Undeclared taxable income from overseas

Undeclared taxable income from overseasThings are set to become very uncomfortable for investors with undeclared taxable income from overseas.

The BBC reported at the weekend that the government plans to introduce new rules to combat overseas tax evasion.

Under the current system, tax officials have to prove a person holding income offshore has intended to evade tax.

The proposed new rules would change this to show only that money held offshore was taxable and undeclared.

At the same time, the government will consult on a new criminal standard, harsher fines and increased jail sentences for tax evasion.

Combined, these proposals mean that anyone with offshore assets will need to take real care to fully declare their taxable income, or face very stiff criminal penalties.

There are still some advantages of holding investment assets offshore – particularly for higher rate taxpayers who either plan to retire overseas or are likely to have less taxable income in retirement – but investments must be very carefully managed.

Announcing the proposals, Chancellor George Osborne said:

“A very important part of our economic plan is that everyone makes a fair contribution.

“We’ve already done a lot to crack down on those who don’t pay their taxes, now we’re introducing a new criminal offence for people who hide their money offshore.

“And the message is very simple – if you’re hiding your money offshore, we are coming to get you and the criminal law is going to come and find you.”

One tax specialist described the plans as “horrifying”, saying that people should not be put in prison unless intent can be proven.

Regardless of the morality of the new rules, they should prove effective in encouraging anyone with offshore taxable income to fully declare this to HMRC and perhaps follow a more ‘vanilla’ approach to tax planning in the future.

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Avoid this £45,000 telephone fraud

Avoid this £45,000 telephone fraudOur local paper, the Surrey Advertiser, carries a very sad tale this week of a retired couple who have been conned out of £45,000 following a telephone fraud.

Mike and Sheila Butler from Tongham near Aldershot lost the money after being convinced by a fraudster to transfer it to another bank account.

Reading details of this relatively simple fraud is a stark reminder of the importance of being aware of the risks to your wealth.

It is reported that the Butlers received a phone call from a man claiming to be from Visa, asking whether they used internet banking.

A further call informed Mrs Butler that fraudsters were trying to spend her money at Argos online.

He asked her to hang up the phone and call her bank to check everything was okay.

Of course the fraudster did not hang up the phone at his end, keeping control of the line and then pretending to be from their bank, Santander.

He talked Mrs Butler through a series of steps to transfer their money to a ‘safe’ account, which was really his own bank account.

Quickly realising they had been the victims of fraud, the couple reported the incident to Surrey Police and to their bank.

According to the newspaper report, they have so far been unsuccessful in recovering any of the money.

The Surrey Advertiser also reports that two other similar incidents recently took place in Farnham and Wrecclesham, although the targets became suspicious and hung up their phones.

This telephone fraud sounds like a deviation on the courier card scam, which has been widely reported on BBC Radio 4′s You and Yours.

The courier card scam involves fraudsters tricking their victims into handing over their debit or credit cards and PINs.

It starts with a phone call claiming to be from the police or bank’s fraud department, saying your card has been compromised and asking you to call the telephone number on the back of the card.

Keeping control of the phone line once you have hung up, the fraudster then pretends to be from your bank and says your card needs to be collected. They also ask you to input your PIN into the telephone keypad.

A courier arrives at your house to collect the card, and the fraudsters use your PIN with the card to spend your money.

With scams like this apparently on the rise, you should take special care to protect your personal finances from fraudsters.

Never disclose details of your PIN or bank accounts to a third-party, and always assume that an unsolicited telephone caller is keeping control of your line when you hang up. Use a different phone line where possible to call an independently verified number.

It is important not to rush into making important financial decisions, such as transferring funds to another bank account.

Seek a second opinion from a financial expert, such as an independent financial adviser, where you have any suspicions.

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The secret cost of advice

The secret cost of adviceLast week we reported about the outcome of the Financial Conduct Authority (FCA) thematic review on the disclosure of advisory costs.

In reviewing the advisory charges disclosure of 113 firms the FCA concluded that 73% failed to provide the required generic information on how they charge for advice or failed to clearly confirm the specific cost of advice to their individual clients in a timely manner.

The Times this weekend reported on the subject in some detail and highlighted some “failings” in the way advisers are communicating their fees to clients.

Leaving aside an obvious error in a calculation about VAT being added to the cost of “setting up a pension drawdown scheme”, which they should have known is an exempt activity, they key criticisms were;

-Advisers charging a percentage of the amount invested. This was described as a “cunning way to disguise the true cost as it is widely recognised that many people don’t understand how percentages work.”

The advice was to always ask for examples in pounds and pence, which interestingly is already an FCA requirement;

-Hourly rates were described as “not much use if you are not given an indication of the number of hours your work is going to take.” Couldn’t agree more; our experience is that clients what to know the total costs and not be subject to the downside of “work expanding to fill the time available;”

- “Your adviser admits (pejorative word could have said “tells you”) how much you will be charged initially but fails to mention that you have signed up to pay for an annual review.”

