Budget 2021 – The winners and losers

A year ago, Rishi Sunak delivered his first Budget just as the pandemic began to take hold. While his £30 billion package sounded significant, it’s a sum that has paled into insignificance over the last 12 months as the chancellor has spent £280 billion shoring up the UK economy.

As the chancellor acknowledged in his speech: “The damage coronavirus has done to our economy has been acute”.

So, who are the winners and losers of the 2021 Budget?

Winners

Retail, leisure, and hospitality businesses

It’s been a tough year for many sectors, and retail, leisure, and hospitality businesses have been particularly hard hit.

The chancellor announced £5 billion in government grants to businesses in these sectors. Non-essential retail businesses will receive grants of up to £6,000 per premises, while hospitality and leisure businesses will receive grants of up to £18,000.

Sunak also confirmed an extension to the temporary 100% business rates relief for hospitality, retail, and leisure until the end of March. He will then discount business rates by two-thirds, up to a value of £2 million for closed businesses, with a lower cap for those who have been able to stay open.

The chancellor also extended the temporary VAT reduction in these sectors from 20% to 5% until 30 September. There will then be an interim 12.5% VAT rate until April 2021.

Alcohol duties were frozen for second year in a row.

Businesses with staff on furlough

In a pre-Budget statement, Sunak summed up his Budget: “We’re using the full measure of our fiscal firepower to protect the jobs and livelihoods of the British people.”

Sunak most clearly demonstrated this commitment by announcing the government will extend the furlough scheme until the end of September 2021 – longer than businesses expected.

The government will cover the wages for workers who have been put on leave due to the pandemic (up to a maximum of £2,500 a month) at the following rates:

  • 80% until the end of June 2021
  • 70% in July 2021
  • 60% in August and September 2021

Employers will have to pay the difference to 80% – so 10% of wages in July and 20% in August and September.

This is a major commitment by the Treasury as the scheme costs around £5 billion each month.

Self-employed workers (including the recently self-employed)

The fourth Self-Employed Income Support Scheme (SEISS) grant for February, March, and April 2021 will cover 80% of monthly profits up to a maximum of £2,500 a month.

People who became self-employed in the 2019/20 tax year, and have filed a 2019/20 tax return, will also be eligible for the fourth and fifth grants, helping an additional 600,000 workers.

A fifth grant, covering May, June and July 2021 will also be available.

  • For self-employed workers whose turnover has fallen by 30% or more, the grant will continue to pay 80% of monthly profits up to £2,500 a month.
  • For self-employed workers whose turnover has fallen by less than 30%, the grant will pay 30% of monthly profits up to £2,500 a month.

Homebuyers

As expected, the chancellor announced a three-month extension to the Stamp Duty holiday. This tax break will now finish at the end of June, at a cost of about £1 billion to the Exchequer.

The Stamp Duty nil-rate band will then be increased from £125,000 to £250,000 until the end of September 2021.

Sunak also relaunched the Help-to-Buy scheme to bring back 95% mortgages, which are mainly used by first-time buyers and have been in short supply due to the pandemic.

Here, the Treasury will offer lenders a guarantee covering 95% of property value, up to £600,000. This will encourage banks and building societies to lend to first-time buyers and current homeowners.

Sunak said: “By giving lenders the option of a government guarantee on 95% mortgages, many more products will become available, helping people to achieve their dream and get on the housing ladder.”

Lenders including HSBC, Lloyds, and Halifax will offer these deals from April 2021 onwards.

People claiming Universal Credit

The government have extended the temporary £20 per week uplift in Universal Credit benefits until the end of September 2021. This will be a one-off payment of £500.

The National Living Wage will rise to £8.91 from April 2021.

Businesses looking to invest

After announcing a hike in business tax rates (see below), the chancellor announced what he called the “biggest business tax cut in modern British history”.

A new “Super Deduction” will come into force for two years. This means that, when companies invest, they can reduce their tax bill by 130% of the cost of the investment.

Sunak gave the example of a firm currently spending £10 million on equipment. At present they benefit from a £2.6 million tax reduction but, under the Super Deduction they would get a tax break worth £13 million.

The Office for Budget Responsibility say it will boost business investment by 10%.

Drivers

The chancellor cancelled the planned increase in fuel duty.

People living in the East Midlands, Liverpool, Plymouth, and other freeport locations

Goods that arrive at freeports from abroad aren’t subject to the tax charges that are normally paid to the government. The tariffs are only payable when the goods leave the freeport and are moved somewhere else in the UK.

