Updates from Money in Person

ISA shake up on the way

Wed, 21 Jan 2026 23:57:48 GMT

The Autumn Budget at the end of November 2025 announced important changes for Individual Savings Accounts (ISAs) from April 2027, but you may not be affected.

November’s Budget announced a range of changes to ISAs, the full extent of which did not become clear immediately. While the Office for Budget Responsibility (OBR) managed to publish its primary document before the Chancellor spoke, HMRC and the Treasury were slow in releasing information through to the end of Budget week. The main ISA details, as we now know them, are:

The yearly subscription limits (£20,000 overall for an adult ISA, £9,000 for a Junior ISA and £4,000 for a Lifetime ISA) will be frozen until April 2031. The adult ISA limit was last increased in April 2017, meaning the freeze will last (at least) 14 years.
From April 2027, the maximum subscription to a cash ISA will be £12,000 for under-65 year olds. Those aged 65 and over can still subscribe to their full £20,000 cash ISA allowance.
Also from April 2027, there will be new restrictions on the funds that can be held in stocks and shares ISAs by the under-65s. These will be designed to exclude ‘cash-like’ funds, such as money market funds. It is unclear whether these restrictions will only apply to new subscriptions or also cover existing investments.
When the new restrictions begin, any interest earned on cash held in stocks and shares ISAs by under-65s will be subject to a charge, currently unspecified.
A consultation paper will be published soon on the design of a new ISA to support first-time buyers saving for a deposit. Once this new ISA becomes available, the Lifetime ISA (LISA) will be withdrawn. It is unclear whether subscriptions to existing LISAs will then have to stop, but precedent suggests otherwise.

These changes are largely a reversion to the past ISA formats. The revised treatment of cash ISAs echoes the situation before July 2014, when the cash subscription limit was half of the overall maximum and interest received in a stocks and shares ISA suffered a 20% charge. Similarly, until December 2019 when it was replaced by the LISA, there was a Help to Buy ISA.

As the tax year end approaches, if you are thinking of investing in an ISA, make sure you get advice about how the planned changes could affect your choice of plan.

Notes: Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances. The value of the investment and the income from it can fall as well as rise and investors may not get back what they originally invested, even taking into account the tax benefits. Investors do not pay any personal tax on income or gains, but ISAs may pay unrecoverable tax on income from stocks and shares received by the ISA managers. Stocks and Shares ISAs invest in corporate bonds, stocks and shares and other assets that fluctuate in value. Tax treatment varies according to individual circumstances and is subject to change. The Financial Conduct Authority does not regulate tax advice.

Cash ISAs twice as popular as stocks and shares ISAs

Thu, 06 Nov 2025 00:00:12 GMT

HMRC figures for 2023/24 show cash ISA subscriptions have increased by around 224% more than stocks and shares ISAs by the end of the decade.

The Chancellor’s plan to reform individual savings accounts (ISAs) to “improve returns for savers” has been considered for some time. Rachel Reeves’s scheme is widely believed to mean the current £ 20,000-a-tax-year subscription limit for ISAs would be reduced for cash ISAs. Unsurprisingly, the investment management industry has been in favour of such a move, while the big banks and the Building Societies Association have been strongly against it.

Statistics published by HMRC in September cast a new light on the ISA debate. The data (see chart below) show that in 2023/24, subscriptions to cash ISAs were £69.5 billion, while stocks and shares ISAs attracted just over £31 billion. That brought the total amount invested in cash ISAs to £360 billion as of April 2024. It would be reasonable to assume the total now is well above £400 billion.

Now put yourself in the Chancellor’s shoes. If the Bank of England had £400 billion earnings and 4% Bank Rate, it would mean £16 billion of interest on which no income tax is being collected. The latest estimate from HMRC is that the cost of income tax and capital gains tax relief for ISAs was £9.4 billion in 2024/25, almost a fifth up on the previous year. Cutting back on the amount flowing into cash ISAs could reduce tax loss, even though the prospect of enhanced returns is a better story to present to the public.

To be fair to the Chancellor, there is some justification in her argument. As HMRC’s ISA Investment values and subscriptions graph illustrates, to a degree, the total value of stocks and shares ISAs grew more rapidly than cash ISAs over the ten years to April 2024. However, cash ISAs saw little net inflow for much of the period. It is easy to forget now that the Bank of England rate was no more than 1% between February 2009 and June 2022, assuring miserable returns for money held on deposit.

Before you rush to arrange a pre-Budget cash ISA, it is worth reflecting on what you are trying to achieve. If you just want to move a ready money deposit to a tax shelter, remember that unless you are an additional/top rate taxpayer, the personal savings allowance (PSA) covers up to £200 of tax on interest (20% for basic rate x £1,000 PSA or 40% higher rate x £500 PSA).

If you are setting aside money for long-term growth, then, as the Chancellor suggests, there could be better options.

Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances. The value of the investment and the income from it can fall as well as rise and investors may not get back what they originally invested, even taking into account the tax benefits. Investors do not pay any personal tax on income or gains, but ISAs may pay unrecoverable tax on income from stocks and shares received by the ISA managers. Stocks and Shares ISAs invest in corporate bonds, stocks and shares and other assets that fluctuate in value. Tax treatment varies according to individual circumstances and is subject to change. The Financial Conduct Authority does not regulate tax advice.

A useful lesson from the stamp duty tangle

Tue, 21 Oct 2025 21:33:48 GMT

The former Deputy Prime Minister Angela Rayner’s recent problems with stamp duty land tax (SDLT) offer a salutary lesson.

In early September, the Deputy Prime Minister (and Housing Secretary) resigned after discovering that she had underpaid SDLT by £40,000 on the purchase of a flat in Hove.

That Rayner missed the history of the additional tax liability was unfortunately ironic. The surcharge on stamp duty was introduced by Conservative Chancellor, George Osborne, in the Autumn Statement 2015, at a rate of 3%. It took effect from April 2016 and the rate was subsequently increased to 5% nine years later in the Autumn Budget presented by Angela Rayner’s then cabinet colleague, Rachel Reeves.

The tax aimed to discourage buy-to-let and second home purchasers, who were often shopping for similar properties to first-time buyers in a pressured housing market. The basis of the additional tax required the buyer to pay extra SDLT if they owned another residential property on the same day that another property was bought. That might sound simple enough, but the legislation to achieve it was not, involving the closure of potential loopholes, such as buying the second property through a company or using trusts to shift ownership.

It was the latter anti-avoidance measure which tripped up Angela Rayner. She had sold the 25% interest in her first home, in Ashton-under-Lyne, to a trust for the benefit of her disabled child before buying her Hove apartment. Paragraph 12 of Schedule 4ZA of the Finance Act 2003 deemed that such a sale meant that Rayner was still treated as owning the property for SDLT purposes.

While Rayner had sought guidance on her SDLT position, the advice she received was qualified by the acknowledgement that it did not constitute expert tax advice and was accompanied by a suggestion, or in one case a recommendation, that specific tax advice be obtained. Had Rayner paid heed to those warnings, she would not now be facing a potential tax penalty of up to £12,000 for ‘carelessness’, in addition to the £40,000 extra SDLT.

The lesson of the whole episode and one to keep in mind whenever advice – particularly in the financial area – is needed: make sure you are talking to an expert who stands behind their judgement.

The Financial Conduct Authority does not regulate tax advice.

Company car popularity rises

Mon, 11 Aug 2025 19:08:37 GMT

Company cars are becoming more common – and more "green".

Recent statistics issued by HMRC show that company car ownership (the top line) is enjoying a revival after a 25% fall between 2015/16 and 2020/21. The reason for the increase is largely explained by the second line, which shows electric company car ownership.

As recently as 2018/19, less than one company car in two hundred was a zero-emission vehicle:

By 2023/24 (the latest data), the proportion had changed to about two in every five.
Over the same period, the diesel share of the company car population dropped from over two in three to just one in eight.

