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Investing for children – The best ways to financially support

The average British child is worth just under 5,000 by the time they reach school. Chartered Financial Planner Rick Hollington discusses investing for children and the best ways that you can support them financially.

It can be difficult to know what initial steps to take when it comes to investing for children. There are many reasons why your descendants might look to you for financial support, and many routes you could take in funding them, if you so choose.

All children, regardless of means, benefit from learning simple concepts like saving to attain goals and operating within a budget. That can start with pocket money for non-essentials and mature into allowing teenage children to manage their own clothing budget or take control of a portion of the family’s charitable donations. You may even want to allow older teens to allocate and manage a small portfolio for exposure to investments.

 

Children’s key life moments

A nationwide survey [1] of parents has revealed the wealth that average British children have accumulated by the time they reach adulthood, with the average UK child having amassed just under £5,000 by the time they reach school at the age of five, just over £10,000 by the age of 18 and £12,000 by the time of their 21st birthday.

The majority of UK parents surveyed said they began saving for their children’s key life moments when they were five years old, with 27% saying they started before their child reached their first birthday and 15% even admitting they began before their child was even conceived!

 

Making their own money

The findings revealed that £125 a month was the average amount that parents put aside for their child’s future each month. 39% of those who responded said they feel it is the duty of every parent to save for their children, whilst 55% believe it is their duty but admit they can struggle with the obligation. One in 20 (6%) insist their children should make their own money and their own way in life, without assistance from their parents.

 

Best possible start in life

Everyone wants to do right by their child but we appreciate it’s not always easy. Instead of large presents on birthdays or at Christmas, consider using part of the budget to save for their future. The majority of parents want to give their child the best possible start in life, but what are the best ways to begin investing for children? Some ways of passing money on to your children can start very early, including putting money into a Junior Individual Savings Account (JISA) for your child.

 

Helping the younger generation

The current annual allowance for contributions is £9,000 (tax year 2022/23), meaning that if you start paying into a JISA when your child is young, they could find themselves with a sizeable sum of money by the age of 18. Focusing on later life stages, some parents might also consider contributing to their children’s pension pots.

Covering school fees and other expenses for grandchildren is another possible way to help out younger generations financially. But with house prices at historically high levels, the most common ‘Bank of Mum and Dad’ queries we receive concern helping the younger generation onto the property ladder.

 

Invest in your children today

Putting money aside for a child is a great way to prepare them for their future, and can also teach valuable lessons about their managing their finances. To discuss how we could help you make their savings work harder, please contact us for more information.

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Source data: [1] The research of 1,500 parents with dependents currently living at home with their parents, was commissioned by Perspectus Global in March 2021 on behalf of Brewin Dolphin

Intelligent Wealth – July/ August 2022

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Looking to build wealth solutions based on your needs?

Everyone has their own unique goals to enhance their wealth. Creating a strategic plan for your future is the best way to ensure that your personal and business goals are achieved.

To find out more about how expert financial advice from Fairstone can support you in various areas of your life – please contact us.

Financial wellbeing the key to improved mental health?

Repeated studies have shown that financial wellbeing is intrinsically linked to improved mental health.

Research conducted by the independent charity Money and Mental Health Policy Institute, suggests that a poor financial situation will have a detrimental effect on an individual’s mental health, producing physical and psychological symptoms such as loss of sleep, poor concentration, and reduced motivation.

Yet according to the latest Financial Capability Survey, 39% of adults in the UK (20.3 million), don’t feel confident managing their money.

Facing up to your financial situation and making small changes to your financial planning can have a big impact on your current wellbeing as Fairstone Chartered Financial Planner Sarah Tory explains at the start of World Wellbeing Week (June 27).

 

Financial wellbeing

The last two years have very clearly highlighted the importance of physical, mental, and financial wellbeing. As a financial adviser, financial wellbeing for my clients is my goal; it’s why I get up and turn my laptop on.

Financial wellbeing is known by many names, financial literacy, financial wellness, financial confidence, or financial resilience – my personal favourite. But in simple terms, financial wellbeing is about having a good relationship with your money and feeling secure and in control of your finances, both now and in the future.