To help regenerate deprived areas, Sunak announced the creation of eight new freeports: East Midlands Airport, Felixstowe and Harwich, Humber, Liverpool City Region, Plymouth, Solent, Thames, and Teesside.

Losers

Medium-sized and large businesses

The first step to repairing the public finances came in the form of a Corporation Tax rise which will come into force in April 2023.

From April 2023, the Corporation Tax rate will rise to 25%. Despite a significant six-point increase in the rate, the chancellor argued that the UK will still boast lower Corporation Tax rates than the likes of Germany, Japan, the US, and France.

Small businesses – those with profits less than £50,000 – will benefit from a “small profits rate” of 19%. This means 1.4 million businesses will be unaffected and pay the same rate.

There will be a taper for profits above £50,000, so the 25% Corporation Tax rate will only apply to businesses who make profits of £250,000 or more. Sunak says that just 1 in 10 companies will pay the full higher rate.

Income Tax payers

While the chancellor announced no Income Tax, VAT or National Insurance rises, the decision to freeze the Personal Allowance at £12,570 and the higher-rate tax threshold at £50,270 from 2021/22 to 2026 equates to, essentially, stealth taxes.

A freeze drags more people into paying Income Tax and will also push 1.6 million people into the higher tax bracket by 2024, raising around £6 billion for the Exchequer.

Pension savers

In an expected move the chancellor announced he was freezing the Lifetime Allowance – the amount an individual can save into a pension before incurring tax charges. The allowance will remain at £1,073,100 until 2026.

This is another stealth tax, as it means that anyone whose pension savings are above this amount could face a levy of up to 55% on any additional lump sums or income taken from their pension pot.

Wealthier individuals and families

Just as the chancellor froze the pension Lifetime Allowance, he also announced a freeze in the Inheritance Tax (IHT) threshold and the Capital Gains Tax (CGT) annual exemption until April 2026.

The IHT threshold will remain at £325,000 with the “residence nil-rate band” at £175,000.

The annual Capital Gains Tax exemption will remain at £12,300 for five years.

As the value of assets such as house prices and investments rises over the next five years, this freeze will see more people face a CGT or IHT liability, raising additional revenue for the Exchequer.

Get in touch

If you want to chat about how the 2021 Budget affects you, please get in touch.

Your 2021 Budget summary

On Wednesday 3 March, Rishi Sunak delivered his second Budget as chancellor. The Budget outlines the state of the economy and the government’s spending plans.

The World Health Organization declared Covid-19 a pandemic on 11 March 2020, the same date as the 2020 Budget. Since then, the pandemic has led to lockdowns, restrictions, and an enormous rise in government spending.

The Office for Budget Responsibility (OBR) estimates borrowing for the current tax year will be £394 billion, the highest figure seen outside of wartime. So, it’s no surprise that Covid-19 continues to influence Sunak’s decisions. 

The chancellor noted the economy has been damaged, with GDP shrinking by 10% in 2020, and that the road to recovery would be a long one. However, he added: “We will continue doing whatever it takes to support the British people and businesses through this moment of crisis.”

As usual, the Budget began with an overview of the economy.

The economic outlook

The OBR expects the economy to grow faster than previously forecast. The economy is now forecast to grow by 4% in the coming fiscal year, and then by 7.3% in 2022.

However, Sunak noted that the pandemic is still inflicting profound damage on the economy. The OBR predicts that, in five years, the economy will still be 3% smaller than it would have been otherwise.

The improved outlook also means peak unemployment is expected to fall. It’s now expected to reach 6.5%, compared to the initial forecast of 11%.

Covid-19 support measures

As expected, Covid-19 support has been extended to cover the spring and summer months.

The Coronavirus Job Retention Scheme, often known as the “furlough scheme”, will now run until the end of September. It will continue to provide 80% of wages (up to £2,500 per month) to workers unable to work due to the pandemic. From July, employers will need to pay a proportion of their wages.

Self-employment grants will also continue, with two further instalments over the coming months. The scheme has been extended to include the newly self-employed who missed out on previous grants and have now filed a tax return.

The chancellor said total Covid-19 support measures are now worth more than £400 billion.

Personal finance

The Personal Allowance – the threshold before you need to pay Income Tax – will increase from £12,500 to £12,570 as planned in the 2021/22 tax year. The threshold for higher-rate taxpayers will also rise from £50,000 to £50,270 in 2021/22.

