The Final 5%

A few client conversations have highlighted the importance to me this week of what I call ‘the final 5%’.

What I mean by this is that the majority of clients that we work with are very financially knowledgeable. They often have a good understanding of things like the Pensions Lifetime Allowance or Inheritance Tax Gifting Rules. They know 95%.

Where our professional expertise really adds value is in the ‘final 5%’. These are the quirks in the rules that are not often reported in the media or in ‘guides’ that you find online. These are the little pitfalls and stumbling blocks that people often get caught out by.

I have had 3 conversations with clients this week, where, were it not for that ‘final 5%’ that we bring to the table, the client might have made a serious mistake, in some cases causing significant additional tax liabilities or inviting an investigation from HMRC.

In all 3 cases, the clients existing understanding of the issue at hand was very good (certainly better than the vast majority of the population I would wager), but they were just missing that ‘final 5%’. The subtle little details that make all of the difference.

In one other case, that ‘final 5%’ turned what was already a very good idea, into a spectacular one, in this example, our expertise more than doubled the potential Inheritance Tax saving for a client, just by making a slight change to the planning that they were proposing.

We are here to serve our clients and to optimise your financial position. So, if you are thinking of implementing some new planning in the next few months, why not run it past us first. It’s all part of the service, and, you never know, that final 5% might actually create ideas that are 100% more effective!

If you have any questions, please get in touch.

Budget Update – 3rd March 2021

The Chancellor has just finished presenting his budget speech to the house. The Buckingham Gate team is now busy analysing the budget document in detail and searching for any devil in the details. We will report back on any significant findings that become clear in the coming days, however, as expected, today’s budget was rather benign from a personal financial planning point of view.

Some of the key announcements and our commentary can be found below:

Income Tax

Both the personal allowance and higher rate threshold will be increased to £12,570 and £50,270 respectively from April 2021, but then both allowances will be frozen until 2026. While this is better than some had anticipated (it was widely reported that there would be no increase this year for example), the length of the freeze until 2026 is longer than expected.

This is effectively a ‘stealth tax’ and follows a long-standing tradition of governments simply not index linking allowances rather than reducing them in nominal terms. This is a theme that continues below.

Capital Gains Tax

The annual exempt amount will remain frozen at the current level of £12,300 until April 2026.

Pension Lifetime Allowance

The pensions lifetime allowance will remain frozen at the current level of £1,073,100 until April 2026.

Inheritance Tax

The Nil Rate Band and Residence Nil Rate Band will remain frozen at the current level of £325,000 and £175,000 respectively until April 2026. The level of assets at which the taper to the Residence Nil Rate Band kicks in will also remain at £2 million.

Investing

The ISA and Junior ISA allowances will remain at current levels for the time being.

Commentary

All in all, this is a very quiet budget from a personal financial planning perspective (although do bear in mind the very, very significant interventions for individuals and businesses to assist the recovery from Covid-19).

The main headline from a personal finance point of view is no change, for a long time. Most allowances have been frozen at current levels until 2026! As such, this is a fairly extended period of ‘stealth taxation’. If we assume inflation runs at around 2-3% per annum, this could see the real value of these allowances reduced by around 10-15% in the period up to the end of the freeze.

What is very interesting to us however, is the fact that these allowances have been frozen all the way up to 2026, especially in relation to Capital Gains and Inheritance Tax. Despite heavy media speculation of a big shake up in both areas, today’s policy announcements suggest that the Government can see the current regime in both areas still existing in 2026 at the least.

That is not to say that these things won’t change in the future (of course these kinds of long term policy decisions are often tweaked along the way) however, it does seem that any imminent changes are unlikely given that the Government is legislating based on the current system for the next 5 years!

All in all, keep calm and carry on is our message from today’s announcements.

If you have any questions, please get in touch.

Yours sincerely,
Buckingham Gate Chartered Financial Planners

Lies, Damn Lies and Speculation

As budget day approaches, the volume of rumour, speculation and mistruth is stepping up in traditional fashion.

Of course, there are the old favourites (you know, the things that the media report ‘might’ happen in the budget every single year, but never seem to actually occur) such as the removal of the 25% tax-free cash on pensions and restrictions to pension tax relief (for what it’s worth, I don’t believe we are likely to see either at this coming budget).

Then we have the two new rumours that seem to be doing the rounds, namely the alignment of Capital Gains Tax rates with Income Tax rates and some kind of root and branch reform of Inheritance Tax.

