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Month: December 2022

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New Year’s Resolutions

Professional Adviser

New Year's Resolutions

 

As we come to the end of a turbulent financial year, I am setting myself some clear financial resolutions which can be easily adapted for a variety of different investors. I believe the key method to make sure your resolutions are achievable is to ensure they are realistic and show a definition of what is ‘successful’. As a student, I really do understand the difficulties anyone may come across when saving. Below I will outline some of mine or some ideas that you might find useful. 

Professional Adviser

My first resolution is to set myself a monthly saving target. Look at your monthly income, either as an individual or household, and calculate a reasonable amount you would be able to save. I find that when I get my income for the month it works well to have a direct debit set up for this savings amount to send straight to a savings account which has some flexibility. This way I don’t then focus on the money in my savings account, and I can use my current account to budget myself. I would note here, it is important to ensure the savings accounts or investments that you are using are slightly flexible. That way, if you find your spending is higher than you thought, then you can easily take what you need out of your savings accounts and readjust your savings target for the next month.

Depending on the level of savings, an ISA might be the perfect wrapper to invest these regular savings in, to minimise taxation on your investment gains. With the introduction of lower dividend and CGT allowances in April 2023, ISAs are becoming especially helpful to mitigate taxation on gains from your savings. Every year, as an individual you could invest up to £1,666 a month an utilise your annual ISA allowance. While you’re saving this money, you may be looking to keep it as a financial safety net or invest to see the gains you can make. Alternatively, you may be saving up for a specific purchase. No matter how small or large the amount, this resolution can be a great way to keep your spending and savings on track.

My second resolution is to regularly check my current and savings accounts. Currently, as I have a student account, I have not been able to look around the market for better options. However, with the Bank of England increasing the base rate nine times consecutively, current and savings accounts are starting to continually increase interest rates after all the cuts in 2020. Therefore, one of my aims for the year is to regularly check the market for better interest rates to ensure I am earning money from all my accounts and keeping up with the best rates made available by banks. Some providers are even offering cash for switching to their accounts, making these market checks even more worthwhile. Others offer great interest for the first year which then drops, making it even more important to look around at least every year.

Finally, after inflation has exceeded 10% this year, I am looking to become more aware of my spending habits. For me this is to start budgeting, however, knowing how much you spend and on what can allow you to really enjoy what you buy and reduce your waste. Splitting your income into sections such as bills and necessities, gifts, and savings, you can become more aware of where you might be able to reduce unnecessary spending or waste. Personally, I want to try to budget how much I spend when out socialising. By giving myself a budget, I can enjoy myself, without worrying about how much I will have left to save. At home, I want to get back into meal plans, deciding what I will be cooking and going out to buy all I need for the week in one shop, so I know how much I expect to spend, and I won’t waste money on food I don’t need.

Ultimately, everyone is different. But the important thing is to know how much you want to save and how much you are happy to spend. Making your savings work for you through good interest rates or investments, depending on your risk tolerance and how often you need to be withdrawing funds over the year. But financial resolutions can work for everyone and may even help to reduce financial stress throughout the year. If you have any questions or want to implement a financial resolution with our help, then please contact us and we would be more than happy to speak to you.

Written by: Alice Frost

Date: 29 December 2022

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Why Pensions?

Pension Planning

Why Pensions?

 

Whilst pensions are commonly used by individuals to save for retirement, many people are not aware of the extent of their benefits. Pensions are a tax efficient wrapper which can be utilised by individuals. Contributions per tax year are capped at £40,000 for the majority of people. Those with lower or no incomes have their contributions limited to their earnings, or £3,600 (including tax relief), whichever is higher. Individuals are also able to utilise the past 3 tax years of contributions if they haven’t already.

Pension Planning

The first widely known benefit of putting money into a pension, rather than just savings, is that you receive income tax relief equal to the marginal level of income tax you have paid on your contributions. This means if you are paying 40% on £100, and invest this into your pension, your pension will receive the full £100 while the income you would normally get from this is £60. When you withdraw from your pension, you are charged at your marginal rate of income tax, therefore if you are accumulating money quicker than you expect to decumulate it, it is likely you would be paying a lower level of income tax when withdrawing money from your pension. For example, you put in £100 at an income tax rate of 40% so you would have received £60 if you do not contribute it to your pension. If you do contribute it, then when you withdraw this £100, you receive £80 from your pension, as you are only liable to pay 20% income tax as your income levels have reduced. Additionally, when you retire, individuals also have the option to take a 25% tax free lump sum or get 25% of any income payments tax free, which further reduces tax liabilities when making withdrawals from your pension.

