eNewsletter Your Money Sample

Issue 1 2009 SAMPLE

Summer Edition

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Important matters of tax and insurance

One theme of this issue is insurance – in particular, do you have the right cover, do you have enough of it, and how much do you have to pay for it?

When meeting with our clients, a frequent concern arising is the problem their families could face if anything happened to the main bread winner. This is usually down to a lack of life assurance. Another issue relates to a lack of cover for their possessions. This is down to inadequate household contents insurance.

Having inadequate cover is, on the face of it, a false economy as the consequences can far outweigh the cost savings. As such, we would like to draw your attention to the fact that we can offer you highly competitive quotations on top quality insurance products.

Our other main theme is tax – specifically changes announced in the recent Pre-Budget Report to Capital Gains Tax and Inheritance Tax. In our view, it is vital that they are taken fully into account in your financial planning and investment decisions.

For more information on any of these topics, please call or email us.

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Dear {FIRSTNAME}

Welcome to the Summer 2009 edition of Your Money. If you would like further information on any of the topics covered then please call or email us and we will be delighted to forward it to you. We can also arrange a no-obligation consultation at your convenience.

In this issue:

Underinsurance can be a false economy
Many people don’t take into account the real cost of replacing their valuables and possessions. If you’re one of them, you’re taking a huge risk …read more>
The proposed Capital Gains Tax regime
Proposals announced in the Capital Gains Tax rules in the Pre-Budget Report last October could have significant implications for some clients …read more>
Mind the (protection) gap!
The insurance industry says we are extremely underinsured. But in what areas? And what about the costs involved? ...read more>
Don't be fooled by Inheritance Tax changes
Don’t be fooled into thinking that recent changes in the inheritance tax regime make careful planning unnecessary. If you’re not careful you could end up with a bigger IHT bill …read more>
Raising a loan - what are your options?
If you want a loan, foe example to fund home improvements, then what are the most appropriate options and how do they compare? …read more>
It's important to diversify your investments
Forget about timing your investment purchases. It’s more important to build a diversified portfolio of investments which reflects your attitude to risk and reward .…read more>

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Underinsurance can be a false economy!

Protection gap When it comes to buildings and contents insurance, it's not uncommon for people to be underinsured. This could be because they underestimate the rebuild value of their house, they underestimate the value of their possessions, or they just want to save money.

The potential scale of the problem some people may face was illustrated by research carried out by the bank Abbey(*). This revealed that up to three million households may have no home contents insurance at all, while up to 3.4 million households do not know whether their home contents policy covers them for the full value of their belongings.

Skimping on your insurance cover can prove costly. The first point to note is that if you are underinsured and make a claim, the actual sum you are insured for serves as a limit.

Another area to consider is to what extent your possessions are covered if they are lost or damaged outside your home.

If you want an accurate estimate of what your possessions are currently worth, and therefore how much insurance cover you should take out, then you need to value them at current prices.

Saving money on your premiums by underestimating the value of your home and its contents may cut costs in the short-term. But if the worst happens and you make a substantial claim, you could find yourself penalised or unable to afford replacement items.

When it comes to buying contents insurance the key is to buy the cover that best suits your needs. While shopping on the Internet may appear a good option, with many firms offering online discounts, in practice it may not actually offer you the best value or the most appropriate cover.

As an insurance broker, we can conduct a thorough fact find of your needs and identify the best policy for your requirements and, quite possibly, save you some money too – for your buildings insurance as well as your contents cover.

For more information on your household insurance requirements and the options available, email or call us now.

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The proposed Capital Gains Tax regime

REITS Changes proposed to the Capital Gains Tax (CGT) rules by the Chancellor of the Exchequer Alastair Darling in the Pre-Budget Report last October could have significant implications for some clients if they enter force.

The new rules, if they are ratified, will come into force after 5 April 2008. They could mean that the potential liability to CGT on any investments you plan to sell increase significantly, depending on how long these investments have been held.

