Category: Financial Adviser Blog

Key Dates For Your Finances 2022

Now’s a good time to make sure your fully prepared for the financial year ahead. To make it easy we’ve summarised the key dates and facts and figures below.

1 April

National Living Wage (for age 23+) rises from £8.91 to £9.50

National Minimum Wage rises to £9.18 (for 21-22-year olds), £6.83 (for 18-20-year olds), £4.81 (for 16-17-year olds) and £4.81 (for apprentices under 19 or in the first year of their apprenticeship).

Council tax bills rise by up to 2.99% (including a 1% social care precept) although there may be some regional variations.

The Energy Price Cap increases by 54% as announced by Ofgem in February. Those on default tariffs paying by direct debit will see an increase of £693 from £1,277 to £1,971 per year. Prepayment customers will see an increase of £708 from £1,309 to £2,017.

Households in Council Tax bands A-D in England will receive £150 Energy Bills Rebate on their council tax bill to help protect them from rising energy costs. Discretionary funding will also be provided to support those in Council Tax bands E-H or those on low incomes who don’t pay council tax.

Reduced VAT rate of 12.5% on suppliers of hospitality, holiday accommodation and attractions, reverts to the standard rate of 20%.

5 April

End of the 2021/22 tax year. Have you used all your allowances?

6 April

Start of the 2022/23 tax year

ISA allowance remains at £20,000 (if it’s a cash ISA, stocks and shares ISA or innovative finance ISA) and £4,000 (for a lifetime ISA)

Junior ISA allowance remains at £9,000 (for a cash JISA, stocks and shares JISA or a combination of the two)

National insurance contributions paid by workers increases by 1.25%.

11 April

State Pension and benefit rates rise by 3.1% in line with the Consumer Price Index. This means the basic State Pension increases to £141.85 per week and the full rate of new State Pension increases to £185.15.

Standard Lifetime allowance for tax free pension saving remains at £1,073,100 until the 2025-26 tax year.

Personal tax allowance remains at £12,570. The basic rate threshold remains at £37,700 and higher rate at £50,270.

31 July

Working Tax Credit and Child Tax Credit claims for 2021/22 must be confirmed and renewed for 2022/23 if required.

Deadline for second payment on account for 2021/22 for those that pay self-assessed income tax.

1 October

All domestic electricity customers will receive a £200 discount on their energy bill from October. However, this discount will be automatically recovered from people’s bills in equal £40 instalments over the next 5 years, beginning in 2023.

30 September

Old £20 and £50 notes can no longer be used after 30 September. Although some banks and the Post Office may still allow withdrawn notes to be paid into customers accounts.

31 October

Paper income tax self-assessment deadline for 2021/22 returns to be with HMRC.

December

The government scheme that guaranteed 95% mortgages with selected lenders ends. This scheme was launched in April 2021 to help first time buyers after lockdown.

Your financial plan could be impacted by these key dates. Talk to us for advice.

HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.

Key Takeaways:

• The new tax year is upon us making it a good time to make sure your fully prepared for the financial year ahead.
• Your financial plan could be impacted by these key dates, talk to us for advice.
• HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.

When it comes to retirement, there are some ideas that can turn out to be quite different when you examine them closely. We explore five of them.

1. You can live off the state pension alone

The current basic state pension is £137.60 per week, or £179.60 for the new state pension if you were born on or after 6 April 1951 (for a man) and on or after 6 April 1953 (for a woman). That works out annually as £7,155 or £9,339 respectively, depending on meeting National Insurance contribution requirements and other eligibility criteria.

This could be enough for those who own their home outright, to cover the very basics for everyday living but is limiting for those who want to enjoy a more comfortable retirement without money worries. As life expectancy rises, so does the amount of time we’ll need to fund our lives in retirement, including long-term care when we’re older.

2. Matching your workplace pension is enough

With an occupational (workplace) pension, the overall minimum total contribution is 8%, with employees paying in 5% of salary and employer contributing 3%. But this might not be enough to give you the kind of income you’re expecting once you’ve retired.

The good news is you can back your workplace pension up by increasing your contributions if you’re able. Better still, some employers also offer to pay more into your pension to help build your retirement benefits faster, by matching any additional contributions you make up to a set level. If you start the ball rolling earlier, the more tax relief you’ll receive and the more time your overall pot will have to grow.

3. It’s possible to keep working for longer

The reality is, even if you wanted to continue working either full – or part-time after state retirement age, you might not be able to do so. It might be too physically demanding or might not fit in with retirement goals like spending more time with grandchildren, travelling or other pursuits you’ve been looking forward to.

Getting help from a financial adviser can ensure you have your desired level of income in retirement. You’ll then be able to focus on keeping busy through hobbies, part-time work or other areas like volunteering in your community.

4. After a certain point it’s too late to save for retirement

As we’re living – and working – longer than before, while it’s true that the sooner you start the better, life doesn’t always go as planned so it’s never too late to start saving for retirement. Compound investment growth can make a big difference to the value of your pension over time.

