Financial Planning, Pensions Advice, Financial Adviser Dunfermline, Fife, Edinburgh and Central Scotland

Tuesday 16th July 2019

No one wants to think about becoming seriously ill. However, it’s an approach that could be leaving millions of people open to financial insecurity if something did happen. Research has revealed that Brits are often in ‘illness denial’ believing something won’t happen to them, even if the odds aren’t in their favour.

Focussing on the likelihood of being affected by a serious medical condition, research from AIG Life discovered many Brits are in a state of denial.

  • Just 22% of people questioned expected to be affected by cancer in their lifetime, however around half of people born after 1960 are expected to battle the disease
  • Heart disease is likely to cause more than a quarter of all deaths, yet only 17% think they will be affected
  • Only 7% thought they would suffer from a stroke, the leading cause of death and disability in the UK

It’s normal to think that serious illness won’t happen to you, but the reality is often different. Taking an optimistic view of the world and your future lifestyle certainly shouldn’t be seen as a bad thing. However, you should take steps to ensure security should something happen.

Financial security and illness

One of the key areas where a serious illness can have an impact on our lifestyle comes down to finances. After all, it’s likely to affect your ability to work and earn an income. If you were to become too ill to work, would you have the savings to fall back on to cover essentials? The research indicates that, for many people, the answer would be ‘no’.

  • 77% of people said they’d experience financial problems if they developed a serious illness in the next six months
  • Worryingly, a quarter said it would cause significant financial problems
  • As a result, a third would need to turn to family and friends for support

Not having a financial safety net can make an already difficult time incredibly challenging. At a time when you should be focussing on recovering, stress and financial concerns can have an effect. Taking steps to provide financial support should something happen not only means you can feel more relaxed should you become seriously ill but it will give you peace of mind now.

Debbie Bolton, Head of Underwriting and Claims Strategy at AIF Life, said: “Our extended lives mean we may live in poor health for longer and sometimes with more than one serious illness. Taking a realistic and practical approach to the risk of illness and the need for financial protection will help us all to plan for the future.”

Three steps to take to improve your financial security

You can’t predict what will happen but there are things you can do to ease the burden should something occur. These three steps can help you understand and safeguard your financial security should you become too ill to work.

1. Check your employer’s policy: The first thing to do is check what your employer’s policy is on sick pay. Employer’s don’t have to offer sick pay, but many do as part of a benefits package. Usually, if you benefit from one, they will pay your full salary for a defined period of time if you become too ill to work, however, some pay out a portion of your salary. The length of time and the amount offered varies between employers so it’s important to check what your contract says.

If your employer doesn’t offer sick pay, you may qualify for Statutory Sick Pay (SSP). This is paid for up to 28 weeks and is £94.25 per week. With outgoings often higher than this, it’s wise to look at alternatives if you’d be relying on SSP alone.

2. Build up an emergency fund: If you haven’t already got an emergency fund to fall back on, building one up should be a priority. It can give you a financial safety net when income stops or you face an unexpected outgoing. Adding to an emergency fund can improve your financial resilience and security.

Ideally, an emergency fund should cover your essential outgoings for three to six months. This gives you some time without having to worry about where further income will come from as you recover and get back on your feet. Whilst it might be tempting to lock savings away to access better interest rates, your emergency fund should be easily accessible.

3. Take out suitable cover: Even with an emergency fund in place, you could still face financial difficulty if you’re off work for an extended period of time. This is where taking out a suitable protection product can help. These insurance policies pay out under certain circumstances when you pay a monthly premium. There is a range of different policy types, which one is right for you will depend on your priorities and circumstances.

When looking for cover that will provide financial security should you become ill, there are broadly two options. Income Protection policies will pay out a portion of your usual salary until you can either go back to work or retire. This provides you with certainty and peace of mind. Alternatively, Critical Illness Cover will pay out a lump sum if you’re diagnosed with an illness that the policy covers, this may include cancer, stroke or a heart attack.

Protection and creating a financial buffer you can fall back on when necessary should form part of your wider financial plan. If you’d like to discuss the type and level of cover that would be suitable for your circumstances, please contact us.

Planning how you’ll pass your estate to loved ones can be challenging, both practically and emotionally. But taking some steps to understand how you can efficiently achieve your goals, can make them more likely to become a reality.

From writing a will to discussing potential inheritance with loved ones, estate planning is a task that many put off. However, it should be considered an essential part of your financial plan that’s just as important as putting money into pensions or checking the performance of investments.

