Author: Talking Finances

This year the FTSE 100 index turns 40. Over the last four decades, it’s become a way to measure the health of the UK stock market. During that time there have been highs that investors no doubt celebrated, and lows that serve as a reminder that there’s some truth in the saying: it’s time in the market, not timing the market.

In 1984, Margaret Thatcher was serving as prime minister and, similar to today, interest rates were increasing in a bid to reduce inflation – according to data from the Bank of England (BoE), the base interest rate reached 12% in July 1984. The country was also grappling with miners’ strikes and high levels of unemployment. Yet, it was also a time of technological advancement and scientific discoveries.

Against this backdrop, the FTSE 100 index launched.

The FTSE 100 is made up of the biggest 100 companies that are listed on the London Stock Exchange. The market capitalisation of each company is reviewed every quarter, and the index is adjusted accordingly.

More than 20 companies that were listed when the FTSE 100 launched are still on it today, including NatWest, Unilever, and Shell.

While you might think 100 companies were selected for being a round number, it was chosen because it was the maximum number of stock symbols that could be displayed on a single page of the electronic information terminals at the time. The technology’s improved, but the 100 figure has stuck.

As an investor, you might hold individual stocks in some of the companies included in the FTSE 100. You might also be invested in FTSE 100 firms through a fund, which would pool your money with that of other investors to invest in a range of companies.

The FTSE 100 has experienced volatility in the last 40 years

One of the first substantial falls the FTSE 100 recorded was in 1987 during the “Black Monday crash”.

The global stock market crash was unexpected and severe. Some analysts have suggested it was due to significantly overvalued stocks, rising interest rates, or persistent trade and budget deficits in the US.

On 19 October 1987, the Guardian reports that the FTSE 100 fell by 10.8% and then a further 12.2% the following day. While it took several years, the index recovered and was reaching new highs in the 1990s.

More recently, the FTSE 100 experienced a fall following the 2008 financial crisis, the Brexit referendum, and the Covid-19 pandemic. There have been many smaller dips and corrections too.

Yet, historically, the FTSE 100 has recovered from downturns.

The FTSE 100 hit 8,000 points in February 2023

On the first day, the FTSE 100 launched at 1,000 points. Over four decades, the overall trend has been an upward one, despite periods of volatility.

Indeed, on 16 February 2023, the index hit an all-time high when it exceeded 8,000 points even though the UK economy was expected to fall into a recession at the time. According to the Guardian, the boost was partly attributed to energy firms making significant gains in light of the war in Ukraine.

The same Guardian report reveals that, over 40 years, the annualised rate of returns from the FTSE 100 is just above 8%. That’s far above the average rate of inflation of around 3% over the same period.

So, if investors had been spooked during the 1987 crash and withdrew their money from the stock market, they could have missed out on future gains. The ups and downs of the FTSE 100 highlight why a long-term view is often important when you’re investing.

Short-term volatility is part of investing and is impossible to consistently predict. So, rather than trying to time the market, holding assets over a long time frame makes sense for many investors.

Get in touch to talk about your investments

The FTSE 100 has become a useful tool for investors over the last 40 years and it’s often used to provide a snapshot of the investing market. However, there are other opportunities to weigh up too.

We could help you build an investment portfolio that suits you and aligns with your risk profile. Please get in touch 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.

The value of your investments (and any income from them) 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.

If you haven’t used your ISA allowance for the 2023/24 tax year, it could be wise to review your options over the next few weeks before the 2024/25 tax year starts. Read on to discover some of the reasons why an ISA could make sense for you.

Government statistics show that ISAs are a popular way to save and invest. Indeed, the latest data shows 11.8 million adult ISAs benefited from a deposit during the 2021/22 tax year. Collectively, ISA holders added around £66.9 billion to their accounts throughout the year.

The media often dubs February and March “ISA season” as savers and investors are encouraged to deposit money into their ISAs before a new tax year starts on 6 April. Some ISA providers might also offer more attractive terms during this time, such as a higher interest rate, to entice potential customers.

