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Protecting your business in difficult times

stansherlocstg on October 15, 2020

  • Financial Planning

Protecting your business in difficult times

During the past few months, millions of businesses have been forced to shut temporarily, with employees furloughed or working from home under very difficult circumstances.

With various business sectors reopening in July, many have suffered significant financial damage due to lockdown. For some businesses, productivity has been lost due to illness and self-isolation, while others have lost key personnel or shareholders, leaving a question mark hanging over their future.

Don’t leave your business vulnerable
It is likely that your business would at least experience some financial difficulties if key stakeholders were to fall ill or die.

When thinking about whether you should take out business protection insurance, ask yourself: “Would your business survive if something were to happen to you, your co-owners or senior employees?”

If the answer is no, then you would probably greatly benefit from taking out this specialist insurance. Below, we’ve outlined two of the most common types of business protection.

Share protection insurance

Even if a business has multiple owners, the death of just one of them could throw the business into turmoil. If no share protection policy is in place, then the deceased owner’s share in the business may pass to a family member, meaning that the remaining owners could lose control of part (or even all) of the business.

Share protection is essentially a life insurance policy that covers you for the value of your share in the business, with the payout providing your co-owners with the necessary funds to buy your shares back.

Key person insurance

A ‘key person’ can be defined as an employee with specialist knowledge, experience and skills who contributes to the financial success of a business.

If you were to lose a highly-trained employee, who carries out unique functions within your business, it could have a detrimental impact on your income and profits.

Meanwhile, you are likely to use up time and resources you can’t afford in training up or recruiting a replacement. A payout from key person insurance could enable your business to avoid financial hardship and give you breathing space to find a replacement at your own pace.

Seek advice

There are many other types of protection insurance available, such as business loan protection and relevant life plans, so it’s advisable to seek guidance from a professional to ensure you choose the policy that works best for you and your business. If you would like to know more, please get in touch.

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The world is changing – so should your insurance!

stansherlocstg on September 1, 2020

  • Financial Planning, Home & Life Insurances, Mortgages

The world is changing – so should your insurance!

The world is changing rapidly in a way that nobody could ever have expected, meaning your personal and financial circumstances are likely to have changed. It is important to regularly review all aspects of your finances and that includes reviewing your protection insurance, to make sure your policy provides adequate cover for your changing needs.

Underinsured
If you don’t regularly review and update your policy, any pay-out you do receive from your claim may not be enough to cover you and your family’s needs if you were to die or if you are unable to work due to illness.

Say you took out a life insurance policy covering you for a certain amount. After several years, you may have children, resulting in a move to a larger house. If you take a larger mortgage, your monthly outgoings would increase, and you would have bigger bills to pay. Therefore, the lump sum paid out to your family upon your death would no longer be sufficient to sustain their lifestyle and might leave them facing financial hardship.

New policies offer better protection
Like any industry, the insurance industry has evolved over time. Modern policies can offer you better protection and more extensive cover.

When comparing a critical illness policy sold in 2007 with one sold in 2017, the more modern policy may have better claims wording, provision for part-payment and other advantages.

If you have simply been paying your premiums on the same policy for years, it is likely that, as well as facing the risk of being underinsured, you also won’t be benefiting from the kind of comprehensive cover offered by today’s policies.

Let us protect you
With so many different types of protection insurance on the market, it’s not surprising that many people just stick with the cover they have.

It may not be the best cover for them. We can assist you in finding the very best policies for your circumstances, so you have the peace of mind that you, and your family, will be protected should the worst happen.

Please note: Older policies may cover illnesses which modern policies do not. Premiums may be cheaper due to the age of the policy. Certain cover may be excluded on a new policy due to pre-existing conditions.

Always get professional advice when reviewing your insurance policies. As with all insurance policies, conditions and exclusions will apply

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Now is not the time to neglect your pension – keep your planning on track!

stansherlocstg on August 17, 2020

Retirement planning
  • Financial Planning

Now is not the time to neglect your pension – keep your planning on track!

