Financial Planning

Divorce isn’t a happy topic but is an important one if you or someone you know is going through it – especially when it comes to the finances.

It’s common for people to accept that lawyers will likely need to be involved with the divorce process, to sort through issues such as homeownership rights and custody of children. It is less prevalent for people to consider help from a professional financial planner.

Yet getting this help can be hugely important. Divorce not only affects your legal status, your emotional well-being and relationships but also what kind of lifestyle you can afford in the years ahead. Given the huge financial implications, it can be very valuable to get an experienced, dispassionate set of eyes on your financial plan to make sure you are carried forward into the best possible financial future available to you.

Of course, it can be very helpful to consult a financial planner during the process of divorce. However, this is also beneficial once you have concluded the legal proceedings and completed the divorce. Perhaps you are at this stage, feeling like you have just come through a whirlwind of emotions and that only now, have you been able to catch your breath and ask yourself: “Are my finances secure, and do I have enough now and for my future?”

It is quite possible that right now, after what could have been more than a year of divorce proceedings and paperwork, that you simply want to step back from thinking about your finances. Whilst we completely understand this reaction, it’s important that you look after yourself and ensure your own financial security. You don’t want to later come across problems or financial hardship, which could have been prevented with a bit of organisation and help from a financial planner.

Here, we’ve compiled a short checklist which you might want to consider with your financial adviser, to sort through your post-divorce finances. Please note that this content is intended to inform and provide inspiration, and should not be taken as financial advice. To receive regulated, personal advice into your own situation, please consult a financial adviser.

#1 Bank accounts

Do you still have a joint bank account open with your ex-husband or wife? If so, then now might be the time to close them – unless you have a very good, agreed reason to keep these open. Just be careful; remember that joint accounts could become a liability which comes to haunt you later on if your ex runs up a large debt or overdraft.

On a similar subject, if you have not already done so then it might be a good idea to review your own bank accounts. This might involve opening a new debit/credit card account, for instance. It is probably best to establish these accounts first, prior to closing any joint accounts.

#2 Insurance

After the divorce, it is quite likely that you and your ex are now living apart. In light of this, it likely makes little sense to keep his/her name on insurance policies for your home or car, for instance, especially if you might be able to get cheaper policies by taking out newer, more relevant one.

Pay particular attention to your life and home insurance. For the former, you might have a policy which would pay out a lump sum to your ex if you died. Do you still want this to happen? If not, then consider getting a new policy! For the latter, are there items covered in the policy which belong to your ex, which no longer resides with you? Does it make sense to keep paying into a policy which covers them in the event of damage, theft or loss?

#3 Emergency reserve

As a single person, it is now even more important to ensure that you have a financial safety net in place. You cannot rely on a partner’s income, for instance, if you lose your job or suddenly face a large, unexpected expense. Consider building up an emergency pot to cover 3-6 months of living expenses, just in case.

#4 Other insurances

Following on from the previous point, it is quite common for financial advisers to hear their newly-divorced clients speak of feeling “financial exposed”. This is often because they believe that they will have few people to support them financially if things go wrong.

One pay to alleviate this worry is to consider taking out insurance to continue providing you with an income in the event that you lose your job or can no longer work due to illness or injury (i.e. “income protection” and “critical illness cover”). An independent financial adviser should be able to assist you here, helping you discern whether these policies are appropriate and finding you a good deal to cover your needs.

#5 A new plan

When you were married, your financial plan (assuming you had one) was likely tied up in your joint financial goals and vision for the future. Now, you will need to identify a new set of financial goals for yourself – which means crafting a new financial strategy and plan.

In particular, what are your new, desired objectives and lifestyle for your retirement? Are you on track to achieve these, and if not how can you now make appropriate changes to your finances and wealth in order to set you on course?

This is where a financial planner can be particularly helpful. They can assist you in reviewing your current situation, establishing where you are in order to help you identify the best route to get you heading towards your financial goals. They can make you aware of tax laws and investment opportunities which you might not have thought of, and point out common traps which you might not have spotted on your own.

If you would like to discuss your own situation with us and speak to a financial adviser here at WMM, then we’d be delighted to hear from you. Please get in touch today to arrange a free, no-obligation meeting with a member of our team, to start the conversation.

If we all know exactly how long we would live, would it be helpful?

On the one hand, perhaps we wouldn’t want to know that information for our own emotional wellbeing, and peace of mind. Yet from a financial perspective, knowing our life span would be helpful – since you would then know exactly how much money you need to save for retirement.

Of course, none of us knows exactly how our timelines will play out. It is partly this which leads financial planners to build contingency into financial plans for their clients. After all, you might expect to live to your 80s based on your health, family history and so forth. Yet if you actually end up living into your 90s, you will need more money to carry you through those years.

A financial planner will be able to assist you in preparing for these kinds of scenarios and help you put appropriate financial measures and safeguards in place.

Life expectancy & financial planning

One interesting question is whether or not financial planning can actually affect your lifespan. In other words, could you potentially add more years to your life with a strong financial strategy?

Let’s look at some statistics together. Official records of life expectancy in the UK began in 1982 when the average lifespan was about 74 years. By 2015-17 this had risen to 79.2 years for men and 82.9 years for women, although there is evidence that the rise has now stopped.

There are many reasons why the UK life expectancy has risen over many decades, and now started to plateau and even decline in certain parts of the country. Living standards, public services and lifestyle changes are likely amongst the factors playing a big role.

