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5 financial resolutions for 2018

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5 financial resolutions for 2018

Thursday, December 7th, 2017

Whether or not you’re the kind of person who sees the start of January as the time to set yourself resolutions and stick to them, the period after the excesses of Christmas and New Year is arguably one of the best times to actively get your finances into shape. Here are five great money-related resolutions it’s definitely worth committing to in order to make 2018 the year you take control of your money.

  1. Start a budget – The secret to financial security isn’t making lots of money, but sensibly managing the money you have. A budget is the best way to start doing this, ensuring you know where your money is going and sticking to the plan you lay out for yourself. It can feel intimidating at first if you’ve never budgeted before, but it will undoubtedly help you to cut out overspending and reduce your money worries.
  2. Manage your debt – Getting out of debt can seem a long way off if you don’t make plans for how you’re going to become debt-free. There are no shortcuts – it takes both time and sacrifice – but once you do manage to clear your debts completely, it’s a liberating feeling and opens up many more opportunities to help you grow some savings.
  3. Start saving regularly – Once you’ve got your debts and spending under control, building your savings is essential. You should aim to save at least 10% of what you earn every month. Again, you may have to make a couple of sacrifices here and there in order to do this, but when you have those savings earning you money in your nest egg, missing the occasional night out or frivolous treat will feel completely worthwhile.
  4. Increase your financial knowledge – This can be as simple as finding a book, magazine or reputable website and dedicating a little time each week to increasing your money know-how. Anyone who has financial security hasn’t done it through luck, but through understanding what to do with their money, so the more you learn the more secure your finances are likely to be.
  5. Start investing – Making some sound investments is often the crucial step from financial security to prosperity and success. However, you should only invest when you’re ready (i.e. once you’ve achieved the previous four goals). It’s worth getting good independent financial advice as well to ensure you make the right investments for your personal circumstances.

One for the kids? Switching to a Lifetime ISA could boost savings.

Thursday, December 7th, 2017

If you’re saving for a home through a Help To Buy ISA or know someone who is, it’s worth being aware of a planning opportunity which could boost your savings by an additional £1,100. But anyone hoping to take advantage of this opportunity needs to be quick, as it will only be available for just under four months more.

Any savings in a Help To Buy ISA which are transferred to the new Lifetime ISA before 5th April 2018 will benefit from a top up of 25% from the government. The opportunity has arisen thanks to the Help To Buy ISA small print relating to the transfer of money saved before the launch of the Lifetime ISA on 6th April 2017.

Lifetime ISAs have an annual limit of £4,000, which includes money transferred from another savings account. However, money transferred from a Help To Buy ISA within the first twelve months of Lifetime ISAs becoming available does not count towards the contribution limit for the 2017-2018 tax year. As such, any money transferred into the Lifetime ISA from the Help To Buy ISA will be boosted by the government top-up, potentially resulting in hundreds of pounds being added to your savings.

For example, someone who had saved the £4,400 maximum amount into a Help To Buy ISA before April 2017 could transfer this into a Lifetime ISA before 5th April 2018. As this wouldn’t contribute to their limit, they could then save a further £4,000 into the Lifetime ISA for a total of £8,400. The 25% bonus would then be added to the entire £8,400 in April next year, giving an additional £2,100. In any other year, the maximum top-up which could be earned from the Lifetime ISA would be £1,000.

So If you know anyone using a Help To Buy ISA to save towards a first home, transferring money to a Lifetime ISA to enjoy an additional top-up of up to £1,100 in April next year could make collecting the keys to their own place happen a little bit sooner.

Video: Understanding risk in relation to your investments

Wednesday, November 15th, 2017

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How to track down a ‘zombie’ Child Trust Fund

Wednesday, November 15th, 2017

Launched by the Labour government in 2005, A Child Trust Fund (CTF) was given to every child born on or after 1st September 2002 until just over nine years later at the start of 2011. CTFs were then replaced by Junior ISAs (JISAs) at the start of the austerity period. However, recent research has revealed that around 900,000 CTFs have since become ‘zombie’ accounts, lost and forgotten about in the intervening years.

