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ISAs are an incredibly important part of many financial plans, whether you’re saving for a short-term goal or investing for a long-term one. In fact, over ten million adults saved into an ISA account in 2017/18.

Whilst ISAs have been around for 20 years, the product range and allowance has changed considerably in that time. As a result, it can be more difficult than you would expect to pick the right ISA for you. So, we’ve put together a guide to help you get to grips with the ISA options open on offer. In the guide you’ll find:

• A brief history of ISAs
• The different types of ISAs available, including the Junior ISA
• And how the Additional Permitted Subscription can let you leave your ISA savings to a loved one

Click here to download your free copy of the guide.

ISAs should form part of your wider financial plan, if you’d like to discuss how they fit into your goals, please get in touch.

The old saying goes: “Nothing is certain but death and taxes.” But when it comes to Inheritance Tax, there are often steps you can take to reduce, and in some cases eliminate, liability.

Whilst only around one in 20 estates are liable for Inheritance Tax, the amount collected by HM Revenue & Customs (HMRC) has been rising. During the 2018/19 tax year, almost £5.4 billion was collected. That’s a rise of 57% over five years. The amount of Inheritance Tax paid varies but in all cases, it reduces the amount you leave behind for loved ones.

For most families, it is possible to reduce Inheritance Tax liability. However, you need to take a proactive approach. These steps need to be taken before you pass away and can’t be put in place by loved ones after you die. As a result, if your estate may be liable for Inheritance Tax, it should feature in your financial plan.

When is an estate liable for Inheritance Tax?

If your total assets, including property, savings, investments and material possessions, have a value of more than £325,000, your estate may have to pay Inheritance Tax as you’ll exceed the nil-rate band (the threshold for Inheritance Tax). If you plan to leave your main home to children or grandchildren, the residence nil-rate band provides you with an additional £175,000 allowance. This means you can leave up to £500,000 to loved ones without incurring Inheritance Tax.

Both the nil-rate band and residence nil-rate band are individual allowances which can be passed on to a spouse or civil partner if unused. In effect, this means couples can leave up to £1 million without having to worry about Inheritance Tax.

While that may seem a significant sum, once you start adding up the value of all your assets, you may be closer to this figure than you first realise. This is particularly true when you factor in property, which is likely to have risen in value substantially over the last few decades. With a standard rate of 40%, it’s worth considering if your estate could be affected by Inheritance Tax and what steps are available to reduce the tax bill.

Reducing your Inheritance Tax liability

1. Write a will

Whether your estate is liable for Inheritance Tax or not, you should consider writing a will a priority. It’s the only way to ensure that your wishes are carried out. Without a will in place, your assets will be distributed according to intestate rules, which may be significantly different from what you’d want.

From an Inheritance Tax point of view, a will is important too. For example, it means you can ensure your assets are distributed in a way that allows you to take advantage of the residence nil-rate band.

2. Gift some of your assets now

One way to reduce the amount of Inheritance Tax your estate is liable for is to reduce the overall value. You could, of course, spend more during your lifetime, including gifting assets to loved ones now.

However, you need to keep in mind the gifting rules. Assets that are given away within seven years of you dying may be considered part of your estate for Inheritance Tax purposes. Some gifts are immediately exempt, so taking advantage of these can allow you to pass wealth to loved ones efficiently during your lifetime.

For instance, you can gift assets up to £3,000 annually, which is considered immediately outside of your estate. You can also gift £250 to other individuals that didn’t benefit from the £3,000 allowance, and up to £5,000 if your child is getting married.

There are other gifting allowances that you may want to take advantage of too, such as making gifts outside of your excess income. If you’d like to pass on wealth to loved ones during your lifetime, please get in touch to discuss what your options are and what the potential impact on Inheritance Tax could be.

3. Use a trust

Assets placed in a trust aren’t considered part of your estate for Inheritance Tax purposes. Depending on the type of trust you choose, it’s can still be possible for you to maintain and benefit from these assets during your lifetime. They’re also an option if you want to pass on wealth to loved ones, including children.