The latter point it was suggested that will provide “a welcome ongoing stream of income to your adviser, straight out of your bank balance.”

Sadly, there was no recognition of the value of the ongoing review service but understandable given the worrying results of the FCA thematic review.

The author of the article David Budworth, Deputy Money Editor, was right in saying that the results were “depressing” but it should also be recognised that very many firms have gone to great lengths not only to disclose in a timely and understandable manner their advisory charges but have also designed and implemented some very valuable services indeed.

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Market numbers: Friday 11th April 2014

Informed Choice Market NumbersThe FTSE 100 index of leading UK company shares finished the week at 6,561.70, closing down 80.27 (-1.21%) on the day and down 133.85 points or 2.00% over the week.

The index fell alongside other global markets on Friday, taken lower by tech stocks and financials.

The biggest faller on the day was Hargreaves Lansdown, falling by 5.1% after Morgan Stanley cut its price target for the group to £14.95 from £16.70 a share.

Despite getting close to its record level back in January, the FTSE 100 is now 2.8% lower than its 2014 opening level.

Over a year the FTSE 100 has risen from 6,416.10, a rise of 145.6 points or 2.27%.

£1 is worth $1.67450 US or €1.20590 Euros.

Brent Crude Oil Futures is currently priced at $107.27/barrel. Gold is $1,318.00/ounce and Silver is $20.09/ounce.

The UK Bank Rate is 0.5% and CPI inflation was 1.7% for the year to February 2014.

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Out of favour biotech stocks

Out of favour biotech stocksMarket watchers might have spotted a big fall in the value of the Nasdaq index.

It fell by over 3% yesterday, prompted by investors moving out of technology and biotech stocks.

This represented the worst day for the index since 2011.

Nasdaq is an American stock exchange, the second largest in the world following the New York Stock Exchange.

Looking solely at biotech stocks, the Nasdaq biotechnology index fell by 5.6% yesterday, now down 18.8% since its record close on 25th February.

This puts it close to entering bear market territory.

What is driving this negative investor sentiment towards biotech stocks?

A couple of weeks ago there was a large sell-off in Gilead stocks; Gilead Sciences is an American biotechnology company that discovers, develops and commercializes therapeutics.

Gilead has recently been under fire from insurers and legislators for the $1,000-a-pill price of its Sovaldi drug, designed to treat Hepatitis C.

One technical analyst has described Gilead as a ‘roof leaker’ stock, which means it has crossed its 200-day simple moving average on higher than normal relative volume.

This technical analysis of stocks can identify companies experiencing a breakdown in share price which can then result in massive losses, although of course this is not guaranteed.

Clearly one stock alone has not been the cause of the overall market decline, which has spread beyond the Nasdaq alone.

A ‘wall of worry’ contains various factors which could have contributed to investor fears about future market direction.

These worries include QE, unemployment, investor sentiment, the European economy, China, Russia and the Ukraine, earnings season and momentum stocks.

For investors holding a diversified portfolio across different asset classes, these sorts of short-term concerns and market falls should not pose a major concern to investors who take a long-term view of the world.

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Running: a metaphor for our lives

Running: a metaphor for our livesI’m writing this blog in the final few days before I run the Virgin Money London Marathon which inspired me to consider running as a metaphor for our lives, particularly our working lives.

Have you ever run on a treadmill?

I try to avoid them these days but if you have you will know how boring they can be.

Running on the same spot, looking at a wall straight ahead of you; minutes drag like hours, going exactly nowhere.

Our careers can be like that.

We leave school, maybe go to university and then start a career or we go straight into our first jobs.

From there it is a case of looking straight ahead and running on the treadmill that we believe we should be on.

Pay off debt, buy a car, start some savings, maybe get married, buy a house, pay the mortgage, maybe have kids, save for school and maybe university, save for retirement.

Now, don’t get me wrong, these are all important and significant life events but how do we get onto our own unique treadmills?

Is your career one you dreamed of pursuing or is it a result of having taken the first job you were offered because you wanted to get something to start having money coming in?

Do you now feel like you have been on the same treadmill for hours (years) and are not any nearer your true goal?

Are you just looking forward and running on a road to nowhere with the expectation/hope that it will take you where you need to be?

That you will have managed to accrue enough savings so that you can one day press the stop button and get off?

What then? Will you finish fulfilled?

Will you start a new ambitious life, fresh and eager to explore other possibilities?

Whenever I speak to clients who are approaching or are at retirement I always ask them what life will look like for them.

Invariably the answer is vague and uninspired and usually revolves around continuing to do the things they have always done but now with more time.

