Month: October 2022

When you’re buying a home with a partner, thinking about the relationship breaking down is the last thing on your mind. However, it’s important to think about protecting yourself and ensuring assets would be divided fairly.

Having a conversation with your partner about what would happen if you were to break up can be difficult. But tackling challenging “what if” questions can give you more confidence and ensure you’re both on the same page as you take this next step.

According to data from Zoopla, 68% of Brits who buy a property with their partner risk losing tens of thousands of pounds by not protecting their share of the purchase.

More than a quarter of people who bought a home with a partner and then split up claim the proceeds of the sale were not split fairly.

85% say buying property is as big a commitment as marriage but many aren’t protecting their wealth

Despite 85% of people viewing buying a home as big a commitment as marriage, the findings suggest that many aren’t taking steps to secure their assets.

In some cases, partners may equally contribute to buying a home, which can make it easier to divide assets if a relationship breaks down. But it’s still not always straightforward.

44% of buyers said they haven’t taken steps to protect themselves because they assume they’d automatically receive a fair share after paying half of the costs. Yet, they may not receive 50% of the property, especially if children are involved.

There are many other reasons why you may not want to split property wealth equally.

One partner may contribute more to the deposit or pay a larger share of the monthly repayments. This can cause conflict when deciding how to split property wealth.

In addition, more couples than ever are relying on family support to buy a home, and discussing how this would affect splitting assets is important.

As well as a lack of awareness, 1 in 10 people admitted that having a conversation about potentially breaking up would be too awkward.

Even when couples discuss the issue, it’s often an informal agreement that’s reached. It’s important to remember that feelings can change and that an informal agreement wouldn’t hold up in law.

So, if you’re buying a property with a partner, what are your options?

3 options to consider if you’re buying a home with a partner

1. Have a deed of trust or cohabitation agreement in place

Among couples that have taken steps to protect their stake in a property, a deed of trust or cohabitation agreement is the most common option – 15% of couples have used this.

Both of these options are legal agreements that let you specify how a property is held between joint owners. This includes whether it’s split 50/50 or some other way to reflect your circumstances. For instance, an agreement may state that one partner is entitled to a larger share as they provided the property deposit.

These agreements can also be used if couples are cohabiting but only one person owns the property. So, if you own your home and a partner moves in at a later date, the agreements could be used to ensure your partner wouldn’t have a claim on your home.

2. Set out a floating deed

A floating deed, also known as a “commensurate share deed”, is legally binding and records the financial arrangement between joint owners. This means that if the property is sold, it’s clear what proportion of the proceeds each party is entitled to.

It can help avoid disagreements and miscommunication as it can provide an accurate way to assess and record each person’s interest in the property.

This option is used by 10% of couples.

3. Create a prenuptial agreement

The Zoopla research found that 7% of couples had considered property as part of a prenuptial agreement, also known as a “prenup”.

A prenup is a legal agreement that sets out how assets would be divided between a couple if they divorce. As a result, it’s an option if you’re planning to get married.

Parents that are helping children step onto the property ladder are increasingly demanding prenups, according to an FTAdviser report. This arrangement could mean that a gifted deposit would remain within the family if a couple split up.

UK law related to prenups is complex and it’s important it’s legally sound to provide you with the protection you want. So, seeking legal advice can be beneficial.

Contact us to talk about your mortgage needs

Whether you’re buying a home alone or with a partner, understanding your financial commitments and which mortgage is right for you is important. We can help you find a mortgage lender that’s right for you and answer questions you may have about the application process. Please contact us to discuss your needs.

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

Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.

With the rise in house prices and the cost of living crisis, saving for a house deposit for first-time buyers is a difficult task. So, it’s no surprise that increasing numbers of younger buyers are turning to their family for financial support when it comes to getting on the housing ladder.

Property experts Savills estimate that from now until 2024, 470,000 first-time buyers will receive financial help from their parents or other family members.

Further analysis by Savills also states that gifts from the Bank of Mum and Dad will total £25 billion over the next three years. These gifts or loans from the Bank of Mum and Dad will support nearly half of all first-time buyers’ deposits.

Not only are parents helping their children get on the property ladder, but grandparents are too. Recent research by Aviva has found that 25% of grandparents have, or are hoping to, help their grandchildren become first-time homeowners.