There are many benefits of estate planning, among them:

1. Understand the value of your estate better

Financial planning should help you understand the value of your estate and how this might change in the future. Taking a look at what assets you have to leave behind for loved ones and considering how they’d be distributed can help with this. Cashflow modelling can show you how wealth and assets will be depleted over time. This can help give you an understanding of the inheritance that you can leave or where you may want to make lifestyle changes in light of this.

2. Minimise potential Inheritance Tax

Is your estate likely to be liable for Inheritance Tax (IHT)? If the total value of all your assets exceeds £325,000 IHT may be due, reducing the amount loved ones will receive from your estate. However, there are often things you can do to reduce or eliminate an IHT bill. However, this requires a proactive approach and you should take steps to do so as soon as possible. From setting up a trust for some assets to gifting to charity, an effective estate plan can mean leaving more behind for loved ones.

3. Calculate the sustainability of your income

You might have a clear idea of what you’d like to leave behind for family and friends. If so, how does this correlate with the income you’re already taking or plan to take? Estate planning can help you reconcile your income with legacy plans. It’s also an opportunity to assess how sustainable your income is over the long term. If your expenditure remains the same, how much would you leave behind if you lived ten years beyond the average life expectancy, for example?

4. Help loved ones plan for the future

Research from Royal London suggests that almost 6.5 million adults refuse to discuss their will with loved ones. Whilst it can be difficult to talk about your estate plan, it can help loved ones prepare for the future. Letting beneficiaries know how much they can expect to receive through inheritance can improve their personal financial security. Without a discussion, they could make inaccurate assumptions that affect them long term. It’s a step that can give you peace of mind about their future too.

5. Support loved ones now

As you look at what you’re likely to leave behind for loved ones, you may realise you’re in a position to offer financial support now rather than leave an inheritance. As life expectancy rises, some beneficiaries are finding that inheritance is coming too late to help them tick off financial milestones, such as paying off the mortgage. Providing support to children and grandchildren now could have a larger impact than receiving an inheritance. Of course, you need to ensure that offering gifts won’t have a negative impact on your lifestyle in later years and you should consider the IHT implications.

When should you review your estate plan?

You might think once complete an estate plan is finished, but, like any other part of your financial plan, it’s important to keep going back to it. Over time, your aspirations and financial positions will change, which should be reflected in your estate plan. From needing to pay for care costs to welcoming grandchildren, your initial plan may be very different from what you want in five years’ time. As a result, it’s wise to review it regularly alongside other financial plans and make adjustments where necessary.

If you’re thinking about how you’ll pass wealth on to loved ones, please contact us. Our goal is to give you complete confidence in your financial situation now and in the future.

Please note: The Financial Conduct Authority does not regulate estate and Inheritance Tax planning.

When you write a will, you expect your wishes to be upheld, but that’s not always the case. It is possible for those left behind to contest a will if they believe it is invalid or doesn’t make reasonable financial provisions for certain relatives or dependents. As the number of contested wills increases, it’s important to understand why this is and what can be done to minimise the risk of it happening.

In simple terms, a will contest is a formal objection raised against a will. There are several reasons why someone may choose to contest a will, which can broadly be broken down into two categories:

  • The validity of the will: Most will contests focus on the validity of the will and there are reasons why this may be called into question. Among the arguments of contesting a will are lack of valid execution, undue influence, lack of knowledge and approval, and testamentary capacity.
  • Reasonable financial provisions: Certain people can also make a challenge to your will by claiming that it doesn’t make reasonable financial provisions for them. Among the people that can do so are a spouse or civil partner, a child, a former spouse or civil partner, or a person that was maintained by you immediately prior to death. Many factors will be taken into consideration when assessing reasonable financial provisions, including the financial needs of the applicant and the size of your estate.

Figures from HM Courts and Tribunals show that the number of disputes of wills has increased. Analysis conducted by Direct Line indicates that disputes regarding application for probate increased by 6% in 2018. It’s a trend that looks set to continue too. A quarter of Brits, the equivalent of 12 million people, would be prepared to contest a loved one’s will if they were unhappy with it.

Why is the number of will contests rising?

There are many reasons why someone may choose to contest a will. However, the overall trend has been linked to two key factors.

First, property prices have risen enormously over the last couple of decades. As property is often one of the largest assets a person owns, this has led to the value of estates rising significantly. As a result, there’s a greater reason for those left behind to dispute a will they don’t agree with and pay the associated legal fees.

Secondly, a complex family situation can make splitting up an estate far more challenging. Marrying more than once, having children from different relationships and other influences can have an impact on disputes.

