We hope you're enjoying the wonderful sunshine we've been experiencing! We know the Summer can be a pricey time, especially if you're at home with children and grandchildren across the holidays, and with belts needing to be tightened across our financial outgoings, many of us may start to feel the pinch. Even without these changes impacting on you, keeping on top of your financial obligations is important. If you're looking to redress some of those larger commitments, such as your mortgage or outstanding debts, please do get in touch so we can help you.
Last month, the Bank of England announced their plans to abolish the stress tests associated with mortgage rates in a bid to improve affordability.
At the moment, mortgage stress tests are set at 3%. This means that borrowers must still be able to afford their mortgage repayments should their rate increase to 3% above the lender’s standard variable rate (SVR).
Lenders are already taking into account the rising costs of living when considering who they can lend to, and the Financial Conduct Authority are keen to retain a 1% stress test to accommodate rising rates, however the relaxation of these tests could help would-be buyers who have been refused mortgages that have lower repayments than the sum they pay in rent each month. A consultation by the Bank found that in order to qualify for home loans people were taking mortgages over longer terms, or on longer-term fixed-rates, which meant paying more overall.
Ultimately the changes will allow lenders to treat cases on a more bespoke basis, judging affordability against real time affordability and encompassing some flexibility around stress testing. This is especially good news for first-time buyers but could also pass on benefits for those looking to remortgage or alter their home ownership status.
If you’re not sure how the stress testing will affect you and your mortgage, please get in touch for a no-obligation conversation.
While many of us may have become incensed by or frustrated with our spouses during the last two years’ increased time at home, many have also felt the need to file for divorce. In fact, the latest ONS data has revealed that in the over 65s, there has been a 46%* Year on Year increase in the number of those obtaining a divorce.
One of the biggest considerations, for any couple thinking about divorce, is the financial implications. Can they afford to share their assets? What happens to their marital home? What about Wills for dividing their estate between their beneficiaries after they’re gone?
But what many don’t know is that Equity Release (or a Lifetime Mortgage) could assist in easing the financial burden associated with divorce. Take a look at the two illustrative case-studies below.
If you are facing the financial difficulties associated with a divorce, while navigating the upheaval, why not speak to us to help look into whether Equity Release could be the right solution for you?SE STUY
This is a lifetime mortgage. To understand the features and risks, ask for a personalised illustration. Check that this mortgage will meet your needs if you want to move or sell your home or you want your family to inherit it. If you are in any doubt, seek independent advice.
When it comes to navigating available Life Insurance policies it can be quite the minefield! We’ve assembled a handy list of 6 things to be aware of before you start and when you’re ready, we’ll be here to help you find the most suitable policy for your needs.
Fix the monthly fee
If you look for policies offering ‘guaranteed premiums’, this will mean the monthly fee is fixed. The other option available is a ‘reviewable’ choice, where the premiums often cost less at first, but your insurer can hike costs later on, meaning a cheap deal can potentially become costly as you age. If your premiums are guaranteed, your insurer will never change the price, so you'll know what you'll be paying over the life of the policy.
Honesty ensures the best policy
The best policy is the one most suitable for your needs. If you are not upfront and honest about your medical conditions and needs for your policy, it won’t pay out when you need it to, so essentially, it’s useless.
Likely things you'll need to disclose when getting a quote for a policy include your age, whether you smoke, your occupation and your health history. The insurer then uses this information to determine whether it will cover you and a price.
Insurers each have their own rules around pre-existing conditions, so it’s important to seek advice, especially if you have a complex medical history.
Two can be better than one
Level term life insurance policies can either be taken out to cover just you – a single policy – or yourself and your partner – a joint policy.
A joint policy is often cheaper, however it only provides one payout, usually on the death of the first policyholder, when the cover then stops. This is usually best suited if your partner is your only dependant and you'd have no one else to leave a second payout to.
However, if you had a joint policy and were to later split with your partner, you'd need a new single policy, and this could be more expensive as it would be based on your new age and health.
Taking out two single policies is usually more expensive, but here you would get two payouts if you were both to die during each policy term. Equally it covers you personally, so works independently to whether you are still together with your partner or not.
In Trust to beat the Taxman
If you die with an active life insurance policy, the payout forms part of your estate, which could mean it's hit with a huge whack of Inheritance Tax. Yet, in many cases it's possible to avoid this by writing the policy in trust, if it's done at the time the policy is taken out.
If the policy is written in trust, the insurance pays out directly to your dependants, so it never becomes part of your estate, which avoids inheritance tax and often speeds up the payout.
It's relatively easy to do as most insurance policies include the option (and papers) for writing in trust directly at no extra charge. Note that there are different types of trusts and they can be difficult to change or cancel, even if all your beneficiaries agree, so think carefully about who a payout would be going to.