If your child was born between 1st September 2002 and 1st January 2011, they will definitely have a CTF. How much is in there is dependent on a number of factors. At the start of the scheme, every child received a £250 voucher from the government, with children from lower income families receiving another £250 on top of that. This could be paid into either a cash account or an investment CTF by a parent. There was then a further government top-up when the child turned seven; friends and family could also pay into the CTF up to an annual limit, set at £4,128 in 2017/18.

The top up for seven-year-olds was axed and the initial voucher reduced to £50 in 2010, before the scheme was scrapped altogether the following year. How much is held in your child’s fund will therefore depend on when they were born during the CTF period, as well as how much growth the money has seen in the years since the money was paid in.

After sitting in limbo for a number of years since 2011, from April 2015 it’s been possible to transfer a CTF into a JISA, meaning that any money being held in your child’s name can now be invested as you see fit. If you have the paperwork for your child’s CTF you can contact the provider directly to start the process, otherwise you can use the Government website to locate any CTFs held by your children.

Once you’ve found your child’s fund, you’ll need to decide what to do with the money within it. One option is to move it into a JISA, which has the same annual investment limit as a CTF and protects your child’s money until they turn 18, at which point it becomes theirs. A JISA also has the added benefit of becoming an adult ISA once your child reaches their 18th birthday, whereas a CTF simply pays out a lump sum.

You’ll also need to choose whether to opt for a cash or stocks and shares JISA, so it’s a good idea to do some research into the best JISAs available on the market. If you’re unsure of what to go for, seeking professional financial advice is a good idea to ensure your child’s money is in the best place to grow for them. That way they’ll be able to see the value of good investment and enjoy a valuable nest egg as they enter adulthood – which is, of course, what the CTF was originally intended to do.

How will AI change your interactions with your accountant?

Thursday, November 9th, 2017

When you hear the words ‘artificial intelligence’, the first thing you think of is probably one of the many examples of computers and machines built to think, work and react like a human being in the movies. But AI is certainly no longer a fantasy restricted to the world of science fiction, with its application being explored in countless areas of real life, including accountancy. We might not be talking about a replicant from Blade Runner or The Terminator’s T-800 doing your tax return just yet, but it’s certainly worth considering the benefits and drawbacks of AI’s increasing application in an accountancy role.

Finance departments have seen automation increasingly become the norm in what they do, a move which has in many ways revolutionised their capabilities. However, this has so far always depended on fixed instructions being programmed into a computer tool at the start. AI allows computerised accountancy to take the next step through developing tools with learning and problem-solving capabilities.

Of course, advancing technology in this way means that roles performed by human beings twenty years ago are now being carried out by machines. Whilst there’s a temptation to adopt a Luddite mindset towards such developments, a far better approach is to embrace the inevitable, unstoppable creep of technology into the world of work and consider how you and your accountant can make yourself a part of it.

Whilst the numerical calculations and analysis inherent to the world of accountancy might be ideally suited to an intelligent computer, the reasoning and intuition a person brings to the role are unable to be replicated by AI. It’s in these areas that human accountants continue to bring value, shifting their role increasingly away from ‘number crunching’ and towards a business partnership. An experienced accountant should be able to take the work done by machines, translate it into meaningful commercial insight and, perhaps most importantly, add a human touch – something which a machine simply wouldn’t be able to provide.

Power of Attorney – the case for and against

Thursday, November 9th, 2017

Setting up a trusted family member or friend with a Lasting Power of Attorney (LPA) ensures that someone else is able to make important decisions for you when you’re no longer in a position to be able to make them for yourself. But this in itself is always going to be a key decision in your life, so it’s important to consider the benefits and risks before going ahead with giving another person the authority LPA unlocks.

LPAs come in two types: one covering money and property, and the other covering health and welfare. On average, a lawyer will charge £400 to file an LPA, with the cost rising to £600 to file both types of LPA at the same time. There is also an £82 registration fee for each application.

It is possible to make an application yourself, and this can be done online. However, it’s strongly recommended to apply through a solicitor to ensure no mistakes are made and that the person in question is not being put under pressure to do something they don’t understand or want to do. It’s also possible to appoint more than one person through an LPA for added protection, meaning that both people will need to provide signatures in order to make any decisions.

