Wed, 05/13/2020 – 16:30
The coronavirus has had a huge impact on how we live, so now is a good time to get on top of your finances
Wed, 05/13/2020 – 12:46
How the world has changed since I last put pen to paper for Moneywise — changes that will have a profound impact on how we live and value those who we so sorely undervalued previously. For example, our country’s health workers — be they nurses, doctors or support staff such as cleaners and porters — as well and those who care for the frail and elderly.
I count myself among the luckier ones. My health has remained good, unlike some of my colleagues.
Financially, I’ve taken a painful salary cut to ensure my employer (DMGT plc) gets through the current economic maelstrom, but at least I am still working. Many of my friends are either now unemployed, furloughed or left wondering whether the business they poured heart and soul into will survive.
Of course, the health of the country’s population remains paramount, but at best their financial future and that of millions of people remains uncertain. At worst, it is rather precarious, despite the splendid efforts of the Government to provide a satisfactory financial underpin to most households impacted by coronavirus. Economic turmoil is inescapable, as is recession.
Working from home has been a challenge for me, with new technology to get to grips with and new ways of communicating with fellow workers (Zoom and Slack). But it has its benefits. No commuting, fewer time-consuming meetings, and the chance to walk, run or cycle most days.
I have even managed to trawl through TV series I never had the time to watch – the likes of A Bit Of A Do, starring among others David Jason and Gwen Taylor, and Outnumbered (which still makes me howl with laughter).
I have even begun to take a greater interest in our birdlife, marvelling at friendly robins who blissfully ignore all social distancing guidelines and young thrushes making their first tentative flights after being pushed out of their nest.
The current economic imbroglio has also forced me to do something that I often write about – but through lack of time rarely put into practice.
That is, conduct an audit of my personal finances.
With my income reduced, I have reviewed all my outgoings, ensuring all my expenditure is necessary. It is not quite the equivalent of financial purgatory (we all need a bit of fun in our lives), but I’ve ensured I am getting value for money on the home insurance and energy front.
A series of memberships to cinemas and galleries have been left to lapse on the grounds that I was not using them enough.
I have also tried to keep my cash war chest (a tax-friendly Cash Isa) topped up, reduced salary notwithstanding. I am not that bothered about earning peanuts in terms of interest. I am more interested in having a rock-solid financial buffer in place.
As for investing, I took the decision early on in lockdown not to look at the value of my online Stocks and Shares Isa. I have stuck almost religiously to my guns, not selling anything and crystallising any losses. Indeed, I have done a little topping up, occasionally investing small amounts in broadly diversified investment trusts with a global or UK remit. Of course, my investment actions could be considered foolish, but I am confident that over the next five years, they will look more inspired than the actions of a mad money journalist in lockdown.
Yes, share dividends have taken a huge hit as UK and Global Plc have pulled in the financial reins – a disappointment to both income seekers and those who like to reinvest their dividends to enhance their wealth portfolios. But most of the trusts I invest in have income reserves compiled over many years. Reserves that should, in the short term, help mitigate some of the company dividend cuts already announced – or about to happen.
I urge you to visit the website of the Association of Investment Companies (Theaic.co.uk) and read the section on ‘dividend heroes’ – a slightly over-the-top description given current circumstances, but these trusts do have a way of delivering income through thick and thin.
For those struggling financially, please do not bury your head in the sand. Speak to your bank or building society. Speak to the likes of Citizens Advice and the Money and Pensions Service. There is plenty of good financial help out there. If you know of friends or neighbours finding things difficult, point them in the right direction.
Until next month, I wish you all the very best. Better times, I hope, are around the corner.
Just over seven years ago my mother put a bond, which is now worth £80,000, into a bare trust in equal shares for her five grandchildren with a view to avoiding inheritance tax (IHT). She is still alive.
She and I are trustees, and both agree that the grandchildren (now aged between 24 and 30) would benefit from the money now rather than waiting for her to die. All of them are working and paying basic income tax but only one is a higher-rate taxpayer.
Is there any tax or other financial advantage to waiting until she dies before giving them the trust money? It is possible that by then all may be higher-rate income taxpayers.