For what it’s worth, once again, I believe that both are unlikely to materialise in a few weeks’ time. The reason for this is that almost all suggestions in this respect would require pretty much a complete rewrite of that particular part of the tax system and a whole raft of changes to HMRC IT systems – projects that could take years to complete at the best of times.

That’s not to say that we won’t see some changes to the tax system (the freezing of the personal allowance and basic rate tax band are looking likely at this stage) however, the point is that no one (myself included) really knows other than the Chancellor himself, and even he would not have completely made his mind up at this stage because the budget document is often only finalised in the days leading up to the budget announcement itself.

What I am trying to get at is that it’s important not to delay planning because of what ‘might’ be coming in the budget. There will always be some big financial event on the horizon to wait for (after this budget, I suspect there will be another in the autumn and then in the spring again).

If you are planning on taking some action that might be impacted by a forthcoming budget, can it be a good idea to accelerate that action – yes absolutely. After all, if you are planning on doing something anyway, why not get it done and then you know where you stand.

However, I would strongly discourage people from delaying action based on what might be included in this budget or the next one or the one after that. I have seen too many examples of families learning this lesson the hard way.

It is frustrating enough looking back and thinking that you should have done something historically that you have never thought of before. But, when you look back on today a year from now, how would you feel if you knew that you should have taken action, but didn’t for whatever reason.

The old rules of financial planning say that we plan based on current and known future tax changes and then we adjust the plan to take any future unknown changes into account. That rule is just as valid in the run up to a budget as at any other time of the year in my view!

Light At The End Of The Tunnel?

Last week’s announcement from the Prime Minister that schools will remain closed and lockdown will effectively be extended until the 8th March will come as a surprise to no one.

Infection rates, while improving quite dramatically, are still high and the number of hospital admissions and sadly deaths are still shocking.

However, I do hope that we can begin to see some light at the end of the tunnel. The fact that the government plans to publish a plan in the week commencing 22nd February is good news as at least it does show that there is some level of thought going into how the country can tentatively begin to re-open.

What is safe to say is that the process will be gradual and I suspect quite painful, but at least we can hopefully get some idea of the timescales when this report is published in a few weeks’ time.

If we assume that this will be the ‘last lockdown’ (I know no one really knows, but the Government seems pretty intent on not releasing this lockdown until they have confidence we will not need to go into another one), now is the time to begin thinking about what elements you want to put back in ‘your box’ as life begins to return to normal.

Imagine your life is a box and in it were all of the things that featured in your life before lockdown – you remember – overseas travel, eating out with friends, theatre visits. As lockdown struck, many of those elements had to be taken out and laid on the dining room table and they were replaced with a new ‘lockdown life’. Perhaps this involved cooking at home more, watching more films, more exercise – you get the idea.

Everything I have mentioned above would generally be considered ‘good things’, enjoyable, pleasurable. Now of course, both our pre and post lockdown lives probably contained some not-so-good elements as well. Perhaps you were not as fit or healthy as you wanted to be or maybe you didn’t have time to pursue a passion or hobby.

As we come out of lockdown and life (fingers crossed) begins to return to some sort of normality, you get to decide what that normality should look like. You get to choose what elements go back in your box.

So imagine all of the components of your pre-lockdown life and also everything that has changed since March last year. All of these things are now laid out before you on the table. You can decide what you want to feature in your ‘new normal’. There are no rules or guidance to follow, only what you think is right.

The words ‘new normal’ have been overused to the point of exhaustion now, but, as the world has gone through crises in the past, things have always changed, usually for the better.

You see, crises make us see things differently. We learn things about ourselves and about each other that we didn’t know before. We become aware of possibilities that seemed like impossibilities only a few short months ago.

I wrote last time (Here We Go Again, Again (Again)) about making the most of the opportunity that lies in what could be the final weeks of lockdown. I would also suggest that, during that time, we all consider how we want life to look in the future. You have a blank canvas in front of you – what will you create?

Here We Go Again, Again (Again)

First off, I would like to open by promising that I won’t use that title again. I will be the first to admit that it is getting a little bit old now, but then again so is lockdown, which is the topic of today’s post.

By the time that this is published, the fact that we are, once again, in a national lockdown will be relatively ‘old news’, but of course this does have implications from a financial planning perspective.