However, a trust isn’t the right option for everyone, and the drawbacks need to be considered too. Trusts can be complicated and, in some cases, transferring assets to a trust is impossible to reverse. As a result, it’s essential that you carefully consider if a trust is right for you with a professional before moving forward.

4. Leave a sum to charity

Depending on the size of your estate and the expected Inheritance Tax bill, leaving a portion of your assets to charity can reduce the overall amount.

Leaving a charitable tax legacy can reduce the size of your estate, potentially bringing it under the nil-rate thresholds. If you leave more than 10% to charitable causes, the rate of Inheritance Tax you pay is reduced from 40% to 36%. It’s a step that could mean you leave more for loved ones whilst benefitting causes that are important to you.

4. Take out life insurance

Finally, taking out a whole life insurance policy can provide a solution if you don’t want to reduce the value of the estate you leave behind. A life insurance policy won’t directly reduce Inheritance Tax but instead provide a way for the bill to be paid.

A whole life insurance policy will pay out a lump sum on your death, assuming you’ve kept up with the premiums, which can then be used to pay Inheritance Tax, leaving your estate intact. With this option, you need to understand what your Inheritance Tax liability will be, allowing you to pick out the right level of cover. It’s also essential that the policy is placed in a trust. Otherwise, it would form part of your estate and the payout could result in a higher Inheritance Tax bill.

The above five ways to reduce Inheritance Tax isn’t exhaustive and there may be other options that suit your circumstances. If you’re concerned about Inheritance Tax, please get in touch. We’re here to help you understand how your finances will change and leave behind the legacy you want.

Please note: The Financial Conduct Authority does not regulate tax planning.

Levels and bases of, and relief from, taxation are subject to change.

The above is offered only for general informational and educational purposes. It is not offered as and does not constitute financial advice. You should not act or rely on any information contained in this comment without first seeking advice from a professional.

The State Pension is an essential part of retirement planning and provides a foundation to build on. Whilst the basics are simple, it can be far more complex to understand what you’re entitled to and when than you’d think at first glance.

Our Complete Guide to the State Pension is designed to help you figure out how the State Pension will support your retirement goals alongside other income. From how the State Pension age is changing and when you’ll receive it to what the triple lock means for your future income, we look at the crucial things you need to know.

If your retirement date is approaching, taking some time to read our guide and understand the State Pension can help ensure your finances are in order. Click here to download your copy of the guide.

We are here to help answer your questions. Call one of the Blue Wealth team on 0117 3320230 or email hello@bluewealth.co.uk to start planning your retirement.

Over the last few weeks, stock markets have experienced volatility due to the impact of the Covid-19 pandemic. Portfolios may have experienced sharp falls at points recently, but for most investors, their long-term plan is still appropriate. However, investment bias can creep in and mean we make rash decisions that we could come to regret in the future.

When we start investing, we know we should have a long-term plan in mind and that short-term volatility is to be expected. All investments involve some level of risk and no matter your risk profile there will be periods where investment values fall. For most people, sticking to a long-term financial plan during volatility is the best course of action, but that can be easier said than done. After all, no one wants to lose money, even in the short term.

Behavioural and investment bias can lead to actions that aren’t right for you. Investment bias refers to assumptions or beliefs that can affect your ability to make decisions based on facts and evidence. When it comes to investing, there are many ways this can have an impact, including these five.

1. Confirmation bias

When we start researching potential investments, we’ve often already made our mind up about whether it’s ‘good’ or ‘bad’. Confirmation bias means we then naturally start to seek information that supports our existing conclusion, dismissing those sources that go against the beliefs we have. In a way, it’s overconfidence in the initial conclusion we made.

This investment bias can lead to us making decisions that aren’t right, even when clear evidence has shown this. It can be difficult to overcome but trying to balance information is important, weighing up on its own merits rather than the fact it affirms beliefs. Having another person, including us as your financial adviser, look at potential investments can help.

2. Information bias

We’ve highlighted why looking at the information when investing is important above. But you can have too much of a good thing.

In modern lives, we’re bombarded with information. Whether it’s in a newspaper, online or through social media, there’s a lot of information on investing out there. It can make it difficult to see the wood through the trees. This can make it challenging to understand what is relevant and irrelevant.