However, both these thresholds will then be frozen until 2026. So, while you may not face an immediate tax rise, the freeze will affect income in real terms over the next few years.

The chancellor also announced that several other allowances will freeze, rather than rising in line with inflation:

  • The pension Lifetime Allowance (£1,073,100)
  • The Capital Gains Tax allowance (£12,300)
  • The Inheritance Tax nil-rate band (£325,000) and residence nil-rate band (£175,000)

Again, these freezes could affect personal finances in the long term.

Business

The headline announcement for businesses is the rise in Corporation Tax.

From April 2023, Corporation Tax, paid on company profits, will rise from 19% to 25%. However, small businesses with profits of less than £50,000 will continue to pay the current 19% rate and there will be a taper.

Only businesses with profits of more than £250,000, around 10% of firms, will pay Corporation Tax at 25%.

However, a new “Super Deduction” will allow companies to reduce their tax bill when they invest.

From 1 April 2021 until 31 March 2023, businesses can reduce their tax bill by 130% of the cost of investment in a bid to encourage firms to invest for growth. It’s a move that hasn’t been tried before, but the OBR predicts it could boost investment by 10%.

Other important announcements include:

  • Restart grants to help businesses reopen as lockdown restrictions lift. Retail firms can apply for up to £6,000 per premise, while hospitality businesses can receive up to £18,000.
  • Recovery loans will be available to provide businesses with a capital injection. The scheme will offer loans from £25,000 to £10 million until the end of the year, with the government guaranteeing 80% to encourage lenders. 
  • The business rate holiday for retail, leisure and hospitality firms has been extended for a further three months until the end of June. There will then be a six-month period where rates will be two-thirds of the normal charge.
  • The reduced VAT rate of 5% for the hospitality industry will remain in place until the end of September. There will then be an interim 12.5% VAT rate until April 2021.

Businesses can also take advantage of the government’s drive to encourage apprenticeships and traineeships. Incentive payments for firms hiring apprentices will double to £3,000. Sunak also revealed he is launching a programme to help firms develop digital skills.

Housing

The chancellor announced two key measures for the property sector.

First, the Stamp Duty holiday will be extended by six months. Until the end of June, homebuyers purchasing a property worth up to £500,000 will not have to pay Stamp Duty. The threshold will then fall to £250,000 until the end of September. From October, the threshold will be £125,000.

Second, the government will provide mortgage guarantees to lenders offering 95% mortgages. The move aims to support first-time buyers with small deposits. These mortgage products will be available from April.

Culture

Cultural venues have been significantly affected by Covid-19. The Budget revealed a new £300 million “Culture Recovery Fund” to support arts, culture, and heritage industries.

In addition to this, a £150 million fund has been set up to help communities take ownership of pubs, theatres, and sports clubs that are at risk of closure.

Fuel and alcohol duty

Despite plans to increase fuel and alcohol duty, both have been frozen. The freeze means fuel duty will not rise for the 11th year in a row, while alcohol duty has not increased for two.

Infrastructure

A new “Infrastructure Bank” will launch this spring, with around £12 billion in initial funding and will be located in Leeds. It will invest in both public and private sector green projects across the UK.

It’s expected the bank will support at least £40 billion of total investment in infrastructure.

Questions?

Please get in touch if you have any questions about what the Budget means for you or your financial plans.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Guide: Behavioural biases, and how they affect your financial decisions

Our latest guide is in partnership with Neil Bage, founder of Be-IQ, a fintech company focused on behavioural insights. The guide gives a fascinating overview of how our behavioural biases can affect the decisions we make. It could help you better understand your own decisions and what you can do to reduce your biases.

We start with an explanation of what financial biases are and where they come from, as well as looking at ten examples that you may recognise. While bias can influence many financial decisions, from what to spend money on to your relationship with saving money, one of the most researched areas is the impact it has on investing. Our guide explores how bias can sometimes lead you to take too little or too much risk.

Finally, we list some of the steps you can take to reduce your biases when making financial decisions.

Please download Behavioural biases: How they impact your financial decisions to read more.

If you have any questions about this guide or your financial plan in general, please get in touch.

The 2020/21 end of the tax year guide

The current tax year will end on 5 April 2021, a date when many allowances and tax breaks will reset. In some cases, it will be your last chance to use them. Making use of appropriate allowances can help you get the most out of your money.