The switch to green does not signify that company car drivers are becoming environmentalists over the decade. Instead, it is a clear demonstration of how tax changes can drive behavioural change:

In April 2017, HMRC introduced a new approach to taxing company cars that were provided under salary sacrifice or similar arrangements. In many instances, the new regime, called Optional Remuneration Arrangement (OpRA), made salary sacrifice less attractive because it ended up basing the personal tax on the company car regime rather than, as previously, the amount of salary foregone. To encourage take-up of low-emission cars, an exclusion was carved out for cars with CO2 emissions of up to 75g/km (of which there were very few at the time).
In 2020/21, the benefit-in-kind percentage charge on zero-emission cars was cut from 16% to 0%. Thereafter, for the next two years, it rose by 1% a year, reaching 2% in 2022/23 and staying at that level until a further 1% rise to 3% for the current tax year, 2025/26. In contrast, a petrol car with 100g/km of CO2 emissions saw its scale percentage rise marginally from 24% in 2019/20 to 25% currently.

The combination of inducements has proved almost too successful: the total taxable value of all company cars fell from £5.43 billion in 2019/20 to £3.27 billion in 2023/24. Now, however, the percentage scale charge for zero-emission cars is on the increase and by 2029/30, it will be 9% – three times the current level. It may still be worth considering salary sacrifice for an electric company car, but the tax calculations will not be as favourable.

Tax treatment varies according to individual circumstances and is subject to change. The Financial Conduct Authority does not regulate tax advice.

Adult social care review slips under the radar

Sun, 15 Jun 2025 18:55:05 GMT

The first Friday of May was a busy news day. The ideal day to announce news that you might prefer to be overlooked – such as the Government’s new commission into adult social care in England.

On Friday 2 May the news was full of stories about the results of the previous day's local election results and the first by-election of the current Parliament. There was little other news coverage – give or take an interview with Prince Harry. There was, however, a story that got too little attention…

The Department for Health and Social Care (DHSC) chose Friday 2 May to publish the terms of reference for its independent commission into adult social care in England. The commission was first announced in early January 2025, to be headed by Baroness Louise Casey. Its launch followed Rachel Reeves’ decision in July 2024 to abandon her predecessor’s plan to cap fees for social care in England from October 2025. This scheme had already been deferred several times since its framework was set up by the Care Act 2014.

The Chancellor’s cull almost went unnoticed while focus remained on her scrapping of the universal Winter Fuel Allowance. However, the consequences were brought into stark contrast by the release of the Casey commission’s terms of reference on 2 May. This confirmed that the commission would have two separate phases:

Phase 1 (medium term) This phase “…set out the plan for how to implement a national care service”. In a fine piece of Whitehall speak, the terms require that “The commission’s work on medium-term reform will be a data-driven deep-dive into the current system”. Given the number of inquiries, reviews and even a Royal Commission that has examined the subject over the years, it is hard to imagine any significant new insights emerging. Nevertheless, the commission will have until 2026 to report.
Phase 2 (long term) This second two-year phase will look at “…how services must be organised…and discuss alternative models that could be considered in future to deliver a fair and affordable adult care system”. In other words, it will consider the question that has stymied every proposal to date – how to pay for care.

How long before a new system arrives? The possible answer may well lie in that choice of publication date: “The commission should produce tangible, pragmatic recommendations that can be implemented in a phased way over a decade”, which means by 2036. Meanwhile, the upper capital limit for English local authority funding support remains at £23,250, where it has been since April 2010. With no clear timeline for adult social care reform, care costs could remain a significant consideration for individuals in long-term financial planning.

Are you sure you know your State Pension Age?

183:901932756 (Leigh Kent) — Mon, 19 May 2025 19:22:53 GMT

Research has shown the lack of awareness about the next change to the State Pension Age.

Changes to State Pension Age (SPA) have proved fertile grounds for controversy. The move to equalise women’s and men’s SPA at 65, completed in November 2018, is still a source of dispute. In March 2024, the Parliamentary and Health Service Ombudsman (PHSO) published a report recommending that the women affected by that change should each receive up to £3,000 compensation.

A couple of days before parliament rose for its Christmas 2024 recess, the government announced that it disagreed with the PHSO and would not be following its recommendations. Despite members of the government having sounded much more supportive of the affected women while on the opposition benches, the move was no surprise given that the suggested compensation would involve a potential bill of up to £10.5 billion.

The PHSO argued that past governments had not communicated clearly enough to inform the affected women about their SPA changes. This lack of clear information occurred even though the equalisation of SPA was initially made law in 1995 (with a final target of April 2020). That date was moved earlier to November 2018 by new laws in 2011, which also brought in another SPA increase to 66 by October 2020.

Next change on the horizon

The phasing in of the next SPA increase to 67 starts in less than a year and ends in April 2028. You might have thought that the protracted debate and well-publicised legal arguments about equalisation means that those affected (anyone born after 6 April 1960) know about the change. However, recent research by the Institute for Fiscal Studies (IFS) revealed that many people are still unaware.

The IFS found that among people born between 1955 and 1965 who were interviewed between 2021 and 2023 as part of a long-term study of ageing, 40% were unclear on their position:

• 60% knew their SPA to an accuracy of within three months.

• 18% overestimated their SPA, expecting it to be higher than legislated.

• 11% underestimated their SPA.

• 11% fell into the ‘Don’t know’ category.

As the IFS noted, “Knowing one’s state pension age is crucial for financial and retirement planning.” After all, for current pensioners, on average, the State Pension makes up about 44% of overall income, according to the IFS.

Which category do you fall into? If you want to prove yourself right – or wrong – on your SPA, check at: https://www.gov.uk/state-pension-age .

The gift of being organised.

Fri, 21 Mar 2025 21:17:47 GMT

If anything happened to you tomorrow, how much does your partner know about your finances and how easy would it be for them to find out?

It’s been five years since the pandemic turned the world upside down. The experience provided lessons in many aspects of life, not least its potential fragility. During the lockdowns, many people became suddenly aware that they had no will or, if they did, it was woefully out of date. The realisation came at a time when making an appointment with a solicitor or will-writer was nearly impossible because of the restrictions imposed on movement and meeting.

Half a decade later, were a new pandemic to arrive, such as a mutant bird flu, are you sure that your will is up to date? If you cannot answer yes, then you know, for your family’s sake, what you need to do. However, whether or not you have made sure your will is up to date, it is best thought of as a starting point rather than the end of the matter.

To be able to follow your will’s instructions, for all but the smallest estates, the people you have chosen as your executors must first obtain a grant of probate (confirmation in Scotland). In turn, this will require them to calculate the net value of your estate. This is often the point at which executors begin to realise the task they have taken on.

Accessing records

Imagine that your estate was the one to be valued: how easy would it be for your executors to prepare a list of what you owned and what you owed? Initially, they might ask a surviving spouse or partner – if one exists – for details. Unfortunately, that can sometimes produce a response such as, “Sorry, I always left money matters to him/her”.

What your executors would hope to find is a reasonably up-to-date list of your investments, bank accounts, pensions and other assets, including any borrowing (for example: credit cards, personal loans and mortgages). Ideally, each item on the list would have the relevant account/customer numbers and contact details.

If you haven’t already set up such a document – on paper or an accessible digital form – your executors are not the only ones facing a struggle. You may be, too, trying to manage your finances, especially as you get older. Taking the time to organise your affairs now, while you can, could be one of your greatest gifts to those you will leave behind.

The Financial Conduct Authority does not regulate wills and will writing.

The Spring Forecast is due on 26 March 2025

Thu, 27 Feb 2025 23:33:59 GMT

The Chancellor has announced the timing of her next formal report to Parliament.

Cast your mind back six Chancellors ago to Philip Hammond (aka Spreadsheet Phil). In autumn 2016, Hammond announced a change to the timings of Budget announcements, with a Spring Budget and Autumn Pre-Budget Report (PBR) to be replaced by an Autumn Budget and a Spring Statement. His aim was to move away from what had virtually become two Budgets a year, with the PBR introducing as many – if not more – tax changes than the real thing.

The new scheduling was welcomed by the likes of the Institute for Government, but fell victim to events, notably general elections and the Covid-19 pandemic. Since 2017, there have been as many Spring Budgets as Autumn Budgets. In her March 2024 Mais Lecture, Rachel Reeves made clear that were she to become Chancellor she would revert to Hammond’s schedule and have only one major ‘fiscal event’ each year, that is, an Autumn Budget.