This is where your financial plan can help. Having a clear set of goals and understanding why investment decisions have been made with these in mind can help you focus. Let’s say you’re investing for retirement that is 20 years away, the daily movements of the stock market is unlikely to have an impact on how you should invest.

3. Loss aversion

Would you rather gain £1,000 or not lose £1,000? Research suggests that most people tend to strongly prefer avoiding losses than obtaining gains. This investment bias can create conflicts when it comes to making decisions.

We invest for the opportunity to generate returns, this always comes with some level of risk and there’s a chance values may fall. Loss aversion can mean you don’t take the appropriate amount of risk for your circumstances and goals because you’re actively trying to avoid losses. On the flip side, some investors may resist selling assets that are down, even though it’s appropriate for them, due to the hope that they’ll make the money back.

Here it’s important to look at your investment portfolio as a whole and why it’s been built in the way it has; to help you achieve long-term goals.

4. Anchoring bias

Anchoring bias is a tendency to place too much importance on a particular past reference or piece of information when making a decision. When looking at this from an investment perspective, the most common thing to focus on is a share price. For example, investors may hold on to investments that have lost value because they’ve anchored the value of the asset to a previous stock price. Anchoring bias can skew your perception of what investments are performing well for you.

Looking at the bigger picture and gathering information is important here, it can help create context around why an asset should be held or sold. Again, this should be done with your wider financial plan in mind to help ensure your goals stay on track.

5. Groupthink

We’ve all heard of jumping on the bandwagon, and it happens in investing too. If you’ve felt more comfortable in decisions because many other people have made the same choice, you may be affected by groupthink investment bias. It’s easy to see why it affects bias, after all, if everyone else is doing it, it must be ‘right’.

However, what you are investing for and your overall circumstances play a key role in building a suitable investment portfolio. You might speak to ten people who are all investing in a certain industry. But without knowing what their goals are and the context of their financial situation, it’s impossible to assess if following their lead would be right for you.

5 tips for beating investment bias

1. Understand what’s driving volatility: A lot of investment and finance news can be filled with jargon. Taking some time to understand what’s happening can help you feel more confident in the decisions you’ve made. At the moment, the falls are largely linked to the measures in place to slow the coronavirus pandemic. We don’t know what will happen in the future, but history shows periods of volatility are usually short-lived. We’re happy to go through what’s driving volatility in your portfolio if you have concerns.
2. Look at the bigger picture: The value of investments may have fallen sharply in the last few weeks. But when you look back over the entire investment period, you’ve likely experienced gains overall. No one likes investment values falling but looking at the bigger picture can put them into perspective. If you’ve invested recently, the falls can seem more severe, but you should still have time to benefit from future rises and recovery.
3. Manage how often you’re reviewing investments: It can be tempting to look at investment performance frequently, especially during a period of volatility. But taking a step back and reviewing less often can help you focus on the long term.
4. Keep your long-term goals in mind: When you first invested it should have been with a long-term goal in mind. The reason we don’t invest for short periods is to hopefully smooth out the short-term volatility investments experience. Focus on these goals, which may still be years away.
5. Speak to your financial adviser: Don’t make a rash decision when it comes to investments. If you are worried or have concerns, please speak to us. We’re here to provide confidence, including during downturns. Please contact us if you have any questions at all.

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 above is offered only for general information and educational purposes. It is not offered as and does not constitute financial advice. You should not act or rely on any information contained in this newsletter without first seeking advice from a professional.

Rising house prices and the difficulty in saving a deposit are a challenge for many home buyers. So, it’s perhaps no surprise that more and more young people are looking to parents and grandparents for help in getting onto the property ladder.

The so-called bank of Mum and Dad is now the UK’s tenth biggest lender, advancing more than £6 billion every year. While thousands of parents and grandparents are happy to provide financial support, there are concerns that many are offering help without thinking carefully about the implications of gifting or lending money.

If you are thinking of opening the doors to the Bank of Mum and Dad either now or in the future, here’s a guide to all the factors you need to consider.