5. You can save for retirement without help from an adviser

Even with the best intentions when it comes to saving and investing, doing it alone is difficult. That’s why working with a professional investment adviser can give you confidence about the direction of your investments. An adviser will be able to point out the long-term benefits of your investments and how they can pay off for you.

Speak to your adviser about making the most of your pension investments.

The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.

Key takeaways

• Getting help from a financial adviser can ensure you have your desired level of income in retirement.
• As we’re living – and working – longer than before, it’s never too late to start saving for retirement and making the most of your investments.
• Working with an adviser can give you confidence about the direction of your investments.

Social media posts

• We dispel some myths about retirement and reveal how you can plan for a more financially secure period in your later years.
• When it comes to retirement, there are some ideas that can turn out to be quite different when you examine them closely.

Autumn Budget highlights

In Chancellor Rishi Sunak’s second financial statement this year, there were few surprises as he looks to fix the economy following the pandemic.

With inflation climbing and interest rate rises on the horizon, Britain is at a critical period in terms of its economic future. Multiple lockdowns caused the UK economy to slump by 10% while the government spent more than £100 billion supporting jobs.

Now the economy is recovering the chancellor is under increasing pressure to balance the books and claw back money spent on fighting the Covid crisis. Policies include:

• The National Living Wage will rise for those aged 23 and over to £9.50 an hour.
• Planned rises in fuel duty have been cancelled amid the highest pump prices in eight years.
• A 50% business rates discount for firms in the retail, hospitality, and leisure sectors up to a maximum of £110,000.

Cost of living
After coming under pressure to help employees, especially younger workers who have been some of the worst hit by the pandemic, the government is raising the National Living Wage for those aged 23 and over to £9.50 an hour. The chancellor also ended the one-year freeze on public-sector pay, introduced to control the deficit at a time when the economy was shrinking.

The Universal Credit taper rate – the amount of every £1 lost when someone takes on work – will be reduced by 63% to 55%. This means those claiming the benefit will take home more money each month.

As previously announced, a £500 million Household Support Fund will be made available to local councils in England and distributed to members of the community. The fund aims to help the most vulnerable with basic household costs such as food, clothing, and utilities.

A planned increase on spirits, beer and wines duty will be cancelled. The system of alcohol duties will also be simplified, with drinks taxed in proportion to their alcohol content. The planned fuel duty rise will be cancelled and will remain frozen at 57.95p a litre until next year.

Green energy surcharges will be moved from electricity bills on to gas bills to help nudge customers to lower-carbon alternatives. The move will affect customers who have traditional gas boilers and be phased in over the next 10 years.

The chancellor also said flights between England, Scotland, Wales, and Northern Ireland will have a lower rate of Air Passenger Duty from April 2023.

Taxes and allowances
As previously announced, the national insurance contribution rate (NIC) will rise by 1.25% from April 2022. The plans are designed to help raise £12 billion for social care and the NHS. National insurance rates will return to their current levels in April 2023 and a social care levy of 1.25% will be introduced to replace it. Unlike national insurance this will also be paid by pensioners who are still working.

Dividend tax rates will also rise by 1.25% from April next year, which means investors will have to pay more on their earnings. Basic rate income taxpayers will pay 8.75% with higher rate taxpayers charged 33.7%. Despite fears of a shake-up of capital gains tax (tax on the profit you make when you sell an asset that has increased in value), this failed to materialise.

Business and investment
Firms in the retail, hospitality and leisure sectors will be able to claim a new 50% business rates discount on bills of up to a maximum of £110,000 for the next 12 months. A new business rates improvement relief will allow businesses to make property improvements from 2023 for 12 months at no extra charge. There will also be more frequent revaluations of business rates every three years from 2023 and relief for business owners who adopt green technology like solar panels.

The government will launch a £1.4 billion fund to attract more overseas investment into the UK economy, particularly in sectors such as life sciences and electric vehicle production. The chancellor also outlined investment plans to attract highly skilled foreign workers and change regulations to make it easier for foreign companies to relocate to the UK.

The tax surcharge on bank profits has been cut from 8% to 3% to help boost London’s competitiveness as a financial centre. The change will come into effect in April 2023 and means banks will pay 28% tax. It is intended to act as a countermeasure to the planned hike in corporation tax for the UK’s largest firms from 19% to 25%. The chancellor has also pushed back the goal of reaching £22 billion in annual research and development (R&D) spending by two years to 2026/27.

Housing and infrastructure
The government confirmed £11.5 billion would be set aside to build 180,000 affordable homes. This includes 160,000 new homes which will be built on derelict or unused land – also known as brownfield sites – in England. A further £65 million has been allocated to ramp up England’s planning system, including digitisation to make local plans easier to access.

English regions have been given a total of almost £6.9 billion to improve urban transport across England. The money will go towards regions including Greater Manchester and the West Midlands, funding projects designed to boost sustainable transport, as well as improving bus and train services. The chancellor also announced the allocation in the first round of bids from the Levelling Up Fund, giving £1.7 billion to invest in the infrastructure, transport, and regeneration of over 100 local areas.