You certainly don’t need to have pots of money to have financial wellbeing; simply understanding what you have and knowing the position you are in, is a major part of getting started on your wellbeing journey.

 

Gradual process

Many studies show that people who experience financial wellbeing are less stressed about money and this in turn has positive effects on their overall mental and physical health. Of course, this seems obvious but how do you get to this point, without the obvious answer of having way more money than you need?

Like physical and mental wellbeing, financial wellbeing can be a gradual process and introducing small but frequent changes can bring the best results. So just like you are unlikely to run a marathon after two months’ training, you are unlikely to have this financial stuff all sorted by opening an ISA and putting £20 in it.

As is the case with most ‘grown up’ tasks, it is regular attention and understanding of the basics that drives the best outcomes.

 

Budgeting

And the lynchpin of financial planning and financial wellbeing is budgeting.

Financial anxiety and stress are compounded significantly by not facing your position straight on. I do know that for many households right now, money is a bigger worry than perhaps a couple of years ago and there is help there; moneyhelper.org is a great place to start with budgeting help and advice.

And having a good understanding of what you have coming in and going out is key.

Once you know your budget, you are in the best place to move forward. Having a budget allows to see where the weaknesses are and to cope with the unexpected. For example, what if a large bill such as a car repair came along? Is there a buffer within your accounts that could cope with this? If there isn’t, can you make any adjustments to your budget to increase reserves for these occasions?

 

Life cover

If you have a family or any debts, then that adds further strain on your finances and making sure you have life cover should the worst happen gives huge peace of mind. It’s also worth bearing in mind that the cover you have in place needs to be reviewed regularly and getting a financial adviser to assess what and how much cover you need is a good idea. You may even have life cover with your employer that you aren’t aware of so it’s worth checking.

Once you have a greater idea of what is coming in and what is going out and how the unexpected might affect any plans, you can look to the future. This is the good bit where you can really start to visualise future financial health. People who write down their life goals are much more likely to achieve them, and it is the same with money. Having an idea of what you want means you can then build the plan to get there.

 

Cashflow modelling

A good part of my job is doing cashflow modelling. This is a financial planning tool which reviews a person’s existing assets and calculates what income might be achievable, and if it isn’t enough for them, what might they need to save now to get there.

It also shows a person’s assets over their lifetime and can highlight if/or when a person’s money might run out. Specialist programming also allows an adviser to overlay potential scenarios such as a stock market crash. What this means is we can give a clear understanding of a person’s position and what may or may not be achievable.

 

Approaching retirement

Having a clear account of your position now and in the future can give meaningful financial wellbeing. I have several clients who approach me as they would like to retire and doing an exercise such as cashflow modelling can show them if retiring now is an option, or if they need to reduce their spending in retirement to stop work now or save a bit more and work a few more years.

Quite often when I complete this exercise it can be very reassuring, and I let my clients know they can in fact stop working. And do you know what most of them do? They continue working. Why? Because they don’t have to. Working when you don’t need to be is emotionally very different to working because you must, and having achieved financial wellbeing, physical and mental wellbeing then become the factors in continuing to work.

 

Route map to financial wellbeing

  • Set aside an hour a month for your finances – get a cuppa, get your statements out and see what has come in and what has gone out. Keep a budget.
  • If there is more month than money, see if there are areas that could be cut back on and commit to doing so if you can. If it is more concerning and you can’t see the light get help quickly. Speak to people you owe money to straight away and seek out specialist help such as Citizen’s Advice.
  • Understand your financial resilience. What if things go off plan? Is there a savings buffer in place? Do you have life cover, critical illness covers and cover if you couldn’t work for a long period of time? These are all specialist areas where advisers can help.
  • Keep an eye on long term goals. Are your pension savings coming along as they should, and have they been reviewed? Assess in detail what you have in place and how much they might give you when you retire.

 

Find an adviser that meets your needs

Facing your finances can seem very daunting. But getting a plan in place and regularly reviewing this will take away a huge part of that fear and put you very much in control.

