advice

I wonder how many of them Google a medical cure too!

Now I’m all for us being self-empowered and sorting things out ourselves when and where we can, but I recently read a report by Aegon, who have found that a startling 10% of people do not consult an adviser when converting retirement savings into an income.

As an independent financial adviser with a pensions specialism, I find that statistic to be quite alarming. Firstly I can’t imagine why people wouldn’t seek professional independent advice on something as critical as their future financial wellbeing. Secondly, I am reminded of the phrase “You don’t know what you don’t know”. So how on earth are they sure that they are doing the right thing and that they have really been through ALL of the available options? It’s a little like me assuming that my soar throat can only be tonsillitis and setting about watching YouTube footage of a DIY tonsillectomy. When seeking professional medical advice would be the only sensible course of action I should take. 

You can’t put the genie back in the bottle

The choices you face when considering your retirement options are vast. Decumulation, or the drawing down of investments, requires a considered approach. Especially, as in the case of annuities, once the choice is made it cannot be reversed or repealed at a later date. It really does demand a serious and in-depth understanding of what is and isn’t available to you, as well as advice on the best course of action to meet your existing and future requirements.

A DIY approach to something this critically important is nothing short of foolhardiness.

History is playing a part

According to Aegon’s global retirement study, there are some worrying factors at play. It’s unfortunate that a traditional annuity currently offers lower levels of guaranteed income than it may once have done. This in turn has fed an increasing demand for drawing down the investment as a lump sum, without seeking professional financial advice. Now even if you don’t come to Bridgewater, can I please ask that you DO go somewhere to seek professional advice? As this needs to be carefully planned with a full understanding of the wide range of investments decisions, choices and potential pitfalls that clients face.

In short, you need expert guidance.

It seems to be a British problem

The global report found that UK savers view annuities as far less appealing than our European counterparts. With just 28% of UK workers wanting to convert their savings into an Annuity, compared to 47% of Netherland’s workers, 44% of German workers and 42% of Spanish workers who all favour this route.

All of which, according to the report, puts UK workers at a much higher risk of suffering from a poor outcome during retirement.

With age comes some wisdom

One upside of the report is that it suggests that those closest to retirement age (60-69 years), seemed to be far more financially literate than their younger contemporaries.

Having said that, only 43% (significantly less than half), were able to properly answer all of the questions asked in the survey. So there is still some worrying lack of knowledge amongst those just about to retire.

Just to put this into some sort of context, the report was compiled from research carried out online between 28 January and 24 February 2020 amongst 14,400 workers and 1,600 retired people across 15 countries: Australia, Brazil, Canada, China, France, Germany, Hungary, India, Japan, the Netherlands, Poland, Spain, Turkey, the United Kingdom, and the United States. The survey was conducted online between January 28 and February 24, 2020.

There is an acknowledgement that the Covid-19 pandemic has presented financial challenges for everyone, particularly for those facing retirement. Not the least because interest rates have remained at rock bottom, with the prospect of an annuity delivering
all-time low returns understandably unappealing. However, decisions are being driven by these factors and outcomes are now being reached that will have a direct impact upon the quality of people’s retirements, without them seeking any expert advice.

The report itself concludes: “People often assume that taking a DIY approach and managing financial decisions themselves will be fine, but the findings of our financial literacy test suggests there are huge risks in taking complex decisions alone. While advice has to be paid for, the cost of not taking it ahead of some of life’s greatest financial decisions could be far higher.”

My advice is.. to get some!

If you are unsure about what to do about your annuity, or even if you are 100% positive what you are going to do, my advice is to seek professional expert financial input. 

As always, if you have any questions regarding your annuity, or any other aspects of your retirement planning or your finances in general, then please don’t hesitate to contact one of our team at Bridgewater Financial Services; where one of our independent experts will be on hand to help in any way.

You can’t predict the future, but you can learn from the past

If I had a penny for every time I heard someone say “If only we could predict the future” as they think about investing in the markets, then I’d be giving Warren Buffet a good run for his money.