That still leaves a Spring statement of some sort, not least because the Office of Budget Responsibility (OBR) is required by law to produce two reports each fiscal year on the state of the economy and the government’s finances. Shortly before Christmas, the Treasury announced that the 2025 ‘Spring Forecast’ would be presented to Parliament on 26 March, the day that the OBR’s report is to be published.

While the accompanying press release did not rule out any tax changes in March, it did say, “The Chancellor remains committed to one major fiscal event a year to give families and businesses stability and certainty on upcoming tax and spending changes”. Those words and the continued debate from last October’s Budget both point to no new tax measures being revealed on 26 March, even if the OBR numbers are disappointing. However, in January this year, after government borrowing costs rose, rumours were beginning to appear that spending cuts were in the offing.

The probable absence of tax changes is good news as we enter the season of planning for the tax year end and the start of a new tax year. The £40 billion of tax increases in autumn last year can only mean that tax year planning is particularly important for 2025.

Note: The Financial Conduct Authority does not regulate tax advice.

What does 31 January 2025 mean for online sellers?

Tue, 18 Feb 2025 23:26:58 GMT

The end of January was not only the deadline for personal tax returns but also marked a new tax era for online sellers.

In the first month of 2025, online trading platforms such as eBay, Airbnb and Vinted had to provide HMRC with a report on their users’ sales in 2024. This was the first time such reporting had been due, although the origins of the requirement date back to 2020 when the Organisation for Economic Co-operation and Development (OECD) published model rules targeted at tax avoidance via digital platforms.

When it first emerged that HMRC would be sent this information there was a flurry of inaccurate media coverage with scare-mongering headlines such as ‘eBayers to be taxed’. In response, HMRC issued a press release before Christmas with the straightforward headline, ‘No tax changes for online sellers’. While ‘no change’ is factually correct, it may feel like a change for those questioned by HMRC on their selling activities. With this in mind, it is important to understand the rules.

HMRC will only receive a report from a platform if, in 2024, the individual:

• Had sales of at least €2,000 (about £1,700); or

• Made at least 30 sales.

The reports have nothing directly to do with personal tax liability, although they will encourage HMRC to raise queries about whether one exists. If all you are doing is selling your unwanted items online, that is not a taxable activity. What HMRC wants to know about is people who are:

• Trading, i.e. buying items for resale at a profit; or

• Providing services, be that driving a van or letting out a property.

These activities have always been taxable – hence HMRC’s “no change” stance. However, even if you do have trading or rental income, you will not have any tax liability if:

• Your total gross trading/services profit (i.e. before deducting any expenses) is not more than £1,000 in a tax year; and/or

• Your total rental income (again before expenses) is similarly no more than £1,000 in a tax year.

These £1,000 annual trading and property allowances are little known and are as much about saving HMRC administrative hassle as helping their ‘customers’. As ever in tax, the finer the detail, the more useful understanding it can be.

Tax treatment varies according to individual circumstances and is subject to change. The Financial Conduct Authority does not regulate tax advice.

The state of social care: 27 years of debate

183:901932756 (Leigh Kent) — Fri, 07 Feb 2025 23:17:59 GMT

How to fund social care has once more moved into the spotlight.

It is the turn of the year. The health secretary of the relatively new Labour government announces a commission to review the financing for long-term care of the elderly.

Can you name the year?

You may not be surprised to know that there are two correct answers:

1997: in December of this year, Frank Dobson, the Health Secretary in Tony Blair’s new government, fired the starting gun for a Royal Commission report with the title "With Respect to Old Age: Long Term Care – Rights and Responsibilities." The report was published in March 1999 and its main recommendation – that the state should pay for personal care – was rejected by the government in July 2000

2025: in January of this year, Wes Streeting, the Secretary of State for Health and Social Care in Sir Kier Starmer’s government, said he would be launching an independent commission into adult social care. An interim report is due in 2026 which “will identify the critical issues facing adult social care and set out recommendations for effective reform and improvement in the medium term”. The commission’s final report which, among other elements, consider “how to best create a fair and affordable adult social care system for all” is due by 2028.

Between 1997 and 2025, there were numerous other commissions, white papers, inquiries and reviews. These have mainly focused on England, as from the late 1990s social care became the responsibility of devolved governments. Nevertheless, the four countries’ long-term care funding rules all have a similar structure and rely in some part on means-testing above relatively modest thresholds. For example, in England an individual with capital of over £23,250 is responsible for the full cost of their care.

England had been due to have a new care-funding scheme with a fee cap of £86,000 from October 2023. However, this was deferred until 2025 by the previous Chancellor and then abandoned by the current Chancellor last July on the grounds that the funding did not exist.

Given that the next election is due by mid-2029, it seems unlikely that any reforms to care funding in England will be legislated for until the next decade. If you are concerned about how you will need to fund your or a loved one’s long-term care, early planning is the first step.

National Savings Interest Rates Falling

Tue, 14 Jan 2025 23:13:59 GMT

National Savings & Investments (NS&I) has been reducing rates in recent months.

NS&I can trace its roots back to 1861, when Gladstone, then Chancellor of the Exchequer, launched the Post Office Savings Bank. NS&I’s latest quarterly results show that on 30 September 2024, it held £233.9 billion on behalf of investors. That might seem like a lot of money, but it’s a small amount considering the vast budgetary hole the current government is trying to navigate between spending and revenue. The figures that came out alongside the Autumn 2024 Budget revised the 2024/25 gap – officially called the Central Government Net Cash Requirement – to £165.1 billion. Another £139.9 billion is needed to repay existing government debt which matures in 2024/25, bringing the total to over £300 billion.

In other words, the entire stock of NS&I, accumulated over 163 years, would cover the equivalent of about nine months of government financing. In terms of how much fresh cash NS&I is currently raising, its impact can be counted in days, not months. In the first six months of 2024/25, NS&I’s net inflow was £3.3 billion – four days’ worth of government financing.

Currently government bonds (gilts) account for the lion’s share (a projected £296.9 billion in 2024/25) of government financing. That makes NS&I a minnow, picking up the public’s retail pennies rather than institutions’ warehoused pounds. Arguably, if NS&I did not exist, it would not be invented today. But it does exist, and the government would not want to see the NS&I’s £230 billion+ disappear, so it will continue to survive.

In recent months, NS&I has been cutting rates on many of its products, from Premium Bonds (prize rate now 4.0% against 4.4% in November 2024) through Income Bonds (3.44% now against 3.93% in mid-November 2024) to two-year Guaranteed Growth Bonds (3.60% now against 4.60% in early September 2024). NS&I rarely tops the rate tables, and recent cuts have left it languishing at the point where better returns can be found elsewhere.

If you hold NS&I investments, it is worth checking whether they still are the right home for your cash. Our pick of leading current leading interest rates can be found here. Those holding larger cash amounts might also like to ask us about our Cash Management solutions.

Six Important Action Points for 2025

Tue, 07 Jan 2025 23:36:42 GMT

Six steps to improve your financial efficiency and resilience in 2025

1. Review Regular Expenses

Spend some time reviewing your bank and credit card statements to identify unnecessary expenses. Review digital subscriptions and set reminders for deals coming to an end – watching out for car insurance renewals, mortgage rate changes, and ending mobile phone contracts can save you significant amounts.

2. Have a Cash/Investment Strategy

Do you have the right ratio between saving and investing? Experts suggest balancing cash reserves (for shorter-term needs) and long-term investments. Maintain a cash emergency fund (some suggest 3-6 months of living expenses, more if retired or self-employed) but can savings beyond this amount be used to invest toward your longer-term goal? Speak to us if you would like investment advice.

Utilize your spouse's tax allowances for savings and investments.

3. Inheritance Tax (IHT)

Defined contribution (DC) pensions will be included in IHT from April 2027 pushing up the potential Inheritance Tax liability of many. Update your beneficiaries' forms for your pensions. Consider strategies to minimize IHT and/or explore inheritance tax insurance. We are happy to provide independent advice on this often-complex area.

4. Tax Thresholds

Frozen tax thresholds are dragging more people into higher-rate tax brackets. Consider increasing pension contributions through salary sacrifice or opt to have bonuses paid into pensions. We are pleased to offer advice in this area.