Minimising the chances of your will being disputed

With disputes against wills rising, it may be wise to take action to minimise the chances of a dispute occurring in the first place and reduce the likelihood that a dispute would be upheld. Among the steps to consider taking are:

1. Speak to loved ones: Whilst you may not want to discuss the details of your will, it can prevent loved ones from being shocked by your decision. If you think they will be surprised by how your estate is set to be distributed, explaining your decision and reasons behind it can help ensure you’re all on the same page.

2. Make sure your will is properly executed: You have two options when writing a will: DIY or use the services of a solicitor. A solicitor will cost you, but they can offer guidance on ensuring your will is executed properly and reduce the chances of questions around the validity of it being raised. If you choose to go down the DIY route, make sure you fully understand the process and the boxes that need to be ticked.

3. Prove medical competency: A common reason for disputing a will is that the person making it didn’t have the mental capacity to fully understand what they were doing. For instance, if they had been diagnosed with dementia. This can be countered by speaking with your solicitor or doctor about your ability to make decisions and having this in writing.

4. Be aware of undue influence: Another common ground for dispute is that the person faced undue influence when writing the will. This would have to be proved by someone making an application against your will. However, ensuring the solicitor’s notes state you fully understand the decisions you were making and had reasons for doing so can help.

5. Be as precise as possible with the wording: Ensure your will is written as clearly as possible. Ambiguous wording can make it easier for those that want to dispute your will to do so. Have a clear plan in mind about who you want to benefit from your estate and how before proceeding to help with the process.

6. Provide details of exclusions: If you plan to specifically exclude someone from your will who would normally inherit, such as a spouse, civil partner or child, you can provide details as to why. Should they then make a claim against your will, this can give a clearer picture of your decision and why it’s one you reached.

7. Add a letter of wishes: A letter of wishes isn’t legally binding. However, it can be used to state in your own words who you want to benefit from your estate and why. Should a dispute be raised, this can then be used against it. Whilst it may be tempting to write an emotional letter of wishes, it’s best to stick to the facts.

8. Regularly review your will: Over time, your wishes are likely to change as your circumstances do. As a result, so should your will. It’s advisable that you review your will every five years and following big life events, such as getting married, divorce, or as your family grows to ensure it reflects your current situation.

Please note: Estate planning is not regulated by the Financial Conduct Authority.

 

Fund manager Neil Woodford has been making headlines for all the wrong reasons recently after suspending withdrawals from his flagship Equity Income fund. Unsurprisingly, it’s caused concern among investors, whether they held cash in the fund in question or not, but there are some things that can be learnt from it.

What happened with the Woodford Equity Income fund?

During his time at investment managers Invesco, Neil Woodford built up a stellar reputation for picking out investment opportunities that outperformed the market. He avoided the worst effects of the dot-com bubble in the 90s and the 2008 financial crisis. It led to Woodford being considered one of the UK’s best fund managers and described as having a ‘Midas touch’ in the press.

In 2014, Woodford launched his own investment management firm, with the Equity Income Fund following in 2017. It’s this fund that suspended withdrawals recently.

Two years ago, the fund value was around £10 billion. However, following a period of underperformance, it stood at just £3.7 billion when withdrawals were suspended on 4th June 2019. The decision was made following a large number of investors withdrawing money, jeopardising the manager’s ability to run it effectively. Initially, the suspension was implemented for 28 days, though has been extended.

The fortunes of Woodford’s fund highlight the complexities of investing and serves as a reminder for some of the essential lessons you should keep in mind when investing.

1. Make sure investments are right for you

The Woodford Equity Income Fund was often promoted as an excellent investment opportunity in the press, but that doesn’t mean it’s right for you. Your individual circumstances should play a critical role in deciding where to place your money.

Research looking at the Woodford fund highlights this perfectly. Since 2017, the fund had a risk profile of eight out of ten, with a volatility level that matches the risk profile of just 3% of investors. As a result, it’s likely that a significant portion of those with holdings in the Equity Income Fund are invested in a product that isn’t appropriate.

2. Regularly check the position of funds

In financial planning, we often mention how important it is to ensure your plan reflects changes in your lifestyle and aspirations. Funds are just as likely to change too. It may mean that investments that were suitable two years ago need to be reconsidered. Looking at the position of investments, including those held through funds, should be considered an essential part of your overall financial plan.

An investigation by the Sunday Times found the position of the Equity Income Fund has shifted significantly since launch. In March 2019, less than 20% of the assets held were in FTSE 100 companies. This compares to the 50% it held initially as Woodford pursued investing in smaller firms. This changed the risk profile of the fund.