With this in mind, here is what you need to know before helping your children or grandchildren get on the property ladder.

Decide whether the money is a gift or a loan

One of your first decisions when providing support to a child or grandchild is whether the money will be a gift or a loan.

Gifting the money to your child is one way that can easily help them get onto the property ladder. A gifted deposit is accepted by most mortgage lenders.

However, a gifted deposit could also be subject to Inheritance Tax (IHT). If you live longer than seven years after gifting the deposit, the gift will no longer be considered a part of your estate and no IHT will be due. However, if you die within seven years of gifting the deposit, IHT may become due.

Another concern could be what will happen to your gift if your child ends their relationship with the person they may be moving in with. To prevent the other person from claiming part of the gift, read below for the steps to take.

Instead of making a gift, providing a loan to your child may be the better option for you. You will still have some control over the money and there is the understanding that all the money will be paid back to you.

A loan could still be subject to IHT as it would be classed as part of your estate when you die. It will only become exempt from IHT if you dismiss the debt and gift the money instead.

Also, be aware that if you charge your children interest on the loan, you could be taxed on this interest as it would be a part of your income.

Providing a loan for your child instead of a gift could also make it more challenging for them to obtain a mortgage as many lenders will not accept a loaned deposit.

Steps to take if your child is buying with someone else

If your child is buying with their partner or friend, issues with your financial help can arise if their relationship breaks down.

To protect the money you have gifted to your child, a declaration of trust or a deed of trust can be drawn up by the solicitor working on the property purchase.

The declaration of trust will clearly state to who you gifted the money. In case of a breakup, the document will ensure your child retains your financial gift rather than having to split it with their partner or friend.

Additionally, a Living Together Agreement is often recommended by many experts, especially if your child is unmarried and buying with someone else. A Living Together Agreement allows everyone to discuss and record details of all financial contributions and what will happen if the relationship ends.

Your financial security

Gifting money for a deposit usually results in a large sum for your child, but can you afford it?

Consider whether you have the finances available after gifting money to live the life you want, whether you have enough savings for any unforeseen circumstances, and whether you have the finances to ensure you can afford your desired lifestyle during retirement.

Before making any gift, assess your finances first and then determine how you can afford to help. Getting advice and guidance from a financial planner can help you to do this.

Other ways you can help your child get on the housing ladder

After assessing your financial security, you may decide gifting or loaning a large sum of money is no longer an option.

However, there are alternative ways that you could still help your child get onto the property ladder:

1. Equity as security – You can use a part of the equity in your home as additional security against the mortgage your child takes out.
2. Family offset mortgages – Your savings would be used to form part of the deposit. However, you would have to leave your savings with the lender for 3-5 years.
3. Guarantor mortgage – This is where you would act as a guarantor for 100% of the mortgage debt.
4. Take out a joint mortgage with your child – You and your child take out a mortgage together. This could allow your child to borrow more but there could be tax implications for you if the house was later sold. As the property would be classed as a second property, you could be subject to Capital Gains Tax.

Seek financial advice before being the Bank of Mum and Dad

The main barrier to your child or grandchild getting on the housing ladder will be the ability to save for a deposit. Those who have the option to turn to family members and the Bank of Mum and Dad will find it easier.

The Bank of Mum and Dad will become even more vital when the Help to Buy Scheme closes in March 2023, when more young people will be looking for a way to fund their deposits.

However, before gifting or loaning any money, seek advice from financial professionals to ensure you are doing the right thing financially for you. Please contact us to talk about your plans.

Please note: This article is no substitute for financial advice and should not be treated as such. To determine the best course of action for your individual circumstances, please contact us.

More people are choosing to gift wealth during their lifetime rather than leaving assets as an inheritance. There are benefits to choosing a living legacy, but there are things you need to consider too, including your long-term financial security and the potential tax implications.

According to an Aviva survey, more than half of those over 55 want to give a living legacy. It’s a trend that suggests a move away from leaving money to your family when you pass away.

There are many reasons why you may want to create a living legacy, including:

1. You can see the benefit of your gift

One of the key benefits of a living legacy is that you can see the joy and security that your gift brings to loved ones. For some people, this may be a motivation for creating a living legacy.

