Will you have to pay inheritance tax?

Will you have to pay inheritance tax?The prime minister David Cameron has brought inheritance tax back into the spotlight with his promise that only the “very wealthy” would pay inheritance tax in the future.

Speaking yesterday at the Age UK headquarters in London, Cameron voiced his support for raising the threshold at which inheritance tax is paid.

He wants to ease the burden of inheritance tax on individuals with estates which currently suffer the tax on death but who do not consider themselves “in any way the mega-rich”. I’m sure quite a few of us can identify with that.

The Tories originally revealed plans to raise the inheritance tax nil rate band to £1m, or £2m for married couples and civil partners, all the way back in 2007 at their party conference.

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Since April 2009, the nil rate band has remained frozen at £325,000, or £650,000 for couples, which results in many estates being subject to some inheritance tax once property values and other assets are taken into account.

The pledge to raise the threshold to £1m was dropped ahead of the 2010 general election because it was seen as inappropriate during times of austerity.

It could be argued that it remains inappropriate to raise the threshold when the public sector face pay caps and many state benefits are frozen.

In the GU6 postcode area, the average property price over the last three months has been approximately £314,862. Once other investment assets are taken into account, it is easy to see how the nil rate band can be exceeded and beneficiaries are charged inheritance tax.

The full transcript of what David Cameron said about inheritance tax aspirations, as reported in the Guardian, is as follows:

“To me inheritance tax is a tax that should be paid by the very wealthy. I think you should be able to pass a family home on to your children rather than leave it to the taxman.

“I would like to see that go further because I think even at £650,000, particularly in some parts of the country, you see someone who has worked hard, they have put money into their house, they have done it up to improve it and they want to leave it to their children and they don’t feel that they are in any way the mega-rich, and they feel: ‘I should be able to do that without having 40% of it knocked off’.

“So I do still have ambitions to do that, but even though I’m the first lord of the Treasury, there is somebody called the second lord of the Treasury – that’s the Chancellor of the Exchequer, so I have got to try and shoehorn these things into his budget.

“He is a pretty co-operative chap, but I’ve got my work cut out on this one. But he is keen on it too.”

We look forward to the Autumn Statement on 3rd December 2014 for any hint of changes to inheritance tax thresholds in the future.

In the meantime, it is still important to consider your inheritance tax planning, particularly if you have strong views on how much you will be leaving to your children and how much they will be paying to HM Treasury when you die.

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How to avoid investment fraud

How to avoid investment fraudThe Financial Conduct Authority (FCA) has launched a national campaign to educate consumers on how to avoid investment fraud.

They have set up the Scamsmart website, funded using the proceeds of crime, to help investors avoid investment fraud.

Suggestions on website include rejecting cold calls offering investment opportunities.

According to the FCA, the average victim loses around £20,000. The regulator receives nearly 5,000 calls a year from investors about suspected cases of investment fraud.

Here are some ways in which you can avoid investment fraud:

Beware of returns which are too good to be true

A classic warning sign of investment fraud is the offer of astronomical returns on your money.

It’s quite simple; there is an unbreakable link between investment risk and potential returns. If sky-high returns are on offer, the risks must also be sky-high.

Also watch out for straight line returns

Another classic attribute of fraudulent investments is past investment returns which appear to run in a straight line, with little or no volatility.

Cash is the only investment asset class which comes with no volatility, but the returns from cash are also very low.

If an investment opportunity offers a consistent return of say 4-5% per month, it’s probably fraudulent. Just saying.

Do your due diligence

Investment fraudsters tend to operate outside of the regulated UK financial service environment.

To give investment advice to retail investors in the UK, an adviser needs to be authorised and regulated by the Financial Conduct Authority (FCA). Check they appear on the Financial Services Register here.

They also need to hold a valid Statement of Professional Standing (SPS) from a designated professional body, such as the Chartered Insurance Institute (CII) or Institute of Financial Planning (IFP).