Having said that, it always strikes me that we actually can go a long way to predicting market behaviour. It’s our ability to look back in time, into the established long-term patterns of the markets that can unlock the key to future returns. The past can provide a good indication of the economic cycles and their effect on future markets across the world. 

So what has history taught us?

If there is one thing that becomes clear when you examine the performance of the stock markets, especially in the UK and the USA, it’s that there is a consistent pattern of growth and returns; with world markets more frequently rewarding investors despite periods of economic slowdown and uncertainty.

Over the last 100, in the UK All Share Index, we’ve seen an average annual return of 7%. Obviously there have been years where large drops and gains have occurred, such as 1974, where the index fell 55% and the 1975 bounce back of a 136% increase.

However throughout its history, the standard deviation has been 21.5. Put simply this shows that for 66% of the last 100 years, returns have been between -14.5% and +28.5 with positive returns being delivered in 65 of the 100 years.

Putting your best FTSE forward

On 3 January 1984 the FTSE 100 was created. The FTSE is made up of 100 of the largest (by market capitalisation) companies in the UK; what we often refer to as ‘The Blue Chips’ and are the benchmark by which the stock market is measured and referred to in the UK.

To give you an idea of how The FTSE 100 has performed over the years, in 1984 it started with a value of 1000 and ended 2019 at 7542.44; which was itself 21.1% higher than where it was at the end of 2018.

In terms of really choppy waters, the largest one-day fall of the modern FTSE 100 was on Black Monday 20 October 1987, when the index fell by 12.22%. Whilst following the property and financial crashes of 2008 the annual price return was -31.3%. With the largest annual price return being 35.1% in 1989.

So we can see that although the FTSE 100 experiences its fair share of turbulence, the long terms returns have always been positive growth 

The Covid Crash

The markets have seen crashes happen before and they’ve always bounced back. Growth seems inevitable, although the trajectory, like all things in life, has its ups and downs.

However long-term data, both in the UK and in the markets overseas, clearly show that the trend is always one of growth.

Bear and Bull markets are created by panic selling and buying of shares in short-term reactionary reflexes to the growing and checking pains of the economy, both nationally and worldwide. 

So if your not into the short termism of Bull and Bear trading, then the trick is to understand the longer-term view, approach the investment markets armed with knowledge and patients and to sit fast in turbulent times and wait for the markets to come back. 

Make sure you’re working with a map

I think that the fastest way to ensure you end up on the losing side of the investment market is to just jump in with the hope that prices will rise across the board.

There are always winners and losers in both Bull and Bear Markets and throughout normal trading conditions. The trick is to understand where the potential opportunities and pitfalls are. If you’re not completely confident that you know the markets in the same way as the professional traders do, then please make sure that you are talking to an independent financial expert when seeking advice on any form of investing. 

There are some interesting points regarding the FTSE that you need to bear in mind, as they will certainly impact upon its overall performance as the years go by. 

For example, the index is never a good indicator of how the UK economy is fairing as a whole, as a many companies listed earn 75% of their revenues from overseas. With almost a fifth of the companies listed involved in mining and oil, all of who will face increased challenges as we move to a more environmentally aware existence, theirs is bound to be a downturn in that part of the index. 

There will always be industries that seem to be on the up. Green Energy, Pharmaceutical and Electric Cars spring to mind. History also shows us that their runs will not last. Just think about the dot com boom and what happened to most of those multi-million/billion valuations. 

If you’re going to invest by sector, do your homework and seek expert advice. In fact, whatever investments you are thinking of making, speak to an expert independent financial adviser before you do. It could open your eyes to a whole raft of unthought-of possibilities and may save or make you a fortune! 

Start with the right advice and stick with it

Please remember that markets can go down as well up and that past performance is no guarantee of future investment returns. But if you are going to invest, do your homework and seek expert advice.

The first thing you should do is to seek out expert independent financial advice. Chances are that it could open your eyes to a whole raft of unthought-of possibilities and may save (or make) you a fortune! 