Our guide explains seven key allowances you should consider to ensure you’re ready for the 2021/22 tax year. This includes:

  1. Marriage allowance
  2. Pension Annual Allowance
  3. ISA allowance
  4. Gifting allowance
  5. Gifts from your income
  6. Capital Gains Tax
  7. Dividend allowance

Click here to download your copy of the guide.

Keeping on top of allowances and how to use them can be challenging. But creating a financial plan that helps you get the most out of your money can put your mind at ease. Please get in touch to discuss how you can make the most of allowances in the current tax year and put a plan in place for 2021/22.

Investment market update: December 2020

2020 was a year marked by volatility and uncertainty. With everything that was going on, you might think that investors finished the year with losses. Yet, world markets ended the year almost 13% up. It’s a reminder that while short-term volatility does happen, focusing on the long-term and your plans is important.

The Covid-19 pandemic was one of the biggest factors influencing markets throughout 2020. Despite vaccine approvals, it’s set to be an ongoing theme as we move into 2021 too.

UK

The biggest news affecting the UK was Brexit. During the beginning of December when a no deal Brexit looked likely, markets experienced volatility, as did the value of the pound. However, a deal was struck just in time for Christmas and with a week to go before the end of the transition period. The 2,000-page Brexit document details a new arrangement for tariff-free trade and continued cooperation. With more certainty, it’s hoped volatility will ease and businesses will have the confidence to invest.

Following the announcement of the deal, investment bank UBS predicted UK stocks and the pound would rally in 2021. The firm forecasts that the FTSE 100 will rise to around 7,200 points in a year, that’s an increase of around 8% compared to December 2020’s levels.

Of course, while the Brexit deal is good news, the pandemic continues to influence markets and the economy.

December saw stricter social distancing measures brought in with the introduction of Tier 4 in London, followed several days later by most of the country. There are fears of stricter measures and full lockdowns in 2021.

The OECD predicts Britain’s economy will be one of the hardest hit by the pandemic. The thinktank expects the economy to shrink by 11.2% in 2020, followed by growth of 4.2% and 4.1% in 2021 and 2022 respectively. Argentina is the only G20 country forecast to fare worse.

In line with the ongoing Covid-19 crisis, the government has extended the furlough scheme by an additional month. The government will pay 80% of salaries of furloughed workers until April 2021. The Bank of England has also extended the pandemic lending scheme for SMEs, encouraging lenders to offer cheaper loans to businesses affected until October 2021. Both announcements indicate a commitment to ongoing support to businesses and individuals.

Unsurprisingly, retail has been hit hard by the Covid-19 restrictions. Retail sales fell by 3.8% in November as many high street shops were forced to close, according to the Office for National Statistics. December also saw Debenhams enter liquidation as rescue talks failed and the Arcadia Group, which includes Topshop and other well-known names, collapsing, putting 13,000 jobs at risk.

Europe

In Europe, the European Central Bank (ECB) has extended its stimulus programme. The flagship Pandemic Emergency Purchase Programme (PEPP) received an additional €500 billion and has been extended by nine months, taking it to the end of March 2022. Christine Lagarde president of the ECB said she believes the eurozone will achieve herd immunity for Covid-19 by the end of 2021.

US

The jobless figures in the US are often used as a benchmark for the economy. After six months of growth, December saw the figures fall, fuelling concerns the economy is faltering. Just 245,000 new jobs were created in the US, far behind the 440,000 expected.

Joe Biden will be sworn in as president on 20 January 2021 and is set to face challenges from the outset as the country continues to battle Covid-19 and the economic impact of the virus. Markets will no doubt react to the inauguration and be listening closely to his first speeches.

Remember, you should invest with a long-term timeframe and goal in mind. If you’d like to discuss your investments for 2021 and beyond, please get in touch.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

7 ways you can encourage children to develop STEM skills

When children are still in primary school it can seem a little too early to be thinking about their careers. But the skills, passions, and knowledge they pick up in their early years can be incredibly important.

As the workplace changes, STEM (science, technology, engineering and maths) skills are becoming more in demand. In fact, research looking at the highest paying graduate jobs find degrees in STEM subjects dominate the list. Even if children choose not to follow a STEM career, the skills picked up can be invaluable for other roles, from problem-solving to creative thinking.

If you want to encourage a passion for learning and the development of STEM skills in children or grandchildren, here are seven tips that can help.

1. Encourage their natural curiosity

The good news is that children are naturally curious and ask questions about the way things work. Encouraging this can help improve their cognitive skills and the way they tackle problems.

