With 2023 fast approaching, we’ve been reflecting on the changes that 2022 has brought to us and our clients. The year started with a challenging outlook for investment markets, exacerbated by various unexpected events throughout the year. It shows once again that short term forecasting isn’t reliable in ensuring our plans for our future are on track over the long term.

We have been delighted to see more clients reach their goals this year, on track as expected; maintaining their plan for their (and their family’s) futures against a rapidly changing backdrop.

Closer to home we have seen a lot of achievements across our team; with higher qualifications, personal goals met, and the most exciting transition for us being the move into employee-ownership.

We have included a link below to our winter newsletter, where you will find an update on Eldon’s developments together with a range of other articles. We have also included links to other news on our website or external sites in recent months that you can dip into. I hope you enjoy reading it.

Winter Newsletter 2022

Christmas Hours

Eldon’s office will close at 12.30 pm on Friday 23rd December, reopening on Tuesday 3rd January 2023.

If you have any urgent questions over this period, please email them to enquiries@eldonfinancial.co.uk and we will make sure that you get a response.

We would like to wish everyone a very Merry Christmas and Happy New Year.

In response to rising inflation, the Bank of England has been increasing the Base Rate and in November 2022 this rose to 3%. As a result, savings rates have been increasing steadily, and are now at the highest levels for more than a decade.

National Savings & Investments (NS&I) currently offer an interest rate of 1.80% pa gross on both its Income Bonds and Direct Saver. The annual equivalent prize rate of the Premium Bonds also increased to 2.20% pa, if you are averagely lucky, but there is no guarantee you will achieve this return.

The best instant access rate available is now around 2.8% pa gross variable.

Fixed rate accounts have also increased: 1-year fixed rate 4.35%; 2 years 4.70%; 3 years 4.75%; 4 years 4.80%; 5 years 4.95%.

Under current legislation, each individual has a starting rate for savings of £5,000, however, as your earnings increase above the personal allowance (currently £12,570 pa) this reduces by £1 for every £1 earned above this. Therefore, once your earnings are above £17,570, you have no starting rate for savings.

As well as the starting rate for savings, there is also a Personal Savings Allowance (PSA) which lets you earn a certain amount of interest from your savings tax free. Depending on the Income Tax band your income falls under, the PSA is a different amount. Basic rate taxpayers can then earn £1,000 of savings interest each tax year without paying tax, whereas higher rate taxpayers can earn £500 of interest tax free. Additional rate taxpayers have no PSA.

With interest rates increasing, the amount of interest you receive will increase, which may result in your total interest exceeding your PSA. It is therefore important to check the level of interest you are receiving, as if you expect to exceed this, ensuring you use your ISA allowance may be beneficial. Placing savings into a Cash ISA means that interest is earned tax free, so even if the interest rate is slightly lower than what is offered in an easy access account you could be earning a higher level of interest.

If the interest you earn exceeds your personal savings allowance, HMRC will collect the tax you owe through pay-as-you-earn (PAYE) if you are taxed this way. This is done automatically, and you might notice that your tax code changes.

As part of our ongoing service, we ensure our clients ISA allowances are used appropriately each year, whether this be within Stocks & Shares ISAs or Cash ISAs.

If you would like to discuss the above, please do not hesitate to contact a member of our team.

New Chancellor, Kwasi Kwarteng, announced a sweeping package of tax cuts in his mini-budget last week – the biggest the UK has seen in the last half-century. Below we have outlined the main measures.

• Basic rate income tax is set to reduce from 20% to 19% from 6^th April 2023. This is the first cut to income tax in 15 years and is the lowest the basic rate has ever dropped to in the modern income tax system.

• The additional rate of income tax (45%), for those earning over £150,000, is set to be abolished from 6^th April 2023. This means that all earnings over the higher rate threshold (currently £50,270) will be taxed at 40%.

• The 1.25 percentage point increase in National Insurance Contributions has now been reversed, effective from 6^th November 2022.

• The planned rise in corporation tax has also been scrapped, keeping this at the current 19% rather than the proposed 25%.

• Stamp Duty Land Tax has been cut, with the threshold after which tax is paid rising from £125,000 to £250,000. For first-time buyers this has risen from £300,000 to £425,000. The maximum value of a property on which first-time buyers’ relief can be claimed is set to increase from £500,000 to £625,000.

The Government has coined the package its Growth Plan, with the intention being to tackle energy costs to bring down inflation, back businesses, and help households. An ambitious target of reaching a 2.5% trend rate of growth has been set, forming the focus of the plan. As can be expected, the announcement has so far received mixed reviews.

If you have any queries, please contact a member of the team.

As a mark of respect for Queen Elizabeth II, we will be closing our office on Monday 19^th September for the funeral.