Currently, any gains made on the sale of investments and/or assets that would be subject to CGT can be reduced by:

Indexation relief (inflation-proofing) for the period of ownership from March 1982 through to 5 April 1998, and
Taper relief based on the number of years the investment had been held since 1998 (Holders of non-business assets qualify for an extra year’s taper relief if investments were held before 17 March 1998).

Any element of the net gain in the value of the assets after this calculation that exceeds an individual’s CGT allowance for the year of disposal will be chargeable at 10 per cent, 20 per cent or 40 per cent, depending on that individual’s total taxable income. However, from 6 both indexation relief and taper relief will have been abolished and a flat rate of CGT of 18 per cent introduced.

In practice, the CGT changes mean that:

Higher rate taxpayers who have gains exceeding their annual CGT exemption but qualify for 10 years non-business asset taper relief will potentially pay, after 6 April 2008, 18 per cent tax instead of 12 per cent.

Higher-rate taxpayers investing for less than three years with gains exceeding their annual CGT exemption will now pay 18 per cent as opposed to 40 per cent. Basic-rate taxpayers will pay 18 per cent tax instead of 20 per cent.

So, higher-rate and basic-rate taxpayers already using their annual exemptions and investing for less than three years will have an improved CGT position under the proposed rules. For both groups, the benefits will reduce the longer they have held their investments, especially for the lower-rate taxpayer.

Clearly, there would be some winners and losers as a result of the proposed changes to the CGT regime. To find out precisely how it could affect you, then call or email your adviser for a consultation.

Please note that the information contained in this article only applies to non-business assets.

To find out more about the changes to Capital Gains Tax and how it might affect you, email or call us now.

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Mind the (protection) gap!

Offset mortgage The life assurance industry has a figure it occasionally bands around for what it calls the ‘Protection Gap’.

This gap is the difference between the level of life assurance cover that we actually have compared to the amount of cover that the insurance industry believes we actually need. The insurers say that the size of this gap currently stands at a whopping £2.5 trillion and is growing every year.

As a consequence, the experts say we are massively underinsured. But in what way?

Whilst as a nation we are generally very good at ensuring that the mortgage is covered by life assurance should the worst happen, it appears that we may neglect to consider such other costs as supporting children, general living expenses and, of course, credit card debts and other loans.

If you have a family and dependants, it is vital to consider the consequences of something serious happening to the main bread winner, In such a situation, the other partner could face severe financial difficulties.

Unlike many goods and services, the cost of life insurance has actually declined in recent years due to the enormous competition in the industry. So, if you do have life assurance, even though you are older now than when you first took it out, it may be worth checking to see if you can get it any cheaper.

And if you don’t have cover, you may be surprised to see how competitive the price may actually be. You could also investigate the benefits of options such as critical illness cover which pays out on the diagnosis of one of a range of serious illnesses.

To find out more, then why not arrange a no-obligation consultation? To do so, then email or call us now.

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Don't be fooled by Inheritance Tax changes

ISA Inheritance Tax or IHT has become major source of revenue for the Exchequer. And given the following figures, it’s also become a significant voter issue over recent years:

IHT revenue raised in 2006/07 was a record £3.6 billion, up £300 million (9 per cent) on 2005/06.
In 2006/07, 33,000 estates are estimated to have paid inheritance tax, while in 1997/98 only 18,000 estates paid the tax.

Clearly, IHT is a tax which has a significant impact on many people. But with careful planning, it’s also a tax which you can potentially reduce considerably or mitigate.

However, changes announced by the Chancellor of the Exchequer Alastair Darling in his October 2007 Pre-Budget Report have raised concerns that many people may think it is no longer essential to plan carefully in the future.

In the Pre-Budget Report, the Chancellor announced that spouses and civil partners will be able to inherit any unused portion of their deceased partner’s IHT nil-rate band. (NOTE: The nil-rate band for inheritance purposes is the limit to which an estate will not attract IHT. Above this amount the beneficiaries estate can attract IHT at 40%. The portion of the estate that a living spouse inherits does not attract IHT.)