Also explore employer schemes for purchasing or leasing electric vehicles and the Cycle to Work scheme.

5. Protection Insurance Review

Examine your Income Protection/Permanent Health Insurance cover. Some employers offer this as a benefit. Speak with your employer to verify what you already have and consider additional private cover to meet your basic monthly outgoings in the event of ill-health. We can help you understand what cover you need and scour the market for competitive premiums and the best terms.

Establishing a Lasting Power of Attorney (LPA) for health and finances can also be important in managing affairs during temporary incapacity.

6. Pension Check-Up

Check your state pension forecast on Gov.uk and consider whether you need to top up your National Insurance (NI) record before the April 2025 deadline. Review whether your retirement plan is broadly on track via our Retirement MOT service. See our website for further details.

Why are mortgage rates going up when the Bank of England rate is going down

Mon, 09 Dec 2024 16:45:27 GMT

Not every type of interest rate moves in the same direction.

If you are approaching the end of your 5-year fixed rate mortgage and currently enjoying an interest rate of around 2%, you have probably been watching the fluctuations of interest rates with some trepidation. The November 0.25% cut from the Bank of England has not fed through to your prospective remortgage interest rate and some lenders are even going in the opposite direction of the Bank and nudging rates upwards. What’s going on?

The answer is nothing unusual, despite the contrary movements. It is a common misconception that the Bank of England controls interest rates. The Bank does manage short-term interest rates by setting its Bank Rate, which is the rate it pays on the money it holds for commercial banks. By fixing a minimum fully secure return that the commercial banks can earn, the Bank of England influences what those banks can charge for lending. The key point is that the Bank of England is setting a short-term rate which can theoretically, change every six weeks, when the Bank’s Monetary Policy Committee meets to set rates.

Longer term interest rates are not usually controlled by the Bank of England but set by the markets. The markets will take account of the current Bank Rate but if a fixed rate for, say, 5 years is under consideration, then the market is implicitly estimating the movement of Bank Rate over the next 60 months. As with any medium-term financial forecast, that forward-looking calculation has a wide range of factors built in. The result can be that as the short-term Bank Rate is cut in response to current economic conditions, longer term rates rise because of the markets’ views of longer-term prospects. The graph above illustrates how the Bank Rate and the yield on 5-year fixed rate government bonds have moved between mid-July and mid-November in 2024. While the Bank Rate has fallen 0.5% over the period, the yield on the five-year gilt has risen by about 0.4%. That reflects the market changing its mind about how quickly and how far the Bank will cut rates.

If your mortgage is due for refinancing soon, you may find yourself hopefully watching the markets for signs of that change of mind.

Your home is at risk if you do not keep up with repayments on a mortgage or other loan secured on your property.

HMRC urges people to claim as yet unclaimed CTFs

Tue, 03 Dec 2024 23:10:10 GMT

Unusually, HMRC is keen to give money away, reminding young again that they may be due unclaimed child trust funds (CTFs). The amount yet to be paid out comes to just under £1.4 billion.

Now that the UK has its first Labour government in 14 years, there is a certain irony that one of the policies of the last Labour government is still playing out, despite being scrapped by the Conservative/Liberal Democrat coalition government in 2010.

CTFs were launched in January 2005. Over the next six years, the government paid £2 billion into accounts for 6.3 million children born between 1 September 2002 and 2 January 2011. In practice, most children’s CTF received a single payment of around £250, which was doubled for low-income families. A second similar payment was made once the child reached age 7, as long as this occurred before 3 January 2011.

The government made these payments through a voucher sent to the child’s parent or guardian. The method was not a great success. As a result, HMRC opened 28% of all CTF accounts by default on behalf of children whose parents/guardians had left the vouchers unused for 12 months. However, the lack of interest by parents/guardians signalled the future problems that would emerge when CTFs began to mature as children reached age 18.

Jump forward to 5 April 2024, when recently published HMRC statistics revealed that 671,000 CTFs had reached maturity but were unclaimed. More than half were for adults of 19 or older. The average value of the unclaimed plans was a little over £2,000. However, there were 25,000 plans with a value of at least £10,000, almost certainly the result of additional contributions by parents or relations.

If you, your children or grandchildren want to track a ‘lost’ CTF, then HMRC has a web tool that can supply the name of the CTF provider.

Fortunately, a rule change several years ago means that the UK tax freedom enjoyed by CTFs continues beyond age 18. However, it may be better to transfer the matured CTF monies into a new adult ISA, which could potentially offer lower charges and/or a wider investment choice. For the same reasons, it can be worth transferring CTFs yet to mature into a Junior ISA.

Financial Regulator Scrutinises Cash Savings

Tue, 08 Oct 2024 10:01:37 GMT

Financial Conduct Authority (FCA) publishes a review of the cash savings market following evidence of some dubious tactics at play.

While the use of paper cash is declining as a means of payment, the need to retain a cash reserve remains as strong as ever. We all need some ‘rainy day’ money in case of sudden expenses, from car repairs to the proverbial broken boiler (or heat pump). There is no universally agreed figure about how much we need, although ‘peace of mind’ figures between three and six months of income or regular outgoings are often suggested.

The latest data from the Bank of England shows that many of us appear to be holding much more than the six-month figure. Total household deposits amount to about £1,900 billion, or over an average of £65,000 per household. Viewed another way, it is enough stockpiled cash to clear about two-thirds of all government debt.

The size of the household cash mountain and Bank of England interest rates, which have been rising until recently, suggests why the FCA is paying growing attention to the rates being paid to depositors. As the table below from a September FCA report demonstrates, the gap between the official interest rate and average easy access rates is wide (see table below). The result is that the big banks have seen strong earnings, something which the Chancellor might seek to tax further in her forthcoming Budget.

The FCA’s report highlighted three areas to watch if you have, or plan to, place money on deposit:

Multiple tranches of accounts with identical terms and conditions, distinguished only by issue numbers (e.g. High Interest Account, Issue 9), that pay higher interest to new customers and not existing customers.
Annually renewable bonuses where customers are required to register for a bonus to receive a better deal.
Regressive interest rate tiering, where a lower rate is paid on deposits above a certain level (e.g. 5% on the first £2,000 and 1% on any amount above).

Interest rates are now generally on a downward path around the world. As well as watching out for the trio of tripwires above, it is also worth considering the alternatives to deposits, particularly if you have a surplus in your rainy day fund. Contact us for details of our Cash Management service and other options that might suit your needs.

Average easy access deposit interest rates and base rates at quarter end

Interest Rates Heading Down?

Thu, 11 Jul 2024 15:55:55 GMT

Central banks around the world are beginning to cut interest rates with the European Central Bank leading the way.

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The stubborn cumulative effect of inflation

Tue, 11 Jun 2024 13:12:46 GMT

The yearly inflation figure fell from 0.9% to 2.3% in April, so why does inflation still feel high?

April’s Consumer Prices Index (CPI) showed annual inflation had fallen to 2.3%, the lowest level since July 2021 and significantly below the peak of 11.1% in October 2022. The Prime Minister, Rishi Sunak, celebrated the return to around 2% inflation with a press release saying, ‘Today marks a major moment for the economy, with inflation back to normal’. So why does inflation still feel like a problem for so many people?

There are many possible answers, including:

Your perception of inflation may not be on the same timescale as annual inflation figures. We are more likely to compare today’s prices with those of two or three years ago rather than at the same time last year. That means we are thinking about cumulative inflation over 24–36 months, not just 12 months. As the graph shows, a longer timescale makes a significant difference once inflation starts to fall.
Inflation tends to be more obvious for items bought regularly, such as food. The latest annual food inflation reading is 2.8%, but last October it was overrunning at above 10%. Since the end of 2019, food prices have increased by 30%, 7% more than the overall CPI inflation.
The basket of goods measured by the CPI probably doesn't match your expenditure. The Office for National Statistics (ONS) provides a tool that allows you to work out your personal inflation rate available on the government website .
The CPI does not include costs for owner occupiers’ housing costs (OOH), although it does cover rental costs, utility bills, minor repairs and maintenance. The CPI including owner occupiers’ housing costs (CPIH) inflation measure, which incorporates OOH, was 3.0% in the year to April 2024, while the OOH component was 6.6%, its highest since July 1992 according to ONS calculations.
The calculation of any inflation index is subject to various statistical quirks, one of which is base effects. These have become significant for the CPI because of Ofgem’s quarterly utility price cap. The cap fell by 12% between March 2024 and April 2024, whereas utility prices did not change in the same two months last year.