We will reopen at 9am on Tuesday 20^th September

For those with invested pensions, it is crucial to understand exactly how your funds are invested. This can be particularly important as you move closer to retirement, as your plans for accessing benefits will impact the level of investment risk that is suitable.

The introduction of Pension Freedoms legislation in 2015 means that you no longer have to use your pension to purchase an annuity (a guaranteed income for life). In addition to annuity, a range of other access options are available. For instance, you are now able to draw flexible income/capital payments from a pension, leaving the remainder invested, under the flexi-access drawdown option.

Some providers offer ‘lifestyle’ investment funds which are designed to reduce in risk as you approach your selected retirement date. These are typically aimed at those targeting an annuity purchase or full lump sum withdrawal at retirement, to try and reduce investment volatility and large swings in value leading up to this. This is usually done by switching from higher risk assets such as equity (stocks & shares) investment to holding more in fixed-interest securities (e.g. gilts/Government bonds).

Lifestyle funds are not suitable for all investors. However, they can often be the default investment approach for a pension arrangement. For those looking to defer pension access at retirement, or access their benefits in stages, lowering the level of risk may not be appropriate. For instance, if there is no intention to ever access the funds, a higher level of risk might be suitable to aim for a higher long-term return.

Recent performance of some lifestyle funds highlights the risk of investing in this type of fund where there is no real need to do so. As interest rates are on the rise, gilt prices have typically fallen. This has skewed the performance of some funds that are weighted heavily in fixed-interest securities, with some experiencing large falls despite intending to be low-risk. Whilst this is less than ideal for those who are aiming to reduce the risk of their portfolio near retirement, it is unnecessary and counterproductive for those who have no need to lower the risk level. The position is worse for those who have a need to take a high level of risk to meet their objectives.  

In short, your investment choices will be specific to your personal circumstances and long-term objectives; it can be difficult to try and fit these into a ‘one size fits all’, lifestyle approach.

In assessing an individual’s risk profile, we consider risk based on three elements:

• Your tolerance – essentially, how you feel about risk.
• Your capacity – how much risk you can afford to take.
• Your need – the level of risk you need to take to try and meet your objectives.

Each of the above will impact the level of risk that is suitable, which is personal to an individual and subject to change as needs and goals develop over time. As such, it is important that the risk level of a portfolio and the suitability of this are kept under regular review, which is a key part of our ongoing service.

If you would like to discuss any of the above further, please don’t hesitate to contact a member of the team.

*Please note that the above should not be taken as advice and is intended for information purposes only. We would always recommend speaking with a financial adviser about your pension options/planning before taking any action.

This year marks Eldon’s twentieth birthday, the big 2-0! You may have seen in the Summer Newsletter that the Eldon team will be celebrating by completing a beautiful (but tough) 20-mile walk around Ullswater on Friday 30^th September.

Donations that the team receives will be directed into our Charitable Fund with the County Durham Community Foundation. Our Fund is to be used to support local charities through the provision of grants, focusing on those that provide financial education, financial planning, and debt management solutions.

If you would like to offer your support, you can find donation details on our CDCF Enthuse page.

Any donations would be greatly appreciated!

If you would like any more information on the above, or our work with the County Durham Community Foundation, please don’t hesitate to contact a member of the team.

With rising inflation, you may have found yourself looking more closely at your household budget, prioritising where your hard-earned income and savings should be spent. Whether you are running a monthly deficit or surplus, budgeting is a crucial tool in understanding exactly where your money is going, helping you ensure it is working in the best way for you.

Below, we have compiled a number of tips to make the most of your own budgeting.

Start Simple

If the idea of budgeting sounds daunting, start with a simple spreadsheet of all of your known expenditure. This will include costs that are easy to ascertain – think utility and food bills. Once you have this, you can start to add costs that are trickier to determine, for instance personal grooming and holidays.

Using a spreadsheet will allow you to total up costs quickly and amend figures as your circumstances change. Your budget should be a working document that you consult and adapt regularly, maintaining its accuracy.

Work up to Including Everything

Eventually, your budget should include everything – from large to small expenses. This will help ensure it is an accurate reflection of your finances.

This also includes anything that a partner pays for, even if you keep your affairs separate, to show your expenditure as a household.

Don’t Forgot One-Off Costs

Remember to include discretionary expenditure, or at least an assumption for this. One-off costs (such as car insurance, building work, Christmas/birthday costs) should be accounted for so that the cash is available when such things crop up. Savings for this type of expenditure could also be held in a separate account to help limit overspending. This might also help you to fund things like car insurance on an annual rather than monthly basis, reducing the overall cost.

Save First, Spend Later

It might seem obvious to spend each month and save anything leftover. However, this can make saving optional. Alternatively, understanding how much you can afford to save each month means you can move this away from a main account to a separate savings account on the first of the month. Again, this helps prevent overspending.

