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Budget

Feeling Positive About Money Despite the Pandemic

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Are you feeling positive about the state of your finances right now? Especially amidst the pandemic?

One trend emerging from the Covid-19 pandemic and the associated lockdown was a typical cut in spending.

According to new research, nearly half of us are staying positive about our money matters after lowering our spending levels.

But, as the shops reopen for business, the fashion sector could suffer as more than two-thirds of shoppers say they will consciously spend less on clothing.

Cashback website, Top Cashback, spoke to people about their money sentiments.

When they asked the question before the lockdown, they found that 80% of us felt optimistic.

Turning to today, the same question prompted only 60% of people to claim they are feeling optimistic when it comes to their finances.

12% said they are feeling pessimistic.

Of those who are feeling optimistic about their financial future, nearly half said they were spending less money during the lockdown.

Half of the respondents said their financial circumstances look different following the pandemic, although not necessarily worse.

Some people are spending more money since the onset of the lockdown, with 20% experiencing higher food bills, or splashing out more cash on home improvements.

Thinking about steps we could have taken to be better financially prepared before the Covid-19 pandemic hit, nearly a fifth said they would have saved more money each month.

However, 455 said there was nothing more they could have done to better prepare their finances.

Adam Bullock, UK Director of TopCashback.co.uk, said:

“It’s encouraging to see a percentage of people feeling optimistic about their finances, despite the current climate. However, it’s also important to remember that we, as an entire population, may be feeling the effects of the pandemic for years to come.

“Whilst every financial situation is particular to the individual, as a money-saving platform, we would always encourage people to save money where and when they can. Now is a great time to be analysing your finances so that when normal returns (if ever that happens) you will hopefully be feeling some of the benefits of learned behaviours.”

At times like this, it is possible to be prepared – this can be achieved by having a wealth plan. It is important to plan your financial future to accommodate for many potential scenarios, especially if you’re a business owners or practice owner professional.

If you would like to speak with a wealth planner, you can contact us via email, scheduling your Exploration Call or by our online contact form on our website.

We provide lifetime wealth planning tailored to you and your personal situation and circumstance and would love to hear from you.

Budget date confirmed and here’s what it could contain

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It has been confirmed; the Budget will take place on Wednesday 11th March 2020.  The Chancellor of the Exchequer, Sajid Javid, has launched the beginning of the Budget process, announcing that it will take place only a few weeks before the end of the tax year. 

During a visit to the new £350 million Trafford Park tramline project in Manchester, the Chancellor set out plans to use the Government’s first Budget to deliver change.  He plans to use the Budget as a platform for unleashing Britain’s potential, delivering world-class public services and levelling up the whole country.  

The Chancellor of the Exchequer, Sajid Javid, said, “People across the country have told us that they want change.  We’ve listened and will now deliver.  With this Budget we will unleash Britain’s potential – uniting our great country, opening a new chapter for our economy and ushering in a decade of renewal.” 

Javid is expected to set out plans in the March Budget to open a new chapter for the UK’s economy and prepare it for the decade ahead.  He aims to deliver on the Government’s promises on tax, to help tackle the cost of living for hard-working people. 

Furthermore, he would like to make good on the commitment to level up and spread opportunity, including by investing billions of pounds across the country. 

At the Budget, the Chancellor will update the Charter of Fiscal Responsibility with new rules, taking advantage of low-interest rates to invest appropriately and responsibly, while keeping debt under control. 

Although at Wells Gibson, we don’t like to speculate, we pay little attention to economic forecasts and, we can’t know exactly what the Budget will contain, until it’s announced in the House of Commons, there are a few areas where proposals seem very likely. 

New legislation will be introduced in April 2020 to stop the abuse of National Insurance and tax contributions relating to off-payroll labour in the private sector.  Therefore, if you are a contractor, you need to consider whether you fall inside or outside the IR35 rules by April 2020. 

On property, there is likely to be significant changes to Capital Gains Tax, especially for Lettings Relief and Principal Private Residence relief.  On 6th April 2020, Lettings Relief will be adjusted to only apply on the case where the owner is in shared occupation with a tenant. 

In respect of primary residences, PPR relief could be reduced from 18 months to 9 months if you buy a new home before you sell your old house.  This change will mean that individuals set on moving will need to stay in their home until it is sold or ensure that a sale of their old property takes place within nine months of them moving out to avoid a potential CGT charge. 