What does this mean for investors?
While the budget is unlikely to have a huge impact on the UK’s recovery it will allow room for the government to cut taxes before the next election.

Robert Jeffree, chief investment officer of Omnis Investments, says: “Today, Rishi Sunak received three gifts from the independently managed Office of Budget Responsibility (OBR). First up, the growth forecast for 2021 has been raised from 4% to 6.5% and is expected to reach 6% in 2022. Secondly, the forecast for economic scarring from the pandemic has been downgraded from 3% to 2%. Last but not least, the OBR forecasts government borrowing to decrease from 7.9% this year to 3.3% next year and then fall further from there. This is positive for gilts (the UK’s government bonds) and we have already seen yields on gilts fall following the budget (prices of bonds rise as yields fall).

“Overall, this felt like an upbeat Budget that attempted to tread a fine line between spending the three gifts granted to him by the OBR while, leaving enough room for the classic Conservative’s strategy of cutting taxes before the next election. The Budget doesn’t change the path of the UK’s economic recovery, but at the margins attempts to level up the recovery in those harder hit areas.

“Finally, despite targeting universal credit, the Budget does little to address the increased cost of living we can expect in the UK going into next year, the sticky inflation and the expected interest rate hikes from the Bank of England.”

Mike Morrow, chief commercial officer at The Openwork Partnership, says: “The good news from the Budget for advisers is very much about what was not announced.

“Capital gains tax was left alone for now and there were no major announcements on pensions despite speculation that the lifetime allowance and the annual allowance could have been cut as well as the usual rumours about higher rate tax relief being replaced by flat rate tax relief.

“There was some good news for savers with the launch of Green Savings Bonds from National Savings & Investments, which go on sale on Friday although the rate at 0.65% isn’t that tempting. Low earners will benefit from the abolition of a tax anomaly, which means anyone earning less than the personal allowance threshold who save into a pension through a net pay arrangement doesn’t receive a tax bonus on their contributions. From 2024/25 they’ll be eligible for a 20% tax top-up from the Treasury at the end of the tax year which helps encourage saving.

“The chancellor stressed how he was committed to cutting taxes by the end of the Parliament, which is good to hear but we should not forget that he is raising taxes from next year with a 1.25% increase in national insurance for employed and self-employed people plus a rise in dividend tax too.

“On top of all of that he confirmed that inflation is set to hit 4% next year which will hit everyone’s savings. Financial advisers will have their work cut out supporting clients but there will definitely be a lot of demand for their expertise.”

© Openwork Ltd 2021
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Investment Update – Energy shortages and supply disruptions continue

Stock markets bounced back in October despite an unsettled month due to global supply disruptions and energy shortages.

Financial markets were unsettled in October for a number of reasons. They include soaring energy prices due to the global shortage of natural gas supplies and high demand in Asia. Markets became calmer after Russian President Vladimir Putin indicated that his country could supply additional gas to Europe. The increase in energy prices and shipping costs prompted the The Organisation for Economic Co-operation and Development (OECD) to raise its inflation forecast for the G20.

The natural gas shortage pushed up oil prices, with Brent crude rising to its highest level in seven years. The Organisation of Oil Exporting Countries (OPEC) agreed to increase oil production gradually to meet high demand as countries come out of pandemic-induced lockdowns.

US stocks rally

In mid October the S&P 500 index enjoyed its best days since July, making up for fall earlier in the month. Strong company earnings results contributed to the performance, as did the stability brought by the news of the Senate’s decision to temporarily raise the federal debt ceiling.

October followed September as a month of rising inflation in the US. However, higher prices didn’t deter consumers, with retail sales also up from previous months. There was another lower-than-expected jobs report, with the working economy still affected by the Delta variant and a sluggish labour market.

UK Budget news and interest rate speculation

In early October the FTSE 100 had its best first week of the month since May, helping it to a 20-month high and a recovery of most of the losses it experienced since February 2020 and the start of the pandemic.

However, the Bank of England warned that the UK economy is more vulnerable to the global rise in inflation than other G7 nations, and that it could slow the recovery. Attention remained on the Bank of England’s move to raise interest rates, with economists predicting a rise as soon as early 2022. City traders are betting that it will happen before the end of this year.

In this year’s much anticipated Autumn Budget, Rishi Sunak set out the government’s plans to help get the economy back on track following multiple lockdowns. Policies announced included an increase in the National Living Wage and a 50% business rates discount for firms in the retail, hospitality, and leisure sectors up to a maximum of £110,000. Dividend tax rates will also rise by 1.25% from April next year which means investors will pay more on their earnings. Further thoughts from Omnis Investments’ CIO, Robert Jeffree, can be found here.

China’s third-quarter slowdown

Asia suffered an ongoing shortage of coal, with power cuts reported across countries reliant on the fuel, like China (where coal generates two thirds of the country’s electricity), and with India on alert for similar outages. Coal prices in China hit a record high during the month along with a dip in manufacturing (the latter due to power shortages and ongoing outbreaks in coronavirus cases).