Another benefit of saving into a pension is that pensions are exempt from capital gains tax (CGT), and therefore any investments you make are not liable to capital gains tax, which is currently set at 10% for basic rate taxpayers, and 20% for higher rate taxpayers. With the capital gains tax allowance now reducing as of April 2023 to £6,000, this is even more beneficial to investors, as they would be more likely to become liable for CGT tax on their investments than they were previously, whereas they would not be liable if this money was held in a pension.

Under Auto Enrolment, employers are also required to pay contributions into your pension. Some will offer additional contributions above the legal minimum requirements. For example, they may agree that for every 1% of your salary which you contribute up to 10%, they will also contribute 10%. This would effectively double your contributions, and you are getting money from your employer which you wouldn’t otherwise receive.

Finally, a long-term benefit of building up your pension pot is that it is not counted as part of your taxable estate. Therefore, when you pass away, you can choose who you would like to inherit your pension through an expression of wish form, or similar, and that pot will not be liable to inheritance tax (IHT). IHT currently stands at 40% above your allowances. This is particularly valuable to those with large estates, as it keeps money within your control, whilst keeping it tax free for your beneficiaries.

It is important to note though, while pensions are a tax efficient wrapper, private pensions are only accessible at the normal minimum pension age (NMPA) which is currently set at 55. This means that you would need to be careful not to overcontribute to pensions with emergency funds or money that you may need before this age. At AWM we are happy to have these discussions with you to determine a comfortable level of contributions to your pension, to ensure you maximise your pension whilst maintaining a healthy current income too.

Written by: Alice Frost

Date: 23 December 2022

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How does the Autumn Budget affect you?

Autumn Budget Statement Summary

How does the Autumn Budget affect you?

The Autumn budget has been key to show how this government, with Rishi Sunak at the helm, will aim to stabilise markets and fund the high levels of spending we have seen over the previous few years due to worldwide events such as COVID-19.

A summary of the key changes are as follows:

  • Reduced dividend tax allowance
  • Reduced capital gains tax allowance
  • Lower additional rate income tax threshold
  • Changes to some national insurance contribution rules
  • Reduction of stamp duty land tax thresholds
Autumn Budget Statement Summary

Changing the allowances for dividend and capital gains tax will increase the tax revenues received by the government, as dividend tax allowance will be halved, to £1,000 by 23/24 tax year and halved again to £500 for 24/25 tax year. Capital gains tax (CGT) allowance will reduce from £12,300 to £6,000. According to government policy papers, even when accounting for implementation costs, the reduction in these allowances will significantly increase tax revenues year on year. 

For most people, CGT and dividend allowance changes will have little impact, as with careful financial planning the tax can be minimised, for example through tax efficient wrappers such as ISAs or pensions. In some cases, for those with larger investments, alternative planning strategies may work, such as onshore or offshore bonds, or EIS investments. 

Married couples can also utilise spousal benefits, which include being able to transfer money freely between the couple without being taxed. This means if one person in the couple has fully utilised their dividend and CGT allowances, they could transfer funds to their partner. If the partner has not utilised all their allowances, then they could sell the funds to realise the gains in their name, to reduce or even eliminate the tax liabilities on those funds. 

The only change to income tax is a that the additional rate threshold is reducing from £150,000 to £125,140. This will increase the number of people paying the 45% tax on some income. While increasing tax revenues, this will only impact higher earners, and have minimal impact on savings and investments unlike the previous tax changes mentioned.

National insurance contributions eventually determine the level of state pension you are eligible for. Changes are being made to the class 3 voluntary contributions, which are currently £15.85 a week and rising to £17.45. This increases the cost for one year by £83.20. Additionally, a new rule is being implemented, limiting individuals to only being able to buy 6 years of historical gaps in your NIC history. This may reduce the number of people being eligible for a full state pension if they do not keep up with their national insurance contributions. In this case, careful planning will help to ensure all payments are made to keep an individual eligible for full state pension on their set retirement age.

The final key change is to stamp duty land tax (SDLT). The tax-free threshold has been increased from £300,000 to £425,000 for first time buyers, which will help more people get onto the property ladder especially given rising house prices. Additionally, SDLT entry price has increased from £125,000 to £250,000. For an individual buying a £250,000 property this would save £2,500 in SDLT. This will also be fixed until 31st March 2025.

These changes in the Autumn budget have been key for the government to show the public that UK spending is affordable, whilst minimising the potential effects on economic growth. It has made financial planning even more important, as in most cases individuals and couples will be liable to more tax unless they start using further tax planning strategies. These mitigation techniques were also discussed further by one of our advisers, Catriona, in the recent webinar. If you are looking for any advice or a further discussion on this, then please reach out to us for a meeting.

