Our Summer Newsletter covers an update on Eldon’s developments together with a range of other articles.
I hope you enjoy reading it.
If you have any ideas for future articles or any feedback, please feel free to get in touch.
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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.
Whether you are wanting to help your children in the future with a house deposit, wedding or to provide them with funding to pay for university, saving for your children can help them get off to a flying start.
Teaching young people the value of savings can also lay the foundations for a wealthier, more independent life when they reach adulthood.
Maximising ISA allowances is one way to save for children. A Junior ISA (JISA) can be opened for a child up until their 18th birthday, per current rules, with an annual subscription limit of £9,000 in the 2022/23 tax year. Once opened by a parent or guardian, anyone can contribute to a JISA.
A JISA can either be held as a Cash ISA, similar to a normal savings account, although the money cannot be withdrawn until age 18. There is also the option of a stocks and shares JISA, which can invest in a range of stocks and shares, funds, tracker funds, investment trusts etc. You can split the subscription limit whichever way you like between the two types of JISAs.
Once the child turns 18, the JISA is automatically rolled over into an adult ISA which gets the full ISA allowance of £20,000 per tax year (as at 2022/23). However, a child can open an adult cash ISA once they reach age 16, which will also allow the full annual adult ISA allowance of £20,000.
Therefore, it is possible for a child to hold both an adult cash ISA as well as a JISA from the time between their 16th birthday and their 18th birthday. This means that during this period, up to £29,000 can be paid into their ISAs in a single tax year. Over the whole period, this can total tax-free savings of £87,000 in three years!
If you would like to discuss the above further, please do not hesitate to contact a member of our team.
In response to rising inflation, the Bank of England increased the Base Rate in December, February, and March, with this now at 0.75% pa.
As a result, interest rates have increased on both mortgage products and savings accounts. Santander, for example, have now increased the interest rate on their 1-2-3 current account from 0.30% pa to 0.50% pa.
National Savings & Investments (NS&I) have increased the rates on both its Income Bonds and Direct Saver accounts to 0.50% pa. The annual equivalent prize rate of the Premium Bonds remains unchanged at 1% pa, if you are averagely lucky, but there is no guarantee you will achieve this return.
The above noted increases are still short of the Base Rate and although savings rates are changing on an ongoing basis, it appears that not all Banks and Building Societies are passing on the latest rises to savers at present.
The best instant access rate available is now up to 1% pa gross variable, with some providers including an introductory bonus in the headline rate. Whilst it is possible to achieve up to 1.5% pa gross variable, these rates are often linked with current accounts, so will require savers to open this account first if they do not hold one already. This will not suit the majority of savers, where simplicity is desired.
Fixed rate accounts have also increased: 1-year fixed rate 2.05%; 2 years 2.35%; 3 years 2.50%; 4 years 2.55%; 5 years 2.60%.
It is important to ensure that you are achieving competitive rates on your savings and there are a number of comparison sites available to aid your research. We regularly check this for our clients as part of our ongoing service.
Ensuring your funds are covered by the Financial Services Compensation Scheme (FSCS) is also an important consideration when researching savings accounts. The FSCS protects deposits up to £85,000 per financial institution should a financial firm fail. It is important to note that this limit applies per institution and not per account, as many providers share a banking licence, so in this case, the £85,000 limit is spread across total savings with linked providers.
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 26/04/22.
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:
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 23rd 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.
We have held off writing this piece pending developments in the ongoing conflict in Ukraine. It now seems clear that an early cessation of the conflict is unlikely and hence we wanted to reassure you in respect of the impact on your financial planning arrangements.
World stock markets remain particularly volatile. Under rules that were introduced in 2018, you may receive a notification from us that the value of your portfolio has fallen by 10% or more since your last quarterly valuation. Many clients received such letters in the early stages of the covid crisis so you may be familiar with this. Whilst such an event is unwelcome, many of you will have experienced market downturns before now and know that the best course of action is to sit tight and wait for the value of your portfolio to recover. One of the main reasons that we show performance graphs in our review meetings is to demonstrate that market falls are not unusual, that recovery follows, and the long-term trend has been upwards.
The unknown in any market downturn is how long a recovery may take to materialise and we cannot begin to forecast this in respect of the Ukraine conflict or any other downturn. However, we aim to mitigate the risks of such downturns by means of our financial planning incorporating cashflow modelling. The following planning mechanisms are common to all Financial Plans that we create and will vary simply with personal circumstances:
Using these mechanisms means that in the vast majority of circumstances clients can rest easy during a market downturn. But if you remain concerned you can consider the following steps:
Of course, if you are considering further investment then investing when markets are low can be a benefit. Those making regular contributions to their investment and pension portfolios will be buying more units for each contribution made.