Yet how can financial planning impact your life expectancy? Looking at it through the lens of “pensioner poverty”, it starts to become clearer how we manage our money and wealth can impact the length of time we have left.

Fullfact.org shows that there is some strong evidence to show that people who are “born poor” in the UK will die 7-9 years earlier than wealthier people. Intuitively, this makes sense. After all, a lower income can lead to poorer health due to factors such as a lack of access to resources, and greater stress levels due to feeling less financially “in control of your life”.

Having a financial plan will not necessarily take you from a low income, immediately to higher one in order to address this. Yet it can help address many of the factors which drag people into poverty in later life and which adversely affect life expectancy. This might include helping you get out of debt, for instance, or build a financial “safety net” to carry you through financial challenges down the line.

Pensioner Poverty

One of the key areas which financial planning can help address is poverty in old age – otherwise called “pensioner poverty”. Tragically, as many as 1/6 retired British people in 2018 are living in “poverty”, which AgeUK defines as “not [having] enough to meet [your] basic needs …allow [you] to take part in society.”

Pensioner poverty leads to many heart-breaking stories of retirement lifestyles being harmed and even life expectancies being reduced, with some people being driven to choose between “paying for heating and buying food” during the winter.

Certainly, there’s an important debate which needs to occur about how individuals, government and civil society can rectify this. Yet whilst it is unlikely to be a society-wide panacea, a strong financial plan (made as early as possible) can help ensure that you have the financial resources to ensure that you have what you need in later life.

Financial planning for the future

Imagine you are in your twenties or thirties, just starting out in your career (maybe you are reading this, and this is actually you!). How can you start crafting a personal financial plan which can help look after you and your family, both in the short and long term?

Of course, you likely will want to do everything you can to avoid the possibility of being stuck in poverty during retirement. Almost certainly, you will want to continue your current lifestyle and perhaps even improve it during your “year after work” – living off the fruits of a life’s hard labour.

So at the very least, your financial plan can help your longevity by putting measures in place to ensure that you have enough income to cover your expenses during retirement. That will involve working out how much you are likely to spend on necessities (e.g. housing, travel and bills) as well as luxuries such as holidays abroad.

From there, you will need a plan to ensure you have enough income to meet your needs. This will involve looking at a range of options such as your state pension, workplace pension and other retirement income sources. Here, a financial planner can really help you with doing the sums and making sure you’ve not missed anything important.

Once you’ve added all of this up, do you have enough? If not, how can you start putting aside resources now to help ensure that you attain your desired income in retirement?

You also need to factor in contingencies during your retirement, too. What happens if you need to go into care, for instance- will you have enough to pay the fees? Do you need to think about private health insurance, if you are wanting access to specialist services in later life?

These questions are only barely scratching the surface when it comes to putting a full financial plan together. Yet it is so worthwhile, not just to hopefully help to extend your lifespan, but also to help ensure you attain the quality of life you desire during retirement.

Speak to a member of our team today, to begin a free consultation about how to prepare your own plan for looking after yourself, and your family, during the years and decades ahead.

Are you the sort of person who wants to cover all possible bases in order to look after yourself and your family? Perhaps you are more laid back and think: “What will happen, will happen!”

Both mindsets are commonplace and understandable, but each has its weaknesses too. The first is noble but unrealistic. You cannot possibly predict everything and be fully prepared emotionally, financially and physically for all eventualities. The second is liberating in the short term but can lead to poorly-laid plans which often bring regret, poverty or entrapment later.

As financial planners, we believe it’s important to acknowledge people’s differences when it comes to personality and future planning, whilst finding a sensible balance somewhere between these two extremes.

In other words, whilst recognising that you cannot fully shield yourself from tragedy and other difficult events which may come your way, it’s a good idea to put some sensible measures in place to protect your family’s finances in a range of unfortunate future scenarios.

For instance, perhaps in the future you or your partner might become seriously injured or ill, leaving you unable to keep earning an income. Or, maybe one of you suddenly dies and suddenly an important source of income to your household is eliminated.

In such situations, your family will likely still have bills to pay, mouths to feed and possibly a mortgage as well. This is where protection comes in.

How protection works

Broadly speaking, there are three main types of protection which you should at least consider within your wider financial plan:

• Income protection provides an income to you in the event that you are unable to work. This usually is reflected as a percentage of your earned income.
• Critical illness cover provides an income or lump sum if you are diagnosed with an illness that is specifically covered within your policy (e.g. a stroke).
• Life insurance provides a lump sum in the event of your death. You can either opt for a set term policy which covers you for a defined period of time, or a life assurance policy which covers you for your entire lifespan – paying out upon your eventual death.

Some people benefit from incorporating all three of these into their financial plan. Others might opt for one or two of these options, whilst for some people (e.g. certain single people with no dependents) they might not need protection at this point in time. It all depends on your individual and unique financial goals and circumstances.

One important activity that you should consider is to think about what would happen if you found yourself out of work for certain periods of time. For instance, would you be able to meet your financial commitments if you were out of work for one month?

Perhaps you have some emergency savings which could cover you, or you have a strong sick pay policy via your employer. However, what would happen if your absence stretched out for longer than a month? In the UK, it is estimated that this happens to as many as one million people each year (out of a workforce of 33m), so it isn’t out of the question that it might happen.

If there is a chance that your finances would come under significant strain in such situations, or that you might even run out of money, then protection is an important area to think about.

How much does it cost?