As always, we at Bridgewater Financial Services are here to provide expert and independent advice and to answer any questions you have regarding investing in stocks, shares, bonds or any other investment strategy you may be considering. 

Please speak to an expert, even if it isn’t us, before you consider putting your money into the markets.  

Stay safe

Where there’s a will there’s a new way of witnessing it

The law covering how a will can be witnessed in England and Wales is just about to be updated to include the virtual electronic witnessing of wills, in certain circumstances.

This is as a direct result of the lockdown caused by Covid-19. Backdated to January 2020, the new law allows anyone who has been isolating or shielding, and who has access to video software such as Zoom or FaceTime, to get their signature on their will remotely witnessed online. 

The original Wills Act of 1837 stipulates that wills need to be witnessed in the ‘presence of’ at least two witnesses. This has proved to be almost impossible to do properly during lockdown, with many solicitors not having access to offices in order to arrange suitable appointments to witness signatures.

This recent amendment means that the established case law, that allows a witness to observe the signing through a window or door as long as they are in clear view, now extends to live video streaming, just as long as all parties can clearly see and hear what is taking place. 

Under the Electronic Communications Act 2000, a statutory instrument will be enacted in September 2020 stating that the existing phrase ‘in the presence of’ now means either in the physical presence of, or in the virtual presence of (via video link).

Virtually starting the year again

The amendment to the law will be backdated to 31 January 2020, in order that it covers all wills made during the pandemic. It will also be in place up to 31 January 2022, or longer if it is felt necessary to do so. 

However, the Government are also reserving the option to shorten the term too. Once the law reverts back to traditional forms of witnessing, then that will once again have to be performed by someone who is physically (and not virtually) present. 

A last resort

As welcome as it is, this change in the law should only be viewed as a last resort. With remote witnessing being used only once all other physical witnessing options have been explored and found to be impossible. 

Where remote witnessing does take place, then strict precautions must be in place to ensure that fraud and coercion are not present. The witnesses must understand what it is that they are observing and they will not be able to ‘witness’ a pre-recorded video of a will signing.

The Ministry of Justice states that testators (those making a will), when getting it witnessed remotely should make a formal statement such as “I (first name & surname) wish to make a will of my own free will and sign it here before these witnesses, who are witnessing me doing this remotely”

All signatures must all so be ‘wet’ as remote electronic signatures are unacceptable.

If possible, the video stream should also be recorded and kept as a record of events.

Socially distanced alternatives to video technology

As The Ministry of Justice have stated that ‘people must continue to arrange physical witnessing of wills where it is safe to do so’. With that in mind, they suggest that that witnessing wills in the following ways are an acceptable execution of the legal requirement during the pandemic, provided that the testator and witness each have a clear line of site:   

  • Witness through a window, or open door of a house or vehicle
  • Witness from a corridor or from an adjacent room into another room through an open door
  • Witness outdoors, from a short distance.

All wills still need to be signed by two witnesses who are not beneficiaries and please keep in mind that electronic signatures are unacceptable.

The longer-term future

The Government has committed to considering ‘wider reforms to the law on making wills’. In the meantime this concession regarding the witnessing of wills during the restrictions imposed by the pandemic should go someway to helping relieve the stress associated with creating or amending bequeathments during lockdown.

In Scotland the law has also been temporarily amended to allow a lawyer to act as a witness via a video conference, just as long as they are not appointed as an executor, either directly or through a trust.

As always, we at Bridgewater Financial Services are here to provide expert and independent advice on any questions you have regarding making a will, Inheritance Tax Planning or any other financial enquiries you may have.

You can also see full the guidance on making wills via video conferencing in England and Wales by visiting GOV.UK. 

 

A New Deal For Britain..

.. a massive opportunity for your SSAS Pension.

There are some remarkable changes coming our way with regard to planning and building permissions for the conversion of commercial property to residential.