2. Help family members when they need it most

Longer life expectancy means that many people won’t receive an inheritance until they’re retired. As younger generations face financial security challenges, like struggling to buy their first home, a living legacy can have a much larger effect. A gift earlier in life can help your family reach their goals.

While there are benefits to a living legacy, there are some key areas you need to consider first.

Will a gift now affect your long-term security?

Taking a lump sum or assets out of your estate now could affect your financial security. To have confidence in the steps you’re taking, you need to think about how they could affect your long-term plans.

According to the Aviva survey, 33% of people said they would be uncomfortable helping a family member get onto the property ladder without knowing how much money they’d need for retirement. For many, this worry is likely to apply if you’re helping loved ones achieve other goals or simply want to provide a gift.

Gifting some assets can have a larger effect on your plans than you think. For instance, if you took money out of an investment portfolio, you would also lose the potential returns you could earn from those investments. So, it’s important you review your entire financial plan when gifting.

Longer life expectancy is one of the reasons people are turning to living legacies, as it can help family when they need it most. However, it also means you need to consider the long term and what could happen if you face financial shocks.

Making gifts part of your financial plan means you can hand over assets to loved ones with confidence.

A robust plan will help you understand how your wealth and income needs may change over the years. You can also take steps to protect yourself from income shocks – for example, by taking out appropriate financial protection or having emergency assets you can fall back on.

How will a gift affect your Inheritance Tax liability?

If your estate could be liable for Inheritance Tax (IHT), it may be a reason you’re considering gifting assets now. However, not all gifts are outside of your estate for IHT purposes.

If the value of all your assets is more than £325,000, your estate could be liable for IHT. With a standard rate of 40%, IHT can significantly reduce what you leave behind for loved ones.

Gifting to bring the value of your assets under the threshold can seem like a straightforward way to reduce IHT but it’s not that simple.

Some gifts are considered immediately outside of your estate for IHT purposes. This includes up to £3,000 each tax year known as the “annual exemption”, the small gift allowance of up to £250 for each person, and gifts that support someone’s living costs.

However, other gifts may be considered “potentially exempt transfers” (PET). PETs can be included as part of your estate for IHT purposes for up to seven years.

So, if you gifted assets and died within seven years, the IHT bill could be more than you or your family expect.

If IHT is a key reason why you’re considering a living legacy, it’s important you understand the effect this could have.

There are things you can do to increase how much you can leave behind before IHT is due, including making use of the residence nil-rate band. We can answer any questions you may have about IHT and the steps you could take to reduce liability.

Contact us to discuss living legacies

If you’d like to gift your loved ones cash or assets during your lifetime, please contact us. We can help you understand if it’ll affect your long-term security and what other implications you may need to consider, such as a tax liability.

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.

How do you think retirement in the UK compares to other countries? According to a report in the Telegraph, the UK ranks 19th, falling behind the likes of Australia, Germany, and Ireland. Read on to find out why and what you can do to overcome the challenges UK retirees face.

The research incorporated several factors for assessing how comfortable and secure retirement is. Among the areas measured were the quality of financial services, a pensioner’s ability to preserve their savings, access to health services, and general living conditions.

In a list of 44 developed countries, the top 10 places to retire are:

1. Norway
2. Switzerland
3. Iceland
4. Ireland
5. Australia
6. New Zealand
7. Luxembourg
8. Netherlands
9. Denmark
10. Czech Republic

While the UK fell behind these countries by ranking 19th, it did place higher than France and came just behind the United States.

3 reasons UK retirement is falling behind

The research suggested that retirement prospects in the UK have fallen in the last five years. Among the reasons were these three.

1. Rising tax burden

The tax you pay in retirement will have a direct effect on your income. So, ensuring you’re creating an income tax-efficiently, such as making the most of allowances, is important.

When you’re withdrawing an income from your pension or other sources, you should maximise your Personal Allowance, which is £12,570 for the 2022/23 tax year, and be mindful of the higher-rate threshold.

Withdrawing savings or investments from an ISA can also be a tax-efficient way to boost your income.

Depending on your circumstances, you may also want to take advantage of the Dividend Allowance, Capital Gains Tax allowance, and more. We’re here to help you understand which ones could be right for you.

Careful planning could help reduce your tax burden in retirement and help your money go further.

2. Growing income inequality

The research identified a growing wealth gap among retirees in the UK.