Of course there is nothing wrong with this at all but I believe it is born from a fear of not having enough to do anything else and because they have never considered anything else:

“I spent my whole life on a treadmill staring straight ahead, I did not consider there were alternatives”.

Of course there are alternatives.

To continue the running metaphor, I enjoy trail running and the Surrey Hill gives plenty of opportunity to explore.

Rather than sticking to a pre-planned path sometimes it is nice to follow a new path to see where it takes you.

This gives you the opportunity to have a different view and experience things differently and having the confidence to know that it won’t kill you.

Yes, there may be some hurdles along the way but nothing that can’t be jumped or bypassed and you finish the run richer for the experience rather than thankful the treadmill has stopped.

Life should be like this.

Sometimes we should look up from the treadmill and consider why were are doing what we are doing.

If we take a different path how will we be rewarded?

What fulfillment and riches might we gain from different experiences.

If life’s hurdles come up, know that they can be overcome.

If your mind has become numbed and it is hard to see the trails in front of you perhaps you need to take time to consider what is important to you and what gives you energy.

The following may help:

•    If I didn’t have to work I would……..?
•    When I die I want my obituary to include the following…..
•    If I was to travel back in time to my 16 year old self I would provide the following advice….
•    What hurdles might I find on my new trail and how might I overcome them? (you can afford to be brave with this because, for now, it is only an exercise)
•    If I was to set an example for my children I would want them to learn that……
•    Who would I need on my coaching team to help me reach my new goal?

We don’t possess all the answers ourselves and the hardest part is usually knowing what the financial implications of our decisions will be.

This is particularly true if we have family who are financially dependent upon us.

It is often easier to sacrifice our own fulfillment for the well being of others but the two need not be mutually exclusive.

Indeed,  everyone may be better off (financially, physically, emotionally and spiritually) as a result. However, it is unwise to take on a new challenge without a plan.

The first step is to understand what the future looks like and to see whether your new goals are achievable.

Here at Informed Choice we do this by helping you uncover what is most important to you and determining whether your current financial position can support you on your new route and, if it is not, what actions you can take to make is possible.

If you would like to know more please do get in touch and ask about our LifeWealth Design service.

(PS thanks should go to Sylvia Bentham of @1stcharteredFP who got me thinking of the metaphor in the first place!)

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Information, guidance and advice

Information, guidance and adviceThe Chancellor announced in his Budget a plan that would allow everyone with a “money purchase” pension plan coming up to retirement to access “free, face-to-face advice” about their retirement choices and options.

In the document Freedom and choice in pensions published straight after the Budget the word “advice” was replaced by the word “guidance”.

There is also some doubt now that it will always be delivered face-to-face.

This announcement stimulated a lot of debate in the financial services sector because the words advice and guidance are frequently interchangeable.

The Chancellor when challenged admitted that he didn’t really mean advice (in the sense of an authorised and regulated activity) but actually what he meant was guidance, but he used advice because he has a duty to communicate in plain English.

Confused? You have every right to be.

If we throw “information” into the mix you can see how people might be easily confused about what they are actually getting from the financial services sector.

So I thought I might give you a simple explanation of what we believe is meant by these words.

Information

This is factual stuff. Numbers and words.

For example it might be something like. “From 1st July 2014 you may contribute £15,000 into an Individual Savings Account (ISA)”.

You can see it is  a statement of fact (hopefully accurate).

You might read it in a newspaper, on the internet (and remember the internet is as good at providing mis-information as it is at providing information) or in a brochure.

It doesn’t seek to compare an ISA against any other savings or investment product and it certainly doesn’t advise you to invest £15,000 in an ISA – it is simply information. You chose what you do with it.

Guidance

Guidance takes information and invites you to give some thought and consideration to how it might affect you.

You could pay £15,000 into an ISA but you might also be able to pay that £15,000 into a pension plan.

Each will have advantages and disadvantages and guidance might well describe what those are.

It will ask to you to reflect upon your situation and consider which might be right for you. But it still isn’t advice.

Guidance shows you a number of different roads and asks you to consider which route to take. This is what the Chancellor was referring to when he inappropriately used the word “advice”

Advice

Advice is personal and direct. “You should invest £15,000 into an ISA and invest in XYZ fund with ABC”

It is specific and it tells you exactly the course of action that you need to take.

This is the service that is authorised and regulated by the Financial Conduct Authority (FCA) It is so much more than information and exceeds guidance by a long way.

It is also valuable and worth paying for.

Generally speaking Information and Guidance are worth less (not worthless!!).

If you take advice there are a whole raft of protections that kick in for your benefit.

So, whatever the outcome of the Chancellor’s initiative for at retirement guidance the one thing that we can pretty much say for sure is that it won’t be advice.