All three types of protection are, essentially, types of insurance. So, when you take out a policy you usually end up paying a certain premium each month to the insurance company (similar to paying your car insurance, for instance).

How much these policies cost depends on a range of factors. Not only does it depend on the type of policy you are looking at (e.g. income protection vs. critical illness cover), but the premiums can also be affected by:

• Where you live in the UK.
• How old you are.
• The degree of cover you need.
• Your health and current lifestyle.
• How dangerous your job is.
• Your marital status.

The very simplest policies can be as cheap as a couple of pounds per month. However, please remember that “cheapest” does not necessarily mean “best”. In many cases, it is worth paying more in order to secure a higher level of cover and a greater sense of peace of mind.

How do I figure out what I need?

The best option is to speak with a qualified financial planner, who will be able to help you work out how protection fits into your broader financial strategy. They will also be able to help you find the best deals. This type of advice really does typically pay for itself, give the costs that you are likely to save over the long term.

It’s important to think about things on your own as well and consider your position. For instance, do you have young children or do you look after anyone who is financially dependent on you? Do you have a large mortgage which your partner would be unable to pay off on their own? Are you currently retired with no children, but you rely on one person for the pension income? Are you currently a single person in your twenties with no children or dependent, and no significant financial responsibilities (e.g. a mortgage?).

Some of these people are likely to need protection (e.g. examples one and two), whilst others are perhaps unlikely to need it at this time (e.g. the final example). However, this is simply a broad guide and there are instances where exceptions occur. Please speak to an independent financial adviser to receive tailored advice into your own situation and financial goals.

Did you know that usually, you can contribute up to 100% of your annual salary (or up to £40,000 – whichever is lower) towards a pension every year without incurring tax?

This is known as your “Annual allowance”, and everyone is entitled to one. Some higher earners are rightly aware that this allowance is reduced by £1 for every £2 of adjusted income they earn over £150,000. What many people are not aware of, however, is the “money purchase trap”.

Indeed, it is possible to be very clued up about pensions yourself but to have never heard of this trap. Yet it can be a big problem, possibly affecting as many as one million Britons.

The money purchase trap relates to an obscure rule in the world of pensions, called the Money Purchase Annual Allowance (MPAA). Essentially, the MPAA reduces how much money you are allowed to take out of your pension pot, tax-free, whilst continuing to contribute to it.

In 2019-20 this reduced cap is set at £4,000, which is quite a big step down from the normal £40,000 annual allowance! Unfortunately, many people are unwittingly being penalised by this rule without realising it because they are using their pension pot a bit like a bank account – putting money in and taking money out when they need it.

Here at WMM, we want to help you avoid this kind of costly mistake by being aware of the issue, and some of the common pitfalls which people fall into. As always, the best course of action is to consult with an independent financial adviser to devise a strong, well-thought-through financial plan which side-steps the MPAA trap and others like it.

This content is for information purposes only, and should not be read as financial advice. To receive financial advice into your own specific needs and circumstances, speak with a financial planner to ensure you make the most informed decision about your finances.

What sets off the MPAA trap?

The MPAA trap generally starts to become an issue if you take more than your 25% tax-free lump sum from your pension pot. Under the 2015 Pension Freedoms, this is an option to people with defined contribution pensions after the age of 55.

So, if you are approaching retirement and are considering taking more money out of your pension pot than 25% of its value, you need to carefully consider the effect this has on your annual allowance. After all, doing so would reduce your allowance from £40,000 (assuming you are entitled to this amount) to one-tenth of that (£4,000).

If you think there’s a chance that you might continue saving for retirement after the age of 55, then you need to factor this MPAA trap into your financial plan. It might be tempting to want to take 30% or 40% out of your pension pot, to pay for a house extension or help your children onto the property ladder. However, these decisions would take you over your 25% tax-free cap, and so should not be taken lightly without seeking independent financial advice.

There are other scenarios which you should be aware of, which can also fire the “MPAA trap”:

• Taking spontaneous lump sums thoughtlessly from your pension.
• If you buy an annuity which is “investment linked” or “flexible”.
• If you commit your pension pot to a flexi-access drawdown plan and start taking money from it in order to provide an income.
• If you have a “capped drawdown” plan prior to 2015, and the payments you take start to go over the cap.

How do I avoid the MPAA trap?

The first step is to plan very carefully with a professional who can help you navigate this kind of complex tax landscape. After all, lots of rule like this exist in the world of pensions and it’s easy to unwittingly fall into a pothole if you don’t completely know what you’re doing. A financial planner will be able to help you plan properly ahead, see the bigger picture and make more intelligent financial decisions based on facts, rather than emotion.

As a general rule, to try and avoid the MPAA trap it is usually a good idea to avoid taking flexible income unless you absolutely need to take it. Be careful not to simply, carelessly splash money from your pension pot onto an expensive holiday, property or possession.

For some people (not all), the best option for their retirement income is to buy a strong lifetime annuity product, which provides a steady or increasing income. If so, then this option usually sidesteps the MPAA trap quite nicely.

Alternatively, you could take your tax-free lump sum and commit the rest of your pension money to a flexi-access plan, but not take any income from it until you properly retire. In the meantime, you can continue to build up your pension pot whilst you keep on earning, and possibly later on in your life you can buy an annuity (if appropriate) or start withdrawing from the pot to help with your retirement income.

In all cases, the important thing is to plan carefully and to look at the long-term impact your decisions will make on your finances and retirement income.