However you feel about the latest inflation figures, the onward march of prices is something that you should not ignore in your financial planning.

Have you missed a changed tax status?

Tue, 14 May 2024 08:37:58 GMT

With allowances frozen or cut, you may have underpaid tax for 2023/24.

Your tax position may have changed for the last year without you really noticing. Consider the following:

Rising income – for example in the form of pensions, dividends or interest – and frozen or reduced allowances are steadily creating more taxpayers and higher tax bills. This is becoming increasingly clear as some people are discovering that they became taxpayers in 2023/24 despite their only income being a State pension (new or old, supplemented by the additional State pension). For those affected, HMRC will issue a simple assessment tax bill as the Department of Work & Pensions provides details of payments made.

If you don't already complete a self assessment tax return, it is your duty to inform HMRC of your income if a new tax liability arises because:

Your interest has exceeded your personal savings allowance, and/or:
Dividends breached the dividend allowance.

You can inform HMRC of a change of circumstances through your online personal tax account, if you have one, or by trying to call them (all the best with that!). In most circumstances, you will not have to complete a full self assessment return: you can check whether you have to file at the government website . If you do not tell HMRC about your interest receipts, be aware that building societies and banks (including those located offshore) automatically report information to HMRC.

A similar situation applies to greater payments for capital gains tax where the annual exempt amount has fallen from £12,300 in 2021/12 to £6,000 in 2023/24, and just £3,000 in the current tax year.

Careful planning may help you to sidestep HMRC’s growing slice of your income and gains, but, as ever, expert advice is needed to avoid the traps.

Notes: Tax treatment varies according to individual circumstances and is subject to change. The Financial Conduct Authority does not regulate tax advice.

Goodbye hand sanitiser, hello vinyl

Wed, 17 Apr 2024 09:43:25 GMT

The Office for National Statistics (ONS) has been shuffling its shopping basket.

Every year in March, the ONS announces the results of a review of the approximately 750 items which it uses to calculate inflation indices, such as the Consumer Price Index (CPI). The annual review is a reminder that the calculation of inflation is not a simple exercise: our spending habits – what we buy and stop buying – vary alongside changing prices.

The 2024 revision saw 16 items added to the shopping basket and 15 ejected. Among the more interesting changes were:

Gluten free bread has been added “to reflect the increasing shelf space and range of gluten free products”.
Air fryer prices are now being collected. The ONS says that spending on cooking items rose by over 30% between 2021 and 2022.
Sunflower and pumpkin seeds make an entrance because of their “growing popularity”.
Vinyl records have returned to the shopping basket after an absence of over 30 years.

Out

Hand sanitiser gel , a product that was hard to avoid in 2020, has been dropped.
Draught stout has been rationalised away, in part because its price movements are “very similar” to draught bitter.
Sofa beds have left the basket because of “a drop in popularity, with pull out beds possibly becoming more widespread”.
Hot rotisserie cooked whole chicken has gone as supermarkets shift to selling smaller portions “to satisfy the lunchtime market”.

As well as shuffling the basket’s contents, the ONS has also changed the weight given to each of its 12 divisions of goods and/or services, based on average expenditure in 2022. This explains why inflation numbers might differ from your own experience, because your spending patterns might not match ONS weightings. For example, the largest single category, accounting for 14.5% of the CPI, is restaurants and hotels, closely followed at 14.3% by recreation and culture. Food comes in fifth position at 11.3%.

While inflation is expected to fall this year, it will remain a fact of life and one that needs to be factored into any financial planning.

National Insurance "tax cut"

Tue, 09 Jan 2024 11:05:12 GMT

The National Insurance cut for employees took effect on 6 January 2024.

For many years, successive governments have been happy for the public to vaguely believe that national insurance contributions (NICs) are building up in some national benefit fund, rather than representing just another tax on income. While something called the National Insurance Fund does exist, as a House of Commons Library briefing noted back in 2019, “The Fund operates on a ‘pay as you go’ basis; broadly speaking, this year’s contributions pay for this year’s benefits.”

For politicians, the perceived difference between NICs and income tax made it possible to grab the headlines by reducing the basic rate of tax while receiving much less attention for maintaining or even increasing revenue by raising NICs. Last November, the Chancellor appeared to have finally given up on the distinction-without-a-difference approach by proclaiming that his cuts to NICs for employees and the self-employed were tax cuts.

If you are an employee (but not a director, to whom special rules apply), the cut means your main NIC rate (on annual earnings between £12,570 and £50,270) fell from 12% to 10% from 6 January 2024. The extra amount in your pay packet is broadly the same as if a 2p cut had been made to basic rate tax (which covers the same £37,700 band of income). However, from the Chancellor’s viewpoint, the NICs cut was cheaper, as there was no ‘tax cut’ on pension or investment income, both of which are NIC-free.

The employer’s NIC rate did not change, remaining at 13.8% on all earnings above £9,100. If your earnings are below £50,270, the theoretical advantage of using salary sacrifice to pay pension contributions has been marginally reduced but remains attractive, as shown in the table below, based on a £1,000 sacrifice. If you are among the growing band of higher or additional rate taxpayers, the financial advantage of salary sacrifice is unaltered. Either way, if you are not using salary sacrifice to pay pension contributions, it is still worth taking advice about the option. It is beneficial in most circumstances, but there are drawbacks to be aware of.

UK house price decline continues

Wed, 15 Nov 2023 13:01:09 GMT

The rise in mortgage rates since early 2022 has taken its toll on house prices.

In 2023, an annual fall in house prices has become an almost standard news item around the turn of the month, when Nationwide and Halifax release their latest data. For example, Nationwide reported a yearly fall of 3.3% for house prices in October, despite an unexpected rise of 0.9% for the month alone. Halifax also reported a slightly higher increase at 1.1% for October, but highlighted the figure still represents a 3.2% drop in house prices on last October’s level. The two major mortgage lenders rarely agree on this figure, as each calculates its house price index using their own mortgage data.

A broader measure is published by the Office for National Statistics (ONS), drawing on land registries throughout the UK. Crucially, the ONS covers all UK property sales – mortgaged and unmortgaged – so its database is almost four times the size of Halifax and Nationwide combined. However, the ONS figures receive less attention as they are much slower to emerge – the provisional September data will not be out until mid-November and is likely to be revised in December. There is another time lag relative to the lenders because they use prices at mortgage approval stage, whereas the ONS looks at completed sales. At the time of writing, the ONS’s latest numbers (August 2023) show an annual increase of 0.2%.

Despite the differences in approach, the house price trends recorded by the ONS, Nationwide and Halifax closely follow each other. For instance, Nationwide and Halifax both say house prices peaked in August 2022, whereas the ONS says November 2022 was the high point.

The graph above shows Nationwide’s figures from January 2000 to September 2023. The blue line is more commonly seen and shows the average house price figure since the turn of the century. The blue line is an inflation adjusted version of the orange line, showing how real property prices have grown. This has a much steeper final drop than the blue line because of the recent burst in inflation. It also illustrates a fact that does not make many commentaries about house prices – the average real price today is virtually unchanged from 15 years ago…

A banking crisis close to home?

Wed, 16 Aug 2023 17:47:05 GMT

Rising mortgage rates pose some difficult questions for one of the major providers of housing finance.

You would think that a group estimated to have provided £8.8 billion of residential property finance to 170,000 first-time buyers in 2022 would be well known, with a high street presence and careful oversight from the Financial Conduct Authority (FCA) and the Bank of England. However, you would be wrong.

The group in question has its own acronym, BOMAD – the Bank of Mum and Dad – and has been a consistent supplier of gifts and/or loans to nearly half of first-time buyers for the last decade. While the BOMAD generally does not charge interest, the increase in interest rates that has occurred over the last 18 months could see it facing some difficult questions. With very few exceptions, the first-time buyers that the BOMAD financed will also have borrowed from mainstream lenders and thus be facing increased mortgage costs at some point, typically when their two-year or five-year fixed rate mortgage deal ends.