At times you’ve no doubt been asked why things work or are a certain way. Taking the time to answer their questions can help sate their curiosity. Don’t be afraid to admit you don’t know something either. Looking it up together, whether in a book, online or by watching a TV show, is just as valuable and provides an opportunity to teach research skills too.

2. Teach them to improve

While answering their questions is important, asking them is just as essential.

Prompting them to think and explore other options can lead to plenty of new learning opportunities and encourage them to think creatively. For example, ask how they’d improve the design of their favourite toy. Do they have ideas for how a toy car could be made to go faster?

It’s a method that can help them start thinking like an engineer, rather than finding a single solution or accepting how things are, they look for where improvements can be made. This gives you a chance to get them collaborating and learning from others too by encouraging them to discuss ideas with other adults, siblings, or friends.

3. Provide opportunities for creative play

While STEM involves thinking logically about problems, creative thinking is also essential.

Most toys encourage children to engage with their imagination and unleash their creativity. Simply giving them some tools and the space to play can help develop STEM skills. It can be as simple as a box, colouring pens, and a challenge to create something. Building blocks are also a great option for creative play that also helps them solve problems and try new things.

4. Let them experiment

If your child wants to experiment, let them! This might mean trying a new model for building a plane out of blocks or even undertaking a science experiment in your own home (there are lots of simple ideas that use household products online). STEM Learning is an excellent place to start if you need some inspiration, with activity ideas from age four up to 16.

Even if you know something won’t work, letting them try it is still worthwhile. They could learn a whole lot more from failure than someone simply telling them it’s not right. Encouraging them to ask why something hasn’t worked and to work on finding a solution can be invaluable.

5. Discover STEM TV shows and videos together

As STEM learning becomes more popular, there’s a huge range of TV shows and online platforms that can add to hands-on experience. These can offer a fun way to learn and ideas for activities they could do themselves too. Short videos are a great way to keep them engaged and explore problems that they won’t find at home.

6. Make STEM part of your days out

When you plan family days out, adding a STEM focus to some of them can renew their interest in learning. Museums, in particular, are a great way to find out more about the world and how things work. From traditional museums to those that offer a more hands-on experience, both can add value to the skills children are building.

Linking back to the first point and answering questions, encourage children to engage with the exhibits and keep a note of the things they asked but couldn’t answer while at the museum to explore later.

7. Don’t forget to take it outdoors too

STEM learning doesn’t just have to take place indoors. Exploring the natural world can help develop skills too. From building a den in the woods to mapping the night sky, there are many ways you can enjoy the great outdoors while still building interest in STEM subjects.

Research has linked green spaces to improved mental wellbeing, productivity and creativity. So, planning some time to search for wildlife or take part in a scavenger hunt could be just what’s needed to break up the routine.

7 reasons to visit the UK’s National Parks this winter

Every year, an estimated 110 million people head to national parks across the UK. With social distancing restrictions likely to remain in place in the coming weeks, they could be the perfect place to explore and get outdoors.

Planning a trip to the great outdoors may be commonly associated with the summer months, but there’s still plenty on offer in winter too. Pull on walking boots and wrap up warm and there’s no reason why you can’t enjoy the beautiful landscapes as we head towards spring.

The Peak District was the first area to be designated a national park in 1951 after the government faced pressure to preserve natural beauty and provide recreational opportunities to the public. It wasn’t long before other areas were named national parks too, and there are now 15 to explore across the UK:

  1. Peak District
  2. Lake District
  3. Snowdonia
  4. Dartmoor
  5. Pembrokeshire Coast
  6. North York Moors
  7. Yorkshire Dales
  8. Exmoor
  9. Northumberland
  10. Brecon Beacons
  11. The Broads
  12. Loch Lomond and The Trossachs
  13. Cairngorms
  14. New Forest
  15. South Downs

You’ve probably visited at least a few of our national parks, but there are plenty of reasons to plan another trip.

1. Take in the beautiful views

The national parks are selected for being areas of outstanding beauty, so it goes without saying the views are stunning. But the variety between the different areas means they’re all worth a visit. From the towering mountains of the Scottish Highlands in the Cairngorms to the green, sloping valleys of the Yorkshire Dales, heading to the national parks can really give you an appreciation of how diverse and beautiful the UK is. National parks guarantee a stunning backdrop for your trip. Several are also designated Dark Sky Reserves and could provide you with incredible views of the stars after dark too.