Ask to see a copy of their SPS and double-check it is real by calling the professional body named on the certificate.

Avoid esoteric assets

If you stick with cash, fixed interest securities, equities and commercial property, your chances of falling victim to investment fraud are greatly reduced.

Invest in Brazilian teak forests, Mexican golf resorts or gold dust schemes, and you are probably going to join the ranks of investment fraud victims.

It’s a pretty simple choice.

Stay local

If you’re a UK investor, there are very few reasons for ever buying an investment scheme from outside of the UK.

Fraudulent investments schemes are often promoted and operated from overseas locations including Spain, the Caribbean or the Middle East.

Stay local when dealing with investment advisers; you can meet them face-to-face, ensure their office actually exists and benefit from the protection of the Financial Services Compensation Scheme (FSCS) in the event something goes wrong.

Get a second opinion

There is never any harm in getting a second opinion from a professional adviser.

Speak to another Financial Planner, your solicitor or accountant, before parting with your cash, and make sure they think the proposed scheme is legitimate.

Hang up on cold callers

Never, ever invest in a scheme introduced to you by a cold caller.

There is a good chance you are receiving a call from a boiler room operation, designed to get their hands on your money.

If you receive a cold call about an investment scheme, regardless of how convincing it seems, just say no and hang up.

Look out for elderly relatives

Older people are often more vulnerable to investment fraud, so talk to them about the risks and look out for their best interests.

We often hear about elderly people who are bombarded with cold calls or post promoting fraudulent investment schemes.

Spending time with elderly relatives and taking an interest in any approaches from salespeople is a good way to help keep them safe.

Once bitten, twice shy

Victims of investment fraud are targeted on multiple occasions, often because they appear on a ‘sucker list’ which is sold by the first fraudster to other fraudsters, identifying you as an easy target.

If you have ever fallen victim to investment fraud in the past, be especially cautious about it happening to you again in the future.

Consider taking additional steps to protect your identity, such as changing phone numbers (and making these numbers ex-directory).

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Using your pension like a bank account

Using your pension like a bank accountToday’s announcement that the government are giving additional rights to savers to “dip in” to their pension funds, just like a bank account, is really nothing new.

Professional advisers already know about something called phased drawdown and use it where this can be advantageous to their clients.

Taking some pension benefit as tax free cash and some as taxable income (phased drawdown) has simply morphed into taking some tax free cash and some taxable capital.

For some pension plan owners this will indeed be the option of choice at retirement.

There has been some debate about this new freedom and choice in pensions but we are broadly in favour of the changes.

However we have one concern; in our experience many people significantly underestimate their life expectancy.

This presents the risk that they will completely erode their pension fund long before they die and have to resort to using other financial resources or potentially a much reduced standard of living.

I have posted on Twitter about this a couple of times today. The first tweet made the statement:

Good Financial Planning is going to be needed to ensure that their pension funds are not eroded too quickly. My second tweet posed the tongue in cheek comment:

The answer of course will be “no”

If you take capital out of your pension fund please do use it wisely.

Better still, seek professional advice and withdraw pension funds based on a carefully considered Financial Plan which makes reasonable assumptions about the future.

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Challenges for Baby Boomers

Challenges for Baby BoomersNick shared an article with me this morning which highlighted some interesting challenges for Baby Boomers.

The article contained a summary of a survey by Fidelity Investments which looked at the mixed savings habits of 20- and 30-somethings, a generation commonly known as millennials.

Why does this matter for the Baby Boomer generation (those born between 1946 and 1964) and what challenges does it create?

Find out more about our feature-length documentary about Baby Boomers in retirement

Well, the survey also found that 60% of respondents view their parents as good financial role models.

This is a particularly high vote of confidence because millennials typically don’t trust others when it comes to financial advice.

In fact, 23% of millennials claim to trust no one when it comes to their finances.

14% trust their parents when it comes to money matters,11% trust their mother specifically and 8% trust their father specifically – a total of 33% of millennials trusting their parents or a parent most on money matters.