Why not take this week to give it a go?

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Intelligent Wealth – May/ June 2022

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What’s important to you, your family and your business?

Better answers begin with better questions: What’s important to you, your family and your business, today, tomorrow and further down the track? And what do you have to do to make these important things become a reality?

To discuss how Fairstone can help you, please contact us. We look forward to hearing from you.

Attempting to time the market could cost you dearly

Covid and its global impact has dominated the markets over the past two years, while Russia’s invasion of Ukraine is today’s most pressing issue.

These global events have proved to be exceptionally turbulent and have demonstrated what it means to expect the unexpected. As a result timing the market is extremely difficult to do well and should be avoided, particularly by long-term investors.

While we will not always be impacted as much by fluctuations in the market that we have seen over the past two years, there will always be market cycles.

Previous years have seen the likes of Brexit, the global financial crisis and the dot com bubble take centre stage, but history has shown us that even when market impacts are severe, there is always recovery.

 

Avoid knee jerk reactions

Ultimately staying calm and objective and avoiding the temptation of panic and knee jerk reactions, is central to keeping any financial plan on track for success, as missing out on the markets’ best days can be extremely damaging to returns in the short and long-term.

The effect of this can be demonstrated by examining four different return profiles of an investor in the FTSE All-Share index from 31 December 2019 to 31 December 2021.

Source: Morningstar. Based on initial investment of £100,000 in the FTSE All Share index. Bid-bid returns from 31 December 2019 to 31 December 2021. Net Income reinvested.

 

Positive return

Remaining fully invested during this extremely tricky period would have produced a positive return of around 6.7%.

But had the investor missed out on just the five best days of positive returns over the period, that return drops to -16.8%. And had they missed the best 20 days as a result of timing the market – many of which occurred around the point of ‘maximum fear’ in spring 2020 – the return would have been -42.6%.

 

Long-term planning

This clearly demonstrates that it has never been more important to adopt a consistently applied methodology when investing and remembering the importance of long-term planning, whatever the socio-economic situation.

And these return profiles speak volumes as while short-term volatility may feel unsettling, taking time out of the market can have a far more significant impact.

At all times it is crucial to stay focussed on your financial plan and long-term goals. If you need to discuss your options or have any questions about investments, you can speak to a financial adviser.

 

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Buying your first home, giving first time buyers an edge

Buying your first home? Whether you’re a young professional or simply planning for the future and trying to be smart with your money, buying your first home is one of the biggest financial decisions you’ll ever make.

The journey of purchasing a property is not always easy and hurdles can crop up along the way, so it can feel simultaneously exciting and overwhelming. However, if you are a first-time buyer you do have one advantage when it comes to securing a property.

By not already owning a home, you are not part of a property chain. This is attractive to sellers as it means you are not tied down to the sale of your own home before you can move into your new one.

With this in mind, we have compiled our top ten steps to give first-time buyers an edge when they decide to get on the property ladder.

 

10 steps to help you in buying your first home

1) Set a budget for buying your first home and stick to it

To get a sense of how much you can afford, you should obtain professional mortgage advice. Most estate agents will also require proof of your budget, so having an ‘Agreement in Principle’ from a mortgage lender will help speed up the process.

"An agreement in Principle (AIP) is the first step to getting a mortgage. It's sometimes called a Mortgage Promise or a Decision in Principle, and lets you know how much you could borrow before you apply for a mortgage" (Source:https://www.which.co.uk/money/mortgages-and-property/mortgages/getting-a-mortgage/mortgage-agreements-in-principle-aips-asz341v8z0g0)

You need to consider what you’re willing and able to spend on your new home. After you have saved for your deposit and applied for your mortgage, it is important to stick to your budget. Make sure you set a clear limit and do not view properties above that if you are not willing to haggle with the seller.

If you don’t want to dip into any further savings at the beginning, only view properties that you can afford.

 

2) Apply for a mortgage early

The vast majority of first-time buyers require a mortgage to afford a property purchase. If you arrange your mortgage as early as possible, you’ll be in a stronger position with sellers. And, it’ll relieve a little stress from the home buying process.