3. Keep track of performance

First, when you invest you should expect some volatility to occur and hindsight is a wonderful thing. However, the Woodford fund had been experiencing losses and underperforming for two years prior to the suspension, so lower than hoped values shouldn’t have come as a complete shock for investors.

Regularly evaluating the performance of your investments is a crucial part of getting the most out of your finances. Of course, a dip in investment values doesn’t immediately signal that you should start making withdrawals. It’s a decision that should look at your long-term goals and many other factors.

4. Don’t put all your eggs in one basket

Consistently outperforming the market is impossible, even for professional fund managers. As a result, spreading your money across several different investments, with various risk profiles, is important for managing market volatility. By placing your investable assets in more than one fund or alternative options, you can minimise the impact downturns will have.

5. Keep a long-term time frame in mind

Following the Woodford suspension, you may have seen stories in the press about affected investors that have had to change short-term plans. This can be distressing and may impact financial security in the long term too. However, you should only invest with a long-term time frame in mind, typically a minimum of five years.

A longer investment period affords you a greater opportunity to ride out dips in the market. When you create an investment portfolio you should plan for downturns and short-term volatility.

6. Understand the associated risks of investing

It can be easy to forget that investments come with risks when your assets have been performing strongly. Despite this, all investing does come with some level of risk and, as a general rule of thumb, you shouldn’t invest money that you can’t afford to lose. Over the long term, investments have historically delivered, but exceptions do happen and that’s not something that should be forgotten. Investment risk can be managed and should be tailored to you, but it’s still important to keep in mind potential losses when making a decision.

If you’re worried about the recent withdrawal suspension of the Woodford Equity Income Fund and would like to review your investment portfolio in light of this, please contact us.

Please note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

The Bank of Mum and Dad has become essential for many first-time buyers struggling to scrape together a deposit to secure a mortgage. However, research indicates that children and grandchildren are increasingly relying on financial support for a variety of reasons.

Whilst you may be keen to provide as much help as possible to loved ones, you may also be worried about the impact it will have on your own financial security. Understanding whether you’re in the financial position to offer some form of monetary help can give you the confidence and peace of mind to do so.

So, how are parents and grandparents providing support for adult offspring? Offering a helping hand when purchasing a house makes up a sizeable chunk of the money handed over, however, it’s not the only area where financial support is sought.

  • Research from Legal and General suggests that in 2019, up to £6.3 billion will be taken from the Bank of Mum and Dad to fund thousands of property purchases. By offering up sums to act as a deposit, parents are financing around one in five transactions in the UK property market. The average amount received for this purpose is £24,100.
  • Relatives are also putting their money into the entrepreneurial ventures of children too. A survey conducted by Worldpay indicates that around one in ten small business owners asked their parents to invest in their idea. With under-35s twice as likely to seek family support than older generations, it could be a growing trend.
  • Finally, figures from SunLife found that more than half of people aged over 55 are financially supporting their children. Around a fifth are providing more support than they had planned to. This is despite some feeling as though their own finances are being squeezed as a result.

What’s causing the trend?

There are many reasons why children or grandchildren could benefit from financial support, some of which may be personal. However, generally speaking, wage growth has remained low whilst expenditure, including property, has continued to rise. As a result, younger generations are often finding it a struggle to balance the books and still reach life milestones, from buying a first home to starting a family, without risking financial instability.

It’s natural that as a parent or grandparent, you want to provide support to help loved ones live comfortably. Whilst your heart may be saying ‘yes’ when they ask for help, your head may have some reservations. That’s normal too. After all, if you place your own financial security at risk you won’t be in a position to provide support at all.

Making it part of your financial plan

Whether you want to offer ongoing support, to cover school fees for grandchildren, for example, or a one-off gift, you should make it part of your financial plan.

This gives you the insight needed to understand how your finances will be affected in the short, medium or long term. Would taking a £25,000 lump sum out of your savings to act as a house deposit mean you could run out of money in later retirement, for instance? By building gifts and monetary support into your financial plan you can make an informed decision based on your circumstances.

Often, potential benefactors find they’re in a better position to help than they first thought. Using financial planning to fully understand the long-term consequences of gifting means they decide in full confidence and with complete peace of mind.

It’s not just confidence that financial planning can help with either, but deciding which assets to use:

  • Would your long-term wealth be impacted more by withdrawing from investments or cash savings?
  • What is the most tax-efficient way to access large lump sums?
  • Will the support potentially be liable for Inheritance Tax?
  • Could you replace the money at a later date if you choose to?