In the 2023/24 tax year, you can add up to £20,000 to an ISA. If you haven’t already used this allowance, here are four excellent reasons you might want to do so.

1. A Cash ISA could be a tax-efficient way to save

One of the reasons Cash ISAs make up an important part of many financial plans is that they’re tax-efficient – the interest paid on savings held in a Cash ISA is not liable for Income Tax.

Many savers have welcomed rising interest rates over the last year. Yet, it could also mean you face an unexpected tax bill.

According to the Professional Paraplanner, 2.7 million savers will pay tax on their savings in 2023/24 as a result of frozen thresholds and higher interest rates. The findings suggest that almost 1 million additional savers could face a tax bill on their savings when compared to just a year earlier.

Around 1.4 million basic-rate taxpayers are expected to pay tax on their savings this year, a figure that has quadrupled in the last four years.

If the interest your savings earn exceeds the Personal Savings Allowance (PSA), you might be liable for tax on the portion above the threshold. Your annual PSA depends on the rate of Income Tax you pay:

• Basic-rate taxpayers: £1,000
• Higher-rate taxpayers: £500
• Additional-rate taxpayers: £0

As additional-rate taxpayers don’t benefit from a PSA, an ISA could be a useful way to manage your tax bill.

Even if you’re not an additional-rate taxpayer, the amount you can hold in your savings account before you could face a tax bill might be lower than you expect.

According to MoneySavingExpert, if your savings account had an interest rate of 5.22%, assuming the account balance was constant, you might need to pay tax if your savings exceed:

• £19,158 if you are a basic-rate taxpayer
• £17,242 if you are a higher-rate taxpayer.

So, placing your savings into a Cash ISA could reduce your potential tax liability.

2. A Stocks and Shares ISA could help you invest efficiently

Similarly, Stocks and Shares ISAs could also be tax-efficient if you want to invest. The returns your investments deliver when they’re held in a Stocks and Shares ISA are free from Capital Gains Tax (CGT).

Investments held outside of a Stocks and Shares ISA could be liable for CGT if they exceed the Annual Exempt Amount, which is £6,000 in the 2023/24 tax year for individuals. You should note the Annual Exempt Amount will halve to £3,000 for the 2024/25 tax year.

The rate of CGT you pay depends on which tax band the gains fall into when added to your other income. In 2023/24:

• Higher- or additional-rate taxpayers have a CGT rate of 20% (28% for residential property)
• Basic-rate taxpayers may benefit from a lower CGT rate of 10% (18% for residential property) if the gains fall within the basic-rate Income Tax band.

According to official government figures, the latest HMRC figures show that a record £16.7 billion was collected through CGT in 2021/22. As the Annual Exempt Amount has fallen since then and will be cut again in 2024/25, it’s likely the amount collected through CGT will rise further.

As a result, if you’re investing, doing so through a Stocks and Shares ISA could be efficient from a tax perspective.

3. You’ll lose your ISA allowance if you don’t use it before the start of a new tax year

An ISA could reduce your potential tax liability whether you want to save or invest. So, why should you review your ISA over the coming weeks? Simply, the allowance will reset when a new tax year starts.

If you don’t use the current tax year’s allowance before 6 April 2024, you’ll lose it.

Not reviewing whether to use your ISA allowance could mean you overlook an opportunity to reduce your tax bill.

4. You could receive a government bonus with a Lifetime ISA

For some people, a Lifetime ISA (LISA) could prove a valuable way to save or invest thanks to a government bonus.

You must be aged between 18 and 39 to open a LISA, although you can continue to contribute to a LISA until you’re 50. You can deposit a maximum of £4,000 each tax year into a LISA, and can choose between a Cash LISA and a Stocks and Shares LISA.

Where a LISA is different to traditional ISAs is that deposits benefit from a 25% government bonus. So, if you deposit the annual maximum of £4,000 into a LISA, you’d receive £1,000 as a bonus.

However, if you take money out of a LISA before you’re 60 for a purpose other than buying your first home, you’ll be charged 25% of the amount withdrawn. This means you’d lose the bonus and a portion of your own deposit, equivalent to a loss of just over 6%.