Leave it too late to get a mortgage, and you could risk losing your dream property. Having an ‘Agreement in Principle’ ready can help you appeal to sellers looking for a quicker transaction. Not only that, but it will also save you time in the long run.

 

3) Consider the extra fees involved in buying your first home

Make sure you are aware of the extra fees that are involved in the buying process. From stamp duty to solicitors’ fees, conveyancing fees, property searches and surveys, it’s useful to know what extra costs you’ll have to pay so you can plan your budget when you’re thinking of buying your first home.

These are just some of the extras that you need to be aware of. Be sure to include these in your budget calculations at the beginning so you are prepared for the extra expenses.

 

4) Instruct a conveyancer early

If you are committed to buying a property, you can instruct a solicitor or conveyancer without having the details. This will put you a step ahead of the rest when you have an offer accepted.

But you should instruct them to start the process as soon as your offer has been accepted on the property you intend to buy. Conveyancing is the process of transferring the legal title of a property from one homeowner to another.

 

5) Composure while on property viewings

When you find the property that you have been dreaming of, it can be easy to forget yourself. But keep in mind that your reactions may impact you further down the line.

Be positive and interested, but keep in mind that gushing or becoming overexcited will reveal your hand early. This could have a negative impact if you want to negotiate on price later.

 

6) Agents do not work for buyers

This is one of the key points that many buyers do not realise. Estate agents work for sellers. While they accommodate buyers during property viewings, their job is to sell the property at the highest price.

Being aware of this will help you conduct yourself during viewings while the agents are assessing you on behalf of the seller.

 

7) Consider government schemes

The government is committed to its pledge of turning ‘Generation Rent’ into ‘Generation Buy’. There are a number of schemes currently available to help first-time buyers get on the ladder:

Lifetime ISAs; shared ownership schemes; and the new Help to Buy: Equity Loan scheme which was launched on 1 April 2021.

The new Help to Buy: Equity Loan scheme is for first-time buyers and includes regional property price limits to ensure the scheme reaches the people who need it most. The new scheme will run until March 2023. As with the previous scheme, the government will lend homebuyers up to 20% of the cost of a newly built home, and up to 40% in London. You should find out which one is best for you as it could help you with your purchase.

 

8) Be mindful of the asking price when buying your first home

When you are looking for potential properties, one of the best tips is to be aware of the asking price. Remember it is not the same as value but the seller’s want.

Do your research for similar properties in the area to give you an idea of what approximate prices should be. This will prevent you from overpaying in an area where you do not have to.

 

9) Take out property surveys before buying your first home

When you’re buying your first home, it’s all too easy to get seduced by the look and feel of the place and ignore the shabby-chic brickwork or gurgling sounds coming from the boiler.

A valuation is often required by a mortgage lender but building surveys and homebuyer reports can reveal more about the property you are buying. They will prevent any nasty surprises and can even help you negotiate the asking price with the seller.

 

10) Ensure your credit score remains stable throughout buying your first home

You’ll need a healthy credit history to give lenders confidence in your ability to repay your mortgage. Often, buyers will overlook their credit score when the mortgage process has started. Lenders will revisit your credit file once completion looms so ensure you keep your credit score stable throughout the process.

Mortgage lenders consider your credit score and earning power, but also your spending habits. Avoid taking out new credit cards or opening any new accounts until the process is over to avoid incurring additional costs.

 

Take the first step to your mortgage

We’re here to help you open the door to a place of your own and make it easier to find a mortgage that’s right for you. To find out more and talk to us about your requirements, click the link below.

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Tax allowance and tax exemptions: How to make full use

The personal tax year comes to an end on 5th April, and with it, the chance for you to use your tax allowance and tax exemptions.

Fairstone Chartered financial planner Beverley Henderson takes a look at some key tax and financial planning tips to consider before the end of the tax year.