The March Budget could also introduce some changes to Inheritance Tax.  Last summer, the Office of Tax Simplification published its second report making proposals to reform the Inheritance Tax system.  This report covered the main areas of complexity for the tax, along with some of the technical issues caused by the current system.  They proposed several significant changes to the Inheritance Tax system, supported by a common perception that IHT rules are overly complicated and ideal for reform. 

Pensions could come into the firing line for the Chancellor in his Budget statement.  As things stand, tax relief on pension contributions tends to benefit higher earners disproportionately.  There are also widespread concerns about limits on pension contributions, with doctors and senior NHS staff, in particular, facing punitive charges, some taking early retirement or refusing to work additional shifts as a result. 

It’s likely the Budget will prioritise the environment and build on recent announcements to boost spending on public services and tackle the cost of living.  These spending announcements include investing in new hospitals, training thousands of new police officers, funding vocational education and the biggest ever cash increase to the National Living Wage. 

We look forward to seeing what the Budget will deliver, and whether it can indeed start a new chapter for the UK economy, seizing the opportunities that (as Boris would say) come from getting Brexit done. 

Comparing your spending with others

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Our clients are often interested in how their household spending compares to others.  Do they spend more than their neighbours, about the same, or less?  This financial curiosity has been satisfied with the publication of new official figures reporting on household spending across the UK.

The latest Family Spending Survey from the Office for National Statistics (ONS) offers an insight into the spending habits of UK households, broken down by household characteristics and types of spending.  At a headline level, it shows that average weekly spending is up to £572.60 for the year ending March 2018.  This is the highest level of weekly spending since 2005, when adjusted for inflation.

According to the ONS, this rise in UK household spending is correlated with an improvement in the employment rate, which reached a record high of 75.6% in the first quarter of last year.

The ONS reports that the biggest outlay for households was transport.  The average household is now shelling out £80.80 a week on its transport costs.  A further £76.10 per week was spent on average on housing costs, fuel and power.  This was followed by an average of £74.60 a week on recreation and culture.

In addition to spending habits, the report also looks at how much we are saving.  It found that our savings ratio has fallen to its lowest level since records began, to just 3.9%.  Such a low savings ratio suggests that households are dipping into their savings, and even taking on new debt, in order to spend more and keep up with their lifestyle costs.

Looking at spending habits across different parts of the UK, the ONS report found some interesting differences.  Perhaps unsurprisingly, London households are spending the most each week with an average weekly spend of £658.30 in the City.  Other parts of the country to report above average levels of weekly spending were the South East, South West and East of England.

In contrast, the lowest average spending was reported in the North East of England, where households were spending an average of £457.50 each week.  There was also below average spending in Scotland, Northern Ireland and Wales, at £492.20, £488.50 and £470.40 a week on average respectively.

Another trend identified in the report was less of an outlay on alcoholic drinks.  It’s not the first time the ONS has spotted this downward trend.  Households are now spending an average of just £8 a week on alcohol.  A decade earlier, this figure was £10.90 a week, when adjusted for price inflation. More is being spent on food and non-alcoholic drinks compared to a year earlier; £60.60 a week now compared with £58 a week (inflation adjusted) back in 2008.

Commenting on the figures, Helen Morrissey, pension specialist at Royal London, pointed out they represent a home maintenance time bomb for the over 50s.  She said:

“Today’s figures show that just because people may have paid off their mortgage it doesn’t mean they stop spending on their house and many are facing a home maintenance time bomb.

“The stats show almost a quarter of all housing expenditure in households headed by people aged between 50-74 was on alterations and improvements such as central heating installations and double glazing. This figure is much higher than the average for all households which is more like 14%.

“It demonstrates the importance of having the necessary savings to meet these sizeable and often unexpected expenses for those approaching and in retirement. Being unable to meet these expenses as we get older can lead to people being forced to move from much loved homes because they no longer meet their needs.”

Of course, how you allocate your own household spending each week is likely to vary from these national averages.  What matters is that expenditure is intentional and forms part of your overall financial planning, helping you to achieve and maintain your desired lifestyle.

At Wells Gibson we put your life at the centre of our conversations and design a Wealth Plan which makes it easier for you to visualise and achieve the life you want; answers your big questions and helps you prepare for your life’s transitions; and gives you the greatest chance of a successful investment outcome and fulfilled life from the money you have and will have.