It is worth stating that if you now find yourself in the MPAA trap, then there are still some options open to you. The first important thing to say is to consider your ISA allowance, which in 2019-20 allows you to save up to £20,000 per year without being taxed.

Other ideas could be to look at investing into Venture Capital Trusts (VCTs), which offer a tax-efficient way to invest in businesses. Be aware, however, that this route is usually higher-risk than committing your money to a cash ISA, for instance, and you should seek the advice of an independent financial adviser before committing big sums to these sorts of options.

Bricks and mortar is often an attractive investment idea for many British people.

Property is something you can feel and touch, and many of us have heard stories of people who have made fortunes out of it.

Yet, is property always a good investment? Buy To Let (BTL), in particular, is an interesting topic in this respect. After all, it’s one thing trying to make money out of a property which you own outright. However, doing so on a property which you only partially own – whilst repaying the rest via a mortgage – adds another important element to the equation.

In this article, we’re going to take a look at some of the pros and cons of BTL, recognizing that property can form an important part of an investment portfolio in particular situations, but it should certainly not be your only investment!

In most cases, property should not form the majority or exclusive composition of your investment portfolio. In general, it’s better to diversify your investments across different asset classes and investment types, to spread out your risk and maintain a steady level of growth in the long term.

Please note that this article is for information purposes only, and should not be taken as financial advice. For advice and consultation into your specific financial goals and circumstances, please contact us to speak with a member of our team.

BTL: Pros & Cons

Suppose you have £40,000 in cash. What should you do with it, if you are looking to invest?

One idea might be to put it into a pension. Another idea, however, could be to use it as a deposit on a BTL property. From there, you can use the rent from your tenant to pay off the mortgage and make a nice profit on top of it.

It sounds straightforward and appealing in principle, especially to those who like the idea of being a property mogul! However, BTL is not straightforward and there are significant risks to be aware of – meaning you should not dive into such a commitment lightly.

Here are some of the pros of investing in BTL:

• Potential long-term growth. Historically in the UK, overall, house prices have risen over previous decades. Of course, house prices go up and down but, generally speaking, they usually go up in the long-term. That means you could potentially sell the property at a profit in the future, once the mortgage is eventually paid off.
• Income in the immediate term. With BTL, the rent from your tenants will exceed your BTL mortgage payments (the lender will not lend to you otherwise!). That could be a nice extra source of income on top of your salary and other income sources.
• Tax advantages. There are certain areas where you can offset the costs of your BTL costs against your tax bill, such as property repairs and fees to letting agents.

Here are some of the cons to consider:

• Profit-eating factors. In a perfect world, your BTL property would always have a paying tenant to cover the mortgage, and there would be no unexpected costs. In reality, however, there are often times when your property is empty, meaning you need to pick up the mortgage bill yourself. There are also times when you have expensive repairs to cover, such as a broken boiler or roof. These costs can amount to thousands of pounds and can, therefore, eat into years’ worth of your rental yields.
• Interest rates. In early 2019, ‘interested parties’ are pointing to or promoting some relatively attractive deals for BTL mortgages. However, interest rates are not static and there is a strong possibility they will rise in future years. Indeed many BTL landlords are now faced with significantly higher replacement mortgages as they come to the end of the original terms. Your finances need to be able to cope with this.
• Increased taxes. BTL landlords are at the mercy of government policy, which often changes and can seriously eat into your profits. A recent example is the change to interest rate tax relief for BTL mortgages, which has led some landlords to lose thousands of pounds in the form of extra tax.
• Liquidity. We all know that buying and selling houses cost money in terms of surveys, legal fees, Stamp Duty, arrangement fees etc. We also know that sellers sometimes have to drop their property price to attract buyers in slow or difficult markets, so care should be taken to weigh these additional cots up.

Other options for your £40,000

Is BTL your only option when deciding where to commit a lump sum of, say, £40,000?

With the help of an independent financial adviser, you could invest it in a range of assets and spread out the risk. For instance, putting it into a pension (e.g. over two years) offers the chance to grow your lump sum significantly over two or three decades, due to compound interest.

There’s also a big tax advantage as well since the government will put an extra £25 into your pension for every £100 you put in, up to £40,000 or up to your annual salary – whichever is lower (assuming you are a Basic Rate taxpayer).

Putting your money into a pension also offers some important risk mitigation. When you commit the full £40,000 into a BTL property, for instance, all of the money is tied up with the fate of this one property and also the fate of the wider property market.

If you put it into a pension, however, and invest the money across different asset classes then you are effectively putting your eggs in several baskets. If one or two of these “baskets” (investments) do not perform so well (such as some of your equities), then the others (e.g. your bond investments) can help support you and protect your wealth until the market improves.

Conclusion

BTL can sometimes be a good investment for people who understand the risks they’re getting into, and who have planned carefully for contingencies which might eat into their profits.

For most people, however, you are probably better off thinking about other ways to invest your money. If you are keen to invest in property, then there are other options you can consider outside of BTL, such as Real Estates Investment Trusts (REITs).

Speak to an independent financial adviser today to discuss your options.

Transferring a final salary pension is a big decision that cannot be undone once you have made it. You, therefore, need to be sure that it’s the right thing to do before you move forward.

What exactly is a final salary pension? What are the reasons to stay on your current pension scheme, or potentially move out of it?

Those are some of the questions we will be dealing with in this article. Please be aware that this content is for information purposes only, and should not be taken as financial advice. Speak with a financial adviser prior to making any decisions about transferring your pension.