Financial planning can help you answer the above questions and more to create a solution that’s right for you.

If you decide you’re not in a position to offer financial gifts, there are likely to be alternative options too. You could, for example, act as a guarantor on a mortgage to allow for a lower deposit or provide a lump sum on a loan basis. Financial planning can help you better understand what other routes there are to explore.

To discuss your financial situation and aspirations for helping loved ones find their feet, please get in touch.

When a relationship breaks down, splitting up assets is common. From deciding who gets which pieces of furniture right through to property. However, one asset that’s commonly overlooked initially is pensions.

Alongside property, pensions may be the largest asset you have. When you consider how long you’ve been paying into it and the potential employer contributions, tax relief and investment returns, your pension could be worth more than you think if you haven’t been actively monitoring its value. As a result, it, and the pensions of your ex-partner, should form part of divorce negotiations.

The impact a divorce could have on long-term financial plans shouldn’t be underestimated. Research indicates:

  • 45% of women aren’t confident or didn’t know if their personal financial plans would be adequate if their relationship failed
  • Over a third (35%) of men were also in the same position

With this in mind, pensions need to play an important role in divorce proceedings. However, as it’s not tangible and may not be something you’ll have access to for several decades, it can be forgotten about. As longevity increases and individuals increasingly take responsibility for their retirement income, pensions are crucial for long-term financial security.

Establishing how much a pension is worth

As pensions are long-term investments, an initial challenge may be establishing how much they’re worth. It’s a calculation that should include all pensions, from Workplace Pension to additional State Pension that has been earned.

For a Defined Contribution pension, including Workplace Pensions and Personal Pensions, the latest annual statement should provide a transfer value that can be used. If you have a Defined Benefit Pension, also known as a Final Salary pension, the calculations can be more complicated as accrual rates and contributions will need to be considered. We can help you determine the value of your Defined Benefit pension.

As pensions are usually inaccessible until the age of 55, the process of splitting up a pension during a divorce can be more difficult than other assets. However, there are essentially three core options. The same options apply for a dissolution of a civil partnership.

1. Pension sharing

A pension sharing order is a legal way of dividing up a pension between a couple. It was introduced in 2000. Prior to this, a spouse or civil partner that didn’t have a pension or held a smaller pension would have no pension entitlement.

Pension sharing means that pensions are now included in the total value of marital assets and, therefore, should be divided fairly during a divorce. A portion of an existing pension may be awarded to the other person if they have a pension that is lower in value. The money awarded is known as a pension credit. The pension credit can then be transferred into either an existing pension scheme or used to open a new pension. As a pension sharing order allows you to create a separate pension, a couple can make a clean financial break.

Couples need to apply to a court for a pension sharing order as part of their divorce. If you’re awarded pension credit, it’s important to think carefully about where you want to transfer the money to.

2. Pension attachment

A pension attachment/earmarking order still allows one person to access a portion of the pension but works in a different way. Rather than transferring a defined amount into a pension, a pension attachment will be paid when the scheme member starts to draw retirement benefits. The amount or portion is predefined. The court will instruct the scheme administrator or pension provider to make these payments.

In England, Wales and Northern Ireland, the figure can be paid either as a lump sum when the pension is first accessed, known as the pension commencement lump sum, or on an ongoing basis from the pension member’s pension income. In Scotland, it can only be paid from a pension commencement lump sum.

As it means your retirement finances are tied to an ex-partner, a pension attachment order isn’t as commonly used as a pension sharing order.

3. Pension offsetting

Finally, this option means both partners retain their full pension rights. However, where one person has a pension that is higher in value, this is offset through other assets. For example, the partner with a lower pension value may receive a greater portion of cash, investment or property assets that are of a similar value to offset the lost pension benefits.

Planning for the future

A divorce can mean significant upheaval in your life and it’s likely that your priorities and aspirations have changed as a result. Reviewing your financial plan in light of this, is a step that should be taken when you feel ready. It’s a process that can help you understand how your finances may have changed immediately following divorce and the steps that should be taken to ensure you’re on track to achieve goals.

If you’ve experienced divorce and would like help reassessing your financial situation as you plan for the next chapter of your life, please contact us.

Please note: A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.

It’s often said that Brits are obsessed with property. And to some extent it’s true. We often view our home as more than just a place to live, in many cases, it’s an investment too. With this in mind, it’s no surprise that Buy to Let is often viewed as a way to boost income. However, with recent changes, is it still a wise choice?

Why did Buy to Let become popular?