The FCA has already told mortgage providers that they should consider offering borrowers:

· A switch to interest-only payments for six months, or

· An extension to their mortgage term to reduce their monthly payments, with the option to switch back within six months.

If you are a member of the BOMAD group, what should you do when you are asked for mortgage assistance by your children or grandchildren? The answer will depend upon many factors including:

· What other actions has your ‘customer’ already taken to reduce their mortgage outlay;

· How long will any support be required;

· How much capital (if any) you are willing and able to gift or lend; and

· Do you have surplus income, for example, as the result of higher interest rates, that you can give away or lend?

Inheritance tax is also a consideration, although other taxes might be relevant. For example, this tax year’s lowered annual exemption means capital gains tax may be a problem if you are realising an investment to provide liquid funds.

The various options and their tax consequences make advice essential. Mainstream banks undertake due diligence before acting and so should the BOMAD.

Tax treatment varies according to individual circumstances and is subject to change. The Financial Conduct Authority does not regulate tax advice. For specialist tax advice, please refer to an accountant or tax specialist. HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.  The value of pensions and investments and the income they produce can fall as well as rise and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Added value? Are life insurance perks worth having?

Tue, 23 May 2023 23:09:59 GMT

Many life insurance providers now offer additional ‘perks’ to policyholders but are they worth it?

Smartwatches, cinema tickets, gift vouchers and private GP access are just some of the perks now being offered by life insurance providers.

Just like banks offering incentives for you to switch your current account, life insurance firms try to set themselves apart with tempting offers to give them the edge over their competitors.

It's not the best idea to choose a life insurance policy based solely on the perks it offers but it's still worth knowing what's out there when weighing up which provider suits you best.

Here, we examine the perks on offer from some of the main life insurance providers, check how they compare and explain the other factors to consider if you're thinking about taking out a life insurance or critical illness insurance policy.

What perks are on offer?

While your life insurance policy is in place to help support your family once you've gone, perks such as gift cards, health insurance, access to a GP 24/7, cinema tickets or coffee mean you can benefit from it, too.

As shown in the table below, we took a look at some of the biggest UK life insurance providers to see what incentives are on offer.

Are the perks worth it?

While these perks may seem attractive, you'll need to balance how much value you'll get from them against the cost of your premium based on your age, health and occupation.

It’s important to shop around to find the best policy for you, regardless of the perks that come with it. As independent financial advisers, we can do that for you.

Do you need life insurance?

Everyone’s circumstances are unique – and some people will not need life insurance. But if you have parents, partners or children that rely on your income, taking out a policy will ensure they’re supported after you die.

An easy way to think about it is: if your income were to disappear, how would the people around you look after themselves? If you have young children and a mortgage to pay, a term life insurance policy might be useful. If you have older children, or have paid off your mortgage, whole-of-life insurance could be a better fit.

There are many different types of life insurance available, and it’s important to make sure you find the right policy for you and your family. Why not ask us for our independent advice?

Life Insurance Challenges for Smokers & Vapers

Fri, 19 May 2023 23:21:47 GMT

How do life insurance companies decide if I am a smoker?
What about vapers?
How can I find the best cover?

How do life insurance companies decide if I am a smoker?

Although this seems a clear-cut question, there are subtle differences between life insurance providers that can make a significant difference to whether you are accepted and how much you pay.

Generally speaking, anyone that has smoked a cigarette, cigar, pipe, or used any nicotine replacement devices including e-cigarettes, patches or even gums within the past 12 months will be considered a ‘smoker’ when it comes to insurance rates.

After this period, some insurers will charge ex-smokers the same standard rate as anyone else. However, others will still increase their premiums for ex-smokers for up to five years after they have quit.

What about vapers?

Once again, different insurers have different criteria when it comes to how they classify vaping and e-cigarettes.

Some insurers classify vaping the same as they would smoking and increase the premiums. Meanwhile, others can offer standard rates for those who only vape non-nicotine products.

How can I find the best cover?

There are other exceptions to these rules. For example, one insurance company allows individuals to smoke up to 12 cigars a year while still charging non-smoker rates. Finding and navigating your way through all these differences can be a challenge.

An Independent Financial Adviser can help you find the insurance that is best for you. They stay up to date with changes in how life insurance providers classify different medical conditions. If you would like to see if you are eligible for life insurance, feel free to contact us for more information.

2023/2024 - The tax year with 23 months in it?

Fri, 05 May 2023 19:29:54 GMT

If you are self-employed, the new tax year may be longer than you think.

If you are self-employed, until 2023/24, you have normally been taxed on the profits made in the accounting year that ends in the tax year. For example, if your accounting year ran to 30 April, then in the last tax year, 2022/23, you are taxed on the profits for your accounting year ending on 30 April 2022 – a few weeks after the start of the tax year.

Some while ago, the government decided that it would speed matters up by forcing all the self-employed (including partners in partnerships) to pay tax on the profits earned in the tax year. As is obvious from the example above, moving from the accounting year system to a tax year one implies a catch-up exercise that theoretically results in more than 12 months’ profits being taxed in a single tax year.

Unless your accounting year ends on 31 March or 5 April, that is what will start happening in this tax year. Taking the 30 April year end again, in 2023/24 the default position will be that your taxable profits are:

The “normal” calculation of profits for the accounting year ending 30 April 2023, plus
One fifth of a catch-up element equal to:

o Your profits from 1 May 2023 to 5 April 2024 (341/366ths of the profits in your account year ending 30 April 2024), less

o Any overlap relief because of double taxation that occurred earlier (typically when you started trading).

In the following four tax years (during which the personal allowance and higher rate threshold are frozen), your taxable profits will be those earned across the 12 months of the tax year (with pro-rated calculations, if necessary), plus that one fifth catch-up element. As an alternative, you can opt for any amount more than a fifth up to the full catch-up element to be taxed in 2023/24 with corresponding adjustments for later years.

If your head is hurting, you are not alone. At least you have the remainder of the tax year to consider the implications and prepare for what is likely to be a larger tax bill (as more income is being taxed) come January 2025. Make sure you take advice about the planning opportunities that arise – 2023/24 could be the ideal time to make a large pension contribution.

Tax treatment varies according to individual circumstances and is subject to change. The Financial Conduct Authority does not regulate tax advice. HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.

Don't forget the (other) student loan

Wed, 08 Feb 2023 23:53:34 GMT

When it comes to student loans, the media focus is usually on tuition fees (outside Scotland), but there’s another loan that shouldn’t be overlooked – and that includes Scotland.

In January 2023, the Department for Education (DfE) issued a press release headlined Cost of living boost for students. However, the ‘boost’ was not much to write home about:

There was a reannouncement of a statement made in February 2022 that tuition fees in England would be frozen at £9,250 for the 2023/24 and 2024/25 academic years. This was a quid pro quo for cutting the earnings threshold at which new students from the 2023/24 academic year onwards must start repaying their loans.
Maintenance loans will increase by 2.8% for 2023/24, taking the maximum for a student living away from home and studying in London to just over £13,000 (just under £10,000 elsewhere). The Office for Budget Responsibility currently projects Consumer Prices Index inflation in September 2023 at around 7%.

Two days after the DfE press release, the House of Commons Library issued a research note called, "The value of student maintenance support." The parliamentary researchers observed that once the 2.3% increase to the maintenance loan in 2022/23 was taken accounted for, “the real cut in the maximum value of support in between 2021/22 and 2023/24 is 11% or around £1,100”.

That is not the end of the bad news on student loans. Part of the maintenance loan is means-tested in England, with only students whose parental household income is no more than £25,000 being eligible for the full loan. Above that income threshold, which has remained frozen since 2008, the loan entitlement is reduced by £1 for around £7.00 of income to a minimum of about 45–50% of the full amount, depending on where the student is living and attending university. The reduction is classed as a ‘parental contribution’, often a point of contention with both parent and student.

Scotland, Northern Ireland and Wales have slightly different systems for student maintenance, but all suffer from low maximum levels and some form of means testing (although in Wales this applies only in the determining mix between loan and grant rather than the total sum).