Just 13% trust a financial professional most on personal finances.

This vote of confidence in the financial skills of parents, and the relative lack of trust in financial professionals to deliver financial advice, poses challenges for Baby Boomer parents as they consider the transfer of wealth across generations.

We are increasingly seeing parents in the Baby Boomer generation wanting to transfer wealth to children and grandchildren during lifetimes, rather than waiting until death for this ‘inheritance’ to cascade down the generations.

Gifting during life or using wealth to get adult children onto the property ladder can be a very efficient form of estate planning and also very satisfying for parents.

It does however need to be managed very carefully to ensure wealth is not squandered.

If millennials are generally reluctant to seek professional financial advice when needed, parents will need their own plans and advice to keep family wealth secure and transfer it to the next generation in the most efficient way.

Find out more about our feature-length documentary about Baby Boomers in retirement

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UK inflation falls to 1.2%

UK inflation falls to 1.2%The latest price inflation figures from the Office for National Statistics (ONS) show UK inflation has fallen to 1.2%.

The Consumer Prices Index (CPI) measure of UK price inflation fell to 1.2% for the year to September, from 1.5% the previous month.

This is the lowest rate of UK inflation in five years.

The Retail Prices Index (RPI) measure of UK price inflation also fell in the year to September, from 2.4% to 2.3%.

The ONS say lower energy and food prices contributed to this fall in price inflation, as well as cheaper transport costs.

What the lower price inflation figures mean is interest rates are less likely to rise now until well into 2015. The pound fell in value as a result.

Price inflation figures published in October for the year to September used to be closely scrutinised as they were previously used as the basis for a wide range of state benefits.

However, most benefits are now subject to a 1% capped annual rise, which was introduced in April 2013. If the Conservatives win the next election in May, these same benefits will be frozen for a further two years.

State pension benefits are subject to the ‘triple lock’ of the higher of inflation, earnings growth or 2.5%. With inflation and earnings both lower than 2.5%, this figure will be used instead.

Only disability benefits will rise in line with CPI inflation, so will be uprated by 1.2% next year assuming the government approves this increase.

When constructing and reviewing your Financial Plan, it is very important to make realistic assumptions about future price inflation.

Inflation can drive the long-term outcomes of your Financial Plan and is often underestimated, resulting in a gap between earnings power and needs later in life.

Care fees in particular often rise in cost at a faster pace than the official UK inflation figures published each month by the ONS, so a higher inflation figure should be assumed when considering the cost of care in later life.

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Obese doctors & bankrupt Financial Planners

Obese doctors & bankrupt Financial PlannersOne memory I have of my first holiday to South Africa was being introduced to a family doctor at a braai we attended on the first day we arrived.

This chap was clearly a well respected member of the community, held in high regard by all in attendance.

But throughout the BBQ he was smoking like a chimney and drinking enough white wine to sedate one of the Hippos we would see on safari later that week.

For a health professional to engage in such self-destructive behaviour – particularly in the company of a large number of his patients – was something I considered at the time (and continue to consider) a little ‘odd’.

Following my blog earlier this week about the keynote presentation by Dr James Rouse at the IFP annual conference, I commented on a related trade press article questioning how effective Financial Planners might be in ‘stewarding the very good life’ if they were themselves overweight, inactive and focused solely on money.

It’s was a controversial statement and provoked a response from a couple of people I respect on Twitter.

Others were more supportive of my view.

Now I wasn’t claiming for a second that overweight individuals cannot deliver good financial advice. Of course they can.

What I was arguing is that our roles as Financial Planners are becoming more holistic; the sole focus on the financial aspect of life has expanded to include achieving lifetime goals.

To do the very best we can with each of our clients, Financial Planners should practice what they preach.

There’s a commonly used expression in our profession; “A poor Financial Planner is a poor Financial Planner”.