The crisis surrounding the Chinese property developer Evergrande saw the company sell part of its stake in a bank to a publicly owned investment group on condition that the developer uses the proceeds to repay a loan. Figures released in October also showed that the pace of economic growth in China slowed in the third quarter compared with the previous year.

Key takeaways

• Volatility in the markets continued in October due partly to the global shortage of natural gas supplies.
• In mid October the S&P and enjoyed its best days since July, making up for drops earlier in the month.
• The Bank of England warned that the global rise in inflation could slow the UK’s economic recovery.

INTRODUCTION

The question of how to fund social care is one that has dogged politicians of all parties for decades. On entering Downing Street in July 2019, the Prime Minister Boris Johnson said “…we will fix the crisis in social care once and for all, and with a clear plan we have prepared…”. On Tuesday 7 September 2021, details of that plan finally emerged.

THE SOCIAL CARE PROPOSALS

The government’s reforms will use the existing framework of the Care Act 2014, which in turn was based on a set of proposals developed in the Dilnot report on social care of a decade ago. The new reforms will only apply to care in England, as Wales, Northern Ireland and Scotland have their own care schemes and funding mechanisms.

The main changes, which apply to those starting care from October 2023, are:

Capital means testing

The current English system requires anyone with capital of over £23,250 to fund all their care costs – ‘self-funding’. The value of an individual’s home is generally counted towards the capital means test unless it is occupied by a partner, dependant, or relative aged at least 60. The new rules raise the cap for full fee payment to £100,000, compared with the £118,000 proposed alongside the Care Act 2014.

At the lower end of the capital means test, there is currently no requirement to use any savings to help meet care fees if wealth is below £14,250 (although there may still be an income-based means tested contribution). This limit will rise to £20,000.

Between the upper and lower capital limits there is currently an ‘income tariff’ contribution of £1 a week for each £250 (or part thereof) of capital above £14,250, an effective rate of 20.8%. The new regime will continue to have an income tariff between the new limits of £20,000 and £100,000. The government’s paper says that this will be levied at “no more than 20 per cent”, which points to little if any change. At worst, it implies a contribution of £16,000 a year for someone with capital just below the new £100,000 ceiling.

Total fees cap
Currently there is no direct cap on the total amount that an individual can be required to pay for their care. For those entering care from October 2023, there will be a new fee cap, set at £86,000 initially (against £72,000 envisaged alongside the Care Act 2014). The cap will only apply to the costs of personal care, not accommodation charges (sometimes referred to as ‘hotel’ costs).

The Care Act 2014 based the personal care cost ceiling on the fees that would be paid by the relevant local authority, which are typically much less than self-funders are charged by their care providers. The government says existing Care Act legislation will be used to “ensure that self-funders are able to ask their Local Authority to arrange their care for them so that they can find better value care”. Quite what this will mean in practice is unclear – to date care providers have used self-funders to subsidise the fees charged to local authorities.

NHS-funded Nursing Care (FNC)

Currently the individual’s care/nursing home is directly paid £187.60 a week to meet the cost of care from registered nurses. This is not means tested and it appears that this payment will continue after October 2023. Full care costs are met under the NHS Continuing Healthcare (CHC) provisions, but these set highly restricted circumstances for payment.

MEETING THE COST

The Institute for Fiscal Studies (IFS) described the measures to meet the proposed costs of the reform as “A Budget in all but name”. The amount raised, which the IFS puts at
£14 billion a year, will be directed mainly at dealing with the NHS’s Covid related issues until the new care provisions start to operate in two years’ time. There are two tax increases to fund the costs involved.

National insurance contributions

As was widely trailed, the bulk of the cost will be met by increasing national insurance contributions (NICs). The mechanics of this are that:

• In 2022/23 there will be a new 1.25% ‘Health and Social Care Levy’(HSCL), operated as an increase on Class 1 (employer and employee) and Class 4 main and higher NIC rates. Thus, all the main in-work NIC rates will rise, although Class 2 (self-employed) flat-rate payments will be unaffected.
• In 2023/24, NIC rates will return to their current (2021/22) levels and the HSCL will reappear as a separate 1.25% charge. This separation is necessary to allow the HSCL to be charged on the earnings of employees and the self-employed who are over SPA – currently 66. At present employees and the self-employed past SPA do not pay NICs, although employers generally pay Class 1 NICs regardless of employee age.
• The current employer NIC reliefs, e.g. for apprentices under 25, will continue to apply.

NICs: 2021/22 – 2023/24

Tax Year	Employer* %	Employee %	Self-employed %
		Main	Higher	Main	Higher
2021/22: NICs	13.80	12.00	2.00	9.00	2.00
2022/23: NICs	15.05	13.25	3.25	10.25	3.25
2023/24: NICs                  HSCL	13.80   1.25	12.00	2.00	9.00	2.00
1.25	1.25	1.25	1.25
Threshold (21/22)	£8,840	£9,568	£50,270	£9,568	£50,270

* Under the Employment Allowance employers do not have pay the first £4,000 of Class 1 NICs unless the sole employee is a director OR total NICs for the previous tax year are £100,000 or more.