The Coronavirus outbreak is having a widespread impact across all aspects of our financial life, with many people finding their income reduced. At times like this it can be challenging to stay focused. No matter what age you are, now is not the time to neglect your pension. Try your very best to keep your pension planning and contributions on track – don’t allow the pandemic to cast a cloud over your long-term plans.

It’s never too early to start saving into a pension…

You should start saving for retirement as soon as possible, as the sooner you begin, the longer your savings have to grow. Other financial challenges can make this difficult but investing regular amounts in a pension throughout your working life gives you the best chance of enjoying a prosperous retirement.

…but better late than never

Don’t think it’s too late to start saving for your retirement. The favourable tax treatment pensions enjoy and their potential for investment growth, means any contributions you make later in life can still make a huge difference to your standard of living in retirement.

Take control of your retirement

When you reach 55, it’s important to carefully consider what you can do with your pension pot. For instance, you could keep your savings invested, take a cash lump sum, draw a flexible income (drawdown), buy a fixed income (an annuity), or a combination of these. While this flexibility may enable you to retire earlier or semi-retire, it’s vital you take full control of your retirement options at this stage. This should include seeking advice to discuss the pros and cons of the different avenues available to you.

Know your numbers

You can contribute as much as you like into your pension, but there is a limit on the amount of tax relief you will receive each year. The Annual Allowance is currently £40,000, or 100% of your earnings, whichever is lower. You can, however, carry forward unused allowances from the past three years, provided you were a pension scheme member during those years.

For the 2020-21 tax year the Tapered Annual Allowance limits altered. The Threshold Adjusted Income limit is £200,000 and the Adjusted Income Limit is £240,000. If your income plus pension contributions exceeds the Adjusted Income Limit, your Annual Allowance is reduced by £1 of every £2 you are over the Adjusted Income Limit. A Lifetime Allowance also places a limit on the amount you can hold across all your pension funds without having to pay extra tax when you withdraw money. This limit is currently £1,073,100.

Get good advice

Retirement planning is never a case of ‘one size fits all’. It is vital you obtain sound financial advice tailored to your individual needs. We offer advice and help with all aspects of pensions and retirement planning, whether you’re just starting out and want help choosing the most appropriate pension products, or you’re approaching the stage of life when you need to utilise your pension pot and want to know the most efficient way to access your funds. We are here to help.

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.

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

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Is your Life Insurance in Trust?

stansherlocstg on July 27, 2020

Family walking along the beach
  • Financial Planning

Is your Life Insurance in Trust?

A life insurance policy in trust is a legal arrangement that keeps a life insurance pay out separate from the valuation of your estate (property, money and possessions) after you die. Here we take a look at some main points to consider when deciding whether to write your life insurance in trust.

The logistics

A trust is a legal entity that allows you to put aside assets for your chosen beneficiary or beneficiaries. A solicitor or insurance provider can arrange to place your policy in trust. You can nominate one or more trustees to manage the trust until the beneficiary is ready to inherit. The trustee(s), ideally a solicitor or close friend, is responsible for ensuring the money set aside goes to the correct people after you have passed away. Trust deeds are agreed and signed by all parties, setting out the terms of the trust.

Trusts can be inflexible

You can set up either an absolute or a discretionary trust, the main difference being flexibility. With an absolute trust, they are fixed, so making any changes is not permitted. With a discretionary arrangement you don’t need to specify beneficiaries at the outset, how much will be received and when it will be received. You can also add other trustees to discretionary trusts once it’s set up.

It can be risky to amend a trust – there have been instances when people have invalidated their life insurance, after making changes to the policy in trust.