 

Individual Savings Accounts (ISAs)

Usually, you have to pay tax on any income or capital gains you earn from your investments; however, with an ISA, provided you stay within the pay-in limits, capital gains and income made from your investments won’t be taxed.

So it’s worth making sure you use your full ISA allowance of £20,000 for the 2021/22 tax year. You can put the entire amount into a Cash ISA, a Stocks & Shares ISA, an Innovative Finance ISA, or any combination of the three.

 

Contribute up to £9,000 into your child’s Junior ISA

You can also consider a Junior ISA fund, which builds up, free from tax on investment income and capital gains, until your child reaches age 18. At that point, the funds can either be withdrawn or rolled over into an adult ISA.

Relatives and friends can also contribute to your child’s Junior ISA, so long as you don’t go above the £9,000 limit for 2021/22.

Text reads: "Relatives and friends can also contribute to your child's Junior ISA, so long as you don't go above the £9,000 limit for 2021/22

 

Utilise your capital gains tax allowance (and losses)

Many people overlook the capital gains tax allowance, which is £12,300 for the tax year 2021/22. Always remember to use your full allowance every tax year and if you’re married or in a civil partnership, you will both have an allowance – so consider transferring assets between you to reduce your tax bill.

If you realise any losses in the same tax year, these are offset against the gains before the capital gains tax exemption amount is deducted. With this in mind, if your gains would be covered by your exempt amount, capital losses could be wasted, so consider postponing a sale that will generate a loss until the following tax year or realising more gains in the current year.

 

Maximise pension contributions

A pension can be a good way to invest your money for the future as you can get tax relief on the payments you make to your pension pot.

You can contribute up to 100% of your earnings to your pension in each tax year, subject to the annual allowance, which is £40,000 for 2021/22. If you surpass this, you may incur an annual allowance tax charge.

However, if you haven’t used all your allowance in the last three tax years, it might be possible to pay more into your pension plan using ‘carry forward’, though bear in mind the amount is still capped at 100% of your earnings.

Text reads: "You can contribute up to 100% of your earnings to your pension each tax year, subject to annual allowance, which is £40k for 2021/22

 

Different rules apply if you’ve already started to take money out of your pension plan and you’re affected by the Money Purchase Annual Allowance, or if your income, when combined with your employer’s payments, exceeds £240,000.

Even if you have no earnings, are a non-taxpayer or receive pension income, you still have an annual pension allowance of £3,600. This means that you can pay £2,880 into a pension each year and receive tax relief of £720. You can even make pension contributions for your children of £3,600 a year. However, there are some provider restrictions from age 75.

 

Make regular IHT-free gifts

If you establish a pattern of gifts that can be shown to be covered by your net income, without reducing your capital assets or normal standard of living, these gifts will be free of Inheritance Tax. A key thing to remember is that you don’t have to make these gifts to the same people each year.

 

Use the IHT marriage tax exemptions

You and your spouse can each give your children £5,000 in consideration of an upcoming wedding, or £2,500 for a grandchild’s wedding, free of Inheritance Tax. The marriage tax exemptions can also be combined with your £3,000 a year Inheritance Tax exemption, which would allow you to make larger exempt gifts.

 

Make IHT-free gifts each tax year

Remember, you can make gifts of £3,000 each year, along with your spouse, which are free of Inheritance Tax. Don’t worry if you forget to make your £3,000 gift one year – you can catch this up in the next tax year. These gifts are in addition to gifts you make out of your regular income.

 

Leave some of your estate to charity

In cases where at least 10% of your net estate is left to charities, the Inheritance Tax on the remainder is charged at 36% instead of 40%. The exact calculation of your net estate is quite complicated, so it’s important to receive professional advice when drawing up or amending your Will.

The end of the current tax year is on the horizon so if you haven’t taken the time to review your finances and make the most of these exemptions, now is the time.

 

Sign up to our upcoming tax year end webinar

No one likes to miss out, and as the tax year end approaches, you’ll want to ensure you’re making the most of your allowances and putting yourself in the best position for the new tax year.

In our upcoming 30-minute webinar, Fairstone’s Tean Hatt will look at how you can avoid losing out and what positive steps you can take to plan for the financial future of you and your family.