Dividends

From 2022/23, all dividend tax rates will rise by 1.25%. This move is designed to discourage private company owners from drawing remuneration as NIC-free dividends, but in practice it is likely to have the opposite effect. Including dividends also has the political benefit of raising some revenue (albeit a small amount) from the wealthy retired, who pay no NICs.

Dividend tax: 2021/22 and 2022/23

Tax Year	Basic rate %	Higher rate %	Additional rate %
2021/22	7.50	32.50	38.10
2022/23 onwards	8.75	33.75	39.35

SCOTLAND, WALES AND NORTHERN IRELAND

NICs and, to a lesser extent, dividends were chosen to fund the social care reform because, unlike income tax on earnings, they are not devolved taxes. As a result, residents of Wales, Northern Ireland and Scotland will suffer increased tax bills for a reform limited to England. However, the amounts raised will be returned to the devolved nations’ health and social care services (not the devolved governments) via the Barnett formula.

Investment Update – Dicing with the delta variant

With the UK leading the way in lifting its pandemic restrictions, the coronavirus Delta variant has put many countries on edge.

Nations experiencing a surge in the Delta variant of the coronavirus are in a race between vaccinating a majority of the public and getting ahead of the new strain in order to lift restrictions with confidence. The US, UK and EU are experiencing spikes in the rates of infections and there is some worry from economists about Europe’s previous positive outlook experiencing a setback due to the rapid spread of the variant across the Continent.

The UK’s ‘freedom day’ did go ahead on 19 July, albeit with businesses and local authorities given the ability to apply their own mandates in areas like mask wearing. The government’s aim to push on with the full reopening of society was boosted by the news from the Office of National Statistics (ONS) of a 356,000 surge in payroll figures for June. This is still below pre-pandemic levels, however.

Uncertainty about the Delta variant led to a volatile period for stock markets towards the end of the month. But fears were alleviated by the expectation of ongoing support from central banks as well as strong corporate earnings in both the US and Europe. In better news for UK markets, London overtook Amsterdam as the biggest share trading centre in Europe. This marks the first time London has taken the mantle since the conclusion of the Brexit transition.

The United Nations estimates that the financial toll of the coronavirus pandemic on global tourism could result in a $4 trillion loss to the global economy. Poorer countries are likely to be hardest hit, mainly because of low vaccination rates.

Inflation and consumer spending continue to rise
On both sides of the Atlantic, a surge in the growth of prices has given economists renewed concern about overheating economies. US consumer prices rose again in June and the inflation rate in the UK hit 2.5% in the same period (which is the highest level since 2018). The Bank of England’s monetary committee believes this is still a temporary phenomenon of strong growth, and expects things to fall back to pre-pandemic levels.

House prices in the US rose by over 14% in the year to April 2021, signifying the fastest rate of growth in 30 years. The American job market continued to regain ground, too, with a further drop in jobless claims in June and July.

China’s surge in stocks and bonds
Focus turned to China, following news that its economy expanded by 1.3% in the second quarter. This was mainly a result of retail sales, a growth in manufacturing and increased investment. The country’s exports also rose in June, along with GDP growth of 7.9%. Global holdings of Chinese stocks and bonds surged, as reported in July, by around 40% to more than $800 billion over the past year.

This is seen as a result of investors purchasing assets at a high rate, even accounting for the tense economic relations between China and the wider international community. China’s crackdown on tech companies like ride-hailing app Didi Global, which has listed its shares in the US market, is an example of causing an air of uncertainty for investors.

Key takeaways

• Countries experiencing a surge in the Delta variant of the coronavirus are in a race between vaccinating the public and lifting restrictions with confidence.
• London overtook Amsterdam as the biggest share trading centre in Europe.
• Economists are concerned about overheating economies with inflation spiking higher on both sides of the Atlantic.

How to plan for inheritance tax

Following the news that thousands more people are expected to pay the standard 40% inheritance tax this year because of the effects of the pandemic, we explore some of the ways to navigate the complexities of inheritance tax.

The complex laws around inheritance tax (IHT) caught many people off guard during the Covid-19 pandemic. Along with the often-sudden loss of a loved one came the issues arising from IHT on gifts passed down to children and grandchildren.

This tax year marks the latest in a series where the number of people being charged IHT on gifts has increased. Since 2009, beneficiaries have paid 40% IHT on estates worth more than £325,000.

Gift your way to less inheritance tax

• There are ways to avoid passing on a large IHT bill to your family, whether it’s through gifting or charitable donations:
• You can give away assets or cash worth up to £3,000 a year (known as the annual exemption) with no IHT to pay regardless of the total value of your estate when you die.
• You can give as many gifts of up to £250 to as many people as you want each year – although not to anyone who has already received a gift of your whole £3,000 annual exemption. To make use of this exemption, it’s important to keep accurate records.
• If you are married or in a civil partnership, you can pass on your entire estate to your surviving spouse, tax free, when you pass away. Things could become more complicated, however, if your spouse was born in a different country.
• If you give a gift – of any amount – and live for a further seven years after the gift has been given, the beneficiaries will not have to pay any IHT if you pass away after that seven-year period.
• Leaving money to a charity means it’s free of IHT and could cut the tax rate on the remaining amount in your estate.

