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Author: Sophie Soraf

Low-income trusts and estates

Posted on by Sophie Soraf

The Spring Budget 2023 laid out several changes to income taxation for low-income trusts and estates. Read on to learn how this may affect you.

Overview of changes

Low-income trusts and estates are those in which income is treated as exempt if it is below the low-income threshold.

The Spring Budget 2023 proposed several changes to the taxation of income for low-income trusts and estates. These changes were enacted by Finance Act (No.2) 2023 and came into effect from 6 April 2024 onwards. The changes impact trusts and estates and have knock-on effects on their beneficiaries.

The intention of these changes was to simplify tax reporting obligations for personal representatives and trustees of low-income trusts and estates going forward .

Impact of Changes to Low-Income Trusts

In the tax years leading up to and including the year ending 5 April 2024, trusts were treated as low-income trusts for a tax year if their savings income was less than £500. If the trust had any non-savings or dividend income, then it would not be a low-income trust.

Starting from 6 April 2024, a trust is treated as low-income in a tax year if its total net income is less than £500. This is an all-or-nothing treatment; therefore, if the net income is above £500, then all the net income is charged to income tax.

Starting from 6 April 2024, an estate is treated as low income for a tax year if the total net income in the year is less than £500. This is an all-or-nothing treatment; therefore, if the net income is above £500, then all of the net income is charged to income tax in that year.

A restriction to the £500 low-income threshold applies for trusts subject to the trust income tax rates, which are currently 45% for savings and non-savings income and 39.35% for dividend income.

The restriction is calculated by dividing the £500 threshold by the number of trusts created by the same settlor, which are:

  • subject to trust income tax rates, and
  • that still exist in the tax year, and
  • have any income in the tax year.

The maximum restriction is £100 per trust.

Trustees will need to assess each year if their trust is a low-income trust. If it is, they will not need to submit a tax return for that year, assuming there is no other reason to do so. There may be years where the trust does not qualify as a low-income trust, in which case the trustees would need to submit a tax return for the year.

Trusts subject to the trust income tax rates have tax pools to record income tax paid by the trustees. When payments are made to beneficiaries, 45% tax credits are attached, reducing the amount of the tax pool.

Trustees of low-income trusts will therefore need to pay tax on distributions of ‘low’ income to make up the tax credits being taken out of the tax pool.

In addition to the changes above, the basic rate and dividend ordinary rate of tax that applied to the first £1,000 of income for trusts subject to the trust income tax rates has been removed. These changes also came into effect from 6 April 2024 onwards.

Beneficiaries of low-income trusts

Beneficiaries of low-income trusts subject to the trust income tax rates will continue to benefit from the 45% income tax credits as they did before.

Beneficiaries of other low-income trusts, such as interest in possession trusts or settlor-interested trusts, will still be liable to income tax on their entitlements to income or receipts of income distributions. In these cases, if the trust is a low-income trust for a given year, the beneficiary will need to report the gross income, since no tax will have been paid by the trust.

Impact of Changes to Low-Income Estates

In the tax years leading up to and including the year ending 5 April 2024, estates were treated as low-income estates if savings income for the whole period of administration was less than £500, and there was no other type of income. If the estate had any non-savings or dividend income, then it would not be a low-income estate.

For estates in administration before and after the changes, the old rules will apply until 5 April 2024, and the new rules will apply starting from 6 April 2024.

Personal representatives of estates can informally report estate income to HMRC by letter instead of submitting tax returns in certain circumstances. In such circumstances, if the estate is a low income estate for a tax year, the personal representatives would not need to report the income for that year to HMRC.

Beneficiaries of low-income trusts

Previously, beneficiaries would need to report any gross income received from low-income estates where tax was not paid by the estate.

From 6 April 2024, estate income treated as exempt for a given year will now be exempt in the hands of beneficiaries when the income is distributed to them.

Spring budget 2024 – key points

Posted on by Sophie Soraf

On 6 March, Chancellor of the Exchequer Jeremy Hunt delivered his Spring Budget to the House of Commons declaring it was “a Budget for long-term growth.” The fiscal update included a number of new policy measures, such as a widely-anticipated reduction in National Insurance, abolition of the non-dom tax status and new savings products designed to encourage more people to invest in UK assets. The Chancellor said his policies would help build a “high wage, high skill economy” and deliver “more investment, more jobs, better public services and lower taxes.”

OBR forecasts

During his speech, the Chancellor declared that the economy had “turned the corner on inflation” and “will soon turn the corner on growth” as he unveiled the latest economic projections produced by the Office for Budget Responsibility (OBR). He started by saying that they showed the rate of inflation falling below the Bank of England’s 2% target level in “a few months’ time.” He noted that this was nearly a year earlier than the OBR had forecast in the autumn and said this had not happened “by accident” but was due to “sound money” policies.

The Chancellor also noted that the OBR forecast shows the government is on track to meet both its self-imposed fiscal rules which state that underlying debt must be falling as a percentage of gross domestic product (GDP) by the fifth year of the forecast and that public sector borrowing must be below 3% of GDP over the same time period. Indeed, in relation to the second rule, Mr Hunt pointed out that borrowing looks set to fall below 3% of GDP by 2025/26 and that by the end of the forecast period it represents the lowest level of annual borrowing since 2001.