Get in touch to talk about your ISA and long-term plans

If you have any questions about how to use the ISA annual allowance to support your financial plan, we’re here to help. 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.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The value of your investments (and any income from them) 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.

What are your goals for 2024? Whether you want to improve your health, be smarter with your money, or learn a new skill, it can be hard to know where to start.

Recent research discovered the average British adult only sticks to a new habit for seven weeks before giving up. So what can you do to achieve the life of your dreams?

If you want to turn your aspirations into reality, read these seven tricks to turn your new year resolutions into habits.

1. Set specific and realistic goals

The first step to keeping your new year resolutions is to set a specific and realistic goal.

For example, “going to the gym” is too vague. Adding some specificity – such as “going to the gym every morning before work” – gives you a more concrete plan of how you can stick to your resolution.

You also need to ensure your goal is realistic. Creating new habits can be a long and arduous process that takes several weeks before they become natural parts of your routine, so make sure they’re something you’re motivated to do regularly.

If you’ve never stepped foot inside a gym before, it’s unlikely that you’ll be able to stick to a goal of spending hours there every day. Setting an unrealistic goal can lead to you avoiding your new habit as you might be subconsciously intimidated by such a large change to your routine.

2. Plan ahead

Once you’ve decided on your specific and realistic end goal, you need to create a plan of how you will reach it. This will give you clear, actionable steps toward your dream, which will help you incorporate new habits into your life.

For example, if your goal is to save more for retirement you need to calculate the total amount you will need when you give up work. You also need to determine how much money you should be adding to your pension or other savings every month, so you can put aside regular amounts rather than facing the difficult task of finding a lump sum in the future.

3. Hold yourself accountable

Now you know how you’re going to turn your resolution into a habit, you need to make sure you’re following your carefully crafted plan.

Starting a new habit is hard. But if you push past the initial discomfort and remind yourself of your long-term goals and the reason you chose to make this change in the first place, you can do amazing things.

Acknowledging when you’ve failed and trying to do better next time is a crucial part of starting a new habit. Although we all make mistakes, it’s important to know when you’re making excuses and continue with your plan.

4. Reward yourself

Rewarding yourself is also a brilliant way to hold yourself accountable. Positively reinforcing your efforts tricks your brain into enjoying the habit and will help you to keep up the positive mindset.

There are plenty of small pleasures you can reward yourself with, such as:

• Sleeping in
• A bubble bath
• A meal at your favourite restaurant
• An evening to yourself
• Spending time with loved ones
• Buying something you’ve had your eye on.

Just make sure your reward isn’t undoing your hard work; eating chocolate to reward yourself for being healthy may hinder your improvement.

5. Measure your progress

There are plenty of ways to measure your progress depending on what your goal is. Whether you keep track of your hard work in a journal or an app, it’s important to document your journey.

Habits take a long time to form. Seeing the progress you’ve made can keep you motivated when you otherwise may not have noticed the positive changes you’re making.

Celebrate every milestone you hit, and if you’re not making the progress you wanted to see, consider why. Perhaps your goal was unrealistic or life is getting in your way. Adjust your plan accordingly, and continue on your journey.

6. Start habit stacking

Habit stacking is a technique created by James Clear in his bestselling self-help book, Atomic Habits. The basic concept is that instead of starting a new habit from scratch, you should stack it on top of your existing routine.

There are hundreds of habits you take for granted every day, such as making your bed or cooking dinner. Instead of trying to start your new habit at an arbitrary time, choose one of these habits as a trigger for you to practice your new skill.

A few examples include:

• Moving money to a savings account when you pay your bills
• Changing into gym clothes as soon as you wake up
• Practising a hobby straight after coming home from work.

Your brain strengthens the existing neuron pathways from the original skill, which means you’re building on foundations you’ve already created rather than trying to make a new pathway. This tricks your brain into sticking to the habit for longer as the change feels smoother and less intimidating.