Click here to download your free copy of the guide.

We are here to help answer your questions. Call one of the team on 0117 3320230 or email hello@bluewealth.co.uk to begin your journey.

This afternoon, Rishi Sunak has delivered the first Budget of the new Conservative government. With a large majority behind him, the theme of the Chancellor’s speech was to deliver the promises made in the party’s election manifesto or, as Sunak himself repeatedly said, to ‘get things done’.

Of course, the coronavirus outbreak has significantly changed the Chancellor’s plans. Opening his speech, Sunak said: “We will rise to this challenge – this virus is the key challenge facing our country today.”

With a package of measures designed to support the economy through the spread of coronavirus, plus a pledge to deliver manifesto promises, who were the winners and losers in the 2020 Budget?

Winners

Borrowers

Even before the Budget began, the Bank of England had already announced measures to support the economy, including an emergency reduction in the Base rate from 0.75% to 0.25%.

The outgoing Governor of the Bank of England, Mark Carney, said: “The Bank of England’s role is to help UK businesses and households manage through an economic shock that could prove large and sharp, but should be temporary.”

If you have a tracker mortgage – where your interest rate is directly linked to the Base rate – you should immediately see a reduction in your repayments.

If your mortgage is linked to your lender’s Standard Variable Rate (SVR) then you may have to wait and see if you benefit. There is hope, as after the Base rate was last cut in 2016 eight of the UK’s top 10 lenders reduced their SVR by the same amount soon after.

Small businesses

With experts predicting that the coronavirus outbreak is likely to have a negative effect on the economy, the Chancellor announced a £12 billion package of support to respond to the economic impact of the virus.

Much of this support was aimed at small businesses, particularly those in the retail, leisure and hospitality sectors who are likely to be most significantly impacted by the public having to stay at home and self-isolate.

For businesses with fewer than 250 employees, the cost of any Statutory Sick Pay caused by the coronavirus (up to a limit of 14 days per individual) will be refunded to the company, in full, by the government.

The Chancellor also announced that:

• Business rates for the next financial year for retail, leisure and hospitality firms with a rateable value of less than £51,000 would be abolished
• £2.2 billion of funding for local authorities in England would be provided, to enable grants of £3,000 to be made to around 700,000 business currently eligible for Small Business Rate Relief
• A new Coronavirus Business Interruption Loan Scheme will see banks offer loans of up to £1.2m to support SMEs, with the government providing a guarantee of 80% on each loan.

In addition to emergency measures to tackle the coronavirus outbreak, there was other good news for small businesses.

The government also confirmed that it is delivering on its commitment to increase the Employment Allowance to £4,000. This means that businesses will be able to employ four full-time employees on the National Living Wage without paying any employer National Insurance contributions (NICs).

The Chancellor also confirmed that Corporation Tax rate would remain at 19%.

Those paying National insurance contributions

Delivering on a manifesto commitment, the Chancellor announced that the threshold for paying National Insurance contributions would rise, from £8,632 to £9,500.

This equates to a tax cut for around 31 million people, saving a typical employee more than £100 a year.

Low earners

The Chancellor confirmed that, by 2024 (and economic conditions permitting), the National Living Wage should reach two-thirds of median earnings, equivalent to over £10.50 an hour.

Many people affected by the Tapered Annual Allowance

In recent months, the issue of the pensions Tapered Annual Allowance has made the headlines. Large numbers of NHS staff were refusing to work additional shifts because of the taper, which left many facing large tax bills.

Having promised an urgent review into the taper, the Chancellor announced that the thresholds at which the Tapered Annual Allowance came into effect would rise by £90,000.

Now, if your threshold income is above £200,000, then you need to check if your ‘adjusted income’ (essentially all income that you are taxed on including dividends, savings interest and rental income, before tax plus the value of your own and any employer pension contributions) is over £240,000.

If it is above £240,000, the annual allowance will reduce by £1 for every £2 that your ‘adjusted income’ exceeds £240,000.

According to the Chancellor, this will take 98% of NHS consultants and 96% of GPs out of the taper.

People saving for children

In the Budget statement, the government said: “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.”