Over the last few decades, Buy to Let has risen in popularity for a number of reasons:

  • Rising property prices: The increase in property prices has been huge over the last 40 years or so. Many of those that purchased a property in the 70s and 80s have seen their property deliver returns that outpace savings or investments. As a result, the number of people choosing to hold their money in property assets has increased too.
  • Increasing rental yield: As property prices have increased, so too has the average amount of rent being charged. It’s given landlords an often steady stream of income that can be increased in line with inflation to maintain spending power. Compared to alternatives, it may be viewed as an effective way to create another income stream.
  • Cheaper lending: For those new to the Buy to Let market, cheaper lending may have been a factor. Following the financial crisis, interest rates for borrowing have remained low and this means mortgage payments are cheaper, therefore, rising profit levels.
  • Property is tangible: For some investors, property is a preferred asset because it’s tangible, whilst stocks and shares, for example, are often abstract. Tangibility can help to give some certainty in their investments.

What has changed in the Buy to Let market?

Buy to Let was once seen as a great way to create long-term income with relatively little risk. However, the market has changed significantly since then. It’s important to understand commitments and potential drawbacks that go along with purchasing a Buy to Let property before diving in. So, what’s changed in the last few years?

  • Property prices: Whilst property prices have largely recovered from the dip they experienced during the financial crisis; most aren’t growing at the same pace they once were. Many parts of the country are now experiencing stagnant growth, and a few have even seen average prices fall. If you hope to invest in property to capitalise on rapid price growth, you may be left disappointed.
  • Additional regulation: The amount of responsibility landlords need to take on when letting out a property has been growing. As well as paying for repairs and maintenance, they also need to ensure gas and electric appliances are safe, with frequent checks being carried out. It’s likely that regulation will continue to grow too. For example, since 2018, landlords also need to abide by energy efficiency laws, with all new tenancies needing an Energy Performance Certificate (EPC) rating of E or higher.
  • Changes to tax relief: Changing legislation means Buy to Let isn’t as lucrative as it once was. Before April 2017, any interest payments you paid towards your mortgage could be deducted from rental income before you paid tax on it. However, this has slowly been reduced. For 2019/20, only 25% of interest payments can be deducted from rental income, and the tax relief will disappear after April 2020. As a result, the profit you can make on Buy to Let has been eroded.

Should you invest in Buy to Let?

Even with the relatively recent changes affecting how profitable being a landlord can be, there are many that are still tempted to turn their hand to Buy to Let. It may be a decision that’s right, but there may be alternatives that are more suitable. Before you start looking at Buy to Let mortgages, there are some important questions to consider:

  • Is there a demand for rental property in the area you’ve considered purchasing?
  • Do you have at least 25% deposit?
  • Will the property be able to achieve a rental yield of at least 125% your mortgage repayments?
  • Do you have the capital required to pay for maintenance or repair work if necessary?
  • How will you cover void periods when the property is empty?
  • What level of profit can you, realistically, expect to achieve?
  • Could you continue to pay your mortgage if interest rates increased?
  • What will you do when the mortgage term ends?

There’s no one-size-fits-all answer to whether or not you should invest in a Buy to Let property. You need to carefully consider your current financial situation and what you hope to achieve through purchasing a rental property. If you’re unsure if it’s the right decision for you, we’re here to offer you support.

In the digital age, it’s impossible to escape the media. But you might not realise the influence it’s having on your financial decisions. Often, it’s subconscious, but being aware of the impact it could be having mean you’re in a position to better understand the decisions you’re making and ensure they’re right for you.

The news and media aim to sell. And, as a result, it often sensationalises headlines and content to catch your attention and draw you in. When reading the financial section of a newspaper, how many times have you seen the words ‘dive’, ‘crash’ or ‘plummet’ to describe a fall in share price that is relatively short-lived? It’s the same story for shares that have performed well.

It’s not just the financial sections of media that may have an impact on how you view financial decisions either. Headlines on the state of the economy, which industries are fast growing, or challenges on the high street, for example, could affect your decisions. Whether you read the news in the paper or use social media to keep up to date, it can be challenging to filter out the sensational news and understand what matters to you.

Does it really have an impact? You might feel as though you’re rarely influenced by the media when making decisions, but it has probably happened at various points throughout your life, for instance:

  • After seeing multiple sources citing that the economy was suffering, you decided to slow down investment deposits and instead hold savings in cash. If a slowdown did come, you might have felt satisfied that you’d minimised the impact. However, typically, investments outperform cash over the long term and media influence may have actually meant you lost money.
  • Alternatively, after seeing several news stories looking at funds that have outperformed or individuals that have made their fortune through investing, you may be tempted to take on more risk. Seeing regular media sources claiming how others have secured above average returns can make you feel it’s more likely to have than the reality.