My mother is wealthy and her estate is well above the current IHT allowance.
Wed, 05/13/2020 – 12:22
As the beneficiaries of a bare trust, the grandchildren have an absolute entitlement to the trust assets and income. They will therefore be liable for any tax due as if they owned the bond themselves. This would be the case whether the bond is cashed in now or on their grandmother’s death. So in that sense it makes no difference when they receive the money.
They also have the right to take actual possession of trust as they are over 18. This means it would be possible for the trust to assign each one’s share to them. They could then make their individual decisions about whether to keep their share or take the money.
An investment bond is regarded as a non-income-producing asset. An income tax charge only arises when a so-called chargeable event occurs and there is a chargeable gain – essentially the difference between the surrender value and the initial investment. Full encashment is one such chargeable event.
Chargeable gains are not liable to basic-rate tax. The individual or trustee who is liable for tax is deemed to have already paid tax at the basic rate on the amount of the gain. This is because the underlying funds in the bond are subject to UK life fund taxation. Therefore, the four basic-rate taxpayers have no further tax to pay on the gain. The one higher-rate taxpayer would pay an additional 20%.
However, the four grandchildren who pay basic-rate tax may still have to pay additional tax if the gain would take their income above the higher-rate threshold
This is determined by dividing the gain by the number of complete policy years and notionally adding the resulting figure to their other taxable income.
One option to consider is partial encashment. Up to 5% of the initial premium can be withdrawn without any immediate tax charge. There may be an additional charge if the bond is eventually wholly cashed in – this will depend on the individual’s tax status at that time. Assuming the bond has been held for seven full years, each of the beneficiaries could withdraw 5% of their share (£16,000) for each of those seven years. That is £5,600, with no immediate tax charge.
Your primary responsibility as trustees is to act in the best interests of all beneficiaries. This must be taken into account in any decision you may reach and that may mean treating each beneficiary separately rather than making blanket decisions for all five.
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The Government has loosened the lockdown rules around property sales
Wed, 05/13/2020 – 12:04
The Government has begun to restart the housing market with new rules that relax the coronavirus lockdown restrictions on property viewings.
Under regulations coming in on Wednesday, renters and buyers will be able to move as long as they observe social distancing rules.
In England people can now freely view residential properties, visit estate or letting agents, move home and prepare a residential property to move in to.
Housing secretary Robert Jenrick says: “This critical industry can now safely move forward, and those waiting patiently to move can now do so.”
The housing market has effectively been frozen for the past seven weeks after the Government introduced lockdown restrictions to help reduce the spread of coronavirus.
People were banned from viewing properties and only allowed to move home if it was “reasonably necessary”.
Estate agents and surveyors were not allowed to visit houses, leaving determined buyers with no choice but to look online.
However, many people have put off making offers until they can physically view properties.
Research from Zoopla shows that around 373,000 housing transactions were put on hold during the lockdown – amounting to £82 billion in sales.
The lockdown has had a huge impact on the economy with millions of people losing their jobs or being furloughed.
As a result, lenders have also been pulling loans available to borrowers with small deposits as they are seen as riskier.
This has had a huge impact on the first-time buyer market where buyers would typically take out loans with a 90% or 95% loan-to-value.
Mark Harris, chief executive of mortgage broker SPF Private Clients, says: “The property market re-opening is a positive news for a number of different parts of the economy – estate agents, solicitors, mortgage brokers, removals.
“There is huge pent-up demand and once people can view properties safely we expect to see a sharp spike in activity levels.”
It has been estimated that 450,000 people had potential house moves put on hold because of the coronavirus pandemic.
The rule changes mean buyers and renters can view properties and complete transactions as long as they observe social distancing rules.
Estate agents have been closed since the lockdown was announced. The Government has now allowed them to reopen their offices.
However, this does not mean they will be necessarily be open straight away. Estate agent will have to plan how to safely return their employees to work and carry out viewings.
Conveyancers have been given the all clear by the Government to restart their businesses.
Surveyors will now be allowed to enter homes to do physical valuations again as long as they maintain a distance of two metres from other people.
Removal firms can also return to business but they will have to practice social distancing.