If you have children (or grandchildren) heading for university, maintenance costs are an increasingly significant element of funding plans. While there is government loan to cover the full tuition fees, on the maintenance front, the government loan will all too often be far from adequate.

Company cars: free fuel - a perk worth having?

183:901932756 (Leigh Kent) — Wed, 11 Jan 2023 12:29:56 GMT

If your employer pays for the fuel in your company car, it may cost you more than you expect.

As the Autumn Statement was not a Budget, detailed publications that would normally emerge as the Chancellor sat down have taken time to appear. For example, HMRC projections of how many more capital gains tax (CGT) payers there would be because of the much-reduced annual exemption (another 570,000 by 2024/25) did not appear until the Monday after the Autumn Statement, missing the weekend personal finance pages.

One even later arrival – three weeks after the Autumn Statement – was an HMRC bulletin on the fuel benefit charge for company cars in 2023/24. For some years the basis has been an increase in line with September annual CPI inflation (published in mid-October), so there was no evident reason for HMRC’s procrastination. The number that was eventually revealed was the current figure, increased by 10.1%, as expected.

That means for 2023/24 if you have ‘free’ fuel, its taxable value will be assessed by multiplying £27,800 by your car’s percentage scale charge. For example, if you have a petrol-engine car with CO ₂ emissions of 130–134 g/km, your scale charge is 31% and £8,618 (£27,800 x 31%) will be added to your income for tax purposes. That is an extra £3,447 going to the Exchequer if you are a 40% taxpayer.

At this point you are probably wondering how far £3,447 of petrol would take you. Assuming a price of £1.60 a litre and 40 miles per gallon the answer is about 19,000 miles. In 2019, before the pandemic disrupted travel, the average car covered 7,400 miles a year. If that figure still applies – and it is probably less because of increased working from home – then the ‘free’ fuel break-even point is more than 250% of typical use.

Not all benefits are so harshly taxed – electric cars can be an attractive option – but the large cost of ‘free’ fuel is a reminder that when it comes to anything financial, ‘free’ is a word to be treated with great caution.

Note: Tax treatment varies according to individual circumstances and is subject to change. The Financial Conduct Authority does not regulate tax advice.

Cohabitation law reforms rejected

183:901932756 (Leigh Kent) — Fri, 30 Dec 2022 16:20:22 GMT

The government has rejected proposals to modernise cohabitation laws in England and Wales, leaving it up to individuals to arrange their financial affairs for partners and dependants.

In August, the House of Commons Women and Equalities Committee published The rights of cohabiting partners for England and Wales (Scotland and Northern Ireland have their own laws). Amidst all the other political excitement of that month, the report received little coverage.

The lack of media attention was a pity, as the Committee made some important recommendations about a significant proportion of the population – the one in five couples who have chosen cohabitation rather than marriage or civil partnership. The report noted that “Whereas married couples and civil partners have certain legal rights and responsibilities upon divorce or death, cohabitants receive, in general, inferior protections”. This fact is compounded by what the report called the “common law marriage myth” – the erroneous belief that after a certain amount of time of living together, the law treats cohabitants as if they were married.

The report made six recommendations for action, only one of which was accepted in full by the government. The following three proposals were rejected outright:

Family Law should be reformed to better protect cohabiting couples and their children from financial hardship in the event of separation. A potential structure for such reform was proposed by the Law Commission in 2007, which having ignored for so long the government now says is too old to be implemented without a review or fresh consultation.
The intestacy rules should be immediately redrawn to recognise cohabitation. The Committee again supported ideas put forward by the Law Commission (this time from 2011). The government’s rejection of any intestacy reform was largely predicated on the notion that cohabiting couples could make wills to deal with their estates.
The inheritance tax regime should be the same for cohabiting partners as it currently is for married couples and civil partners. This was rejected by the Treasury – the responsible government department – which said it “has no plans at present to extend the longstanding treatment of spouses and civil partners to cohabiting partners.”

If you are cohabiting, the government’s message is clear: make your own legal and financial arrangements – and don’t believe that common law marriage myth.

Notes: The Financial Conduct Authority does not regulate tax, wills or estate planning advice. Tax treatment varies according to individual circumstances and is subject to change. The Financial Conduct Authority does not regulate tax advice.

Calling all young adults

183:901932756 (Leigh Kent) — Mon, 14 Nov 2022 09:53:15 GMT

Nearly all children born between 1 September 2002 and 2 January 2011 were the recipients of a government handout – usually £250 or £500 – which was locked away in a Child Trust Fund (CTF). CTFs were introduced by the Chancellor at the time, Gordon Brown, with the worthy idea that every child would have some savings to their name when they reached the age of 18. It was hoped that parents and others would make regular top ups to the modest government payment to increase these coming-of-age funds.

Like so many other well-intentioned resolutions, the CTF scheme was far from successful. The initial government payment was sent as a voucher to the child’s parent or guardian. If the vouchers were not used to open a CTF within 12 months, HMRC was left to open a default CTF for the child, with the CTF provider selected at random from an accredited list. No less than 30% of CTFs were opened this way.

In 2010, the poor take up of CTFs encouraged the new Chancellor George Osborne to make a significant cut to payments. Eventually, from the beginning of 2011, the scheme was closed, albeit payments into existing CTFs, by parents for instance, were allowed to continue. By then there were 6.3 million children with CTFs.

The latest detailed data from HMRC (from April 2021) revealed the total investment in CTFs, at that time, as nearing £10.5 billion, with more than four in five of them having a value of under £2,500. (The average value in April 2021 was £1,911 and is currently sitting around £2,100).

HMRC now faces the opposite problem to the one it encountered at the start, when parents overlooked this new investment opportunity: CTF pots are not being claimed by 18 year olds. To quote a recent HMRC press release, “Tens of thousands of teenagers in the UK who have not yet claimed their matured Child Trust Funds savings could have thousands of pounds waiting for them”. It is likely that many teenagers (and their parents) have forgotten or were unaware of the CTF’s existence, especially if it was set up by default.

To trace a CTF, go to https://www.gov.uk/child-trust-funds/find-a-child-trust-fund .

CTFs were replaced by Junior ISAs, which stand more chance of being remembered at age 18 as they must be established by parents or guardians and do not involve any direct government contributions.

Is your interest getting too interesting?

183:901932756 (Leigh Kent) — Tue, 20 Sep 2022 22:54:10 GMT

Rising interest rates could mean you may start to pay tax on interest.

Since 2009, deposit interest rates have been so low that the income generated has been minimal. That fact, combined with the introduction of the personal savings allowance (PSA) in April 2016, means you may well not have had to think about tax on your interest.

As a reminder of the PSA, broadly speaking:

If you are a basic rate taxpayer (based on English tax bands, regardless of where you live) then £1,000 of interest is free of tax.
If you are a higher rate taxpayer (again English-based), then £500 of interest is tax free. The difference is a cliff edge – even if you pay only 1p of higher rate tax, your PSA is £500.
If you are an additional rate taxpayer, then all of your interest is taxable.

Although the PSA has the word allowance in its name, in practice it operates as a 0% tax band on the first £1,000/£500 of interest, which can complicate tax calculations.

In some circumstances, the starting rate band for savings can mean no tax is paid on interest. However, this tax band generally only applies if your total earnings, pension and rental income are below £17,570.

For some years, basic rate tax has not been automatically deducted from most interest payments because to do so would theoretically have meant HMRC having to deal with millions of small income tax reclaims. As rates rise and more interest is paid, however, the number of people who will have to pay tax on some interest is set to increase.

If you think you might be one of those new interest taxpayers, then:

Check whether you are making the most of independent taxation – your spouse or civil partner may have unused PSA or otherwise pay a lower marginal rate of tax.
Consider using cash ISAs, which offer tax-free interest. However, the rates on offer can mean ISA returns are less than what you can achieve after paying tax.
Consider premium bonds as an alternative to quick access deposit accounts if you are a higher rate taxpayer.
Ask yourself whether the reason you are paying tax on interest is because you have too much on deposit. At a time when inflation is forecast to exceed 13%, your deposits are rapidly losing purchasing power.

