23 November 2009

Thanks, Grandad!

NOTE: Since publishing this post, Child Trust Funds have been replaced by Junior ISAs.

If you are currently retired, then you are in what has been described as the “golden age” to be retired. Whether it feels like that or not, there are certainly some benefits available now which weren’t in the past, and others which won’t be in the future.

Health – therefore length of life – has improved greatly in recent years. To illustrate the point – in 1911 there were only 100 centenarians in the UK; but in 2008 there were 9,600. (I don’t think the Queen still sends out a telegram does she? Otherwise she would be very busy!) That results in a better quality of life in retirement now than in the past.

Secondly, the present generation of retirees have (on average) a better income than future generations are likely to have. And if it doesn’t feel like that to you, imagine what it will feel like to future retirees without much of a pension plan, and a state pension reducing in value!

What this all means is that some people in retirement are in the fortunate position of wanting to pass on their wealth to future generations. Often that means grandchildren heading for university, or looking forlornly at raising a large deposit on a house.

So what are possible ways of passing on money, tax-efficiently? Well, without going into the details, here are some ideas.

1. Child Trust Fund
Children born since 2002 are given a voucher for £250 to invest in a CTF with an extra payment of £250 made at age 7. This can be added to each year by other people (like grandparents) up to £1,200. CTFs are tax-free like ISAs, and the money is available to the child at 18, although admittedly this approach won’t go far towards a house.

2. ISAs
Always worth considering, but a child cannot have a cash ISA until age 16 (18 for a stocks and shares ISA). So the grandparent would have to consider their own ISA as being for the child.

(See my blog on Limited Offer by HM Government for more on tax-efficient saving.)

3. Trust Arrangements
Various types of investment in trust are possible, including “Bare” (where the child is entitled to the value of the investment at 18), or “Discretionary” (where some control may be retained). Tax treatment is dependant on the type of investment and needs careful consideration.

4. Children’s Bonus Bonds
National Savings & Investments provide this tax-free investment. It’s for a 5 year fixed term, and the current issue gives an interest rate of 2.5%. See NS&I Children's Bonus Bonds.

15 November 2009

High Finance, Low Finance

Most of my time as a financial adviser is spent with investments, pensions, mortgages, and so on. Apart from the fact that I can make a living at doing that, it can be very satisfying helping someone organise their finances to achieve their goals, or have themselves a better life in some way.

That may mean:
• Increasing income from investments
• Helping people to see that they can afford to spend more
• Increasing what will be left to family by reducing the likely Inheritance Tax bill
• Enabling a house move with a new mortgage
• … and so on

But that satisfaction can also be achieved at the other end of the market – those with little in the way of assets. I attended a training course the other day which was about helping people to budget. The process of doing a simple household budget is not always easy for people, and yet it can potentially have an even bigger life impact than advising on investing a sum of money.

The concept of a budget is foreign to many people, perhaps especially to those who need it most – those who have low incomes and many demands on their money.

Wouldn’t it be good if basic finances were taught at school instead of … well, fill in your own subject to drop from the curriculum there. But the point is that it is a key life skill which many never acquire, and so end up in debt, encouraged by those who want to lend to them at high rates.

My two regrets are (a) that those who need help sorting out a budget do not tend to seek advice until things are going wrong, and (b) in spite of the satisfaction available, it is not an area which helps a financial adviser make a living! Nevertheless, I hope to be able to make use of that training course from time to time. There's plenty who need it.

2 November 2009

Don’t Pay Tax! … if you don’t have to

The National Audit Office has estimated that around 3.2 million older people do not claim available tax allowances. Average income could be boosted by 4% they reckon.

That includes around £200m too much tax paid because people did not have savings income paid gross when they were entitled to.

Here’s a link to use, including one to the R85 form which will get you tax-free savings income (if you are entitled!).

Reminder: This is not personal advice - you should take your own advice from a qualified financial adviser before making any decisions. Information given is my personal opinion and not that of any organisation I am connected with.

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