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Clarity over costs

Clarity over costsWhen you seek financial advice, there should be absolute clarity over costs involved.

The introduction of the Retail Distribution Review (RDR) on 31st December 2012 should have ensured this is happening.

Commission from Retail Investment Products was banned and a system of Adviser Charging was introduced, with the cost of advice agreed in advance between adviser and client.

Clarity over costs should have been secured with these two regulatory changes alone.

Unfortunately, it appears that many advice firms are still failing to provide clarity over costs.

A recent investigation by the Financial Conduct Authority (FCA) has found that 73% of the 113 firms it reviewed failed to provide the required information on the cost of advice.

These failings around clarity over costs were widespread, but worst with wealth managers and private banks which performed poorer than other firms in nearly all aspects of the thematic review.

The FCA research found that over half of firms failed to give clients clear upfront generic information on how much their advice might cost. 50% of firms failed to give clients clear confirmation on how much advice would cost them as individuals.

It’s easy to speculate on some of the reasons for these failings.

In some instances, we believe advisers feel embarrassed or insecure about their charges, so attempt to skirt the issue rather than having an upfront conversation about the costs involved.

This could be because they are unsure whether their fees represent good value. It might also be a hangover from the old days of commission where adviser revenue was, in some cases, excessive.

Some advisers continue to operate with what is effectively a commission model, with Adviser Charging simply replacing the old commission levels of 2 or 3% of the amount invested.

Where advisers are working on a speculative basis to provide their advice for ‘free’, in the hope of securing a product sale to generate ‘commission’, you can see why clarity over costs might not be a priority.

Here at Informed Choice, we take a fairly simple approach when it comes to disclosing our fees.

We publish a typical range of fees right here on our website, for all to see.

After we have offered a prospective new client an initial meeting at our expense and without obligation, we write to them with an engagement letter which confirms precisely the fees they will pay, and of course the value they will receive in return.

As we will often explain to our clients, we might not be the cheapest advisers they can find, but we are certainly not the most expensive. What we will always strive to do is deliver excellent value for money.

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Market numbers: Friday 4th April 2014

Informed Choice Market NumbersThe FTSE 100 index of leading UK company shares finished the week at 6,695.55, closing up 46.41 (+0.70%) on the day and up 79.97 points or 1.21% over the week.

The index reached a three week high off the back of a strong performance by banks and mining stocks.

Positive US employment suggested a gathering momentum in the recovery of biggest economy in the world.

Since reaching its recent peak of 6,867 in January, the FTSE 100 has slipped back following troubled emerging market equities and fears of political turmoil in Ukraine.

Over a year the FTSE 100 has risen from 6,344.10, a rise of 351.45 points or 5.54%.

£1 is worth $1.65800 US or €1.20970 Euros.

Brent Crude Oil Futures is currently priced at $106.73/barrel. Gold is $1,297.25/ounce and Silver is $19.93/ounce.

The UK Bank Rate is 0.5% and CPI inflation was 1.7% for the year to February 2014.

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Guide me to some suitable advice

Guide me to some suitable adviceIn his Budget the Chancellor announced a number of things, changes to pension plan benefit rules and ISAs being two of the key items mentioned.

Leaving aside the silly comment he made about pension plan holders no longer having to buy an annuity (that has been the case for many years) he also fell into the trap of mixing up “advice” and “guidance”.

The Chancellor has earmarked £20m of taxpayer monies to create a new service for pension plan holders reaching retirement.

He proposes to introduce a “new guarantee” that all individuals with a defined contribution pension in the UK approaching retirement will be offered guidance at the point of retirement.

This “guidance” will be;

  • Impartial and consistently good quality;
  • Covers the individual’s range of options to help them make sound decisions and equip them to take action, whether that is seeking further advice or purchasing a product;
  • Free to the consumer;
  • Offered face to face.

Now, by any measure that is an impressive package but the Chancellor having fallen into the first trap mixing up advice and guidance (he apparently has later claimed that he used the word “advice” because he has a duty to communicate in plain English) climbed out and fell into the second trap of believing that all of the bullet points above could be delivered for “free”.

Hmm, I suspect that when the Chancellor use the word “free” he means someone else will be paying for it.

£20m is one awful lot of money but hand it over to someone like the Money Advice Service and you will see how quickly it will be squandered on cringe making TV adverts and the like.

The Chancellor has a laudable goal in wanting pension plan retirees to be able to make a sound decision (shame he didn’t say an informed choice) but he would be better off giving people a voucher to redeem with an IFA the only true source of real and independent advice.

That would be a much better spend of £20m.

Oh and by the way it is available now A Guide to the Retirement Choices & Options Maze free from Informed Choice.

A Guide to the Retirement Choices & Options Maze

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