Transferring to a trust or pension
Setting up a trust to transfer some of your estate into for the benefit of your grandchildren is another way to reduce the IHT liability on your assets. However, the trustees could still encounter some income or capital gains tax.

While it may not be the most obvious choice, setting up a pension for your children or grandchildren could be a tax-efficient option. The fund will transfer to them when they turn 18 but they won’t be able to access the money until they’re much older.

As with anything tax-related, the rules are especially complex when it comes to where your inheritance goes and how much your beneficiaries will end up receiving. That’s why it’s so important to speak with your financial adviser to review all your options and find the most efficient ways to pass on your wealth.

Inheritance tax facts
Following the Budget in March, it was announced that thresholds will remain the same for IHT until 2026:

• For single people, the threshold is £325,000.
• For those who are married or in a civil partnership, the threshold is £650,000.
• Couples can also pass on their assets (like an owned home) worth up to £1 million in total if they leave it to children or grandchildren.

To learn more about how to make the most of your money this tax year and for more information about inheritance tax and your tax-free allowances, speak to your financial adviser.

HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen

Key takeaways

• The rise in deaths as a result of the pandemic has meant thousands more IHT payments.
• Following the Budget in March, thresholds will remain the same for IHT until 2026.
• It’s a good idea to explore ways to avoid passing on a large IHT bill to your family, such as gifting and charitable donations.

Social media post

Thousands more people are expected to pay the standard 40% inheritance tax this year because of the effects of the pandemic. We explore ways to navigate the complex issue of inheritance tax and distribute your assets more tax-efficiently.

Thousands more people are expected to pay the standard 40% inheritance tax this year because of the effects of the pandemic.

We explore ways to navigate the complex issue of inheritance tax and distribute your assets more tax-efficiently.

Read our new blog “How to plan for inheritance tax”

Should we be concerned about rising inflation?

Most economists expect inflation to pick up over the next few months as lockdown restrictions ease and shops and restaurants reopen. But is this a cause for concern?

As lockdown measures begin to lift, financial markets are making their adjustments in anticipation of a rise in inflation, with bond yields picking up (meaning prices have fallen) and stock markets rotating from defensive sectors into cyclicals.

What is inflation?
Put simply, inflation measures the change in the prices of goods and services. If it rises then it takes more of our cash to buy things. We all experience inflation in our daily lives, from filling up our cars with fuel, buying groceries or using public transport.

In the UK, the official measure of inflation is the Consumer Prices Index. It’s published by the Office for National Statistics (ONS), which monitors what people are spending their money on, using a basket of everyday goods and services.

The ONS adjusts the basket from time to time to reflect our changing spending habits. During lockdown, there was a shift with products like hand sanitiser and hand wipes being added, and items like white chocolate and ground coffee dropping off the list.

Inflation is all an illusion… or is it?
It’s easy to ignore the impact of inflation on your finances. Most people’s spending habits this month compared with the same time a year ago would probably stick to the same patterns – regardless of inflation at the time – because the differences seem small and therefore wouldn’t affect the way they spend.

If you’re trying to save money though, it’s worth remembering that with interest rates currently lower than the rate of inflation, the real value of any cash savings is falling. In other words, the cost of living is increasing at a faster rate than your savings are growing, which means the spending power of your money is actually falling.

How will inflation affect investments?
Many people in the UK are preparing to spend the cash they’ve saved over the past year when the lockdown ends and shops, restaurants and entertainment venues reopen. Activity is likely to return to pre-pandemic levels and the expectation is that inflation is likely to pick up. Some economists are worried about inflationary pressures. In addition to this is the effect of government stimulus packages on the economy, which would provide another tailwind.

However, experts believe it’s likely to be a short-lived phase and should not pose a longer-term challenge to fixed income or equity markets. The Bank of England does foresee inflation rising towards the 2% mark but believes it will be a temporary phenomenon. Continuing deflationary forces like ageing demographics, technological innovation and global supply chains cast doubt over predictions of a new era of inflation.

Ultimately if you want to beat inflation in terms of finding some good returns on your savings, investing is the best option at the moment – due to cash savings rates being at such low levels.

One of the best ways to ensure your investments are given the strongest opportunity to navigate the effects of inflation on financial markets is through a global, multi- asset portfolio that’s actively managed by a professional team of investors. Speak to a financial adviser to find out more.

One of the best ways to ensure your investments are given the strongest opportunity to navigate the effects of inflation on financial markets is through a global, multiasset portfolio that’s actively managed by a professional team of investors. Speak to a financial adviser to find out more.