Assuming you would never seek financial advice from a bankrupt, other than perhaps to learn from their experience and avoid making the same mistakes, it seems remiss to work with a Financial Planner who is not personally living a fulfilled and meaningful life.

I would not take advice from an obese, alcoholic GP who was also a smoker, regardless of their professional expertise.

It’s similar to what author and public speaker David Maister refers to as ‘the Fat Smoker syndrome’; how individuals can overcome the temptations of the short-term and actually do what they already know is good for them.

Obese doctors and bankrupt Financial Planners occupy a similar space in my head; probably capable of fulfilling their professional obligations but unlikely to be inspiring what they preach and not a natural choice as advisers.

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How long are your telomeres?

How long are your telomeres?On Tuesday morning I made my way downstairs from my hotel room at the Celtic Manor Resort and attended a keynote presentation by Dr James Rouse.

I’ve written about James before; he was speaking at the Institute of Financial Planning annual conference and, in anticipation of hearing his presentation, I recently read his new book, Think Eat Move Thrive.

At this point, you might be wondering why a room full of Financial Planners would be listening to an enthusiastic American talking about nutrition, exercise and living high-performance lives.

The simple answer is this; Financial Planning is about so much more than just money.

James explained during his presentation that self-care is a form of social activism. He sees our role as Financial Planners as stewarding the very good life.

Which begs the question, how long are your telomeres?

For the uninitiated, a telomere is a region of repetitive nucleotide sequences at each end of a chromatid, which protects the end of the chromosome from deterioration or from fusion with neighbouring chromosomes (thank you, Wikipedia).

They are a bit like the plastic caps on the end of shoelaces, and, in our bodies, prevent chromosome ends from fraying and sticking to each other.

Over time, due to each cell division, the telomere ends become shorter.

If we can encourage our telomere ends to become longer, we can slow the aging process and even protect against cancer.

One way to boost this anti-aging secret is through strength training. In fact, loss of lean muscle mass is the number one marker for unhealthy aging.

James explained that by working out three times a week with resistance exercises, we can maintain long and strong telomeres, resulting in a longer and healthier life.

This was a bit of a wake-up call for me. My own exercise regime is focused on endurance; mostly running ridiculously long distances and swimming moderately long distances, with the occasional bit of cycling.

Despite owning a set of dumbbells and a kettlebell, they rarely get much use.

My goal for the rest of this year is to form the habit of weight training at least three times a week, whether using these weights or my own bodyweight.

It’s never too late to add some lean muscle, increase telomere length and increase the prospects of healthier aging.

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Removing stress & remaining competent

Removing stress & remaining competentPart of my role here at Informed Choice is to ensure that all our Financial Planners remain competent to do the job that they do.

One of the ways we do that is by observing the performance of the Financial Planner in front of their clients particularly when they are delivering advice to that client.

This morning I spent 40 minutes “observing” Martin do just that.

It was probably the hardest thing I have done this week because the observer has to say nothing at all!

Those of you who know me will understand how much of a challenge me keeping quiet for 40 minutes actually is.

But it was less Martin’s performance (very good by the way) and more the subject that kept me interested for all that time.

The client had asked for advice about how to fund care fees for her elderly mother. Her mother was suffering from dementia and could no longer look after herself an all too familiar problem these days.

The challenge was how to fill the gap between the retirement income provided by pension arrangements and the total cost of residential care. Quite a substantial gap in actual fact.

Fortunately savings and the proceeds from the sale of her home meant that there was sufficient money available to fill the funding gap.

Making sure it would never run out and also ensuring, if possible, that there remained an inheritance available was the twin objective.

If ever there was a need for sound Financial Planning and the benefit delivered by lifetime cash flow forecasting, care fees planning is that need.

Stress removal, certainty and reassurance; all expertly delivered by Martin during 40 minutes well spent.

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Germany, economic data & European recovery

Germany, economic data & European recoveryHas the rich man of Europe caught a cold?

This week we have seen weaker than expected industrial production and export figures from Germany, prompting concerns about the ability of the eurozone economy to recover.