Minimising Inheritance Tax (IHT)

One of the prime motivators to people putting life insurance in trust is to mitigate IHT. Normally, a life insurance pay-out is considered as part of your estate, which will be liable to IHT on anything exceeding the £325,000 threshold (taxed at 40%). When you write your life insurance in trust, you are in effect, ring-fencing the pay out, so it won’t be included in the value of your estate, therefore protecting it from IHT and leaving more for your loved ones.

Greater control, expedience and options

Writing your life insurance policy in trust gives you more control over the pay-out. This is very important if you aren’t married or in a civil partnership; otherwise, your intended recipient may miss out. Pay outs from a trust can be paid quickly because there is no need to wait for probate to come through. If you have existing life insurance policies, you can transfer these into trust, but you would need to take advice on this first.

Seek advice

There could be tax implications if you move a life insurance policy into trust, for example IHT may be charged if, within 7 years prior to dying, a policyholder changes the person who’s named as a beneficiary on a life policy held in trust. If you are unsure whether to write your life insurance in trust, talk to us. We can guide you through the pros and cons considering your circumstances.

As with all insurance policies, conditions and exclusions will apply.

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

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Been meaning to do it for ages? It’s time to look at Estate Planning:

stansherlocstg on June 29, 2020

Mortgage Calculator
  • Financial Planning

Been meaning to do it for ages? It’s time to look at Estate Planning:

Estate planning encompasses not only preparing your finances to ensure your assets are protected for your loved ones once you are gone, but it’s also about ensuring you have enough money to live on.  

It starts with obtaining a comprehensive view of your assets. Assessing the value of your estate and ensuring the right documentation is in place is a first port of call (such as Wills, Lasting Powers of Attorney (LPA), and the formation of any relevant Trusts). 

Valuing your estate

In order to establish the value of your estate, first calculate the total worth of all your assets, including your home, any other property, money and savings, shares and investments, business equity, cars, jewellery and other personal possessions. Determine the value of

non-monetary assets, by applying a realistic market value. Any gifts which incur Inheritance Tax (IHT) should be added to the value of assets. Then deduct debts and liabilities from this amount to establish the total value of the estate.

Deductions include any outstanding bills, mortgage debt, loans, credit cards, overdrafts, and funeral expenses.

Wills*, Trusts and LPA

Putting together a clear plan, that details your wishes regarding how you’d like your estate to be managed upon your death, will ensure when the person looking after your estate applies for probate they will know what your wishes were. A vital part of successful estate planning is ensuring you have a valid Will in place. Trusts are also a useful way of managing money or other assets on behalf of beneficiaries. There are various types of Trusts which provide an alternative to direct inheritance or transfer of certain parts of an estate, giving you control over who receives what and when. There are 2 types of LPA, ‘health and welfare’ and ‘property and financial affairs’ which are worth establishing at an early stage.

IHT

Estate planning can also help you reduce the amount of IHT payable. With expert planning, you can legitimately reduce the amount of IHT payable and pass on assets to your family as intended. For individuals, the current IHT nil-rate threshold is £325,000, and £650,000 for a married couple or civil partners. Any unused portion of the nil-rate band can be passed to a surviving spouse or civil partner on death. Beyond these thresholds, IHT is usually payable at a rate of 40%.

Since April 2017, there has also been a main residence nil-rate band, which applies if you want to pass your main residence to a direct descendant (e.g. child or grandchild). For the 2020-21 tax year, this allowance is £175,000. Added to the existing threshold of £325,000 this could potentially give rise to an overall IHT allowance of £500,000 for individuals, or £1m for those who are married or in civil partnerships. It is important to note larger estates will find residence relief is tapered, reducing by £1 for every £2 by which the net estate’s value exceeds £2m.

There is another simple way of passing money to the next generation which allows for gifts to be made from surplus income. Conditions apply, and advice would be needed to ensure the gifts are made in the right way. We can talk you through the options and help you to find the most appropriate choice.