As we all know your small self-administered pension scheme (SSAS) is an ideal vehicle to purchase, develop and own commercial property; with some remarkably advantageous ways of funding potential purchases of commercial properties.

We also know that your SSAS isn’t allowed to hold residential property, but did you know that it is allowed to pay for any conversion from commercial to residential?

Meaning that, you can purchase commercial property with your SSAS, flip it to residential and develop it within the SSAS. Just as long as the property is removed from the SSAS Pension BEFORE it becomes habitable. For the avoidance of doubt, ‘habitable’ is defined as the point of which the certificate of habitation / completion is issued.

There are some VERY BIG changes coming to commercial property planning restrictions

In order to get the economy moving again, the Prime Minister has announced his ‘New Deal For Britain’. Within it are some remarkable opportunities for companies to utilise the power of their SSAS pensions, by developing commercial property for residential sale.

This September, we will see some of the biggest changes in planning regulations that have ever impacted upon the commercial property market.

If you have a SSAS pension, you could be perfectly placed to take full advantage of these. As of September this year a reform of the current system will introduce the following changes:

  • A vast amount of existing commercial property will be allowed to change its use to residential without the need for a planning application
  • Land and existing commercial buildings in town centres can change use without planning permission
  • Planning permission will no longer be required for the demolition and rebuild of vacant and redundant residential and commercial buildings, as long as they are rebuilt as homes
  • Commercial premises, including vacant shops, can be more easily swapped to residential housing
  • Far more types of commercial units will have the flexibility to be repurposed through the reform of the User Class Order.

This is a fundamental changing of the rules around converting commercial property to residential and this can be done advantageously through the use of your SSAS pension.

However the rules governing what you can and can’t do must be closely followed, or you’ll run the risk of exposing the SSAS to draconian taxes on the profits that your property dealings create.

To avoid unwanted taxes there are a few simple things you can do to ensure that things go as smoothly and as tax efficiently as possible:

  • Make sure that your SSAS sells the property to a cash buyer prior to the conversion to residential completing. This means that the completion then takes place outside of your SSAS
     
  • You can leave the capital appreciation inside the SSAS and avoid Capital Gains Tax if existing SSAS members, or a sponsoring company, purchases the incomplete property form the SSAS at market value. They can then finish the project and sell it, paying only the stamp duty and legal costs
  • The SSAS can even sell the uncompleted property subject to a deferred consideration contract. This way the property is removed from the SSAS before completion, but the buyer doesn’t have to pay the full purchase price over until the conversion is complete and they can then apply for a mortgage
  • A great way of ensuring that any property in question qualifies as a genuinely diverse commercial vehicle, and therefore unaffected by the normal residential property rules, is for a number of independent SSAS’s to come together in order to carry out bulk projects
  • Another way to not get taxed for converting or building is simply don’t convert or build. A SSAS can buy and demolish commercial property and then sell the land to a developer for a commercial gain
  • You can also take advantage of any 12 month loan window available by getting the SSAS to lend up to 50% of the funds value in order for the sponsoring company to purchase or convert the property; and repay the SSAS upon the completion of the sale.

There are all sorts of opportunities to take advantage of these coming changes with a SSAS Pension. If you don’t currently have one, then perhaps now’s the right time to convert an existing scheme to a SSAS, or set one up.

Whatever you are thinking, now is the time to act as it can take up to three months to get a new SSAS registered by HRMC. Especially as many of their staff have been moved to other departments in order to handle the furlough scheme.

If you are thinking about setting up a SSAS, in order to take advantage of these new changes in property legislation when they kick-in in September, then please get independent and professional advice.

Doing things right from the very start will save an awful lot of hassle and expense further down the line. Especially with something as complex as a SSAS Scheme, where the wrong advice, or no advice at all, could result in significant tax penalties.

As always, we at Bridgewater Financial Services are here to provide expert and independent advice on any questions you have regarding a SSAS pension, or any other financial enquiries you may have.