2. Get a glimpse of British wildlife

If your home means you’re usually surrounded by buildings and roads rather than green spaces, it can be easy to forget how much wildlife we have in the UK. The rich habitats of the national parks are the perfect place to spot wildlife. You’ll have a chance to glimpse a huge variety of birds soaring above you, including kingfishers, goshawks and much more. If you’re lucky, you could see red squirrels, deer or even wild ponies as you take in the parks.

3. There are hikes for all abilities

Heading out on a hike can lift your mood and improve your physical health. When you first think of hiking, getting off the beaten track might spring to mind and there are plenty of chances to do this or choose adventurous routes. But the national parks offer walks for all abilities, including short loops that are perfect for beginners. The parks also have 1,386 miles of routes designated as suitable for people with access challenges, ensuring everyone can enjoy the spaces.

4. You don’t have to hike to explore

If hiking isn’t for you, there’s more than one way to take in the national parks. Cycling is a popular option, whether you want to wind your way through country lanes or head into rugged landscapes with a mountain bike. Depending on where you head, you can explore on a boat, The Broads, Loch Lomond and the Trossachs, and Lake District are ideal destinations if you want to relax on the water. Another option you may want to consider is to go through the parks by train. Several rail lines will take you through the landscapes so you can enjoy the countryside as you sit back and relax, the Snowdown Mountain Railway can even take you to the summit of Mount Snowdon.

5. A trip can boost your mental health

Mental health has become an important topic as the Covid-19 lockdown meant more people were forced to stay home and reduce social contact. But getting outdoors for fresh air, exercise and exploring the natural world can improve your mental health. Research looking at the impact of lockdown, led by the Basque technology centre AZTI found when lockdown restrictions allowed people to visit natural places, levels of depression and anxiety were lower. Visiting a national park, or other green space near your home, can help you unwind, relax and improve your overall wellbeing.

6. It’s a chance to bring history to life

Each national park has its own history that you can uncover. If you want to combine history with exploring the parks, a bit of research beforehand can unearth plenty of hidden gems that are worth your time. The Lake District, for example, includes huge historic houses and gardens, such as Muncaster Castle and Hill Top, Beatrix Potter’s farmhouse home, industrial structures, Roman settlements and stone age remains. Some of the historic attractions may require a fee to visit and keep in mind that indoor venues may be closed due to Covid-19 restrictions.

7. Appreciate what the UK has to offer

With traditional overseas holidays being uncertain in the coming months, day trips in the UK and staycations are set to become more popular. Heading to one of the national parks this winter is a great reminder of the stunning destinations we can visit without needing to set foot on a plane. You might even find your new favourite holiday location. 

£1.9 billion gifted to younger generations during the pandemic

The pandemic and restrictions have meant many families are struggling financially or feel insecure. Research suggests that younger generations have been turning to parents and grandparents for a helping hand. However, some older family members haven’t fully considered the long-term impact that providing support could have on their own plans.

£1.9 billion gifted during the pandemic

According to Legal & General, 5.5 million older family members expect to provide additional financial support as a direct result of Covid-19 on top of the support they may already offer.

Gifting money to help children and grandchildren get onto the property ladder has become commonplace. However, the survey indicates that many are also providing a helping hand to cover day-to-day costs. The figures suggest 15% of the older generation expect to provide an additional sum of £353, on average, in financial aid. In total, that adds up to £1.9 billion being gifted due to the pandemic.

This is on top of support they may already be offering. More than a third (39%) of young adults regularly receive cash from family to help them get by. Collectively, older family members provide £372 million to loved ones each month. Some 29% of recipients use this money to pay for everyday essentials and 27% use it to pay their bills.

When loved ones are struggling with day-to-day costs, it’s natural to want to provide support. However, the research also suggests that some aren’t fully considering the short or long-term impact this could have. The survey found:

  • 38% of those gifting money have made sacrifices in order to do so
  • 31% have cut back on some day-to-day spending
  • 21% admitted they have struggled to pay bills as a result

Understanding the impact a gift can have on your lifestyle before handing it over can mean you feel confident in your decisions. In many cases, family members offering support know they can maintain their current lifestyle, but taking some time to double-check can provide peace of mind.

Don’t forget the long-term impact of gifting

While the study focuses on the short-term implications of gifting, such as paying bills, you need to consider the long term as well.

If you’re taking money out of your pension, for instance, would providing gifts mean you could run out of money later in retirement? Or will cutting back now mean bigger expenses in the future? Again, many clients find they’re in a position to provide the level of financial support they want. But by understanding the long-term consequences, they can proceed with confidence, knowing that it isn’t harming other aspirations they may have.