7. Be kind to yourself

Although you want to be the best version of yourself, there might be some days when you can’t follow through your plans. Taking care of your physical and mental health is always important.

Recognising when you’re in a situation that’s out of your control and allowing yourself some grace will help you to stick to your habits in the long run. If you force yourself to do them while burnt out or stressed, you will start to associate your goals with harm rather than the fun and positivity they should be bringing to your life.

While the amount stolen by fraudsters fell slightly in the first six months of 2023 when compared to the same period in 2022, a staggering amount was still lost to scams. The latest figures from UK Finance show £580 million was stolen by criminals.

Advanced security systems used by banks prevented £651 million from being stolen in the first half of 2023. Yet, despite these efforts, thousands of people are still falling victim to scams that could have a devastating effect on their emotional and financial wellbeing.

Indeed, the Great British Retirement Survey 2023 found that 1 in 12 people have lost money due to financial scams in the past three years. Interestingly, the findings suggest younger generations could be more likely to fall for a scam – 15% of respondents aged under 40 said they’d lost money due to fraud.

Fraudsters are using authorised push payments to scam victims

According to the UK Finance report, criminals often focus their attempts on “socially engineering personal information” to commit authorised push payment (APP) fraud in which the victim is encouraged to make the payment themselves.

Usually, APP fraudsters use online platforms, mobile phone networks, or social media to trick victims into transferring their money. Two common scenarios UK Finance highlighted were:

• Purchase scams where people make a payment for goods they believe are genuine. The amount of money lost is typically lower than other forms of scams – purchase scams represent around 66% of APP fraud but account for 17% of total losses.
• Investment scams may be encouraged to transfer substantial amounts to secure “high returns”. As a result, they account for nearly a quarter of all APP losses reported – the largest proportion of all APP scam types. In the first half of 2023, £57.2 million was lost to investment scams.

Fraudsters might also claim to be from legitimate organisations, such as HMRC or the police, in an attempt to gain personal information or your trust.

Even if APP fraud is not successful, the scammer may have obtained enough personal details to impersonate their victim. It may allow them to take control of existing accounts or open new lines of credit.

While your bank may compensate you if you fall victim to a scam, this isn’t guaranteed. So, it’s important to take precautions to protect your wealth when you’re making payments.

3 useful steps to take that could help you avoid authorised push payments

1. Be cautious of unsolicited contact

If you’re contacted out of the blue, be cautious. Fraudsters may contact you via phone, email, or social media in an attempt to build a rapport.

Scammers may offer attractive opportunities, such as investments with “guaranteed returns” or a way to access your pension early or without paying tax. Remember, if it sounds too good to be true, it probably is.

If an individual or organisation that you don’t know contacts you about investments, pensions, or another financial area, it could be a red flag.

Genuine financial service providers will understand why you’re taking precautions if you request additional information, so don’t be afraid to ask. You can also use the Financial Conduct Authority’s register to check the credentials of regulated individuals or firms, as well as their contact information.

2. Clarify payment details with service providers

Large transactions may attract fraudsters who might intercept communications or send you misinformation.

For example, if you’re buying a property, criminals may pose as your solicitor and inform you that their payment details have changed. It could lead to you sending large sums of money to the wrong account.

While verifying details might seem like a task you can skip, it could prevent you from falling for a scam. A quick phone call could put your mind at ease and mean you’re less at risk.

3. Don’t rush financial decisions

A common tactic fraudsters use is to put pressure on you to make a quick decision. If you’re feeling rushed, you’re less likely to spot red flags or review financial opportunities objectively.

So, if you’re weighing up an investment opportunity and your contact tells you it is a time-limited offer or sends a courier to your home with paperwork to sign immediately, take a step back.

Legitimate financial professionals will understand the importance of reviewing your options and deciding if an opportunity is right for you.

Contact us if you’re concerned about scams

If you’ve been targeted by a scam, you can contact Action Fraud to report it. You may also want to get in touch with your bank or other financial provider, as they may be able to halt or trace a transaction.