Your SSAS pension can provide for your family AND future generations too

You really are never to young to join a SSAS
Your small, self-administered pension scheme (SSAS) doesn’t just provide death and retirement benefits for its members in a tax efficient way – It can do way more for you and your family. Due to their restriction of having no more than 11 members, SSAS schemes are often favoured by smaller businesses where the company directors, family members and senior executives are the beneficiaries. Especially as they allow for members of the family who don’t work for the company to also be included.

Not only that, but a SSAS pension is an asset that can be passed down the family through the generations. Best of all, as a pension it’s legally protected from personal or company creditors so it’s a safe place for the long-term storage of assets.

The big benefit to your family
As investments are held in the names of all of the SSAS trustees, this common ownership means that each member of the SSAS holds a specific portion of the SSAS’s assets. This makes ownership of assets like properties far cheaper and simpler to deal with than they would be if the asset were shared between three or more self-invested pensions (SIPP). The other big benefit of a SSAS, is that individuals can choose their own investments, which is really handy if the business is involved in property or land. Also, where individuals are saving in order to invest in property or land, a SSAS can really help fulfil that ambition (see my previous blog on SSAS property purchase).

What happens when a member retires?
Once a member of the SSAS retires, they have the same options as any other member of a defined contribution pension scheme. This means that you can secure a guaranteed income, take an income from the fund or a combination of the two. If the SSAS is invested in property that is generating and income, this can effectively be remitted out to the member to support their retirement.

Flexibility when it comes to your retirement day
A SSAS allows entrepreneurs to delay the time that they start retirement, as they often retire later than those in employment. It also allows for early retirement from the age of 55 years. Your SSAS will even let you carry on working part-time, receiving some pension and some income at the same time.

Tax Efficient Death Benefits
SSAS benefits payable on death are not normally subject to inheritance tax. If the scheme member dies before the age of 75, their family members can inherit their fund and take tax free withdrawals for life. After the age of 75, payments are subject to income tax at the beneficiary’s normal income tax rate. The fund can be passed down through the generations as long as it lasts. Unlike a conventional non-pension trust, there is no limitation on how long the trust can last. So the pension fund could be providing valuable benefits to multiple generations of the family of the original members. Beneficiaries are immediately entitled to draw benefits and they do not need to wait until they are at least 55.

Other benefits of SSAS to family businesses
Your SSAS can also be a great way to increase your purchasing power, if you’re looking to accrue assets for the future. Please see my previous blogs on using your SSAS to borrow funds for property and stock purchases.

Get it right from day one
With something as complicated as a SSAS, it’s vitally important that you get the right kind of professional advice from a qualified and expert financial adviser who knows this area well. The wrong advice, or no advice at all, could result in significant tax penalties.

As always, we at Bridgewater Financial Services are here to provide expert and independent advice on any questions you have regarding A SSAS pension, or any other financial enquiries you may have.

Stay safe

Buying Shares with your SASS Pension

Your SSAS pension provides more opportunities than you may think

Did you know that current pension regulations allow you to purchase unquoted shares, both in UK and in overseas companies, through your company pension scheme? Making your small, self-administered pension schemes (SSAS) a vehicle that can fund any share purchases you may currently be considering.

However, these investments are not as straightforward as normal share purchases and come with various restrictions. Which is why it’s so important that you seek professional advice from a suitably qualified and regulated financial adviser. 

Things you really need to consider

Investing in the stock market can be a volatile experience, especially if you are relatively new to the concept. So with something as critically important as your company’s pension scheme, there are some understandable restrictions in place.

If you are considering purchasing shares via your SSAS, then the first thing I would implore you to do, is to get proper advice; as a qualified expert will be able to steer you through the technicalities of bringing your share purchase to fruition and ensuring that you comply with the various rules and regulations associated with SSAS share purchases.

In order to give you an insight into how investing with your SSAS could work, I’ve written this blog. However – it is to be viewed as a guide only. 

What to invest in

Under the pension taxation legislation, your SSAS can make investments across the board. Please make sure you pick the right investments though, or there will be a large and very unwelcome tax consequence of investing in certain areas or where specific limits are breached.