Without an LPA in place, anyone wishing to gain authority over your affairs once you’re unable to act for yourself will face a drawn-out court process no matter who they are. Whilst this protects you in some ways, it can also leave you in a position of vulnerability if nobody is able to make decisions for you, if you’re suffering from a mentally degenerative condition such as dementia.

The current system has come under criticism following recent statistics showing that the number of investigations into attorneys – that is, the people who are given control over the decisions – has increased to 1,058 in 2016, a rise of 20% from 2015 and almost double the amount seen in 2013. Whilst the rise may be in part due to the increasing number of dementia sufferers in the UK, it also highlights the importance of applying for an LPA in the proper way and only nominating a person, or preferably people, you know you can trust.

Pros & cons of turning your home into a cash machine

Thursday, October 26th, 2017

Recent figures have suggested that over 17,500 older homeowners took out equity release plans on their homes during the first six months of 2017, marking an increase of 44% compared with 2016. Equity release plans, also referred to as ‘lifetime mortgages’, allow homeowners aged over 55 to access their home’s equity without the requirement to make repayments each month. Instead, the interest is allowed to accumulate in the background and is only paid off when the house is sold either due to the homeowner’s death or a move into a care home.

UK homeowners in their 60s and 70s have now used equity release plans to release a combined total of £1.25 billion. Information from Key Retirement, a firm specialising in equity release, suggests that the most common uses for the cash received are covering the cost of home improvements, clearing debt, boosting money available to cover everyday costs, paying for holidays and helping children and grandchildren with the purchase of their first home.

The rising popularity of equity release plans is as a result of several factors. Firstly, as the average life expectancy increases, people need a larger amount of money to pay for their retirement years. The second reason is the growing value of homes in the UK. Figures from Halifax suggest that over the past twenty years, the average UK house has seen its value rise by 236%. For many people, their home is likely to hold the largest portion of their wealth.

However, accessing money in this way can be expensive, with the Equity Release Council reporting an average of 5.3% interest charged on equity release plans. The average amount taken by homeowners through these schemes is £70,000. Someone taking this amount at the average interest rate when they were 65 would end up owing £280,000 if they reached their 93rd birthday.

As equity release mortgages have no end date, the figure continues to rise the longer you live or remain in your home. Many take them out hoping that the value of their property will rise at a faster pace than the interest accrued, but there is no guarantee of this happening. Other potential problems from taking an equity release mortgage include eroding the amount you leave as inheritance, and possible restrictions on being able to move house should you want to in the future. So, whilst an equity release plan might be the best option for some, anyone considering taking out such a mortgage on their home should seek professional financial advice and consider all options available to them before going ahead.

Interest rate rise and the impact on mortgage bills?

Wednesday, October 18th, 2017

Recent official figures have revealed that homebuyers are being lent more money by banks than at any time since the global financial crisis a decade ago, with many of the borrowers being young people for whom stepping onto the property ladder is barely affordable. As such, billions of pounds of debt which may prove unsafe is being taken on by them at a time when interest rates are expected to rise.

Someone putting down either a 5% or 10% deposit on a property in order to borrow a minimum of 3.5 times their salary (or 2.75 times their combined income for couples) falls into this category. For example, someone earning £30,000 a year and buying a house worth £116,000 with a £105,000 mortgage would be part of this group, as would a couple earning £50,000 a year between them and holding a mortgage of £137,500 on a property bought for £152,000.

During the first three months of 2010, loans to people falling into this category reached a combined total of £279 million. In the three months to July 2017, that figure had risen to £2.2 billion. This marks a huge increase of 670% in just over seven years, with the total doubling in only the last two years.

The situation has been driven by house prices rising much faster than the salaries of first-time buyers, forcing many of them to take on increasingly large amounts of debt in order to own their own home. However, the indication by the Governor of the Bank of England, Mark Carney, that interest rates could be set to rise within the next two months, could result in these big borrowers struggling to manage their debt. At least ten lenders, including Nationwide and Halifax, increased their rates at the start of October in anticipation of a rise in the Bank Rate.