Can you afford not to attend?

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Disclaimer

information is based on our current understanding of taxation legislation and regulations. any levels and bases of, and reliefs from, taxation are subject to change.

The value of investments and income from them may go down. You may not get back the original amount invested. Past performance is not a reliable indicator of future performance.

Intelligent Wealth – Mar/Apr 2022

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What’s important to you, your family and your business?

Better answers begin with better questions: What’s important to you, your family and your business, today, tomorrow and further down the track? And what do you have to do to make these important things become a reality?

To discuss how Fairstone can help you, please contact us. We look forward to hearing from you.

Tailoring financial advice for women

Over a third of females believe that financial services should be more tailored to women according to a new survey by Fairstone. A common theme for how this could be achieved was more growth in female financial advisers across the industry.

 

Different attitudes to investing

Of the women surveyed, 9.3% said that divorce had prompted their need for advice compared to just 1.4% of men. When it came to their investment needs; 79% of women said that sustainable investing is important to them, with the majority (59%) wanting returns to be both financial and for the benefit of society. In comparison, 70% of men said that sustainable investing is important to them, with the majority (54.37%) wanting returns to be financial only.

The emerging picture shows that women have different motivators for seeking advice as well as different attitudes to how they choose to invest to their male counterparts which all supports the need for tailored financial advice for women.

This is bolstered by Fairstone’s recent report Changing Landscapes: Retirement is not just for the old which highlighted that women are more risk averse than men when it comes to their investment approach. The report shows that females rated minimising volatility and potential for loss of value as a higher priority (31%) than male respondents (23%).

Coupled with this, a third more male than female respondents saw market fluctuations as an opportunity to make investment gains.

 

Scale of opportunity available

Fairstone’s latest survey results tie in with research by BY Mellon (The Path to Inclusive Investment) which shows that if women invested at the same rate as men, there would be at least an extra $3.22 trillion of assets under management from private individuals today. Highlighting the scale of the opportunity available by supporting female investors and tailoring services to their needs.

Additional research from NextWealth indicated that 33% of female survey respondents were under age 45 compared to 25% of the male respondents, making the case that the financial advice sector is becoming more attractive to the next generation of women, a positive move for the industry and clients alike.

 

Aligning our services

Chartered Financial Planner Elizabeth Webb adds: “Financial planning should be open and inclusive to all and understanding the needs of women is paramount to achieving parity. As a profession we recognise that there is more to do around considering what motivates women to invest and engage with financial services. At Fairstone we are committed to listening to the needs of our clients and aligning our service with their priorities.”

The results of Fairstone’s Annual Client Survey are published as part of a report, entitled Changing Landscapes – Retirement is not just for the old.

 

Financial advice for women

Not sure how to get started? At Fairstone we have over 650 advisers and staff who can provide financial planning and wealth management solutions to help you achieve your life & financial goals. Take control of your financial future now:

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Working within Fairstone

Whether you are looking to start your career or simply move into a new role, Fairstone has countless opportunities to work and learn within the company. Discover how we support and invest in our people and our culture and how you can apply for a position within Fairstone: Visit Fairstone careers. 

Do love and marriage make financial sense? The financial benefits of marriage

According to latest figures by the Office for National Statistics, we are not exactly wedded to the idea of tying the knot. Figures show more than a 3% drop in the number of marriages in England and Wales, which have dropped to 234,795, the lowest number since 2009. But does getting wed make any financial sense? In the run up to Valentine’s Day, Fairstone Chartered Financial Planner Sarah Tory takes a look at the potential financial benefits of marriage

 

Financial Benefits of Marriage

With Valentine’s Day around the corner, it got me thinking about the wonders of partnerships.  Choosing to spend a substantial portion of our lives with a significant other can have many advantages; in fact, several academic studies have shown that married people tend to live longer than their unmarried or divorced counterparts.

Aside from the possibility of living longer, there are some financial benefits to being an official ‘plus one’. And by ‘official plus one’, I am talking about those who are legally married or in civil partnerships.