To support this, the annual subscription limit for the Junior ISA (JISA) and Child Trust Fund (CTF) will more than double in the 2020/21 tax year, from £4,368 to £9,000.

The adult ISA subscription limit will remain at £20,000.

Anyone driving on the A303

For more than five years there have been plans to improve the long stretch of A-road that passes the UNESCO World Heritage site at Stonehenge.

After years of delay, drivers heading to or from the South West received some good news with the Chancellor announcing that the government will build a new, high-quality dual carriageway and a two-mile tunnel in the South West to speed up journeys on the A303, and to remove traffic from the iconic setting of Stonehenge.

For drivers in the area, there is finally light at the end of the (two-mile) tunnel.

Readers

To support learning, the government will introduce legislation on 1 December 2020 to remove VAT on e-publications such as magazines and e-books.

Women

Now that the UK has left the EU, the Chancellor says that the country can reduce the cost of essential sanitary products for women in the UK.

This means that, from 1 January 2021, the ‘tampon tax’ will be abolished through the application of a zero rate of VAT on women’s sanitary products.

Drivers and drinkers

While there were no tax cuts for drivers and drinkers, the Chancellor announced that he was freezing:

• Spirits duty
• Duty on beer
• Duty on cider and wine
• Fuel duty

Losers

Savers

With the Base rate falling to 0.25%, it’s reasonable that long-suffering savers will see yet more falls in interest rates.

Moneyfacts reported that, after the Bank of England last reduced the Base rate in 2016, the average savings rate for an easy access bank account fell by 0.14% in the ensuing three months.

Savers will also see no increase in the amount they can contribute to an ISA in the 2020/21 tax year, and so the limit of £20,000 remains.

Non-UK nationals buying UK property

As widely predicted, a 2% Stamp Duty Land Tax surcharge on non-UK residents buying a residential property in England and Northern Ireland will come into force in 2021.

The aim of this measure is to help to control house price inflation and to support UK residents who want to get on onto and move up the housing ladder.

The Chancellor says that the money raised from the surcharge will be used to help address rough sleeping, with the government having committed to ending rough sleeping in this parliament.

Business owners and entrepreneurs

Entrepreneurs’ relief offers a reduced 10% rate of Capital Gains Tax on qualifying disposals.

With immediate effect, the lifetime limit on gains that are eligible for Entrepreneurs’ Relief will reduce from £10 million to £1 million. The Chancellor says that 80% of small business owners will be unaffected, but larger businesses or those realising significant gains on disposals will pay more tax.

High earners making pension contributions

While the threshold earnings level for the Tapered Annual Allowance coming into effect have been raised by £90,000, those on the very highest incomes will see a significant reduction in the amount they can contribute to a pension and retain tax relief.

The minimum level to which the annual allowance can taper down will reduce from £10,000 to £4,000 from April 2020. This reduction will only affect individuals with total income (including pension accrual) over £300,000.

However, the lifetime allowance, the maximum amount someone can accrue in a registered pension scheme in a tax-efficient manner over their lifetime, will increase in line with CPI for 2020-21, rising to £1,073,100.

Manufacturers using plastic

The Chancellor announced that the government will introduce a new Plastic Packaging Tax from April 2022 to incentivise the use of recycled plastic in packaging.

The Budget set the rate at £200 per tonne of plastic packaging that contains less than 30% recycled plastic, and will apply to the production and importation of plastic packaging.

Potholes

Potholes are likely to face a difficult year, with the Chancellor announcing a Potholes Fund of £500 million for each of the next five years.

He expects 50 million potholes to be filled in during that time.

Get in touch

If you have any questions about the Budget and how it might affect you, please do not hesitate to get in touch.

After delays and the appointment of Rishi Sunak as Chancellor just weeks ago following the resignation of Sajid Javid, the Budget was finally delivered this afternoon.

It’s the first to be given since the UK left the EU on 31^st January 2020, with the country now in a transition period, and comes amid the coronavirus outbreak. Both featured in Sunak’s address, with coronavirus being named as the key challenge facing the country today, noting that there is likely to be a temporary economic disruption, and playing a role in several of the announcements.

