Happy New Year from Our Family to Yours

Firstly, on behalf of the advisers, myself, Mark, Simon and Andy all wish you a very Happy New Year!  As we enter 2021 with hopes of lockdown restrictions easing, being able to see and hug our nearest and dearest, the roll out of the Covid-19 vaccination and the prospects of the new ‘normal’ - I am writing to you about a topic which you hold closest to your hearts – family and the next generation.

2020 has been a surreal experience for us all on a personal level and we will have all been affected by the Coronavirus pandemic.  Some of these affects will be short lived, but for our younger generation the financial implications of the pandemic could last for years to come. 

The UK Government have ‘borrowed’ hundreds of billons of pounds to help stabilize the economy with the hope that this fiscal stimulus will continue to support businesses and preserve jobs.

But – this has to be repaid and we are all waiting with bated breath to find out how the Government will even attempt to repair and recover this financial fallout.  Unsurprisingly tax rises are being suggested off the back of this latest round of ‘borrowing’ with rumours in the press that Capital Gains tax rates being aligned to Income tax. 

The good news for many of us, is it will not be us having to do the hard work. We are not borrowing this money from the bank or other countries; we are borrowing this money from our children and grandchildren.  Whether that is via creating inflation and suppressing interest rates (which creates its own problems over the long term), or by further austerity measures and tax rises, we are storing up a potentially insurmountable problem for our heirs.

Other challenges our younger generation may face now and in the future are:

  • Mortgages and starting out on the property ladder: Currently in almost all cases you will need a deposit of at least 5% of the property price but, the average first-time buyer deposit for a house in the UK is now around 15%!  *The average house price in the UK costs around £232,000 with a deposit required of £34,800.
  • Unemployment and future employment prospects: There are currently over **7.6 million jobs at risk in the UK and this is rising.  The sectors worst effected being accommodation and food services, arts and entertainment, retail and construction.
  • Protection market:  The knock-on effect of high levels of unemployment are catastrophic.  Not only does this impact on stress and mental wellbeing but also the costs of protecting our circumstances if those disaster situations arise, will become too expensive.
  • Taxation: Rising taxation and low interest rates will automatically mean that less money is coming into the family home and when it is saved, is suffering from inflation risk and possibly even negative interest rates over a long timeframe.  Does your son or daughter suffer from the high-income child benefit tax charge which removes the financial assistance of child benefit?

What can we do?

When things go wrong our natural instinct is to protect our loved ones, whether they are children, grandchildren, brothers, sisters, nieces, nephews, friends.  Whilst this article may seem very negative, the good news story is that there are many ways of maximising the taxation system to the benefit of your family:

·        Make use of annual exemptions. Whilst there are many annual exemptions available, the most commonly used is the “£3,000 annual allowance”. Gifts at this level are immediately outside the scope of an inheritance tax charge, and for those with clear evidence of surplus wealth, this is a mechanism that should absolutely be being taken advantage of.

·        Gifting “out of income”. Genuine surplus income, even that in excess of £3,000 can be gifted away as it arises and be immediately outside the scope of an inheritance tax charge. Gifting funds into a pension or ISA for your heirs, for example, is a potentially highly tax-efficient means of transferring wealth for their future. 

If your child has lost some / all of their child benefit due to the High-Income Child Benefit Tax Charge, making a simple pension contribution on their behalf may reinstate the child benefit.  This is subject to a number of other factors, but we can help you or family member navigate their way through this.

·        Making lump sum gifts, either to individuals or into trust. Gifts of this nature will be subject to “qualifying rules” but are likely to make bigger inroads into your liability than “out of income” gifts.

·        Insuring your liabilities. It is possible to use insurance to protect your family against the prospect of an inheritance tax charge further down the line. The plan would need to be written in a certain way to ensure the strategy worked correctly but, particularly for those of a younger age, this method could prove to be a good long-term option.

Let’s Chat….

The above list is not exhaustive and there are further ways of preserving wealth for your loved ones or even removing a serious financial burden.  One thing is for certain – they need your help!

And we can help too – we are here and available to speak to you or your family member at any time and we would love nothing more than to help you help them.  We offer a full range of financial advice and are happy to hold a no obligation first meeting to review their needs.

We hope to use 2021 to go some way into turning this last 12 months into a positive for future years to come.

We wish you health and happiness for 2021 and look forward to seeing you at your annual review.

Article published: 18/01/2021

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