We can help

We can give you advice to ensure your money ends up with the people you want, for the reasons you choose. We can show you how much money you will need, help you to pass on assets in the most effective way, and work with you to reduce or manage an Inheritance Tax bill.

*Will writing and LPAs are not a part of the Openwork offering. Openwork Limited accepts no responsibility of this aspect of our business. These products are not regulated by the Financial Conduct Authority.

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

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Investing for Children – The Junior ISA

stansherlocstg on June 24, 2020

Family walking along the beach
  • Financial Planning

Investing for Children – The Junior ISA

There was welcome news for young savers in the March Budget with the government announcing the Junior ISA (JISA) allowance was to be more than doubled, from £4,368 to £9,000 from 6 April 2020.

JISA and CTFs both benefit 

JISAs replaced Child Trust Funds (CTF) in 2011, but those who still
hold CTF will continue to benefit from the increased allowance. Both JISA and CTF are a tax efficient way to build up savings for a child. It is not possible to have both a JISA and a CTF.

Savings for children

A junior ISA can be opened for any child under 18 living in the UK and the money can be held in cash and/or invested in stocks and shares. Once the person who has parental responsibility for a child has opened the account, anyone can contribute to it. The child can manage the account from age 16 and at age 18 they can withdraw the money if they want, when the account otherwise becomes a normal cash or stocks and shares Individual Savings Account (ISA). Alternatively, they can keep saving into it as a standard ISA.

The tax benefits for JISAs and CTFs are the same as for an adult ISA. So, there is no Capital Gains Tax and no tax on income.

Investing for their future

Following the Budget, it was reported: ‘By saving towards their future, families can give children a significant financial asset when they reach adulthood – helping them into further education, training, or work.

Junior ISAs and Child Trust Funds are tax-advantaged accounts for children, designed to encourage a long-term savings habit.’  Two principles which apply to many aspects of financial planning are particularly relevant when planning for your child’s financial future:

  • The longer the timescale, the more scope there is for your investments to grow
  • Taking expert advice can help you avoid potential pitfalls

The potential of a JISA

It is estimated that if £9,000 was invested every year from birth and assuming a 2% annual return, which is obviously by no means guaranteed, the JISA would be worth around £194,000 at age 18. Saving such a large amount is obviously out of the question for most people, but whatever amount you can afford to save for your child’s future, a JISA is an ideal choice.

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated. 

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“In this world nothing can be said to be certain, except death and taxes.”

stansherlocstg on June 3, 2020

Calculator and laptop
  • Financial Planning, Uncategorized

“In this world nothing can be said to be certain, except death and taxes.”

So… What is cashflow modelling?

Financial planning is all about preparing for those things that may not be so certain (and taxes). Plans should be reviewed regularly so they adapt to changes in your circumstances and reflect developments in the wider economy and financial markets.

Cashflow modelling, sometimes known as cashflow forecasting takes a view of investments, debts, income and expenditure. It takes into account things like inflation, changes in income and interest rates. It can then be used to model a range of different scenarios to help you make informed choices about your finances.

The heart of any sensible long-term financial thinking

In essence cashflow modelling provides a rolling balance sheet that has your income, savings, investments and other assets on one side and your spending requirements and commitments on the other.

With this information to hand, it is possible to assess your current situation. By adding in assumptions about the possible direction of variables such as inflation and investment returns, predictions can be made about how your situation might change over time.

In turn, this can help inform decisions such as when might be the optimum time to retire and how best your retirement income might be funded. It can also embrace estate planning, allowing you to put plans in place that can mitigate any potential Inheritance Tax liability.

Flexible forecasting and planning

Cashflow modelling is endlessly flexible and takes account of your personal preferences. You might want to determine the impact of moving to a smaller property at some point – perhaps when your children are financially independent, or when you retire.

Similarly, you might want to explore the merits or otherwise of accessing part of your pension savings sooner rather than later – in other words, before you retire. How would that affect your income after retirement? Cashflow modelling could help provide the answers.