As a general rule, investment in the following areas will not incur a penal tax charge:

  • Investment grade gold bullion
  • Trustee Investment Plans and Bonds
  • Commercial property (including hotels) and land
  • Unit Trusts/OEICS
  • Bank and Building Society Deposit Accounts
  • Stocks and shares
  • Executive Pension Plans
  • Loans to the sponsoring company
  • Copyrights.

It’s also worth noting that Trustees can borrow up to 50% of the net total asset value of the SSAS to assist with any property purchases or cash flow requirement (see my previous blogs).

Market value

At the time of purchase the market value of the shares must be below:

  • 5% of the market value of the scheme’s total assets in any one sponsoring employer
  • Or 20% of the market value of the scheme’s total assets where the shareholdings relate to more than one sponsoring employer
  • There are also limits on the total value of shareholdings that an occupational scheme can purchase.

Purchasing the shares

When buying the shares, the SSAS Trustees must ensure:

  • That the member(s) must have consulted with, and received advice, regarding the share purchase from a regulated financial adviser
  • If the shares are being purchased from or issued by a connected party (for example: a members of the scheme, their relatives, civil partners, a company controlled by someone significant to a member of the SSAS), then a professional valuation of the current market price of the shares should be obtained by the Trustees of the pension scheme. This must be provided before any purchases take place. The company’s auditor, or any other qualified person, can supply the valuations and they must be provided in writing. 

Dividends

It’s important that your investments provide a dividend, as if the shares you’ve purchased don’t provide an income or increase in value, then HMRC may deem them to be an unsuitable investment for your SSAS pension scheme.

The payment of dividends can also bring its own complications, as when the company declares a dividend, it must pay its shareholders. Dividend payments also need to go to the pension scheme, so the company should also issue a cheque for the net amount of the dividend less the advanced corporation tax, as tax cannot be reclaimed by the pension scheme. This cheque should be made payable to the Trustees of the pension scheme, with the Trustee paying it directly into the SASS scheme. 

Ongoing valuation of shares

As there is a requirement to value pension scheme assets on an annual basis, the member Trustees will need to arrange for an accountant to produce an independent valuation (at their cost) regarding the value of the share holdings.

Selling Shares

Ultimately you would expect the share to be sold at market value, in order to provide retirement or death benefits. However, if the fund has sufficient income in it from other investments, to provide the required benefits, then the shares could be retained in the fund for the next generation.

If the shares are sold to a connected party, then the Trustees must obtain a professional valuation prior to the sale in order to show that the sale price is at market value. 

Get the right advice from day one

Get professional advice on the rules of share purchase via your company pension scheme from a qualified and expert financial adviser who knows this area well. The wrong advice, or no advice at all, could leave you with a whopping great tax bill and a badly damaged pension pot.

As always, we at Bridgewater Financial Services are here to provide expert and independent advice on any questions you have regarding using your pension to acquire property, or any other financial enquiries you may have.

Stay safe

Purchasing property with your company pension

Your SSAS pension and what it can do for you right now

If you read last weeks blog you’ll know all about how your small, self-administered pension schemes (SSAS) has a loanback facility that you can use to access much needed cash flow. If you haven’t read it, please do.

Well, the joys of your SSAS don’t stop there. It can also be used to purchase property. However, please read on carefully, as there are many do’s and don’ts associated with SSAS schemes and property purchase. Getting it wrong could end up costing you a great deal in tax. 

Who can and can’t be involved in the purchase

If you wish to, your pension scheme can purchase property with other parties such as your company, yourself or another pension scheme. It can even purchase property with an unconnected party. 

However, HMRC do require that the pension trustees obtain independent professional advice to confirm the market values regarding the purchase price or rental, if there is any connection with the pension scheme with the vendor of the property. This must be undertaken in order to comply with HMRC’s ‘arms-length’ requirements regarding the transaction. 