Here’s what you need to know about the Budget

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Chancellor Philip Hammond has delivered his latest Budget to parliament, the first to take place on a Monday since 1962.

It was also the longest Budget speech in a decade, with Hammond announcing an end to austerity and some generous tax breaks as economic forecasts suggest a smoother ride ahead.   Quoting figures from the independent Office for Budget Responsibility, he explained the deficit has fallen by four-fifths since 2009/10.  Back then it stood at 9.9% of GDP, falling today to reach 1.9%.

According to the Chancellor, public debt peaked in 2016/17 and is now falling.  Average spending on public services is forecast to grow in real terms by 1.2% each year, from next year through until 2023/24.

Hammond was in a relatively jubilant mood, confirming that the UK economy has grown in each year since 2010, with projections suggesting it will continue to grow in each year of the forecast term.

He also talked about the unemployment rate standing at its lowest in more than 40 years, with more than 3.3 million more people in work than there were back in 2010.  In fact, the Office for Budget Responsibility is forecasting 800,000 more jobs by 2022.  Despite these positive figures, the Chancellor reaffirmed his fiscal rules and promised to upgrade the Spring Statement next year to a full Budget, should this prove necessary to keep the economic forecasts on track in the light of Brexit.

Hammond saved his biggest announcements until the end of his speech; a faster-than-planned increase in the income tax personal allowance and higher rate tax threshold.  This means that for Scottish and English tax-payers alike, the personal allowance (the amount you can earn free of income tax each year) will rise to £12,500 in April 2019.  This formed part of a Conservative manifesto pledge, but is now happening a year earlier than promised.  According to the Treasury, it means a basic rate taxpayer will pay £1,205 less tax in 2019/20 than they did back in 2010/11, as a result of a rising personal allowance.  As for the higher rate tax threshold, this will increase from £46,350 to £50,000 in April 2019, for English tax-payers.  It means that there will be nearly 1 million fewer higher rate taxpayers in 2019/20 compared to 2015/16.

It was a long Budget speech but pensions were notable by their absence.

Within the accompanying Budget papers we discovered that the lifetime allowance for pension savings will rise to £1,055,000. This is slightly higher than expected, with the September figures for the Consumer Prices Index suggesting the new lifetime allowance would be £1,054,800.

There was plenty of speculation ahead of the Budget that pensions tax relief was under threat. However, no changes were made to the annual allowance for pensions, associated rules or tax reliefs.

Steve Webb, Director of Policy at Royal London said:

“The Chancellor’s windfall from better-than-expected borrowing forecasts meant that he did not have to cut back pension tax relief in this Budget.  But having described the system as ‘eye-wateringly expensive’ it is likely to be only a matter of time before this Chancellor – or his successor – comes back for more.  Today’s respite for pension tax relief is likely to be only temporary.”

The Budget also featured very little for savers, other than some minor changes to Premium Bonds from National Savings & Investments, making these more accessible in the future by lowering the minimum investment amount to £25 and making it easier to gift them to a child.

The annual subscription limits for Individual Savings Accounts (ISAs) will stay at £20,000 next April, but the Junior ISA allowance will rise in line with CPI price inflation to reach £4,368.

This same limit will also apply to Child Trust Funds (CTFs), although a consultation will be published next year to consider draft regulations for maturing CTF accounts.

Business owners should be relieved to hear that entrepreneurs relief on capital gains tax remains in place, despite calls for this tax break to be scrapped.  The qualifying rules do however become slightly more onerous, with the minimum qualifying period extended from 12 months to 24 months, from 6th April 2019.

As with every Budget, the devil is in the detail and it could take some time for all of the nuances from this Budget to become fully apparent.

In the meantime, please contact Wells Gibson if you have any questions about the impact of this Budget on your own personal financial planning.

2018 Autumn budget and pension tax change speculation

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With the summer holidays drawing to a close, the inevitable round of speculation about pension tax relief changes in the Autumn Budget has begun.

Media reports suggest that Chancellor Philip Hammond has his eyes on cuts to higher rate tax relief on pension contributions when he presents his Budget statement to the House of Commons in November.  The Chancellor has a challenging Budget ahead, with a desperate need to find extra funding for the NHS, the £20bn already pledged by the Prime Minister.

According to an unnamed senior government minister, Hammond believes higher rate tax relief on pensions represents ‘one of the last remaining pots of gold we can raid’.  This suggestion will worry higher rate taxpayers who currently enjoy this generous tax relief on their pension contributions.