Financial markets across the world have reacted in a volatile manner to the situation in Ukraine and markets will likely remain volatile as the situation develops due to the uncertainty.
You may feel concerned about your investments given the news emerging from Ukraine, and this is entirely understandable. If you are feeling concerned it is important to remember the following:
We will continue to monitor events very closely and, if you are a client, we will be in touch should we feel any action is needed before our next meeting.
However, if you have any personal concerns please do get in touch – we are happy to talk this through with you and reassure you that your plans are still on track.
With the end of the current tax year fast approaching, it’s worth considering the various allowances available to individuals and keeping track of the use of these. Such allowances will ‘reset’ from the beginning of the next tax year; 6th April 2022.
Below, we have outlined some of the key considerations and the current rules:
ISA Allowance
This is the maximum amount that can be invested into ISA wrappers each tax year, currently at £20,000 pa. It can be split across a Stocks & Shares ISA, Cash ISA, Lifetime ISA (maximum of £4,000 pa), and/or an Innovative Finance ISA, as long as you keep within the overall limit and don’t contribute to more than one of each type.
Money held within an ISA is free from Income and Capital Gains Tax, and withdrawals can be made tax-free.
Pension Allowance
Your Annual Allowance is the most you can save in pensions in a tax year with tax relief applying before incurring a tax charge. The standard Annual Allowance is £40,000 pa, although separate limits may apply that can reduce this.
The maximum you can contribute to a pension and qualify for Income Tax relief is the higher of 100% of your relevant UK earnings or £3,600 gross, subject to your Annual Allowance. Income Tax relief can only be received until age 75.
Capital Gains Tax (CGT) Annual Exempt Amount
Each year, individuals have an Annual Exempt Amount for Capital Gains Tax, above which tax will be payable on gains. By gain, we mean the ‘profit’ that is made on the disposal of certain assets. The exemption can be managed within an individual’s planning to help minimise CGT liability.
The annual exempt amount for 2021/22 is £12,300 and is frozen at this level until April 2026.
Inheritance Tax Gifting Exemptions
Individuals can make use of their annual gifting exemption, currently £3,000 pa, by gifting this amount and having it fall immediately outside of their estate for Inheritance Tax purposes. Any unused amount can be carried forward to the next tax year, but no further.
Depending on their level of income and expenditure, individuals may also be able to make use of the ‘gifts out of surplus income’ exemption. Certain requirements must be met to use this, but if used successfully the gifts will also become immediately free of Inheritance Tax.
Summary
We manage the above allowances and exemptions within our clients’ wider financial planning, as part of our ongoing service. This ensures they are making good use of their resources over time.
If you would like any more information on the above, please do not hesitate to contact a member of our team.
The Consumer Price Index (CPI) rose by 5.4% in the 12 months to December 2021. This is the highest CPI 12-month inflation rate recorded in the National Statistical data series since it began in January 1997, and it was last higher in the historical modelled data series in March 1992, when it stood at 7.1%.
Inflation has been creeping above the Bank of England’s 2.0% target since May 2021, with significant increases in October, November and now December. But what are the main contributors to this figure?
Transport
Movements in transport costs have mainly been caused by the increase in the price of motor fuels. Fuel prices reduced over the 12-month period to February 2021 but have since increased to much higher levels. The average petrol price stood at 145.8p per litre in December 2021, compared with 114.1p per litre a year earlier.
The price increase of second hand cars has also been a factor, with a cumulative increase in used car prices of 28.0% since January 2021 compared with 7.3% over the same period in the previous year. This has mainly been driven by increased demand after lockdown and the global shortage of semi-conductor chips affecting new car production, which has steered consumers to the used car market.
Energy
This comes off the back of downward prices for energy and gas over much of 2020 and the first quarter of 2021, reflecting the reduction in the energy price cap at the time. This fall was reversed in April 2021 with rises of over 50% in energy costs, as gas prices hit record highs as the world emerged from lockdown.
The energy price cap is set to rise significantly again in April 2022 due to continued volatility of wholesale energy prices.
Looking ahead
We cannot be sure how much further inflation will rise, but the Bank of England has now raised the base interest rate to 0.5% to combat this, the second increase in as many months.
We will continue to monitor both inflation and interest rates and what this means for clients.