Reviewing your financial situation now can also help you understand where to take the money from. You may, for example, have money saved in an ISA that you’ve been using, but the annual ISA allowance will limit how much you can replace at a later date. In some cases, this means it makes more sense to draw from other sources of wealth and assets. Reviewing your finances beforehand means you can choose an option that makes sense for you and your plans.

Make gifting part of your financial plan

When asked how they want to use their wealth, many clients will want to provide financial support to loved ones. In the past, this has often been achieved by leaving an inheritance. However, as young families face pressure now, gifting during their lifetime is becoming an increasingly popular option among clients and there are benefits:

  • You can see the impact your money has had for loved ones
  • It can help loved ones overcome challenges they are facing now, such as getting on the property ladder
  • It can reduce a potential Inheritance Tax bill

However, whether you want to lend regular financial support or give a one-off lump sum, gifting should be part of your long-term financial plan. It’s a step that can ensure your plans are viable and have considered other factors, some of which may be outside of your control. For example, if you want to make regular payments to cover school fees for grandchildren, it can allow you to create a plan that ensures this will be provided until they finish their education, even if something unexpected happens.

Please contact us if you’d like to discuss how to pass on money and other assets to loved ones. We’ll help you incorporate it into a financial plan that considers your goals and financial situation to deliver a blueprint you can have confidence in.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The Financial Conduct Authority does not regulate estate or tax planning. 

Financial health check: How do you score?

How do you rate your financial security?

When you think about your financial situation, what defines it as ‘healthy’? For 77% of Brits, financial success is having the financial freedom to do what they want without worrying, according to research from Schroders Personal Wealth. Yet, despite this, 48% of adults admit they feel stressed or overwhelmed about their financial situation at times. Taking the time to understand your financial situation and the steps you can take to improve could boost your financial health and overall wellbeing.

The research found that debt is likely to be the biggest cause of stress, with respondents saying becoming debt-free was the top way to achieve financial peace of mind. This was followed by being able to save regularly and taking steps to protect their family in case something should happen to them.

The research broke financial health into four areas. It found that while Brits are good at managing day-to-day finances, looking beyond this is something many are struggling with. In fact, overall, participants, on average, scored just 52 out of 100. Luckily, there are steps you can take in each area to improve your financial health.

1. Getting the basics right: 20/25

Getting the financial basics right is important for building a solid foundation. While the results suggest this is an area many are confident with, there’s still room for improvement.

The basics start with budgeting and how you manage your money. Essentially, you need to ensure you have more money coming in than you do going out. But it also includes how you manage disposable income, do you spend or save it, for example? We’re not saying you shouldn’t indulge in treats or increase your spending, but you should balance spending now with your future.

Even if you’re comfortable with your finances, budgeting is a useful exercise for reviewing your spending and ensuring you’re on track for long-term goals.

2. Manage borrowing: 24/25

While being debt-free was seen as the top way to improve financial health, there are times when taking on debt is unavoidable. Most of us would not be able to purchase a home without using a mortgage, for example. The good news is that most Brits are comfortable managing their borrowing.

The key thing to remember with borrowing is to ensure you can keep up with debt repayments. Missing payments could harm your credit report and access to borrowing in the future, as well as meaning you face additional interest and charges.

To get the most out of your borrowing, regularly review agreements and the amount of interest you’re paying. Switching to new lenders can help you access lower interest rates and allow you to pay off debt quicker. This includes searching for a new mortgage deal when one ends or transferring credit card balances.

3. Protect against the unexpected: 3/25

No one wants to think about something going wrong and it can mean we bury our heads in the sand. The survey suggests that’s the case when planning for the unexpected. However, by taking steps now you can improve your financial health and confidence. Two important steps to take are:

  • Creating an emergency fund that can be used if your income temporarily stops, for instance, if you were too ill to work. This should be a cash account that’s readily accessible. As a general rule, you should have three to six months of expenses in your emergency fund.
  • Taking out protection products that suit your priorities, such as Income Protection, Critical Illness or Life Insurance. We often take out insurance policies for many things in our life but forget about ourselves. Protection policies fill this gap and will pay out under certain circumstances that can protect you and your loved ones. It’s important to understand what policies cover before taking them out and to review any existing policies, you may have.

4. Plan for the future: 5/25

With financial decisions and pressure now, it’s not surprising that many aren’t focused on the future. Yet, the steps you take now can mean you’re in a far better position in the long term. Whether that’s your retirement lifestyle, supporting children through university or leaving a legacy behind for loved ones.