The economy and public finances

The headline figures from the Office of Budget Responsibility haven’t taken the impact of coronavirus into account. With this in mind, GDP is forecast to increase by 1.1% in 2020 and 1.8% in 2021. Wages are expected to continue growing in real terms throughout the current government too.

Coronavirus response

Sunak opened the Budget with how the government will respond to the growing coronavirus threat.

At the top of this list was the widening of Statutory Sick Pay (SSP). All those advised to self-isolate, including individuals that aren’t showing any symptoms will receive SSP from day one, rather than the standard day four. For self-employed and gig economy workers, access to benefits has also been made easier.

Also coinciding with the Budget, was an announcement by the Bank of England this morning that the base rate has been cut from 0.75% to 0.25%. Again, this aimed to support both businesses and households amid the coronavirus outbreak.

Several measures aimed at providing support for business were also announced.

Business

Continuing with the temporary measures in light of the coronavirus, SSP for businesses with fewer than 250 employees will be met by the government in full for up to 14 days per employee. Small firms will also be able to access ‘business interruption’ loans of up to £1.2 million to protect companies from the impact. The UK’s smallest 700,000 businesses may also be able to access a £3,000 cash grant, paid by local authorities.

In addition, business rates will be abolished for firms in the retail, leisure and hospitality sectors with a rateable value below £51,000. This means almost half of all business properties in England will not pay business rates this year.

Business owners that benefit from Entrepreneurs’ Relief will be relieved to know that, despite calls to abolish it, the tax relief remains. But the lifetime limit on gains eligible for relief is being drastically cut from £10 million to £1 million. It’s expected that 80% of business owners will be unaffected but it could have a big impact on the remaining 20%.

There will be no changes to the UK’s Corporation Tax, which will remain at 19%.

Personal finance

No immediate changes were announced in the National Living Wage (NLW). But the government did announce a target for the NLW to reach two-thirds of median earnings by 2024. Based on current forecasts, this would lead to an NLW of over £10.50 an hour in 2024.

The National Insurances threshold will increase from £8,632 to £9,500. It will provide 31 million people with a tax cut, saving a typical employee £104.

It’s also good news for those building a nest egg for children. The Junior ISA annual subscription limit will more than double in the new tax year to £9,000. However, the adult ISA subscription will remain the same at £20,000.

Pensions

Following headlines focused on the impact of the tapered annual allowance on pensions, this has been addressed in the Budget. The tapered annual allowance, which reduces how much you can tax-efficiently save into a pension each year, has been increased by £90,000 each. The ‘threshold income’ will now be £200,000 and the ‘adjusted income’ £240,000.

This is good news for many high earners, but those that exceed these thresholds could find their annual allowance is cut even further. Previously, the annual allowance could be reduced to a minimum of £10,000, this has been cut to just £4,000.

The lifetime allowance for pensions has also increased in line with inflation, rising to £1,073,100 from £1,055,000.

Alcohol, tobacco and fuel

Duty rates on beer, spirits, wine and cider will be frozen, as will fuel duty. Business rate discount for pubs to rise from £1,000 to £5,000 too.

However, duty rates on all tobacco products will increase by an amount equal to inflation plus 2%.

Health and education

Compared to 2019/20. NHS England will receive a cash increase of £34 billion a year by 2024. The Immigration Health Surcharge that new arrivals to the UK pay to fund the NHS will also rise to £624, with a discount rate of £470 for children.

An additional commitment of £7.1 billion to fund schools in England by 2022/23 was also announced. This will increase the minimum per-pupil amount to £3,750 for primary schools and £5,000 for secondary schools in 2020/21. On average, schools will see an increase of over 4% in funding per pupil compared to the 2019/20 budget.

Housing

For non-UK residents, a Stamp Duty Land Tax (SDLT) surcharge will apply. It will add 2% to standard SDLT when purchasing residential property in England and Northern Ireland from 1 April 2021. It aims to control house price inflation.

Questions?

If you have any questions about the Budget and how it might affect you, please do not hesitate to get in touch.