Key takeaways

• As lockdown measures begin to lift, financial markets are making their adjustments in anticipation of a rise in inflation.
• If you’re trying to save money, it’s worth remembering that with interest rates currently lower than the rate of inflation, the real value of any cash savings is falling.
• Investing in a global multi-asset portfolio, managed by a professional team of investors, is the best way to ensure your investments are given the strongest opportunity to beat the rate of inflation.

The pandemic has reportedly created 6 million accidental savers, but what’s the best way to use this extra cash?

The effect of the lockdown on millions of bank accounts has been to boost savings for people whose incomes have remained the same but whose spending has dropped.

With the prospect of life returning to a new normal, it’s a chance to think about how to make the most of these savings and build on them too.

Where were savings made?
Working from home meant the cost of commuting was put on hold. Holidays were not booked, and the closure of restaurants, bars and entertainment venues cut spending in those areas, resulting in slightly healthier current accounts.

All this, the Bank of England estimates, resulted in over £125 billion saved in 2020. Its survey does note that only a fraction of this is likely to be spent by households, suggesting a cautious approach.

This is understandable given the drop in income for furloughed employees, the loss of income for the unemployed and an unstable job market.

How to invest your lockdown savings
Leaving your savings in a high-street bank account won’t build much interest. But there are options out there for those who want better returns on what they’ve saved:

• Invest in a stocks and shares ISA – not only will any dividends paid to you be tax-free, but any gains will also be exempt from capital gains tax.
• Contribute to your private pension – this comes with the benefit of tax relief status on your contribution if you’re a taxpayer.

Other ways to make the most of your savings
Aside from investing, there are some useful ways to use any extra money saved during lockdown:

• Pay down debt – if you have lingering debts, whether they’re credit cards or student loans, consider using your extra cash to help eliminate them for good.
• Mortgage overpayments – you could make regular overpayments on your mortgage, reducing its overall term length and the amount you owe on the loan. Check with your mortgage company about their terms and conditions relating to overpayments.
• Build an emergency fund – this fund should contain enough to cover the essentials for a month (like bills, food and your rent or mortgage payments) if anything were to happen affecting your income. Consider opening a separate bank account — easily accessible to you — to store your fund.

A great place to start with all of these options is to create a budget that tracks your income every month compared to your spending, allowing you to work out how much you can put aside.

Our trusted financial advisers are here to help you find the best ways to invest your money to make the most of your savings — whatever your situation.

The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.

Key takeaways

• Millions of us became accidental savers during lockdown as a result of a sharp drop in spending and incomes remaining the same.
• There are several ways to make the most of your savings, which build better returns compared to leaving your money in your bank account.
• Consider using your extra savings to pay down debt or put them into an emergency fund.

Springing into action

Successful vaccination programmes are rolling out on both sides of the Atlantic, pointing to a brighter economic outlook.

The US and UK continued their rapid vaccine programmes to combat the coronavirus pandemic, while Europe lagged in its rollout, resulting in a resurgence of COVID-19 cases in some parts of the EU. As a result, the US and UK are likely to be able to reopen their broader economies sooner, while much of Europe still faces strict lockdowns.

Budget brings some relief
In his March Budget, Chancellor Rishi Sunak outlined stimulus measures to support businesses and workers through to the autumn. This much-needed spending foreshadows the largest hike in taxes for decades, with tax and spending decisions to total almost £60 billion in the 2021–22 fiscal year.

In addition, the government mapped out its plan for lifting lockdown restrictions and hopes to be in a position to remove all legal limits on social contact on 21 June. Pent-up demand is likely to push up the pace of economic growth for the rest of this year and in 2022.

US introduces new stimulus measures
In the US, Joe Biden’s $1.9 trillion stimulus passed through both houses of Congress in March. Under the legislation millions of Americans will receive one-off cheques for $1,400 and the unemployed will continue to receive $300-a-week top-ups until September.The OECD believes the stimulus will turbocharge the American economy and add a percentage point to global growth.

The US also leads the world in total coronavirus vaccines administered, suggesting the American economy is likely to begin its recovery process sooner than many other developed regions.

Inflation worries linger
Inflation worries hit bond markets, but the consensus is that any rise in inflation is most likely to be short lived. Government bond prices fell sharply (and yields increased), reflecting concerns about an increase in inflationary pressures as the global economy started to recover from the pandemic. Inflation is detrimental to bonds because it erodes the real value of the fixed interest rates they pay.

Investors are concerned about inflationary pressures as economies reopen, but we don’t expect the likely spike in consumer prices to persist. Inflation is likely to pick up as spending on services surges when lockdowns end, and government spending is another tailwind. But it’s likely to be a fleeting phenomenon and should not pose a longer-term challenge to fixed income markets.

Cyclical stocks are still attractive
Cyclical stocks remain in favour, as vaccines are administered and the economic outlook improves. Cyclicals like financial and energy stocks tend to perform well when the economy is expanding. But sectors that benefited during the height of the pandemic, such as tech, have fallen as prospects for the economy brighten.