Where there is no connection with the other party, HMRC does not require any independent valuation.

For cases of joint ownership

If your SSAS has purchased the property with a third party, then a Declaration of Trust (DOT) will be required, in order to legally recognise the proportion of ownership held by each party. As this involves your pension scheme, the DOT needs to include pre-emption rights. Where the pension scheme may have to liquidate its investment in order to pay death benefits, it’s usual to offer the co-owner(s) first refusal to buy its share.

Your business, yourself and another party can purchase property jointly. As long as any joint ownership is registered with the Land Registry, any property purchased can also be let back to your own business or an unconnected party. It is however important that the SSAS pension scheme only receives its proportion of the sale proceeds or rental income and it must also ensure that it pays its percentage of all ongoing expenses.  

Buying, selling and letting

If you are considering using your SSAS to purchase a vacant property, then you will be required to ensure that there are sufficient funds available to cover repairs, rates, maintenance and all legal and other costs, as there is no rental income immediately available. This is usually achieved by retaining the relevant sum, which is held back in the pension fund. 

You SHOULD NOT purchase residential property with your SSAS. As residential, and some other types of property, are subject to very significant and costly tax charges if held by a pension scheme. To avoid these onerous tax implications, you really should only consider the purchase of commercial property such as retail, office and industrial buildings. 

Flipping from commercial to residential can be done

As your pension scheme can’t hold residential property without facing extremely high tax charges, if you are looking to purchase a commercial property and flip it to residential, then you need to be aware of what point HMRC deems it to have converted to residential. 

From speaking with architects, it’s our current understanding that the certificate of habitation and the point at which a commercial unit becomes a residential one (as referred to by HMRC), is at the point when the Completion Certificate is issue by the architect. As such, it’s imperative that the property is taken out of the pension scheme PRIOR to the Completion certificate being issued by the architect.

Property types you should and shouldn’t consider

This is a brief list of The Good, The Bad and The Ugly when it comes to property types you can consider for purchase with your SSAS: 

The Good

  • Shops Industrial property Offices
  • Hotels
  • Care Homes
  • Pubs and Restaurants
  • Farmland Development Land
  • Car Parking

The Bad (property types not allowed)

  • Residential Property
  • Holiday lets
  • Timeshares & beach huts
  • Freehold including long leasehold residential (even if only ground rents)
  • Caravans and other moveable property
  • Log cabins
  • Leasehold property with less than 50 years (deemed a “wasting asset”)  

The Ugly (to be avoided despite being commercial)

  • Any un-lettable property that will be sold again in the short term
  • Specialist properties that are difficult to sell
  • Properties with environmental or contamination issues
  • Any property adjacent to your house or garden 

Please note that this is a guide only and you should properly research if the property you are thinking of purchasing complies with HMRC rules.

Where can you raise the finance for the purchase?

Your SSAS is allowed to borrow from any source available; just so long as the loan terms are commercial. Obviously if the source is a bank or building society, then the terms will automatically be commercial. Where the lender is a source that does not have a consumer credit licence, or is connected to you, then you may have to provide accompanying evidence that the terms are commercial. 

Repayment of borrowing

Although you may be able to prove rental income, you should also consider affordability. 

Which is why, at the initial stages of purchase, a Member Trustees should be tasked with considering this aspect. It is also important that you do not rely upon future pension contributions to meet borrowing requirements, as the future payment of contributions is not mandatory.

Borrowing limits

If you are using your SSAS to fund a purchase for the first time, then your first loan can be up to 50% of the net value of the pension scheme. 

For example: 

Pension Scheme value:                                 £100,000 

Maximum borrowing:                                     £50,000 

Amount available to purchase property:   £150,000

  

Get the right advice from day one

Get professional advice on the rules of property purchase, development, leasing, resale or any other aspect of property ownership from a qualified and expert financial adviser who knows this area well. The wrong advice, or no advice at all, could leave you with a whopping great tax bill and a badly damaged pension pot. 