Even a small rate increase could add hundreds of pounds to the mortgage payments of those with the heftiest variable-rate mortgages. A rise from the current rate of 0.25% to 0.5% would result in a homeowner with a £150,000 mortgage experiencing an average yearly increase on their repayments of £259. Many are predicting further increases in the future, however, with a second rise to 0.75% before the end of 2017, which would bump the average mortgage bill up by £520 annually. Some economists are expecting rates to go up to 2.25% in the next two years, which would result in mortgage repayments going up by £1,056 a year.

What will the new Finance Bill contain?

Wednesday, October 18th, 2017

A second draft of the Finance Bill 2017 was introduced in September following the first draft released earlier in the year. The government used this second version to reintroduce measures that had been taken out of the earlier, shorter draft following Theresa May’s decision to call a snap election.

The new draft includes new penalties for those who allow the use of tax avoidance schemes which are subsequently defeated by HMRC, and changes to prevent artificial schemes being used by individuals to avoid paying the tax owed on their income. The rules surrounding company interest expenses have also been updated to ensure excessive interest payments can’t be used by big businesses to reduce their tax payments.

The new Bill ensures that people who have lived in the UK for many years pay tax to HMRC in the same way as UK residents through the abolition of permanent non-dom status. The dividend allowance has also been reduced from £5,000 to £2,000 effective from April 2018, a move which will bring the tax treatment of people working through their own company and those who are self-employed or employees further in line with each other. The Money Purchase Annual Allowance has also been lowered from £10,000 to £4,000 in order to limit an individual’s ability to recycle pension savings in order to receive additional tax relief.

As these are all measures which were dropped from the Finance Bill before the election in June, the Finance Bill is unlikely to have held any surprises for many people. The only measures which have been dropped are two clauses on Customs enforcement powers and a third on landfill tax. It is expected that the third Finance Bill of 2017, due in December, will contain significant landfill tax proposals following announcements made in September. Also of note in the Bill are clauses looking ahead to Making Tax Digital, with digital tax returns currently likely to become mandatory from 2020.

4 key takeaways from the Tory party conference

Wednesday, October 11th, 2017

Whilst many in the media are going to be focusing on that speech, including the cough, the poorly-affixed letters and the moment Theresa May was interrupted to be handed a fake P45, there are plenty of other issues coming out of the Conservative Party Conference this month. Let’s have a look at four of the key financial announcements.

  1. Tuition fees – The maximum amount universities can charge annually for tuition fees was initially set to increase by £250 to £9,500. However, Mrs. May indicated in her speech that she had listened to the concerns of voters and as such had decided to instead freeze fees at the current limit of £9,250. Perhaps more significantly, the Prime Minister also indicated that the amount graduates would need to earn before starting to repay their loan would be increased from £21,000 to £25,000. She also pledged to review the entire student finance system, refusing to rule out the introduction of a graduate tax to take the place of tuition fees in the future.
  2. The Help to Buy scheme – If the reversal of policy on tuition fees suggests that the Conservatives are targeting younger voters then the announcement of the extension of the Help to Buy scheme all but confirms it. Speaking on the Andrew Marr Show, the Prime Minister promised to find an additional £10 billion to put in to the scheme, which will allow a further 135,000 young people to purchase their first home. Those benefitting from the scheme will be able to take out a mortgage on a newly built property with only a 5% deposit. Mrs. May gave few details, saying that these would be outlined in November’s Budget.
  3. Energy prices – Describing the energy market as “broken”, Theresa May promised to end “rip-off” bills from the big six energy providers by placing a limit on the amount they are allowed to charge for gas and electricity. However, the move has already been criticised, with suggestions that capping prices might in fact make matters worse for consumers by reducing competition between providers, leading to fewer people switching in order to get the best deal.
  4. Brexit – Following her speech in Florence during the second half of September, in which she indicated there would be a transitional “status quo” period of two years following Britain’s exit from the EU in 2019 and that the country would indeed be paying its “fair share of the costs”, the Prime Minister spent little time speaking about Brexit at the conference. But that didn’t stop others such as foreign secretary Boris Johnson and Chancellor Philip Hammond from doing so, with their contrasting speeches suggesting that the division within the Conservative party over what Brexit should look like is as clear and present as ever.