What if?

Cashflow modelling also allows for examination of “What if?” scenarios. What if there’s a financial crash? What if there’s a change in your family situation, such as the arrival of grandchildren or a divorce? What action should you take in anticipation, either now or in the future?

Your financial forecasts will be shaped to a significant degree by your attitude to risk. Some people are bullish about potential gains from their portfolio, while others want to achieve as much security and certainty as possible. Thinking about the future will help confirm how you feel on these matters. If you expect to generate investment growth, you might choose to maintain an active interest in equities even beyond retirement. If you’re more risk-averse, you might prefer more safe haven assets or options. Or, of course, you might opt for something in between.

An active eye

We’re here to help you decide on a strategy that suits your preferences, but we won’t then sit back and simply watch how events unfold.

We’ll work with you to maintain your cashflow model, refining and repurposing it so that it continues to match your preferences, however they develop.

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.

It is important to take professional advice before making any decision relating to your personal finances.

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The Bank of… Granny and Grandad?

stansherlocstg on May 6, 2020

Counting money from a piggy bank
  • Financial Planning

The Bank of… Granny and Grandad?

For many younger people struggling to get a foot on the property ladder, the Bank of Mum and Dad is the only option. With rent taking a huge chunk out of their income and the requirement for increasingly onerous deposits, two in five renters do not believe they will ever be in a position to buy a property, despite a desire to own a place of their own. That’s where Bank of Mum and Dad come in, as well as ever more frequently, the Bank of Granny and Grandad.

Among the UK’s largest lenders

If the Bank of Mum and Dad was a high street lender, it would have been the UK’s 10th largest in 2019. Collectively, parents paid out £6.3bn to give their children the final push towards homeownership. What’s more, the average amount lent per transaction shot up by £6,000 to hit a generous £24,1002.

Knock-on effect on retirement prospects

The Bank of Mum and Dad phenomenon is not without its consequences however. With prospective retirees facing spiralling living costs and potential care fees, their generosity is directly impacting their future. According to a report from Legal & General, 15% of over-55s are accepting a lower standard of living after funding their child’s property purchase. While many are hitting their pensions savings to scrape the cash together.

Granny and Grandad lend a hand

In 2019, nearly a third of 18 to 34-year-olds received financial help from their grandparents to get a foot on the ladder. Coming as they do from a generation where homeownership was much easier to achieve and pensions easier to save for, they are more likely to have spare money available than their own children, who are already feeling the strain of saving enough to fund their later life. On average, grandparents lend £7,400 to their grandchildren (roughly a third of the average 10% deposit). And 23% of lucky homeowners on the receiving end of this assistance don’t ever expect to repay it!

Don’t compromise your future

We all want the best for our children, but there are ways of helping them out that don’t involve putting your financial security at risk. While the Bank of Granny and Grandad is certainly alleviating the pressure on parents, it’s not wise to rely solely on their support. There are a range of government schemes available to prospective homebuyers which can help them buy a property without a significant cash boost from family members. The Help to Buy: Equity Loan, the Help to Buy: Shared Ownership scheme and the Lifetime ISA (LISA) can all help boost your child’s ability to buy their first home.

Other investment options

There are more ways to assist your children financially than just helping them buy a property – especially if you get started early. There are a wide variety of savings and investment options that allow you to start providing for your child’s future at an early age, putting them in a better financial situation in adulthood.

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It’s Good to Talk

stansherlocstg on May 4, 2020

Calculator and laptop
  • Financial Planning

It’s Good to Talk

While, for many, discussions about money can be extremely uncomfortable, experts have long stressed the best approach to financial issues is invariably to talk about them. Indeed, perceived wisdom suggests the more open and honest people are about money, the better their life and relationships tend to be.