Notes: The value of investments and any income from them can fall as well as rise. You may get back less than you invested. Past performance is not a reliable indicator of future performance. Investors do not pay any personal tax on income or gains from ISAs. Tax treatment varies according to individual circumstances and is subject to change. The Financial Conduct Authority does not regulate tax advice.

Analysis - Energy Costs Statement 8 September 2022

183:901932756 (Leigh Kent) — Thu, 08 Sep 2022 15:52:32 GMT

After a prolonged period of speculation, the new Prime Minister Liz Truss has announced preliminary details of how the government plans to deal with the energy price crisis.

In late May this year, the then Chancellor, Rishi Sunak, announced a range of measures to reduce the impact of the anticipated October 2022 Ofgem utility price cap increase. Mr Sunak’s announcement followed an earlier assistance package revealed in February, ahead of the April 2022 Ofgem price cap increase from £1,277 to £1,971.

Sunak’s measures, which included a flat £400 off all consumers’ bills, were made at a time when the price cap was projected to rise to £2,800 a year for the October 2022 - March 2023 period. Since then:

• Ofgem has reduced the energy price cap review period from six months to three in an effort to bring more stability to energy markets.

• The regulator has set a price cap for October ¬– December 2022 of £3,549, an 80% rise on the current level.

• Projections for the next cap reviews suggested the annual bill could exceed £6,500 by April 2023.

The problems created for the government by soaring gas prices are exacerbated by the fact that many businesses renew their fixed term energy contracts (typically for one or two years) in October.

The commercial sector does not benefit from any price cap and stories have emerged of small businesses seeing their utility costs jumping as much as tenfold or even being refused new contracts. Outside the commercial sector, there have been similar issues for schools and hospitals.

The Government plan

In today’s announcement during a House of Commons General Debate on UK Energy Costs, the new Prime Minister announced that:

• The government is introducing an Energy Price Guarantee (EPG) set at an annual £2,500 for the next two years from 1 October 2022. This will apply on the same basis as the existing Ofgem cap, i.e. a regional based limit on standing and unit charges in England, Wales and Scotland, not on total bills.

Source: Ofgem, Cornwall Insights and DBEIS

• The £400 flat rate payment, spread over six months, announced in May will remain in place. This reduces October – December 2022 bills by £66 a month and January – March 2023 bills by £67 a month. Arguably this means the effective cap is £1,700 through to March and £2,500 thereafter.

• Other assistance announced in May, such as the £300 additional payment for pensioners, remains in place.

• Green levies are temporarily suspended, an adjustment included in the EPG.

• Households using heating oil and LPG will receive discretionary payments.

• The same level of support will be given to households in Northern Ireland.

• The government ‘will also support all business, charities and public sector organisations with their energy costs this winter, offering an equivalent guarantee for six months’. After that period further support will be provided to vulnerable sectors, such as the hospitality sector.

Details of the funding for these measures will be announced by the Chancellor in his fiscal statement ‘later this month’, currently expected in the week of 19 September.

For more on the government’s announcements, see:

https://www.gov.uk/government/news/government-announces-energy-price-guarantee-for-families-and-businesses-while-urgently-taking-action-to-reform-broken-energy-market

Further information on different forms of assistance for households can be found at:

https://helpforhouseholds.campaign.gov.uk/

Scammers taking advantage of surging inflation and Covid

183:901932756 (Leigh Kent) — Thu, 21 Jul 2022 10:30:31 GMT

At this difficult time, we’re all looking for the best financial advice and any cheeky discount we can get our hands on, but please remain vigilant. Fraudsters are trying to capitalise on this, from supermarket giveaways to petrol gift cards – make sure you know what to look out for. (Links to article on Which.co.uk)

A spike in cases of the Omicron variant has led to scammers sending out text messages asking you to order a test. The text includes a link that could download adware or spyware onto your device.

All official Covid guidance can be found on the government [Gov.uk] and NHS [NHS.uk] websites. Find out more about the dodgy URL to look out for. (Links to article on Which.co.uk)

Buy-to-let tax changes bite with rising interest rates

183:901932756 (Leigh Kent) — Tue, 07 Jun 2022 13:49:19 GMT

Historic changes to tax rules could soon inflict financial pain as interest rates rise.

In the post-election Budget of 2015, the then Chancellor, George Osborne, announced a surprise set of changes to the tax rules for buy-to-let (BTL) residential properties. The most significant was the treatment of interest on BTL mortgages. At the time, interest paid could be offset fully against rental income, meaning that the interest received full tax relief at up to 45%. The Chancellor decided to replace this treatment with one in which:

• Interest could not be deducted from rent, thereby increasing the tax charged on rental income and, as a corollary, the property owner’s total taxable income; but
• A tax credit of 20% of interest paid would be given.

The reform was dramatic enough for Mr Osborne to phase it in over four years from April 2017, meaning that it did not take full effect until the 2020/21 tax year. By then, the Bank of England had reduced its base interest rate to 0.1% in response to the Covid-19 pandemic. Consequently, the reduction of tax relief on interest was less of an issue for BTL in 2020 than looked likely in 2015.

Just over two years later, the picture is altering rapidly as the Bank of England ratchets up interest rates to deal with post-pandemic inflation. One leading property agent has calculated that for some higher rate taxpaying BTL investors, an increase in mortgage rates of 2% could reduce their net income to nil:

Mortgage Interest Rate

2.10% 4.10%

Rental income £12,000 £12,000

Expenses (31%) £3,720 £3,720

Net taxable Income £8,280 £8,280

Tax @ 40% -£3,312 -£3,312

Post-tax income £4,968 £4,968

Interest -£3,182 -£6,212

Tax relief £636 £1,242

Net income after tax and interest £2,422 -£2

*Based on 75% mortgage on a property valued at £202,000 with a gross rental yield of 5.94% and expenses at the average rate reported to HMRC in 2020/21.

The dramatic change to interest and tax relief highlights the risks inherent in borrowing to invest. The multiplier effect works of borrowing in both directions.

Notes: Tax treatment varies according to individual circumstances and is subject to change. The Financial Conduct Authority does not regulate tax advice.

The rising cost of bricks and mortar

183:901932756 (Leigh Kent) — Mon, 14 Mar 2022 23:52:05 GMT

The rising cost of bricks and mortar

During 2021 house prices rose by around 10% – the fastest pace in 15 years – but that is no guarantee of what may come in 2022. Relying on bricks and mortar to boost your finances may no longer be as attractive as it once was.

Just as inflation saw an unexpected leap in 2021, so too did house prices. According to Nationwide, the average UK home rose in value by 10.4%, while Halifax put the increase at 9.8%. As the graph shows, it was the sharpest rise in house prices since 2004 although, as ever, the UK average figure hid significant regional differences. At the bottom rung of the property ladder, Halifax says that London prices rose by 4.2% – below inflation – while at the top, Wales saw prices rise by 15.8%. Nevertheless, the average London home still costs more than two and a half times its Welsh counterpart.

Last year’s increase in house prices appears to have been driven by two inter-related factors:

The Covid-19 pandemic driven increase in working from home stimulated a desire for more space – inside and out – that encouraged many people to move.
Temporary and, it now appears potentially unnecessary, cuts in stamp duty gave a boost to the housing market, with transactions brought forward to gain savings of up to £15,000.

In 2022, there are some obvious headwinds:

Interest rates are on the rise, adding to mortgage bills;
The pandemic effects, including full-time working from home, look set to wane;
There is a looming cost-of-living squeeze, as inflation heads upwards and earnings are hit by tax increases;
Rather obviously. 2021’s increases mean property is 10% dearer than a year ago.
In mid-January 2022, the government added a small but additional obstacle by confirming a change to council tax rules on holiday homes. From April 2023, holiday homes will be liable to council tax (rather than the more favourable small business rates regime) unless they are let for at least 70 days during the previous year. The change – a significant cost increase for some second homeowners – is only the latest in a series of measures over recent years that have increased the tax burden on investment in residential property.

The UK public has long had a love affair with bricks and mortar – as testified by a quick look at of TV listings – but as a personal investment, it is no longer the tax haven it once was. If you want a holiday home, could you be better off investing your capital elsewhere and using the income generated to pay for a fortnight’s Airbnb wherever the whim takes you? After all, you may well already own significant residential property in the form of your own home…