Understanding your retirement income and how long it needs to last can give you confidence about your future.

While the State Pension often isn’t enough to cover all your expenses, it’s an important building block. How much you receive from the State Pension will depend on your National Insurance record. If you have gaps in your record, you may be able to make voluntary contributions that could boost your income throughout your retirement.

It’s also important to understand how your pension will create a sustainable income, whether you have a defined benefit (DB) or a defined contribution (DC) pension. You may need to consider areas like life expectancy to ensure you have a reliable source of income for the rest of your life.

You may also have other assets that you could use to support your security in retirement, such as savings and investments.

It’s never too soon to review how your decisions will affect your retirement. A long-term plan can help you achieve financial peace of mind.

3. Low returns on savings

In the last decade, retirees have faced significant challenges when it comes to getting the most out of their money.

As you may not be receiving any income in retirement, your savings growth is important. This can help provide long-term financial security and mean that the value of your assets keeps pace with inflation.

Interest rates have been at historical lows since the 2008 financial crisis. Over the last year, interest rates have gradually started to rise as a way to combat increasing inflation. In September 2022, the Bank of England increased its base interest rate to 2.25%.

Despite the recent rises, it’s unlikely that your savings are delivering returns that match inflation. So, in real terms, the value of your savings is falling. This can present problems, especially as your income needs may increase because the cost of living is rising.

For some retirees, investing a portion of their wealth can make sense. If your savings are held in a pension, they will usually be invested.

Keep in mind that investing comes with some risk and you should assess your risk profile to choose appropriate investments.

Contact us to talk about your retirement

Having a plan could help you retire in greater security and comfort.

We can help you understand how to get the most out of your assets, assess what’s important to you, and consider what steps are appropriate to minimise risks. A robust financial plan means you can focus on enjoying this next stage of your life without having to worry about where your finances stand.

If you’re ready to start planning your retirement, please contact us to arrange a meeting.

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 not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.

As the cost of living rises, you may be considering increasing how much you withdraw from your pension. While it could solve short-term challenges, it’s important that you think about how it could affect your future too.

Several factors, including the war in Ukraine and the long-term effects of the pandemic, mean that inflation is much higher than it has been in recent decades. In the 12 months to September 2022, the rate of inflation was 10.1%.

Your regular outgoings are likely to have increased, as well as the cost of discretionary spending, like holidays or days out. As a result, the budget you set out when you initially retired may not be adequate now.

If you’re struggling financially or are having to make lifestyle compromises, increasing your pension income may seem like a simple solution.

Data published in FTAdviser suggests that pension savers would need an extra £90,000 to maintain their standard of living because of rising costs. While costs will vary depending on your lifestyle, the research estimated that an income for a “comfortable” lifestyle would need to increase by £2,000 a year, and by £3,000 a year for a “luxurious” lifestyle.

If you’re taking a flexible income from your defined contribution (DC) pension, it’s easy to increase your withdrawals if you need to. However, you also need to weigh up the long-term consequences of doing so.

For example, could taking more from your pension now mean you potentially run out of money in the future? Or could taking a flexible income now place you under financial stress if something unexpected happens later on?

This is why it is important to consider the long-term effects before you take more from your pension to cope with the rising cost of living.

3 things you need to do before you increase your pension withdrawals

1. Calculate how much your expenses have increased

Before you increase your pension withdrawals, it’s essential you understand how much income you need.

While the rate of inflation can provide you with a good baseline of how much costs have increased, your personal inflation rate may be very different. Take some time to set out what your budget covers and review how these costs have changed in the last year.

It’s a good idea to split costs into essential and discretionary spending. This means you can understand what level of income you need and the extra that would allow you to live the lifestyle you want.

It’s expected that inflation will remain high in the coming months. So, ensuring you have some room in your budget for potential increases in the future can also make sense.

2. Understand how increased withdrawals could affect your long-term security

One of the challenges of accessing your pension is understanding how withdrawals will affect your long-term financial security.

To take an income with confidence you should consider how long your pension will need to provide an income and how your needs might change. Ignoring this issue could lead to financial challenges in the future, including running out of money in retirement.

Taking a higher income or a lump sum from your pension now can have a larger effect on your long-term wealth than you may think. As your pension is usually invested, you will need to consider how potential returns could be lower than you expect.