You can contact us if you’re considering an opportunity and aren’t sure if it’s a scam or right for you. Sometimes a different perspective may highlight potential red flags you might overlook initially.

Please note:

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

Traditionally, people passed on wealth to their loved ones once they passed away through a will. However, you might be considering gifting assets during your lifetime to create a living legacy. Read on to discover the pros and cons you may want to consider before deciding which option is right for you.

The benefits of passing on assets during your lifetime

A living legacy may allow you to help your loved ones when they need it most

One of the key drawbacks of a traditional inheritance is that they’re often received later in life when loved ones may be more financially secure. In contrast, a living legacy could provide you with a way to pass on assets at a time when they’ll benefit more.

Soaring house prices mean getting on the property ladder has become a challenge for many families. As a result, parents and grandparents are increasingly passing on wealth to act as a deposit.

According to the Institute for Fiscal Studies, more than half of first-time buyers in their 20s receive financial help to buy their home. On average, they receive a gift of £25,000.

The research found that not only does this wealth transfer support home ownership goals but long-term wealth accumulation too. As those receiving financial help typically put down a larger deposit, the interest they pay on their mortgage could be thousands of pounds lower.

Helping loved ones step onto the property ladder isn’t the only reason you might want to gift assets now. Perhaps you want to fund university or private school, or pay off debt so their day-to-day finances improve.

Passing on assets during your lifetime could give you greater control over how they’re used

If you have a clear idea about how you’d like your beneficiaries to use the assets you’re passing on to them, doing so during your lifetime could provide you with greater control. For instance, if you want to ensure your grandchild goes to a private school, you could pay the fees directly.

It may be worth speaking to your family about their goals and the obstacles they face in reaching them. This could help you provide support in a way that suits both them and you.

Gifting might offer a way to reduce a potential Inheritance Tax bill

If the value of your estate exceeds Inheritance Tax (IHT) thresholds when you pass away, it could result in a large bill and less money going to your beneficiaries.

In 2023/24, the nil-rate band is £325,000 – if the value of your estate is below this threshold, no IHT is due. In addition, if you’re passing on some properties, including your main home, to direct descendants, you may be able to use the residence nil-rate band, which is £175,000 in 2023/24.

You can pass on unused allowances to your spouse or civil partner. So, as a couple, you could pass on up to £1 million before IHT is due.

If your estate could be liable for IHT, there may be steps you could take to reduce a potential bill, including passing on assets during your lifetime. However, not all assets are considered immediately outside of your estate for IHT purposes, and the rules can be complex. If you’re thinking about creating a living legacy to mitigate an IHT bill, we can help.

The drawbacks of a living legacy

Passing on wealth now could affect your long-term financial security

One of the key challenges of passing on wealth during your lifetime is understanding the long-term effect it could have on your financial security – would taking a lump sum out of your estate now potentially mean you need to make compromises later in life?

Making gifts part of your financial plan can help you understand the short- and long-term impact. It can give you confidence when you’re passing on assets that your finances are secure too.

A living legacy could affect the assets you leave behind as an inheritance

While a living legacy can be useful, you might still want to leave an inheritance behind for loved ones. Gifting could mean the amount they’ll receive after you’ve passed away is lower. So, if leaving assets in a will is important to you, assessing how a living legacy will affect your estate during your lifetime could be useful.

It might also be beneficial to have a conversation with your loved ones – do they understand how gifts they receive now could affect their inheritance? It may affect the financial decisions they make.

Gifting assets during your lifetime may make your estate plan more complex

Estate planning can be complex, and gifting during your lifetime could add to this.

You might gift one child a deposit to get on the property ladder, but your other child already owns their home – will you still provide them with a lump sum now or would they receive more through your will?

An estate plan that’s tailored to you could help you manage different goals and set out the best way to provide support for each of your beneficiaries. It can also help you take the steps necessary to ensure your wishes are followed, such as writing a will.

Arrange a meeting with us to talk about your living legacy

If you’d like to pass on wealth during your lifetime, it’s important you consider how it’ll affect your long-term finances and how to do it tax-efficiently. Making a living legacy part of your long-term financial plan could provide you with peace of mind while you support loved ones.