Protected against your insurer going bust
Many things can happen during the lifespan of the policy, and while your broker or mortgage insurance company may be doing well now, it could be a different scenario 20 years down the line. Here's how you could be affected:
If your insurer went bust. If your provider goes bust, the Financial Services Compensation Scheme (FSCS) will try to find another insurer to take over your policy or issue a substitute one. Equally, if you've ongoing claims, or need to claim before a new insurer is found, the FSCS should ensure you're covered.
If you’re looking to secure a Life Insurance policy, as always speaking to an adviser is an essential consideration when sourcing the most suitable policy.
Get in touch today to discuss your options.
Trusts are not regulated by the Financial Conduct Authority.
The NHS may be sufficient for your needs.
Even with private health insurance, you'll still use the NHS for services such as your GP or A&E. Equally, if you get a serious illness, you won't necessarily receive treatment more quickly by being covered by a health insurance policy than you would under the NHS.
For less serious cases, the benefits of a policy can include being referred to a specialist for treatment, as you may have a wider choice of times or locations by going private, over sticking with the NHS. So, paying for healthcare could be considered a luxury.
- Many providers sell cheap, basic plans that you can add extras to, such as extra cancer care or outpatient treatment, to suit your needs and budget. Decide why you need private medical insurance – to cover every eventuality or more specific medical conditions.
- You can also cut the cost by restricting when you use the policy. Several insurers will lower your premium if you choose what's called a 'six-week option'. This means if the waiting time with the NHS is six weeks or under, you'll be treated with the NHS. If it's more, you'll qualify for private healthcare.
You can extend your policy to cover your family
Family policies are available, as are individual child plans, though these are less common.
Policies for children are designed to cover short-term conditions, in the same way that adult plans are. Although some policies won't protect children for certain conditions or will only cover them for inpatient and outpatient hospital treatment – so always check the policy before you buy.
Make sure you know what your family's needs are, then make sure the policy matches up. And remember – as most children's treatments are free on the NHS, the amount you can claim for is limited.
Also be aware that some private hospitals may not be set up to accommodate children, so before you buy, check the insurer's list of hospitals to see if children are allowed, and that they're local.
Take note of the claims process as it varies between policies
Always check with your insurer, but here's a typical claims process as a rough guide:
- Be referred from your GP for the treatment first.
- Registering the claim with your insurer: you'll need to give details such as membership number, date of treatment, details of the procedure, the charge for each service and the total of all charges.
- Your insurer will check if you're covered.
- Your GP will then need to refer you to a hospital from a chosen list approved by the insurer, and you'll need to update the insurer throughout the process.
Inheritance tax can cost loved one’s hundreds of thousands when you die, yet it's possible to legally avoid huge swathes of it – or possibly pay none at all. The rules around inheritance tax can be hard to understand at first, but it's important to get your head around it. Here are a few pointers to look out for.
How much is inheritance tax?
Inheritance tax is a tax on the 'estate' of someone who's passed away.
How much you pay depends on the value of the deceased's estate – which is worked out based on their assets (cash in the bank, investments, property or business, vehicles, payouts from life insurance policies), minus any debts.
Importantly, there is normally no tax to pay if:
- The value of your estate is below £325,000, OR
- You leave everything over £325,000 to your spouse, civil partner, a charity or a community amateur sports club
If neither of the above applies, your estate will be taxed at 40% on anything above the £325,000 threshold when you die (or 36% if you leave at least 10% of the value after any deductions to a charity in your will).
However, this £325,000 tax-free threshold might be even higher depending on your circumstances – in some cases it can be as high as £500,000, or even £1 million. We'll explain more on this below.
Why do we have to pay inheritance tax?
The politics of inheritance tax are controversial. The idea is that without it you perpetuate inherited wealth, so the children of the rich stay rich. Inheritance tax redistributes income so some of the money goes to the state to be distributed for the benefit of all.
The argument against it is that when money's earned, tax is paid at the time, so to pay tax on it again isn't fair.
After years of rocketing property prices, many more people have been caught by the inheritance tax threshold, raising it higher up the agenda. Yet whatever your views politically, inheritance tax is a financial fact, so it makes sense to know how it will affect you, and whether you can soften the blow.
What happens if I inherit my parents' home?
In the current tax year, 2022/23, no inheritance tax is due on the first £325,000 of an estate, with 40% normally being charged on any amount above that.
However, what is charged will be less if you leave behind your home to your direct descendants, such as children or grandchildren. This is because you will then have two tax-free allowances:
£325,000 – this is the basic inheritance tax allowance, which still applies.
£175,000 – since 2015 you've also been able to take advantage of something called the 'residence nil-rate band', commonly known as the 'main residence' band. This is an additional allowance you'll receive ON TOP of the existing £325,000 inheritance tax allowance if you pass on a main residence to your children or grandchildren.