As things stand, basic rate relief is added to the pension pot, with the ability for higher rate taxpayers to reclaim the difference between basic and higher rates of income tax through self-assessment.  However, the unnamed government source is also reported to have said Hammond is only likely to target those who can afford to contribute tens of thousands of pounds to their pension pots each year.

Pension tax relief is always under threat in the Budget, if media reports leading up to the big day are to be believed.  The last major round of speculation was a couple of years ago, when then Chancellor George Osborne had his eye on £1.5bn of tax savings by changing pension tax relief to a flat-rate.

Lending weight to the speculation on this occasion is a Treasury Committee report, published last month, which concluded existing pension tax relief was neither an effective or well-targeted way of encouraging people to save into pensions.  Despite recommending the Treasury considered making fundamental reform to pension tax relief, the report recommended that the current system could be improved through further, incremental changes to tax relief.  According to the report, ‘Household finances: income, saving and debt’:

“The government should consider replacing the lifetime allowance with a lower annual allowance, introducing a flat rate of relief, and promoting understanding of tax relief as a bonus or additional contribution.”

Cutting the pension annual allowance is an option on the table for Hammond.  The annual allowance is a limit on how much you can contribute to your pension each year, while still receiving tax relief.  It currently stands at £40,000 but is tapered down to as low as £10,000 for higher earners with earnings exceeding £210,000 a year.  For those who have taken taxable income flexibly from their pensions, a Money Purchase Annual Allowance (MPAA) of £4,000 applies instead of the £40,000 figure.  In any case, your earnings in the tax year need to be sufficient to justify the size of the pension contribution, with opportunities to bring forward any unused annual allowance from the previous three tax years – unless that is, the MPAA applies to you.  This ability to carry forward unused annual allowance could also be attacked in the Autumn Budget, changing to a ‘use it or lose it’ approach, similar to use of Individual Savings Account (ISA) allowances in each tax year.

Should the Chancellor decide to cut the annual allowance in his Autumn Budget, to a yet unknown figure, he might give back the abolition of the lifetime allowance as a concession.  The lifetime allowance is a limit on the total value of pension benefits you can draw from all pension schemes, either as lump sums or retirement income, without it triggering an extra tax charge.  Since April 2018, the lifetime allowance has been set at £1,030,000 and is due to increase at the start of each tax year, in line with price inflation.  A relatively low number of people are caught by the lifetime allowance, and many of those who will be, are entitled to a higher lifetime allowance figure by virtue of applying for ‘protection’ certificates when it was historically set at a higher level.  For some of those individuals with lifetime allowance protection certificates in place, this entitlement to a higher lifetime allowance came at a cost, that is, not being able to make any future pension contributions, or losing that protection and seeing more of their pension benefits being subjected to a future tax charge.

Abolishing the lifetime allowance entirely would be a popular move for those fortunate to have this level of pension benefits, even if it came with a corresponding reduction in the annual allowance.

Another possibility is the Chancellor will scrap the current system of pension tax relief, replacing it with a flat-rate tax relief.  Earlier this year, the Royal Society for the encouragement of Arts, Manufactures and Commerce (RSA) put forward the case for a flat-rate of pension tax relief at 30%, specifically as a way to help the self-employed.  They estimated this reform would leave three-quarters of savers better off, including those earning low incomes and the self-employed.  It would also save the Treasury a great deal of money each year in tax reliefs.

Of course, the one pension perk where conspiracy theories circulate ahead of each Budget is pension tax-free cash.  Since tax-free cash was renamed the ‘pension commencement lump sum’, it has seemed fair game for the Treasury to place a cap on how much lump sum can be taken tax-free, or simply subject all cash withdrawals from pensions to income tax charges.  This form of attack on pensions seems far less likely than a cut in the annual allowance or even the introduction of flat-rate pension tax relief.

Other potential opportunities being considered for the Budget will undoubtedly include cutting tax breaks on smaller company investing, which could spell bad news for higher-risk, tax planning products such as Venture Capital Trusts and Enterprise Investment Schemes.

If you find yourself potentially worse off should the annual allowance be cut, ability to carry forward unused annual allowance removed, or pension tax relief changed to a flat-rate, then taking some action ahead of the Budget could make sense.

Talk to Wells Gibson about your options, and we can help you understand the impact of any of these changes on your own long-term financial planning and in particular, your desired lifestyle and goals.