Of course, there are the obvious health (physical and mental), economic and social consequences of lockdown to factor in. Now, please don’t get me wrong, I am not necessarily anti-lockdown, but I do also feel that the non-covid related harm caused by lockdown is not receiving the airtime that it perhaps should. Of course, those consequences do include very urgent and important medical treatments being cancelled or postponed and the impact of that on the people in question should not be understated.

Then again, we must think of the healthcare workers on the front line who are dealing with their own set of serious Covid-consequences – burnout, mental trauma and stress being just some of them.

Of course, the whole Covid issue is not easy, and whichever side of politics you sit on, I am sure we can all agree that we would rather it was ‘them rather than us’ having to make these decisions.

All of the above might give you a reason to be a little gloomy as we head into 2021, but I do think that there might be some merit in seeing the next few weeks and months as an opportunity. Here’s why:

The past year has given many of us a unique chance to do things that ‘we have always meant to do’. For some, it is learning a new skill or taking up a new hobby (I have just started to, very tentatively, learn guitar – a lifelong ambition). For others, it might be getting around to re-drafting their will or putting in place that trust framework they have been thinking about for the past few years.

With the vaccine now rolling out rather impressively (despite what I hear on the news, I actually think the UK has done a pretty good job thus far when it comes to vaccines) and with the rollout likely to speed up very quickly, barring a new variant of Covid that can evade the vaccine, we might only have a few more weeks of this lockdown life left.

Now, I am sure none of us will be lighting a candle as we see the back of lockdown – good riddance I say – but what it does mean is that, hopefully, within the next few months lockdown will be over.

That means that things will, hopefully, begin to go back to the way they were before, which for the most part will be a good thing. But (and it is a big but) that will mean that we will get busier again. Our social lives, our holidays will all recommence which is undoubtedly a good thing, but (and again, it is a big but) that means we will have less time available to do ‘all of those things that I have been meaning to do for a while, but just never seem to get around to’.

So, might I suggest that you use these next few weeks of lockdown wisely. They may (fortunately) be the final time we get to have so much uninterrupted time on our hands.

Getting Ready For Round 2

It was almost inevitable, but we are now dealing with ‘lockdown’ round 2. Just as things were beginning to return to some vague kind of normality, the virus has staged its resurgence and more restrictive measures are being introduced.

The timing of Boris’s announcement was almost comical for the Buckingham Gate team – our builders signed off the first phase of our office building project on Tuesday morning and ‘handed back’ the office to us and then the ‘work from home’ message came on Tuesday evening.

I would like to reassure clients that our commitment to getting back to the office (and to face-to-face meetings for those who want them) is unwavering. We have spent considerable time, money and effort re-designing the Buckingham Gate office and client experience and we can’t wait to show you the fruits of our labour – we will just have to wait a little longer until the government guidance and health crisis allows.

We have started doing a small number of home visits with clients where this is necessary (the signing and witnessing of wills and trusts for example) and will continue to offer this service, with all the gloves, masks and other mitigation’s in place, for as long as we are permitted to do so.

As we enter the colder, darker months I think this is the point where the economic pain might start to become more visible. Up until now, although both people and businesses have undoubtedly been struggling, there has been a very significant element of government support with the furlough scheme, grants, loans and handouts galore.

All of that is about to change. While the announcements from Rishi Sunak last week will be welcome, the schemes being introduced to take us through the winter are nowhere near as generous as the ones that they are replacing.

The Furlough scheme paid up to 80% of a workers whole wage, the new scheme will pay only around 20%. The same is true for the self-employed scheme, with the grant available now only £1,500 for a 3-month period – Just £500 a month to survive on!

The sectors most impacted by the new restrictions (hospitality, travel etc) make up a reasonably small portion of the stock market in relative terms, but they do account for a large percentage of the workforce. As such, I think any impact on markets will be due more to waning consumer confidence, rather than down to the fortunes of the companies themselves.

The companies that have accounted for much of the stock market growth and recovery we have seen this year (mainly the large technology giants) will most likely continue to perform well in this environment as our demand for their devices and subscriptions grows ever larger.

We will, of course, be monitoring developments carefully, not just with Covid-19, but also with the Brexit process and the US Elections (two events that would nearly account for all of the headlines in any normal year, but that we are hearing relatively little about vs Covid).

Most importantly, I want to reassure clients that we are here for you. Our mission is to create financial peace of mind for each and every one of you and if there is anything more we can do to help you achieve that, even in these most unusual of times, please don’t hesitate to ask.