Written by: Alice Frost

Date: 16 December 2022

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Q4 Portfolio Performance Review & Outlook – 12/01/23

Q4 20323 Portfolio Performance Review & Outlook
Q4 20323 Portfolio Performance Review & Outlook

On the 12th of January, we are hosting a webinar with our Discretionary Fund Manager, Cape Berkshire Asset Management (CBAM).

The heads of the investment team, Mark and Shingirai, will be your hosts for the webinar and they will offer insights that we don’t normally share with clients or the public, so book your seat and bring along any questions you may have.

WHAT WILL BE COVERED:

  • 2022 Q1 Macrothemes
  • Portfolio Performance
  • Portfolio Positioning
  • Remainder of 2022 Outlook and Strategy
  •  

Join Mark and Shingirai on the 12th of January for 45 minutes to 1 hour.

Those who register to the event will be sent a link to the webinar a day prior to the event.

Please email info@ascotwm.com for any questions.

12 JANUARY 2023

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Ascot Wealth Management Limited is authorised and regulated by the Financial Conduct Authority reference 551744. Our registered office: Scotch Corner, London Road, Sunningdale, Ascot, Berkshire, SL5 0ER. Registered in England No. 7428363. www.ascotwm.com Unless otherwise stated, the information in this document was valid on 3rd February 2017. Not all the services and investments described are regulated by the Financial Conduct Authority (FCA). Tax, trust and company administration services are not authorised and regulated by the Financial Conduct Authority. The services described may not be suitable for all and you should seek appropriate advice. This document is not intended as an offer or solicitation for the purpose or sale of any financial instrument by Ascot Wealth Management Limited. The information and opinions expressed herein are considered valid at publication, but are subject to change without notice and their accuracy and completeness cannot be guaranteed. No part of this document may be reproduced in any manner without prior permission. © 2017 Ascot Wealth Management Ltd. Please note: This website uses cookies. To continue to use this website, you are giving consent to cookies being used. 

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Is it time to get back into Bonds?

Is it time to get back into Bonds?

Is it time to get back into Bonds ?

The past few years have been quite interesting. In many respects, what is traditionally known about bond markets has been thrown on its head in light of the low-interest rate and post-Covid-pandemic environment. This has led many pensioners and people nearing retirement to see the value of their investment fall in a volatile market while thinking that they were in a traditionally “lower-risked” investment allocation.

Therefore, in this article, we are going to recap what bonds are, how they fit into retirement savings and investing for a future retirement income and the current market conditions suggesting that bonds may be an option to reconsider.

Is it time to get back into Bonds?

What are Bonds? 

According to Blackrock’s definition, a Bond can be defined as an instrument used by governments and companies to raise money by borrowing from investors. Bonds are typically issued to raise funds for specific projects. In return, the bond issuer promises to pay back the investment with interest over a certain period. 

So now that we have recapped what a Bond is (apologies to those that knew that already), how best do they fit in with the investment allocation and planning for your retirement goals? 

Bonds are used by many investment managers to diversify the risk in a multi-asset portfolio away from equity-based investments. Bonds and stocks traditionally can be viewed as having an inverse relationship. This means that when the stock market is down, the bond market becomes more appealing. This has not been the case year to date with bonds performing poorly alongside stocks which have bucked the traditional inverse relationship between the two. 

This has led many investors and pensioners to feel that their portfolios should have been able to weather the negative performing year that we have had but in many instances, Bonds have been performing in line with equities. This has been very disconcerting for investors who felt that they were invested in low-risked portfolios. The lows that have been experienced can be linked to the spike in yields on the back of future interest rate expectations. With the interest rate increasing at rates that have not been seen in 30 to 40 years.

So what makes bonds an attractive investment?

In short, investors are going to be chasing higher yields as a result of the raised interest rates that we have been experiencing. This, over the short term, can be seen to be an attractive option in comparison to long-term bond investments as there is concern over long-term Government debt in light of the recessionary worries that have been identified. These conditions have dictated that rates have increased to the levels that we have seen but the talk is that the rates may decline during the 2nd half of 2023. The era of low-interest rates and plentiful cash in the economy is well and truly over. This means that, once the decline in the interest rate has begun with levels consistently below the 5% mark, the market norms may return and bonds can be viewed as the traditionally risk-averse asset that it is but also as possibly a buy in the short-term. 

What is apparent in the financial advice industry is the need to risk profile our clients to challenge them on how they view risk in the context of their own investing experience. This enables expectations to be set but more importantly, it opens up the conversation on the market performance and the need to review your investments in line with your long-term investment and retirement goals. 

Written by: Greg Armstrong (Wealth Manager)

Date: 06 December 2022

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