Prior to the Chancellor’s announcement each individual had their own nil-rate band. However, because inheritance transfers between spouses are exempt from IHT, if one spouse or civil partner left all of their estate to the survivor, then they effectively wasted their IHT nil-rate band.

What the new rules do is to enable the survivor to add any unused portion of their deceased spouse’s or partner’s nil-rate band to their own. In practice, this means that the survivor’s nil-rate band could double to £600,000 if all of their deceased’s partner’s nil-rate band was unused.

While such a change is welcome, it is very important that couples do not get lulled into taking the false view that IHT planning has become less important. The fact is that the Chancellor has given nothing away that was not already available through the use of what are known as will trusts. In practice, thorough IHT planning is as important as ever.

For more information on the IHT changes and how they could apply to your particular circumstances, then email or call us now.

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Raising a loan - what are your options?

Will A number of clients have requested advice on the best type of loan, for example, to carry out home improvements.

Generally speaking, you have three choices – an unsecured loan, a secured loan, and a remortgage. While a secured loan or remortgage may have a lower interest rate, you need to think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.

The big advantage of a secured loan or a remortgage is that they offer lower interest rates than unsecured loans. The main disadvantage is that they are, of course, secured on the value of your house, which may make them less flexible in some circumstances than unsecured loans.

However, if the value of your house has increased considerably over the years, you may now have considerable untapped equity in your home which may make a remortgage or secured loan a suitable option.

So, what are the pros and cons when it comes to deciding between an unsecured loan, a secured loan and a remortgage?

Unsecured loans

If you have repayment problems then your home is not directly at risk
Portable if you move home
Have higher rates of interest than secured loans or remortgages
Not regulated by the Financial Services Authority

Secured Loans

Lower interest rate than on an unsecured loan
May not be portable if you move house
Not regulated by the Financial Services Authority

Remortgages

When all associated costs are taken into account, is not generally cheaper than a secured loan
May lead to loss of incentives on current mortgage, while a further advance would leave them intact
Regulated by the Financial Services Authority

Before taking out a loan you should consider if you really need to raise money at all. Whatever you borrow you have to pay back, so it may make more sense to save the money before you buy.

However, if you do need a loan it pays to take good advice as there are many options available. Whichever route you prefer for raising finance, we can advise you on a comprehensive range of options to meet your specific circumstances and requirements.

Please note that your home may be repossessed if you do not keep up repayments on your mortgage.

For further information on different types of loan and advice on which is the most appropriate for your circumstances, then call or email your adviser.

For more information on the different types of loan and advice on which is the most appropriate to your circumstances, then email or call your adviser now.

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It's important to diversify your investments

Critical illness Many of our clients ask us when is the best time to buy into the stockmarkets or sell their existing holdings. What they want to do, of course, is to try and time their purchases or sales so that they buy at the bottom and sell at the top.

However, our answer is always the same. We believe it is almost impossible to outguess the markets and that any attempt to call the top or the bottom is likely to end in failure – and loss of your money.

Instead, it is our strongly held view that it is much more important to pay attention to asset allocation. Specifically, we believe it is important to ensure that you build up a diversified portfolio of investments which properly reflects your attitude to risk and reward and embraces a number of asset classes which may include equities, bonds, cash and commercial property.

Collective funds like unit trusts enable individual investors to enjoy greater diversification because they provide a share in a broad portfolio of assets. Diversification may also require spreading investments across a range of fund managers. This way you avoid putting all your eggs in one basket, both in respect of funds and fund managers.

There is sound logic for diversification. While experience shows that over the long-term equities have generally outperformed other asset classes, such outperformance cannot be expected to take place smoothly or in every year. There will inevitably be corrections and no single asset class should realistically be expected to dominate the performance tables all of the time.

Please note that the value of your investment may fluctuate over time and even go down. This type of investment should be seen as medium to long term. Investing in commercial property can carry additional risks where the money may be unavailable when required.

For more information on developing a diversified investment portfolio to suit your attitude towards risk and reward, then please email or call your adviser.

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