Thinking about your life goals now can help you make long-term aspirations far more achievable. Retirement planning is a good example of this. The sooner you start saving into a pension or taking other steps to build a retirement fund, the longer investments have to grow and deliver returns.

Review your financial health with a financial planner

It can be difficult to understand how the decisions you make now will affect your plans and lifestyle in the long term. This is one of the areas that working with a financial planner can help you with. From deciding which protection policies are right for you to how much to add to your pension each month, financial planning can help you balance the short and long term.

Please contact us if you’d like to book a meeting with a financial planner.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.

The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.

Are Premium Bonds a good place for your savings?

With interest rates low and investment markets experiencing volatility throughout 2020, you may be looking for an alternative place to put your money. Premium Bonds are an option you may be considering, but you could end up missing out on returns.

What are Premium Bonds?

Premium Bonds are a type of investment product issued by National Savings & Investment (NS&I), but they work differently to other types of investments for two key reasons:

  1. The money you place in Premium Bonds is safe and fully backed by the government. This means when you want to withdraw your money, you’ll receive the same amount you deposited.
  2. Rather than receiving interest or investment returns on your money, you’ll be entered into a monthly prize draw.  Prizes range from £25 to £1 million. The more bonds you purchase, the more times you’re entered. Prizes won are free from Income Tax and Capital Gains Tax.

As a result, if you’re lucky, your Premium Bonds could earn you far more than a savings account or investments if you won one of the larger prizes. However, there’s a real chance you’ll receive nothing at all.

One of the reasons that Premium Bonds are attractive is that your deposits are secure. When you decide to withdraw your money, you’ll receive the same amount you put in, but once you factor in inflation, your savings will be lower in value in real terms. This is because the cost of living rises each year and, unless your saving increase by the same amount, your money buys less. In the short term, this effect is minimal. However, look at the impact of long-term inflation and it can be significant.

To keep pace with inflation, your Premium Bonds would consistently need to win the prize draw. So, how likely is that?

According to Money Saving Expert, if you placed £5,000 in Premium Bonds and had average luck, you’d expect to win roughly £50 a year. Of course, there are thousands of people with Premium Bonds that have below-average luck and are potentially missing out on returns.

Recent change means 1 million fewer Premium Bond prizes every month

Since their introduction, Premium Bonds have been popular products. In fact, over 21 million people hold Premium Bonds and over £80 billion is placed in them. But changes in November 2020 mean they’re not as attractive as they once were.

Previously, the prize rate for Premium Bonds was 1.4%, this means each £1 bond had a one in 24,500 chance of winning a prize. The change meant the prize rate was slashed to 1%, resulting in odds of one in 34,500 per bond. That means over one million fewer prizes are given out each month.

As a result, there’s now a greater chance that your Premium Bonds will earn nothing at all, and inflation will affect the value of your savings.

With this in mind, should you use Premium Bonds?

As with every financial decision, the answer will depend on your goals and situation. If you’re looking to create a regular income or guaranteed returns, Premium Bonds are not likely to be the right product for you. However, if you’ve made use if other tax-efficient allowances, such as the Personal Savings Allowance and ISA allowance, they can be a useful option to consider.

How do Premium Bonds compare to savings or investments?

Before you decide if Premium Bonds are the right option, you should weigh up the alternatives too.

Savings: If the security of your money is important, a traditional savings account may be the right option. Assuming you stay within the limits of the Financial Services Compensation Scheme, your money is safe. It will earn regular, guaranteed interest. However, interest rates are low and can mean your savings don’t keep pace with inflation. If you’re in a position to do so, choosing products with restrictions, such as locking your money away for a defined period, can help you access higher rates of interest. Saving accounts are a good option for emergency funds and short-term saving goals.

Investing: If it’s the potentially higher returns that are attracting you to Premium Bonds, investing may be an option. Money invested can deliver returns higher than interest rates, but this is not guaranteed, and your money will be exposed to investment risk. This means that your initial investment can fall, as well as rise, in value. Over the long term, investments have historically delivered returns, so a minimum timeframe of five years is advisable when investing. If you’re focused on long-term returns, investing could provide an alternative to Premium Bonds.

Finding a home for your savings

There’s no right or wrong answer when deciding where to put your money, but it’s essential that you consider what you want to get out of it and your financial circumstances. Please get in touch to create a financial plan that considers your options, whether you have a lump sum to save or want to make regular deposits.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.