Indeed, if your final salary/defined benefit pension is worth over £30,000 then you are required by law to seek independent financial advice if you are considering a transfer.

Overview of final salary pensions

A final salary pension (sometimes called a defined benefit pension) is a type of pension which you receive from your employer. They are sometimes called “gold plated” pensions because they are increasingly rare. Many people view the benefits as not only industry-leading but also difficult/impossible to replicate elsewhere through other pension schemes.

These pensions are different from the more common type of workplace pension, known as a defined contribution pension. Under this scheme, both you and your employer contribute to your pension pot over time. Under a defined benefit scheme, however, your employer promises to pay you a specified annual income when you retire – for life.

The precise amount you get varies under a defined benefit scheme, depending on factors such as your earnings during employment, your accrual rate and your total years of service. The income you receive is usually index-linked, meaning that as the cost of living rises each year so does the income you receive.

Why would I think about transferring?

If this all sounds like a brilliant deal which you would need a good reason to give up, you would generally be right. For most people, it would be fair to say that switching from your final salary pension to a different scheme will not offer the same level of benefits.

With that said, however, there are good reasons to consider switching to another scheme in certain situations. For instance, you cannot pass on your final salary pension to your descendants in the form of an inheritance, like you can with a defined contribution pension.

When someone transfers from a final salary/defined benefit pension, the scheme provider usually offers a “transfer value” – which refers to the sum of money you receive for leaving the pension scheme and putting it into a new pension.

Not all providers will allow you to transfer into a new scheme. These include taxpayer-backed defined benefit pensions (i.e. “unfunded”), such as NHS pensions. If you should, therefore, check that your provider will let you transfer out of the scheme, if you are considering it.

Advantages of a transfer

Here are some of the reasons people usually consider transferring out of their final salary pension into a defined contribution pension:

#1 Inheritance

As mentioned above, you cannot pass on your final salary/defined benefit pension to beneficiaries. If you die and leave a surviving spouse, then the scheme usually pays out some benefits to this person. However, once they die the pension does not usually pay out to children. A defined contribution pension pot, however, can usually be passed on as an inheritance.

#2 Employer stability

Since it is your employer who is promising to pass out your income when you retire, what happens to your pension if your employer goes bust?

Usually, the company pension scheme will be dealt with by the Pension Protection Fund. However, you are unlikely to receive your full benefits (e.g. annual inflationary increases).

#3 Your lump sum

If you want access to a lump sum at the beginning of your retirement, then some final salary schemes allow you to do this. However, they often provide a poor deal for converting some of your pension money into cash compared to a defined contribution scheme. In the latter case, you can usually take the full 25% tax-free lump sum you are entitled to.

Disadvantages of transferring

With some of the advantages of transferring your pension now specified, here are some of the reasons why people often choose to remain on their defined benefit/final salary scheme:

#1 Stability

With a defined contribution pension, your money is usually invested quite heavily in the stock market and so your income might fluctuate depending on how your investments perform. With a defined benefit pension, your employer is obliged to pay you a specified amount. So you know with greater certainty what your retirement income will be.

#2 Inflation protection

A defined benefit pension will usually raise your income in line with inflation. That means that as the price of food, fuel and other goods/services go up each year, your pension does not lose purchasing power over time. With a defined contribution pension, you will need to make your own income provisions to account for rising inflation.

#3 Future guarantees

You likely do not know how long you will live. That means you do not know how long your retirement income will need to stretch out for. With a defined benefit pension, your income is guaranteed for the rest of your life. With a defined contribution pension, you need to decide how your pension pot will be able to provide for your lifestyle over potentially 30+ years in retirement.

Summary

The topic of pension transfers is very complex and everyone’s personal circumstances are different. This means that a pension transfer might right for some people, but not for others.

A lot depends on what is important to you. If you most value being able to pass on your pension to your children, then a pension transfer might be high on your mind. If, however, the most important thing to you is income stability and certainty in retirement, then staying on your current defined benefit scheme might be the better option.

Even in these cases, however, there are exceptions and it’s important to weigh up your options carefully with an experienced, independent financial adviser to make sure you are making the right decision for you based on the best available information.

Your mortgage is likely to be your biggest expense over the course of your life. So finding a better deal can be very worthwhile.

In fact, getting a new mortgage which has just a 1% lower interest rate compared to your current deal can often equate to thousands of saved pounds in the short term, and tens of thousands in the longer term.

So, your primary motivation for getting a new mortgage (i.e. “remortgaging”) is to put more money in your pocket, which would have otherwise gone towards interest payments. However, whether or not remortgaging is a good idea for you depends on your unique circumstances.

We cannot, unfortunately, cover all of the bases in the article about the ins and outs of remortgaging. However, we can provide some information about when remortgaging might be a good idea to consider:

Reasons to Remortgage

#1 Fears about rising interest rates

At the time of writing, the UK is currently deliberating Brexit options including further extensions following the missed deadline of 29th March 2019.

Property markets across the country have been jittery to say the least, and there is some talk in the press about the Bank of England raising interest rates later in 2019.

Of course, no one knows for certain what effect Brexit will have on the UK housing market. Interest rates could remain steady in an attempt to provide stability to the wider economy. However, if interest rates do rise then naturally that could have an impact on your mortgage payments.