Factor In Some Fun

Adding a little wiggle room for something fun, like a cinema trip or coffee with a friend, can make it easier to stick to your budget in other areas. Budgeting isn’t short-term; think of this like a cheat day for your finances.

Ask For Help

If you are just starting out with budgeting, it might be helpful to ask those around you to give you an idea of some of their costs. This can help you to start planning while you are figuring out your actual spending habits, for instance if you are just starting out on your own.

Of course, we are also happy to offer our clients a helping hand with their budgeting. If you have any questions on the above, or would like any more information, please contact one of the team.

With the Consumer Price Index (CPI) now standing at 9% for the 12 months to April 2022, the Bank of England has been acting to curb inflation by increasing the base rate, with the most recent rise from 0.75% to 1% taking place at the beginning of May.

We recently wrote an article on the best interest rates available for cash savings, and with rates on an upward trajectory, it is important to ensure you are achieving competitive rates to get the most out of your cash savings.

The best instant access rates are now sitting around a variable rate of 1.2% pa gross, up from 1% pa gross a month ago. As we noted previously, some accounts do offer a slightly higher interest rate but require a linked current account or limit the number of withdrawals.

Fixed rate accounts have also increased, with several providers offering the following: 1-year fixed rate 2.30%; 2 years 2.65%; 3 years 2.70%; 4 years 2.75%; 5 years 2.85%.

In addition, National Savings & Investments (NS&I) have announced that they will increase the Premium Bonds prize fund rate from 1.00% to 1.40%, effective from the June 2022 prize draw. The odds of winning a Premium Bonds prize will also change from 34,500 to 1 to 24,500 to 1.

The increased prize fund rate will see an estimated additional 1.4 million prizes paid out in the June Premium Bonds prize draw. Prizes are tax free and savings are backed by HM Treasury.

Whilst savings rates are rising, your mortgage/loan interest rates could be also, so it is important to ensure that you are achieving competitive rates on any debt too. There are a number of comparison sites available to aid your research.

If you would like to discuss the above, please do not hesitate to contact a member of our team.

All rates quoted are annual, before tax, and mainly for online access as at 23/05/2022.

As we (hopefully) move towards the warmer weather, you may be planning a spot of spring cleaning. If this extends to your finances and you find yourself organising and decluttering a stack of financial paperwork, we typically recommend that you keep to the following:

• Tax documents – paperwork for the current tax year and the previous six tax years should be retained.
• Valuation/policy statements – typically, the most up to date statement will suffice, but you may prefer to keep previous statements too.
• Bank statements – we usually recommend keeping two years’ worth of documents accessible, although many banks offer these online now.
• ID documents/vehicle documents/financial agreements/policy documents – it may be obvious to some, but these should be retained for their lifetime.

 

Following this, the remainder can likely be let go, and by let go we mean shredded. Destroying documents securely is extremely important to prevent identity fraud.

We are happy for our clients to pass any unwanted documents to us, and we can arrange for these to be professionally shredded. Alternatively, you can hold onto them until your next planning meeting, and we can take them off your hands then. If you are not sure what to retain, we can also sort through these for you.

If you have any questions in this respect, or would like to discuss the above further, please contact one of the team.

On Wednesday 23^rd March, the Chancellor, Rishi Sunak, unveiled his plans for the Spring Statement in the House of Commons. Here are some of the key changes that may have an impact on you:

Fuel Duty Slash

Fuel duty is to be cut by 5p per litre, the biggest cut to rates ever made. This change comes amidst record fuel prices to help mitigate against the increase in costs. The cut will be in place until March 2023.

VAT relief on zero-emissions schemes

Homeowners installing energy-efficient materials to their homes, such as solar panels or heat pumps, will see a cut in VAT from 5% to zero for the next 5 years from April.

National Insurance Contributions Threshold Increases

From April 2022, the threshold at which individuals start paying National Insurance contributions will increase from £9,568 to £9,880. The threshold will then be increased further to £12,570 in July 2022, aligning it with the income tax personal allowance. This will save the average tax payer more than £330 per year.

However, don’t forget that National Insurance is increasing by 1.25 percentage points in 2022/23 to account for the health and social care levy. So overall, you may still be paying more National Insurance than in the 2021/22 tax year.

Basic Rate Tax Reduces

Basic rate tax is set to reduce from 20% to 19% from April 2024. This means that for every £100 individuals earn in the basic rate band (between £12,570 to £50,270 of earnings for the average tax payer), the income tax payable will be £19 instead of £20. This is a net gain for all income tax payers.

Summary

These measures have arisen against a backdrop of growing concern over rising living costs, with the Consumer Prices Index (CPI) rising by 6.2% in the 12 months to February 2022. Many other parties and charities have raised concerns that the Chancellor has not provided enough support to households.