Finance: the last taboo

There’s a wide variety of reasons why people don’t like to discuss their finances. In some cases, money is simply viewed as a vulgar subject to talk about, while many individuals lack financial confidence and therefore feel foolish discussing their finances; for others it’s easy to just ignore the issue altogether or simply leave it to someone else to sort out. As a result, many of us don’t like to talk about money, which means finance stands out as one of the last taboo topics in our society.

Importance of financial conversations

A failure to communicate about money though can lead to serious problems especially for other family members. This particularly relates to the younger generation and the importance of nurturing a sense of financial responsibility that will ensure they are ready to take control of their finances. It’s also critical in relation to older people as, if discussions have not taken place, there is no way of knowing their wishes when important issues relating to their financial future inevitably emerge.

Elephants in the room

While it is therefore vital to talk, discussing some financial topics can prove extremely challenging for many people. For example, parents often find it difficult to discuss issues surrounding inheritance and the transfer of wealth which means conversations with their children on this topic can be awkward or stilted. It is imperative, however, that parents do include their offspring when making financial planning decisions in order to ensure they are ready to assume responsibility for family assets when the time arises.

Finance paralysis

An inability to talk about money can also lead to personal finance paralysis, which is basically the fear of making a bad decision. This can result in people either delaying important financial decisions or not making any decisions at all. Talking issues through with a trusted confidante though is a particularly good way to help alleviate such anxieties as it equips people with both the knowledge and conviction to make appropriate decisions.

Talk to us

As with most things in life, it’s usually easier to figure out financial problems if you talk them through with someone you trust. Discussing issues with those people that matter to you can help get things into perspective and thereby aid the decision-making process. And remember, we’re always here to help too, so feel free to get in touch and start a financial conversation with us.

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Pension Planning for the Self-Employed

stansherlocstg on April 23, 2020

Life Insurance
  • Financial Planning

Pension Planning for the Self-Employed

There are 4.8 million self-employed people in the UK and only a third have any kind of pension arrangement. A shocking statistic when you consider that State support is shrinking and we’re all living longer. Saving for a pension when you’re self-employed is not as straightforward as it is for an employed person, who might automatically benefit from a workplace scheme and employer contributions. We’ve outlined some key points for you to consider:

Don’t rely on the State Pension

Whether you’re employed or self-employed you’re entitled to the full basic State Pension (currently £168.60 a week) if you’ve paid in 30 years of National Insurance Contributions. If you’re self-employed you can only claim the additional State Pension if you’ve had periods of employment. On its own State support is unlikely to enable you to continue your current standard of living into retirement. That’s why it’s imperative for the self-employed to find other ways to provide the additional income needed in retirement.

Start saving early

It’s stating the obvious, but the sooner you start saving into a pension the bigger your potential retirement fund. You’ll also have more time to benefit from the tax relief that’s available.

To highlight the importance of saving early, a 25-year-old male looking to retire at 68 would need to contribute £236.25 per month in order to achieve a retirement income of £17,500 a year. If the same man had waited until he was 45 before he started saving, he would need to contribute £495.83 to achieve the same level of income, an additional £259.58 per month.

Minimise the amount of tax you pay

One of the main benefits of paying into a pension is the tax relief the savings attract. For example, if you’re a basic rate taxpayer and pay £80 into your pension you effectively end up with £100 to invest. The maximum amount you can save each year that attracts tax relief (otherwise known as the annual allowance) is £40,000. Importantly, if your income is low and you’re not able to save the full £40,000 in one tax year, you can carry forward any unused allowance, and use it towards contributions in the next tax year.

Please note:

•You must have been a member of a registered pension scheme during the years you want to carry forward

•Your tax relief is limited by your annual earnings in the year you want to carry forward

•You can only carry forward unused allowance from the three previous tax years

What type of pension is right?

The self-employed can choose from a range of different pension products, including stakeholder pensions, personal pensions and Self Invested

Personal Pensions (SIPPs). Each has its advantages and disadvantages – we can advise on which is best for you.

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. 

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