As always, we at Bridgewater Financial Services are here to provide expert and independent advice on any questions you have regarding using your pension to acquire property, or any other financial enquiries you may have. 

Stay safe

 

A SSAS could be the answer to cash flow needs

SSAS – what it is and can you transfer to one today?

A SSAS is a small, self-administered pension schemes (SSAS) for up to 12 members. 

Right now you can transfer any existing pension into a SSAS, where the combined funds can be used to borrow money, up to 50% of the fund value (if needed) to buy back premises owned by the company, releasing funds to clear other debts or to finance projects (e.g. new business opportunities that have arisen out of the current situation as businesses adapt to new areas). With many companies using the loanback facility to get access to extra funds for pressing cash flow needs. 

This loanback facility that is incorporated into all SSAS has been responsible for a dramatic increase in SASS activity over the past few weeks.

According to The Whitehall Group, one of the leading SSAS providers, reported SSAS registrations increasing eightfold in just the first ten days of April 2020, compared to figures for January earlier this year. 

It’s the loanback facility that is so appealing

With borrowing rates for a SSAS at incredibly low levels, companies who have assets or properties in their SSAS are utilising them as security to borrow against, as they realise much needed cash flow for their companies. 

With more and more business owners realising that their own SSAS could provide a low-cost lifeline to keep their businesses afloat during the Covid-19 economic crisis. 

How your SASS could save your business

SSAS can work for your business in many different ways. It can provide loan finance back to the business of up to 50% of the total amount of the net market value of the business SSAS scheme’s assets, as well as 50% of the total amount of cash held.

That kind of cash injection, borrowed against rock-bottom interest rates, is providing the financial lifeline that many businesses so desperately need. With the number of loans reported having quadrupled in April, compared to January’s activity. 

A word of caution

This sudden increase in SSAS activity is a reversal of recent year’s trends, which saw the popularity of SSAS schemes decline, as they are not regulated under the Financial Conduct Authority rules and protections. 

As such a SSAS should be considered carefully and regard should be paid to the wider aspects of the scheme. Your SSAS shouldn’t just been viewed as a low cost route to answering any current and pressing borrowing needs. In fact, any loans made in a SSAS scheme should always be to ensure that the company doesn’t just survive, but also goes onto grow in the future. 

There is also an obligation by the trustees of the SSAS scheme that they do not risk pension money that is intended for retirement. Therefore proper consideration should always be given to determining if the loanback is a good investment for the pension scheme to make. 

Done properly it could be a cash flow lifeline

Although loanbacks are currently a very enticing selling point, any SSAS must be executed properly, or it runs the risk of its members losing out. HM Revenue & Customs have stated that any loans made to the sponsoring employer will qualify as an authorised payment if their key stipulations are adhered to, including:

  • A five year minimum term
  • Interest rates must be at least 1% above the current base rate
  • The loans must not exceed 50% of the SSAS’ net assets.

It’s important that trustees follow procedure and document the loanback correctly. Failure to ensure that the correct securities are in place could mean that the loan will not qualify as a loan. Instead it becomes viewed as an unauthorised payment and will incur tax charges. 

If you are in any doubts regarding the trustees obligations, or how to administer the loanback correctly talk to professional financial advisers like us, to ensure you don’t fall into any of the many pitfalls that can await unsuspecting trustees.

If you need the SSAS lifeline – act now 

The world seems full of endless financial delays during this Covid-19 downturn. Banks are taking longer to process loan applications, charging increased interest rates and asking for personal guarantees.

However applying to switch an existing pension to SSAS, or to set a SSAS up from scratch also takes time. HMRC have to accept and register a new SSAS before any money can be transferred or paid in. So the sooner you start the process, the sooner you can take advantage of the unique facilities of your SSAS. 

Remember – we’re always happy to help

As always, were here to help, whenever you need us. If you do have any further questions regarding anything I’ve raised in this blog, then please get in touch with us at Bridgewater Financial Services, where we will be delighted to help guide you through your individual options and strategies.