This means inheritance tax might not be due on the first £500,000 of your estate (£325,000 + £175,000), depending on who you leave your home to. However:
- The £175,000 main residence allowance only applies if your estate is worth less than £2 million.
- On estates worth £2 million or more, the main residence allowance will decrease by £1 for every £2 above £2 million that the deceased's estate is worth.
- Your home won’t qualify for the £175,000 main residence allowance if it's in a discretionary will trust, even if the beneficiaries of the trust are your children or grandchildren.
- Money given away before you die is still usually counted as part of your estate, UNLESS you live for a further seven years or more after making the gift. People you give gifts to will be charged inheritance tax (on a sliding scale up to a maximum of 40%) if you give away more than £325,000 in the seven years before your death – therefore early planning of how to pass on your assets is important.
Ways to cut your tax bill – including giving money away (as long as you live for another seven years)
If you make large lifetime gifts – in other words, you give gifts during your lifetime, not on your death – the beneficiaries could take out life insurance against the potential inheritance tax bill. Most gifts into trust are now subject to inheritance tax even if made during your lifetime, but this is an area where you would need specialist advice.
Other ways to slash your bill
There is a range of other exemptions worth taking into account to help lessen the tax bill:
- You can give £3,000 away each tax year inheritance tax-free. The first £3,000 given away each tax year is completely ignored as part of your estate and therefore not subject to inheritance tax if you die. If you don't give it away one year, you can carry it forward for one tax year (no more) and use it then.
- Gifts to charities and political parties are inheritance tax-free. Leaving money to that cats' home is at least efficient tax planning!
- You can give £250 each year to everyone you know. Gifts of up to £250 per person each tax year are excluded from inheritance tax (and are not counted towards the £3,000 annual gift exemption). For example, someone with 12 grandchildren could give each of them £250 annually as a birthday present and it wouldn't be counted as part of the estate. However, you couldn't combine gifts on the same person – for example, if you've already gifted someone your £3,000 annual gift exemption, you couldn't then also give them this annual £250 gift.
- You can give away money from income without having to pay tax (as long as it doesn't affect your lifestyle). Inheritance tax is a tax on your assets. However, if you have an income (pension or earnings, for example) and you give money regularly from that which leaves you enough income not to affect your lifestyle, then it is exempt.
- Wedding gifts (up to a limit) are tax-free. If your son, daughter, grandchild, or anyone else is getting married then you're able to give them gifts without them being subject to inheritance tax. There are limits to this though: £5,000 for a gift from a parent, £2,500 from a grandparent, £1,000 from anyone else. You need to give this gift on or shortly before the day of the wedding or civil partnership ceremony (and the marriage has to go ahead).
What constitutes a gift?
A gift must be a genuine unconditional gift that you will not gain from; something given to someone without any reservation, no nods, winks or mutual back-scratching. The biggest asset most people have is their home, yet trying to give half of this to your children won't work if you continue to live in it.
Many gifts are valid ways of reducing your inheritance tax bill. Yet if any are given conditionally (barring a wedding gift), with the intention of receiving something in return, they could fail to work, so watch out.
IHT is not regulated by the Financial Conduct Authority.
It’s no secret that the results of the pandemic and the more recent cost of living crisis have left many of us seeking alternative ways to afford the essentials, and for a lot of us that has meant extending overdraft facilities, obtaining credit cards and securing store credit options. But these multiple debts can mount in interest and become difficult to juggle, so what then?
There are many options when it comes to rectifying debts, all best discussed with a qualified adviser, but we’ve focused on secured loans as a means to consolidate your debts here. How could a secured loan work for you?
What is a secured loan?
A secured loan is used to pay off the existing debts and leave you with just the secured loan to repay, meaning all of your individual debt repayments will simplify into one single debt that can make it easier to keep track of debts and its easier to make repayments when managing cashflow.
What are the benefits of this form of debt consolidation?
- Debt consolidation may also allow you to take advantage of lower interest rates, by switching higher interest loans into one lower rate loan.
- If you find organising and remembering to make multiple payments confusing, this can help streamline the process, as you’ll only have one payment to manage.
- Having an easily-manageable payment can help you safeguard your credit score, as you may minimise your chances of missing a repayment.
- Having a single payment can help you budget, as you’ll know exactly how much you’re paying back every month.
- A home owner loan (also known as a secured loan) is borrowed against your home, so you may still be able to borrow if your credit rating isn’t perfect.
- Can help you improve credit scores by maintaining regular payments.
- Home owner loans can last for ten years or longer. A long repayment period allows you to spread out the monthly payments.
As always, we suggest speaking to a qualified adviser to discuss whether a secured loan would be suitable for your needs, we can look towards other suitable options too and work together to help you and your finances.
Think carefully about securing other debts against your home. Your home or property may be repossessed if you do not keep up repayments on your mortgage or any other debts secured on it.