The solution: Financial planning

So, what can you do about the media influence on your financial decisions? Financial planning can offer a solution for five key reasons.

1. Bring the focus back to you: Often in the media, stories will be conflicting. Differing opinions and outlooks means that people will have very different views on the best financial steps to take. This is because which route is best for you will depend on a whole range of personal circumstances. Financial planning helps bring financial decisions back to you and what you want to achieve.

2. Ensuring regular reviews: Aspirations, opportunities and risks all change over time, and this should be reflected in your plans and decisions. Engaging with a financial planner on an ongoing basis means you can take advantage of regular reviews to ensure you remain on track and bring up concerns. So, if you’re worried about how the economy is performing and the impact on investments, for example, a review can either ease your concerns or lead to adjustments where necessary.

3. Visualise the long-term impact of decisions: When making a financial decision, it can be difficult to comprehend the impact beyond the immediate. For example, reducing the amount you put into your pension may free up some extra cash now, but what impact will it have had in 30- or 40-years’ time? Through using cashflow planning tools, financial planning can give you a visual representation and put decisions into context with long-term aspirations.

4. Offering an outside perspective: Media influences can be hard to recognise in ourselves. You may make a subconscious decision, believing it’s right for you, when an alternative would be better suited. Working with a professional financial planner means someone else takes a look at your plans. Another pair of eyes and a different perspective can be hugely valuable when weighing up what you should do.

5. Confidence: It’s important to have confidence in your overall financial plan and the decisions you make. This is what financial planning should aim to achieve. With a plan that’s tailored to your short, medium and long-term aspirations, it can help block out some of the noise and influence from the media, which may not be right for you.

If you’d like to discuss your financial plan or concerns you may have with a professional, please get in touch.

Please note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

A trust may be one of those financial tools you’ve heard of but know little about. In some circumstances, they can be an excellent way to help manage assets and reduce tax liabilities. However, it’s important to understand what they are and where setting up a trust can be useful before proceeding.

What is a trust?

Even the basics of a trust can seem complicated due to the legal jargon used. But the principle is relatively simple.

A trust is simply a legal arrangement for handing assets to one or more people or a company (trustees) to control on behalf of one or more people, known as beneficiaries. Whilst the trustees have control of the assets, they must act according to rules set out by the person that set up the trust (the settlor) and with the interests of the beneficiaries in mind.

Say, for example, you want to ensure a child in your family would be taken care of should something happen. A child won’t be able to take control of an inheritance, but you may not want to hand over money intended for the child to another adult without being able to stipulate how it can be used. A trust allows you to set out some rules and have peace of mind that the trustee must act in the interests of the child.

Many different assets can be placed in a trust, including money, investments or property.

There are many different types of trust, which may have different advantages depending on your needs. Among the most common types of trusts are:

Bare trusts: As the name suggests, these are the simplest types of trust. The beneficiary has the absolute right to the assets within the trusts, as well as any income they may generate. Whilst, the trustee will take responsibility for managing the trust’s assets, they have no say in how or when the assets or capital is distributed.

Discretionary trusts: This is where you give the trustees the power to decide how to use the income assets which the trust generates. How much power they have is stipulated by the settlor in a letter of wishes. They may, for example, have the power to decide the portion of income that is paid out, which beneficiaries beneficiates will receive income and how frequently disbursements are made.

Interest-in-possession trusts: In this case, a beneficiary has the right to receive an income generated by the trust’s assets or the right to use assets it holds. This can be for life or for a defined period of time. For instance, a beneficiary may have the right to live in a property that is held in trust until they die.

Settlor-interested trusts: If you or your spouse or civil partner will benefit from the trust, this is known as a settlor-interested trust.

Mixed trust: This is an option that blends multiple types of trusts. So, a portion of the assets held in trust can be set aside as an interest-in-possession trust, whilst the remainder can be treated as a discretionary trust, giving trustees greater control over a portion of the assets.

The above are examples of just a few of the types of trusts available. There are other options, which may be more suitable to your circumstances, if you’re thinking of using a trust.

When can using a trust be useful?

There are many instances where a trust can be a useful way to hold assets, including:

  • Providing certain conditions are satisfied, assets held in trust aren’t considered part of your estate. This means they will not count towards a potential Inheritance Tax bill when you die.
  • Having greater control over how and when assets are distributed after you die.
  • Preserving the assets rather than splitting them up between beneficiaries. This may mean the wealth you’ve accumulated is able to grow further and still benefit loved ones.
  • Holding and managing assets for people that are not ready or are unable to do so themselves. This may include children or vulnerable people.