We could also help you assess other options, such as leaving an inheritance in a will or placing assets in a trust, to create an estate plan that suits you.

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.

The Financial Conduct Authority does not regulate estate planning, tax planning, trusts, or legal services.

While chancellor Jeremy Hunt announced he’d cut the rate of National Insurance (NI) in the 2023 Autumn Statement, he failed to change the thresholds or rates for Income Tax. While that might seem like a good thing – it’s better for your finances than a rate rise after all – your tax liability could still increase.

“Stealth taxes” refer to government policies that increase tax revenue even though they’re not labelled as tax hikes. Through freezing Income Tax thresholds, the government may benefit more than you expect.

Income Tax thresholds are frozen until April 2028

Income above your Personal Allowance, which is £12,570 in 2023/24, could be subject to Income Tax.

The rate of Income Tax you pay depends on which band your earnings fall into. For 2023/24, the Income Tax thresholds and rates are:

Please note Income Tax bands, thresholds, and rates are different in Scotland.

Crucially, the Personal Allowance and Income Tax thresholds are frozen until the 2027/28 tax year rather than increasing in line with inflation. This can lead to “fiscal drag”, where taxpayers are dragged into a higher tax bracket, even if their income hasn’t increased in real terms.

Furthermore, while you might have benefited from a rise in income, for much of the last two years, inflation has been higher than wage growth. So, many workers haven’t experienced a boost in their salary in real terms.

According to a BBC report, wage growth outpaced inflation in September 2023 for the first time since 2021.

Source: BBC

As a result, not only may your wages be failing to keep up with inflation, but you could find you’re pushed into a higher tax bracket. These so-called stealth taxes could mean your Income Tax liability increases more than you expect, and it may have a knock-on effect on your long-term financial plan.

Millions of taxpayers are expected to be affected by fiscal drag

According to figures from the Office for Budget Responsibility (OBR), the government’s policy of freezing Income Tax thresholds means that by 2028/29:

• Nearly 4 million additional people are expected to pay Income Tax
• 3 million more will start paying the higher rate
• 400,000 workers will be dragged into the additional-rate bracket.

The figures represent a significant increase in the number of taxpayers in each band of Income Tax. The number of higher-rate and additional-rate taxpayers is expected to soar by 68% and 49% respectively.

Of course, this will boost government coffers. The freezes are estimated to raise £42.9 billion by 2027/28.

Indeed, the OBR said frozen thresholds are the “largest contributor to the rising overall economy-wide tax burden – responsible for almost a third of the 4.5% of GDP increase in taxes from 2019/20 to 2028/29”.

The cuts to NI offset some of the fiscal drag, but many taxpayers are likely to find their tax burden is higher overall.

On 6 January 2024, the main rate of employee NI was cut from 12% to 10% – saving the average employee earning £35,400 a year more than £450 annually. In addition, NI contributions for the self-employed will be cut from April 2024.

Yet, the OBR finds that the reduction in the employee rate of NI will reduce the government’s budget by only £180 million – far below the amount it expects to raise through Income Tax threshold freezes.

There may be ways you could reduce your Income Tax bill

The good news is that there may be steps you could take to reduce your Income Tax bill in a way that supports your finances now as well as your long-term goals.

Depending on your circumstances, you may want to:

• Check if you could use the Marriage Allowance if your spouse or civil partner’s income doesn’t exceed the Personal Allowance
• Increase your pension contributions to reduce your taxable income
• Save through an ISA to reduce the tax you pay on the interest your savings earn
• Make use of salary sacrifice schemes your employer offers
• Use dividends to supplement your salary.

The above list isn’t exhaustive and it’s important to weigh up the pros and cons before you proceed.

Arrange a meeting with us to talk about your tax liability

If you’d like to understand if there are steps you could take to reduce your tax liability, please contact us to arrange a meeting. We can work with you to create a tailored plan that reflects your circumstances and goals.

Please note:

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

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change