If you are on a variable rate mortgage, for instance, then your mortgage lender might change the amount you are required to pay each month depending on the Bank of England’s base rate. One option might be to remortgage onto a fixed rate deal for the next 2-5 years, in order to ensure that your monthly mortgage payments remain stable as the UK economy navigates through the post-Brexit economic landscape.

However, please do not take this as a recommendation to ditch your current mortgage deal and apply for a new one. Fixed rate mortgages have their own advantages and disadvantages which may or may not make one suitable for your current financial goals and situation. The same applies to variable rate mortgages. Speak to a financial adviser if you are looking for specialist advice on how to plan your financial affairs.

#2 Rising home value

If your property has dramatically gone up in value since you first took out your mortgage, then your loan-to-value band might now be lower. This could mean that you are eligible to ask for a better deal, with a lower interest rate. It’s not a certainty, but it justifies a look!

#3 Overpayments

Have you suddenly found yourself in a position where you have a lot more disposable income – perhaps due to a big pay rise? In these situations, it can be a good idea to consider overpaying your mortgage in order to reduce the loan term and save money on interest payments.

However, some mortgage deals do not allow you to overpay – or if they do, the amount you can overpay is very small. For people in this scenario, remortgaging can be a good idea if your new deal allows you to overpay a decent sum. However, watch out for any charges or exit fees you might face otherwise you could lose out financially.

#4 Your deal is ending

Most mortgage deals last about 2-5 years. Naturally, when your deal is approaching its end then it’s usually a good idea to shop around for a good deal. You are not obliged to stay with your current mortgage lender.

Start looking around at least three months before your mortgage deal is due to expire. If you are on a fixed rate mortgage and allow yourself to drift over the expiry date, then usually you will be put automatically onto the lender’s variable rate. The monthly payments due under this arrangement are usually higher than your payments were under your fixed rate, so beware.

Reasons not to Remortgage

#1 Reduced property value

Sometimes, people take out a mortgage and unfortunately the value of their home goes down – meaning you owe a larger portion of the property value to the lender than you previously thought. In the worst cases, you can end up in negative equity – i.e. you owe more to the lender than the total value of the property. Here, you have little choice but to stay where you are until house prices rise again in your area.

#2 New circumstances

You should be aware that your mortgage options will likely be affected if you have recently become unemployed, or if you have moved from employed work to self-employment. Moreover, if you have experienced credit problems then this can also affect your mortgage applications.

Lenders are now legally required to see evidence of your income when you apply for a mortgage. If you no longer meet their conditions for a remortgage, then you will likely be required to stay on your current deal.

#3 Early repayment charges

Some deals will charge you a lot of money to move out of the deal before your incentive period has ended. Sometimes it can still make sense to move onto a better mortgage deal and take the hit from an early repayment charge, if you will still save money. However, quite often it makes sense to sit tight for a bit and wait until the charges are lower before you move.

#4 You have a good deal already

It could well be that you are already on a fantastic mortgage deal, and you’d be foolish to leap off it. However, don’t allow yourself to settle too much into your current deal. In all likelihood, a better offer will come your way eventually and it can pay off to keep your ear to the ground.

As the end of the financial year approaches, and the tax landscape is continually changing, we have put together this guide to ensure that you are making the most of the allowances and reliefs available.

Individual Savings Accounts (ISAs)

You can contribute up to £20,000 to your ISA in the current tax year. Your contribution can be allocated to cash, stocks and shares or a combination of both. Any income or gains generated by your ISA are completely free of tax, and you can withdraw money at any time. On death, an ISA can be passed to a spouse or civil partner, retaining the beneficial tax treatment.

If you have taken any money out of your ISA, you can replace it in the same tax year without using up any of your annual ISA allowance.

Don’t Forget

• You can also contribute to a Junior ISA (JISA) for your child. This offers the same tax-advantaged savings opportunity as an adult ISA, and the child will become entitled to the money at age 18. The annual contribution limit is £4,260.
• If you are saving to buy your first home, a Lifetime ISA (LISA) may be appropriate. You can contribute up to £4,000 per year, which the Government will top up by 25% (up to a maximum of £1,000). New LISAs are available to savers under the age of 40, and you can contribute until age 50. The proceeds must be used to buy a first home or to provide retirement benefits from age 60, otherwise a 25% penalty applies.
• Help to Buy ISAs are being phased out, but can still be opened until November 2019. You can contribute up to £1,200 in the first month and £200 per month thereafter. If you withdraw the money to buy a first home, the Government will add a 25% bonus, up to a maximum of £3,000.

Contributions must be made by 5^th April 2019 otherwise you will lose your ISA allowance for the current year.

Pensions

Pension contribution limits can be complex, but the main points are:

• Any UK resident under the age of 75 can contribute up to £2,880 per year to a pension and receive tax relief, taking the total gross contribution up to £3,600. This tax relief is also available to non-taxpayers, making it very attractive to fund pensions for spouses or children who are not in paid employment.
• Anyone with ‘relevant UK earnings’ (generally a salary from employment), can make a gross contribution up to the level of their income. This means that if you earn £30,000, you can contribute £24,000 to your pension, and this will be topped up to £30,000 with the addition of tax relief. Employer contributions may be paid in addition to this.
• An overall Annual Allowance of £40,000 applies (covering individual and employer contributions combined), meaning that if you earn £50,000, you can only receive tax relief on gross contributions of £40,000 per tax year (£32,000 net). However any unused allowance can be carried forward by up to three tax years.
• Investors with a total remuneration package of £150,000 or over may have a reduced Annual Allowance, as you lose £1 of Annual Allowance for every £2 over the threshold.