Setting up a trust

If you think that setting up a trust is right for you, it needs to be a carefully considered decision, from both a financial and legal perspective.

Once a trust has been set up it may be impossible or very difficult to reverse the decision. As a result, it’s vital that you ensure it’s the right choice for you financially before you take any further steps. Ensure you look at the medium and long term when assessing how appropriate a trust is for your financial situation. It’s also important to note that beneficiaries may pay tax on distributions they receive, this may play a key role in understanding if it’s a good idea for you.

From a legal perspective, a trust needs to be precisely worded. For this reason, you should use a solicitor to help you set it up. You can expect solicitor fees to be around £1,000 or more, though this will depend on your personal situation and the complexity of the trust. It’s a fee that could save you from making costly mistakes.

If you’d like to discuss the financial merits and drawbacks of a trust with your situation in mind, please contact us.

Please note: The Financial Conduct Authority does not regulate wills, trusts, tax or estate planning.

Three years after the Brexit referendum, it’s still uncertain how and when the UK may leave the EU. With political turmoil, highlighted by the recent EU election and Theresa May stepping down as Prime Minister, you might be worried about how Brexit is and will affect your finances.

Held on 23rd June 2016, the Brexit referendum indicated that 51.9% of those voting supported leaving the EU. Whilst a majority, the vote was incredibly close, and it’s led to difficult negotiations, both in the UK and the EU. As well as the close vote, there are many different forms that Brexit could take and navigating a plan that satisfies a majority is, again, proving difficult. The House of Commons has voted against several Brexit deals put forward by Theresa May.

When the UK invoked Article 50 it was intended to start a two-year process with the UK leaving the EU on the 29th March 2019. The deadline has now been extended to 31st October 2019.

What does it mean for your finances?

As Brexit is uncertain and the long-term impact it will have even more so, you may have concerns about how it’ll affect your wealth and investments. Though it’s important to remember that Brexit is just one of many influential factors that are outside of your control. It may cause increased volatility, but there are things you can do to minimise the impact and safeguard your wealth.

1. Focus on your long-term plan

Short-term fluctuations in investment values are normal, it’s part of the investing process. However, it’s easy to panic when you see values fall and think you should take action. Here, a long-term outlook is essential. When you began investing, it should have been with a long-term goal in mind, perhaps to fund retirement or support grandchildren through further education. A long time frame gives you an opportunity to ride out dips in the market and hopefully secure returns.

With this in mind, the volatility UK stocks may be experiencing at the moment should be looked at in the context of the bigger picture. It can be worrying but, typically, holding steady and sticking to your plan is the right option.

2. Check the level of volatility you’re exposed to is appropriate

If the ups and downs of investments worry you, it may be time to reassess the level of risk you’re taking. There’s no one-size-fits-all solution for risk, it should depend on a range of personal factors. However, it’s important to recognise that the appropriate level of risk for you may change throughout your life. At some points, you may opt for a more cautious approach, but as your capacity for loss rises, you may decide to increase it, for example. If the impact of Brexit on your finances or potential falls in value makes you nervous, it’s a good idea to take a look at how much risk you’re taking and whether it’s still appropriate for you.

3. Diversify your investments

Whilst you consider risk there’s another area to assess in your current portfolio too: how diversified are your investments? By spreading risk across several different types of investments, you minimise the risk of significant falls in value as it’s less likely a downturn will affect all investments. Often, it’s asset classes that are focussed on here. But in the context of Brexit, assessing where geographically your money is invested, may be wise too. How much of your portfolio is invested in companies that are UK based, for example?

4. Keep an eye on performance

We know we said you shouldn’t focus on the short term. But that doesn’t mean you should ignore investment performance entirely. Keep an eye on how your portfolio is doing and ensure you regularly review it. Usually, we’d suggest a full financial review once a year or following big life events, this allows you to cut out some of the short-term peaks and troughs to see the overall performance.

A review also gives you a chance to spot opportunities. Brexit uncertainty might often be associated with values falling in the media, but that doesn’t mean it can’t bring opportunities too.

5. Speak to your financial adviser

If you’re contemplating making changes to your investment portfolio or financial plan in light of Brexit, getting professional advice can help you put the impact your decisions could have into perspective, looking at both the short and long term. If you’d like to discuss how Brexit, investment volatility or any other concerns may affect your finances, please get in touch.

Please note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

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