This environment has benefited Europe’s stock market, which comprises fewer technology firms than America, and more cyclical companies such as banks andcommodity firms. The broad rotation away from tech towards cyclicals looks likely to continue.

Big money in digital artCommodity prices have risen this year, including copper and other metals used in electric vehicles, as well as oil. But gold lost some of its shine as a safe and steady investment, with its price falling steadily since the start of the year.

The Suez Canal was the scene of a stuck cargo vessel in March, blocking the vital shipping route for several days. Around 12% of the world’s trade happens via the Canal and it is thought that each day of the blockage halted billions of dollars in trade traffic.

In March, auction house Christie’s sold a digital piece of art by contemporary artist Beeple for $69.3 million – the latest example in the market for non-fungible tokens (NFTs). The artwork itself was composed as a single, unique and encrypted image file – the first sale of its kind by Christie’s, with bidding opening at $100. The eventual anonymous buyer paid for the work in Ether, a cryptocurrency.

Key takeaways

• The US and UK continued their rapid vaccine programmes to combat the coronavirus pandemic, while Europe lagged in its rollout.
• Investors are concerned about inflationary pressures as economies reopen, but we don’t expect the likely spike in consumer prices to persist.
• Cyclical stocks remain an attractive option for investment, as vaccines are administered and the economic outlook improves.

Social media post

• Successful vaccination programmes are rolling out on both sides of the Atlantic, pointing to a brighter economic outlook.
• Investors are concerned about inflationary pressures as economies reopen

Environmental, Social and Governance factors are becoming increasingly important to many investors, who want to align their financial decisions with their moral compass.

This is an area I discuss regularly with my clients and the PIMFA ESG academy provided a great addition to my knowledge base.

Complex tax-efficient investments such as Enterprise Investment Schemes (EIS) and Venture Capital Trusts (VCT) are a consideration for those who may be able to tolerate a high level of investment risk.

EIS and VCT are investment vehicles which encourage investment in small, unquoted trading companies in their early stages, who are typically trying to raise capital. These initiatives benefit the economy by promoting innovation amongst the small higher-risk business community, which in turn drives productivity, creates jobs and boosts economic growth.

Since their launch in the 1990s, they have become popular features on the investment landscape. Both schemes still provide an attractive proposition for experienced investors today, looking for the chance to invest in new businesses with the added benefit of portfolio diversification.

High volume of inflows to the small business sector

The schemes have proved successful in terms of generating cash for the small business sector. Data shows since their launch in 1994, over £20bn of funds have been raised through the EIS scheme, with 29,770 individual companies benefiting from investment. VCT have had a similarly positive impact, raising £8.4bn of funds since their creation in 1995.

How do they work and how much can I invest? In the case of the EIS, investors typically purchase shares directly in firms. VCT are listed companies that allow investors to spread the investment risk over a number of companies by subscribing for shares in the VCT itself, a similar approach to investment trusts.

Currently both offer 30% tax relief and tax-free capital growth, provided an EIS investment is held for at least three years and a VCT for five years. The maximum amount anyone can invest in an EIS is £1m per tax year, or £2m, as long as at least £1m of this is invested in ‘knowledge intensive’ companies. Individuals can invest up to £200,000 each fiscal year in new shares issued by a VCT.

Potential risks
While there are plenty of benefits associated with these schemes, they are only suitable for investors who are comfortable holding high-risk investments. This enhanced risk element stems from the fact that EIS and VCT invest in small, fledgling enterprises.

Although some of these companies will flourish and deliver strong returns, some will fail. As a result, these schemes have a high-risk profile, which is something any prospective investor needs to carefully consider. EIS and VCT investments are only suitable for a relatively small proportion of an investor’s overall portfolio. As these schemes invest in small companies with shares that are illiquid, they can be hard to sell.

As long as the risks are fully understood, these schemes are worth considering for investors seeking a long-term investment that maximises tax-efficiency and provides portfolio diversification.

HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes, which cannot be foreseen.

The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.

Key takeaways

• EISs and VCTs are investment vehicles which encourage investment in small, unquoted trading companies
• Both schemes provide an attractive proposition for experienced investors looking for the chance to invest in new businesses with the added benefit of generous tax breaks and valuable portfolio diversification
• The schemes offer 30% tax relief and tax-free capital growth, provided an EIS investment is held for at least three years and a VCT for five years
• The maximum amount to invest in an EIS is £1m per tax year, or £2m, as long as at least £1m of this is invested in ‘knowledge-intensive’ companies, while individuals can invest up to £200,000 each fiscal year in new shares issued by a VCT
• A benefit of EISs is their eligibility for Business Relief, meaning that if the investment is held for two years, and until death, the value of the assets will not be liable for IHT
• Although some of these companies will flourish and deliver strong returns, many will fail
• Suitable for investors who are comfortable holding high-risk investments
• EIS and VCT investments are only suitable for a relatively small proportion of an investor’s overall portfolio
• Provided the risks are fully understood, these schemes are worth considering for any wealthy investor seeking a long-term investment that maximises tax-efficiency and provides portfolio diversification.