Don’t Forget

• Higher and additional rate taxpayers receive further relief on their pension contributions. For example, if your highest rate of tax is 40%, you will be credited with further tax relief of 20% when you submit your tax return, or by contacting HMRC. This means that a gross pension contribution of £1,000 only costs £600 out of net income.
• Salary sacrifice is an extremely efficient method of increasing your pension contributions, as all the tax calculations are done automatically by payroll. In addition, both you and your employer will save on National Insurance Contributions – some employers may agree to share this saving.
• If you earn over £100,000, your tax free personal allowance (£11,850 for 2018/2019) will be tapered at a rate of £1 for every £2 of income over the threshold. This results in an effective tax rate of around 60% on the band of income between £100,000 and £123,700. You can reduce your tax bill by making pension contributions to take your income under £100,000.
• If you take any taxable benefits from your pension (over and above your tax-free cash entitlement) you will trigger the Money Purchase Annual Allowance. Contributions will be restricted to £4,000 per year, and it will not be possible to carry forward unused allowances. It is recommended that you seek advice if you are looking to take pension benefits, particularly if you are still working.

Making a pension contribution before 5^th April 2019 could reduce or eliminate your liability to higher/additional rate tax for 2018/2019. It is also your last chance to use up any unused Annual Allowance from 2015/2016, which is particularly useful if you are a higher earner.

Please note that while unused Annual Allowance may be carried forward, you must still have the relevant UK earnings to support the contributions. Therefore you can only benefit from carry forward if you are earning over £40,000 per year, or if your employer is making contributions on your behalf.

Maximise Your Income Allowances

As well as the tax-free personal allowance (£11,850), there are a number of other allowances that can be utilised before the end of the tax year to ensure that you draw your income as efficiently as possible:

• Personal Savings Allowance – this is the amount of interest that can be received before being subject to tax. The amount is £1,000 for basic rate taxpayers and £500 for higher rate taxpayers. Additional rate taxpayers do not receive this allowance.
• Starting Rate for Savings – interest of up to £5,000 may be paid free of tax, providing this forms part of your total income, which does not exceed £16,850. Allocating savings to a lower-earning spouse is a good way of taking advantage of this allowance.
• Marriage Allowance – a lower-earning spouse can transfer up to £1,190 of their tax-free personal allowance to their higher-earning partner, potentially reducing the family’s tax bill by up to £238.
• Dividend Allowance – dividends of up to £2,000 per year may be drawn (from your own company or from investments) without tax liability.

It is worth checking that your accounts and investments are allocated in the most efficient manner before 5^th April 2019.

Gift Aid

Charitable gifts are eligible for Gift Aid. This means that for every £80 donated, the charity receives £100 with the addition of tax relief. Higher and additional rate taxpayers may claim further tax relief.

Don’t forget

• Gift Aid relief can be carried back to the previous tax year, providing this is included in your tax return for the relevant year. This means that you have a deadline of 31^st January each year to allocate the gift to the previous tax year.
• Making charitable gifts can have the effect of preserving certain allowances, for example by keeping your income under £100,000 to retain your personal allowance.

You may wish to consider any gifts that you would like to make in the 2018/2019 tax year, although if you miss the 5^th April deadline, you have the option to carry back.

Capital Gains Tax (CGT)

Each investor has an annual CGT exemption of £11,700 (as of 2018/2019). This is the amount of ‘gain’ that you can realise by selling investments before being subject to tax. It is worth using up this exemption each year, particularly on larger portfolios, as it avoids rolling up a substantial tax liability for the future.

Any gains realised that exceed your exemption will be subject to tax of 10% for basic rate taxpayers, and 20% for higher rate taxpayers, or where the gain pushes your income over the higher rate threshold. The rates are 18% and 28% for property investments.

Don’t forget

• If you transfer assets to a spouse, this is ignored for CGT purposes, and you then have two exemptions (£23,400 in total) to set against gains.
• Any losses realised can be set against gains to reduce the overall liability. Losses can be carried forward from previous tax years.
• Any assets sold to realise a capital gain should not be re-purchased within 30 days, otherwise the transaction will be ineffective for tax purposes.

To make use of your capital gains exemption for 2018/2019, the assets must be sold by 5^th April 2019. Transferring funds to your ISA or rebalancing your portfolio are useful strategies for using up your exemption without disrupting your investment strategy.

Inheritance Tax (IHT)

It is possible to gift up to £3,000 each tax year (£6,000 for a couple), and for this gift to be immediately outside your estate for IHT purposes. The exemption can be carried forward by up to one tax year.

Don’t forget

• Smaller gifts of up to £250 per person do not count towards this allowance, nor do certain gifts in respect of special occasions like birthdays or weddings.
• Larger gifts may also be allowable, providing they are funded from income and a regular pattern of gifting is established.
• Where the gift is not immediately exempt, it will drop out of your estate after 7 complete tax years.

To ensure that your £3,000 exemption is utilised for 2018/2019 (and 2017/2018 if applicable), the gift must be made by 5^th April 2019. It is important to keep a record of any gifts made.

Enterprise Investment Schemes (EIS) and Venture Capital Trusts (VCTs)

These are investments with the following characteristics:

• High-risk opportunity to invest in smaller companies
• Tax advantages apply
• In general, suitable only for high net worth, experienced investors who are prepared to invest for the long term.