3. Include other assets in your decision

If you need to boost your income, you may have other valuable assets – don’t just consider your pension.

Depleting savings or investments could make more sense for you, so it’s important you review your entire financial plan and assets before you make a decision. There are many things to consider when deciding how to create an income, from long-term security to tax liability.

It can be difficult to understand what your options are, and which solution is right for you. If you need support when weighing up your options, you can contact us.

Do you want to review your retirement income needs?

If you’re worried about the rising cost of living and the effect it could have on your retirement plans, please contact us.

We’ll help you review your retirement plan with the current circumstances in mind. Whether you want to increase your withdrawals now or have confidence you could in the future if you need to, we’re here to answer your questions.

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 not normally accessible until 55 (57 from April 2028). The value of your investments (and any income from them) can go down as well as up, 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. Levels, bases of and reliefs from taxation may change in subsequent Finance Acts.

You should base financial decisions on logic and facts. But psychology can have a much larger effect than you think, and it can lead to you making decisions that aren’t right for you. Read on to find out more about what behavioural finance is and how it could affect you.

“Behavioural finance” was first coined in the 1970s by economist Robert Shiller and psychologists Daniel Kahneman and Amos Tversky. They used the term to refer to how unconscious biases and heuristics affect the way people make financial decisions.

It can be used to explain why investors can make knee-jerk decisions or invest in opportunities that aren’t in their own best interest. Rather than relying purely on facts, investors often have biases that affect how they react to certain situations.

In this article, find out more about where biases can come from and why they can have such a large effect on your mindset. Over the next few months, we’ll explore specific examples of how financial bias can affect your decisions and what you can do to make better choices.

Finance bias can lead to “irrational” decisions through shortcuts

There’s a reason why people often make decisions based on biases: they can make the decision-making process quicker.

If you imagine how many decisions you need to make every single day, it’s easy to see why this kind of decision-making can be useful. From what to eat for breakfast to which way to travel to work, it’d take up all your time if you carefully went through the facts for each decision you make. So, you make shortcuts by using biases.

However, while it can be a useful process in your day-to-day life, bias can have a negative effect when you’re making important decisions, including financial ones.

Behavioural finance covers five concepts:

1. Mental accounting

Mental accounting can be incredibly useful when you’re managing a budget. However, inflexibility could mean you miss out on opportunities.

The concept refers to how people may designate money for certain purposes. So, you may have different savings accounts for various goals. It’s a process that can help you manage your outgoings and work towards goals.

However, it can also lead to irrational decision making.

You may not dip into a savings account that you’ve allocated to buying a new car even when you face an emergency and it’d make sense logically.

How you receive the money may also affect how you use it. For instance, you may put off using money that was given as a gift in an emergency because you believe it should be used for something special.

2. Herd behaviour

Herd behaviour is something that’s often seen in investing. When you hear that lots of people are selling certain stocks or buying a specific share, it can be easy to be led by this and follow suit.

It can lead to you making decisions that, while possibly right for others, don’t suit you or your circumstances.

It’s not just investing where herd behaviour can have an effect. You may be tempted to purchase an item after a friend has or choose a savings account because someone you know has.

3. Anchoring

When you have some information, you may focus on this – anchoring your views to this data.

Setting a benchmark can be useful, but it can mean you don’t take in other information, especially if it’s contradictory.

So, you may hold on to investments even after the value has fallen because you’ve anchored its worth to a previous valuation.

4. Emotional gap

Emotions often play a role in financial decisions. You may sell a stock because you fear that the price will fall, or make an impulse purchase because you’re happy.

Being comfortable with your financial plan is important, but an emotional gap can fuel irrational decisions as you’re more likely to overlook data.

5. Self-attribution

This concept refers to how investors are likely to have overconfidence in their abilities.

You may believe you can reliably time the market to maximise profits when the markets are unpredictable. In this case, it’s common to see “wins” as being down to your knowledge, while “losses” are attributed to things outside of your control.

Unconscious bias may affect your decisions in ways you don’t expect.

Next month, read our blog to understand some of the common ways that biases could affect how you think about money and respond to circumstances. Learning more about how bias may affect your financial decisions can help you make better choices in the future.

If you have any questions about your finances and the decisions you need to make, please contact us.

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.