Germany has always been one of the strongest economies in the wider eurozone.

It has the highest GDP per capita of any European country, 24.5% higher than the European Union average last year.

With the eurozone sovereign debt crisis still unresolved, economists and investors have been relying on Germany to help drag the wider European economy out of its hole.

Do these new economic figures represent a bump in the road?

Paras Anand, Head of European Equities at Fidelity Worldwide Investment, has explained in a briefing note for advisers that short term concerns for the German economy could be missing the bigger picture.

“The recent performance of European shares has been driven in part by increasing concerns not just about the shape of the recovery but the fear that we may once again slip into recession.

“This perception has been reinforced by the weak data that has been published by Germany over the last week which is the economy most strategists were optimistic on.”

He goes on to explain that focusing on short term economic data risks missing the medium term recovery story for Germany, the broader European economy and also corporate earnings across Europe.

“Whist there is clearly some softening of demand in key export markets, there is the risk that investors miss the broadening mix of economic growth in Germany in particular where private consumption is a growing component of GDP.

“Additionally, the weakening euro is likely to be supportive for much of the corporate sector, not simply in terms of a translational impact on reported earnings but more fundamentally in terms of the relative competitive positioning of European companies versus their Global peers.

“Whilst the short term response is understandable, it is possible that the bigger picture is being missed.

“There is the risk that investors miss the broadening mix of economic growth in Germany where private consumption and increasing exports are a growing component of GDP.

“Retail sales and consumption continued to grow over the summer and all components for disposable income, such as real wage growth and employment forecasts, are pointing in the right direction.

“In contrast to market sentiment the German consumer has been the key driver for the economy and is expected to remain the focal pillar of strength.

“The temporary interruption from the geopolitical issues around the Ukraine has created short term nervousness in the export market.

“This should not mask the potential of German companies and their much larger export diversification into the structurally growing parts of the world.”

It will be interesting to see how the economic picture develops in Germany and in the wider European economy over the next few months and years.

With the IMA Europe sector showing an average loss of 6.54% over the past six months, investors will be hoping for better news, particularly in respect of corporate earnings which should drive markets to a great extent than economic data.

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Harry Bamford Trophy

Harry Bamford TrophyIn 1976 Andy and I got married.

Soon after we moved away from Bristol to live in Birmingham, then Gloucester and then we moved to Cranleigh (and have been here ever since).

In the early days we often thought we would move back to our home city of Bristol (actually City and County of Bristol – not a lot of people know that!) but we never did.

38 years later and I still have a strong connection with one aspect of Bristol life (two if you include my accent).

The first football result I always look for is for my team, Bristol Rovers.

Bristol Rovers, or “The Gas” as they are known to their fans (their old ground at Eastville Stadium was surrounded by gas containers that used to leak on rainy November evenings thus intoxicating the supporters and players alike), are the poor footballing relatives in Bristol falling out of the football league into the Conference for the first time in their history last season, whilst Bristol City FC seem to enjoy better success on a fairly regular basis; they have more money.

Moving to Cranleigh in 1985 one of the first people we met was Val, our daughter’s primary school teacher.

On hearing our surname, Bamford, Val was able to name the whole of a 1950’s Rovers team which she had been taught to do by her older brother.

The side, including a relative of mine (my father Francis’ cousin), Harry Bamford, a well known and sporting footballer who sadly died in a motorbike accident in 1958.

In his memory the Harry Bamford Trophy was created to be awarded each year to Bristolian footballers for fair play and sportsmanship.

This morning Val dropped into the office a recent copy of the Bristol Post with a full page article describing the Harry Bamford Trophy and the players to whom it had been awarded.

Sadly the trophy went missing following a fire at Eastville Stadium in 1980 but has recently been found and restored.

The trophy  has started to be awarded again. There has been a  bit of catching up to do since 1980.

Regardless of where you end up living and raising a family there will always be something things that links you back to your childhood home.

Goodnight Irene.

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