Investing in this type of asset could reduce your tax bill by up to 30% of the investment amount (or 50% if the investment is made in a particularly high-risk version of the EIS). If a subscription is made by 5^th April 2019, this could be set against your tax for 2018/2019, or in the case of the EIS only, could be applied to 2017/2018 if this is more beneficial.

This is a complex area and you should seek advice to determine if higher risk investments are likely to be suitable for you.

Property Investments

For property investors, the amount of mortgage interest that is eligible for higher rate tax relief is reducing. From 6^th April 2019 only 25% of the interest will be subject to higher rate tax relief, reducing to 0% from 6^th April 2020.

In advance of the new tax year, you may wish to consider repaying some of your debt, or allocating some of the rental to a lower-earning spouse to reduce the impact of these changes.

This guide is for information only, and should not be considered personal financial advice. Please speak to your adviser if you would like to take advantage of any of the tax planning opportunities available, or if you have any questions.

Life isn’t all about money, but knowing how to manage it properly can really contribute to a life well lived. As we launch into the new year for 2019, we wanted to share some ideas with you about how to potentially increase your spending power and save on unnecessary tax.

We hope you find the following helpful. Please note this is for information purposes only, and should not be taken as financial advice. If you would like to discuss starting a tailored financial plan, then we invite you to get in touch with us for a free consultation.

#1 Prioritise debts

Many people think they should prioritise building savings before clearing debts, but this is actually the wrong way around.

Consider for a moment what £3,000 in savings would bring you in the form of interest. You’d do well to get an interest rate of 1.5% these days on a savings account, which would produce £45 interest. However, £3,000 outstanding on your credit card would cost you £567 a year on 18.9% APR. Really, you should, therefore, consider focusing on clearing this debt first in order to free up that £567.

#2 Check your tax code

It is estimated that millions of people are currently on the wrong tax code. It is very quick and easy to check whether you are on the right code, and correcting any mistakes here could put hundreds – even thousands – back into your pocket.

Find your tax code by looking at your latest payslip, P45 or P60. Alternatively, you can contact HMRC directly with your national insurance number in hand. It might be, for instance, that you are entitled to a Personal Allowance (which allows you to earn £11,850 tax-free in 2018-19) but you are on the wrong tax code.

#3 Use your home, space or driveway

Do you live in a part of town where it is expensive to park? Do you own a car parking space, but never use it? You might want to look into websites such as JustPark or YourParkingSpace in order to rent it out to commuters and travellers.

Alternatively, you might want to rent out some empty storage space, rent out your home to film sets during times when you are away, or offer a room through Airbnb, Easyroommate or Spareroom.

#4 Cut your mobile phone bill

The arrival of the latest iPhone X ushered in a new era – one where people are willing to spend over £1,000 on a mobile phone. Naturally, we aren’t going to tell you that you can’t have one if you really want it!

With that said, mobile phones are an excellent area to look at if you are looking to free up spending money. If you are not too fussed about having the latest hot gadget, then there are lots of alternatives, second-hand devices which still offer top functionality (e.g. a high res camera).

Check your current monthly bill. If you are paying more than £20 per month, there’s a good chance that you can find a better deal by haggling with your current provider, or by shopping around elsewhere. Check your usage for minutes and data, and ask whether you are paying for more than what you really need.

#5 Check your tax plan

The income tax brackets are set to change from 6th April 2019. For UK residents outside of Scotland, the Personal Allowance will be going up to £12,500, and the higher rate threshold will go up from £46,350 to £50,000.

For those earning between £46,350 and £50,000, this would, therefore, mean that the tax you pay on your income within this bracket will be halved.

Effectively that amounts to about £60 a month. However, National insurance contributions within this bracket will be going up from 2% to 12%. This means that whilst your income tax here is reduced from 40% to 20, your NI contributions here will increase by 10%. The net increase to your earnings within this bracket is therefore only 10%.

At the same time, changes to auto enrolment mean that employees will be required to contribute a minimum of 5% towards their workplace pension (instead of the current 3%).

These developments likely have important implications for how you organise your financial affairs. Their precise arrangement might affect the amount of tax you pay, so speak with an independent financial adviser to check whether any improvements can be made.

#6 Check your spousal benefits

If you are a business owner and have a spouse, civil partner or long-term partner who does not work, then you might be some opportunities to save on tax.

For instance, if they are not already a shareholder in your business then you might consider making them into one. That way, you can each take advantage of your £2,000 tax-free dividend allowance when the company profits are distributed.

This rearrangement would mean more money ultimately makes its way to your household.

#7 Save on travel

Commuting costs are often a huge area where earnings are sucked up. This is especially the case with railway fares, which have increased by 3.1% from January 2019.

Check to see if there are ways you can cut costs here, as they can add up to big savings across the year. The 16-25 Railcard is an obvious consideration, which gives a third off qualifying rail fares. For those who are older, you might want to check out alternatives such as the Two Together Railcard – which offers discounts for couples travelling together.

For those who commute by car, you might want to consider sharing petrol with a fellow traveller. This might a colleague from work who shares your route. Or you could try a car-sharing website like Liftshare.

#8 Save on childcare

For parents with young families, the cost of childcare can be crippling – often wiping out the equivalent of one parent’s earnings. Therefore, make sure you take hold of any benefits held out to you by your work, our family and friends or the government.

For instance, if your employer offers childcare vouchers and you are not already taking advantage of this, then consider doing so. This can offer up to £55-worth of childcare a week (i.e. £243 a month), which is free of tax and National Insurance.