In 2005, same sex couples were afforded full financial rights with civil partnerships and also were able to marry in 2014, so when I refer to marriage here, it includes civil partnerships too.

Many people wrongly believe that cohabiting with someone gives them common law rights, but common law marriages are not legally recognised. So, while being married gives you automatic rights to property and assets, common law relationships are at the mercy of a court to decide.

With many couples choosing not to get married, there are now options available to set out intent for asset distribution through a cohabitation contract, but these do not give you the additional financial benefits I shall outline here. For married and unmarried couples especially, it is vital to have an up-to-date Will in place, as living with someone or being married to them does not mean you inherit everything from your partner, no matter how many Valentine’s Days you have shared!

 

Inheritance Tax

Being married can have immediate financial benefits on death when it comes to tax on your estate.  And while talking about death in what’s meant to be romantic article might not feel right, the inheritance tax savings certainly can be, and very often are, significant.

Consider this situation below when calculating inheritance tax. Tom and Tracey are not married, Simon and Stephen are; both have a house worth £550,000 and savings and investments worth £850,000 held jointly.

When Tom dies, Tracey has no automatic rights to any assets, but Tom’s Will states she is to receive his full estate. But what about the impact of inheritance tax for Tracey?

The amount we can leave without paying inheritance tax is known as the Nil Rate Band and is currently £325,000.  There is also an additional allowance for property known as the Residence Nil Rate Band, which is £175,000.  There are a few rules for qualification of this extra allowance, such as the property needs to go to a direct descendant, and it is reduced and eventually removed on a sliding scale for estates over £2,000,000.  There are also hidden complexities around such things as gifts that have been made and previous marriages, so it is always best to get this looked at professionally, because the devil is always in the detail!

Tom’s Assets are house share (£275,000), savings (£425,000), valuing his total estate at £700,000. Now less the Nil Rate Band (£325,000) and Residence Nil Rate Band (£175,000), leaves a taxable estate of £200,000. Inheritance tax is charged at 40% on everything over the allowed nil rate band and residence nil rate band, so in this scenario Tracey has to pay £80,000 inheritance tax.

Now in the example of the married couple Simon and Stephen. Assuming Stephen dies, on first death of a married couple there is no inheritance tax payable, no matter how big the estate.  Simon also inherits Stephen’s Nil rate Band and Residence Nil Rate Band, so when he dies his beneficiaries can use the whole £1,000,000 allowance which is both of their £325,000 NRB and £175,000 RNRB added together. In addition to the benefit of not having an immediate tax bill, the inheriting spouse also has the precious commodity of time, and they can do further inheritance tax planning such as gifting or setting up trusts, that could further mitigate any inheritance tax that might be due on their death.

 

Pensions

It’s worth noting that pension pots are generally not included for inheritance tax. However, another financial tick in the box for marriage is how we can inherit a pension that is in payment.

Most pensions that are being paid out automatically cease when an unmarried person dies. For married couples there can be further payments that increase year on year to the surviving spouse for the rest of their lives too. Commonly, spouses can receive 50% of what their partner was receiving and over a lifetime this additional benefit can be huge.

All pension schemes have their own rules, such as some may require you to be married before starting to get your pension, others may need you to be married for a certain number of years to qualify, so you will need to check the specific rules of your own plans.

 

Tax allowances

Married people in certain situations can also transfer some of their unused annual income tax allowances to each other and save up to £252 in this tax year (2021/22).  It’s arguably not significant enough to get married for but is certainly a nice ‘marriage bonus’.

Interestingly, the Office for National Statistics (ONS) has seen a rise in the number of so called ‘deathbed marriages’ and whilst most of these are to show commitment and love in the saddest of moments, some are for the tangible financial benefits of marriage.

I am not here to advocate for or against marriage; every couple has their own view and outlook, but married people do have a financial advantage in some circumstances.

I shan’t ruin the Valentines warmth by talking about the financial unpicking of a marriage that doesn’t work or naturally just runs its course; I’ll leave that for another day.

 

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