In terms of growth, Mr Hunt revealed that the updated OBR projections suggest the UK economy will expand by 0.8% this year, marginally higher than the fiscal watchdog’s autumn forecast. Next year’s growth rate was also revised upwards to 1.9% compared to the 1.4% figure previously predicted.

Cost-of-living measures

The Chancellor also announced a series of measures designed to help families deal with cost-of-living pressures. These included: an extension to the Household Support Fund at current levels for a further six months; maintaining the ‘temporary’ 5p cut on fuel duty and freezing it for another 12 months; an extension of the freeze in alcohol duty until February 2025; an extension in the repayment period for new budgeting advance loans from 12 months to 24 months, and abolition of the £90 charge for a debt relief order.

Personal taxation, savings and pensions

Following previous changes to National Insurance Contributions (NICs) from January 2024, the government announced further changes to take effect this April:

  • The main rate of employee NICs will be cut by 2p in the pound from 10% to 8%, which, when combined with the 2p cut that took effect in January, is estimated to save the average salaried worker around £900 a year
  • There will be a further 2p cut from the main rate of self-employed NICs on top of the 1p cut announced at the Autumn Statement
  • This means that from 6 April 2024, the main rate of Class 4 NICs for the self-employed will reduce from 9% to 6%. Combined with the abolition of the requirement to pay Class 2 NICs, this will save an average self-employed person around £650 a year.

To remove unfairness in the system, changes to Child Benefit were announced:

  • The Child Benefit system will be based on household rather than individual incomes by April 2026
  • From April 2024 the threshold for the High Income Child Benefit Charge will be raised to £60,000 from £50,000, taking 170,000 families out of paying this charge
  • The rate of the charge will also be halved, so that Child Benefit is not lost in full until an individual earns £80,000 per annum
  • The government estimates that nearly half a million families will gain an average of £1,260 in 2024/25 as a result.

The government announced two savings products to encourage UK savings – a new UK Individual Savings Account (ISA) and British Savings Bonds:

  • The new ISA will have a £5,000 annual allowance in addition to the existing ISA allowance and will be a new tax-free product for people to invest in UK-focused assets
  • British Savings Bonds will be delivered through National Savings & Investments (NS&I) in April 2024, offering a guaranteed interest rate, fixed for three years.

Expressing concern that, across the pensions industry, investment into UK equities is only around 6%, the Chancellor announced plans to bring forward requirements for Defined Contribution pension funds to publicly disclose the breakdown of their asset allocations, including UK equities, working closely with the Financial Conduct Authority (FCA) to achieve this.

The non-dom tax regime, available to some UK residents with permanent domicile overseas, is to be abolished. From April 2025, new arrivals to the UK will not have to pay tax on foreign income and gains for the first four years of their UK residency. After that, they will pay the same tax as other UK residents. Transition arrangements will be allowed for current non-doms.

 In addition:

  • As previously announced in the Autumn Statement, the government is working to bring forward legislation by the end of the summer to allow people to invest in a diverse range of investment types through their ISAs
  • The existing ISA allowance remains at £20,000 and the JISA (Junior ISA) allowance and Child Trust Fund annual subscription limits remain at £9,000
  • The Dividend Allowance reduces to £500 from April 2024
  • The annual Capital Gains Tax (CGT) exemption reduces to £3,000 from April 2024
  • The standard nil rate Stamp Duty Land Tax threshold for England and Northern Ireland is £250,000 and £425,000 for first-time buyers, remaining in place until 31 March 2025
  • The Income Tax Personal Allowance and higher rate threshold remain at £12,570 and £50,270 respectively until April 2028 (rates and thresholds may differ for taxpayers in parts of the UK where Income Tax is devolved)
  • There will be a consultation on moving to a residence-based regime for Inheritance Tax (IHT). No changes to IHT will take effect before 6 April 2025 – £325,000 nil-rate band, £175,000 main residence nil-rate band, with taper starting at £2m estate value
  • From 1 April 2024, personal representatives of estates will no longer need to take out commercial loans to pay IHT before applying to obtain a grant on credit from HMRC
  • The State Pension, as previously announced, will go up by 8.5% in April, which means £221.20 a week for the full, new flat-rate State Pension (for those who reached State Pension age after April 2016) and £169.50 a week for the full, old basic State Pension (for those who reached State Pension age before April 2016)
  • ·        The removal of the Lifetime Allowance (LTA) from pensions tax legislation from April
  • As previously announced, the National Living Wage for over-23s – paid by employers – will rise from £10.42 an hour to £11.44 an hour in April.

Business measures

Various business measures announced included the raising of the threshold at which small businesses must register to pay VAT from £85,000 to £90,000 from April 2024. In addition, the Recovery Loan Scheme for small businesses will be extended until March 2026.

Property taxation

The Chancellor also announced the government’s plans to make the property tax system fairer, by:

  • Abolishing the Furnished Holiday Lettings tax regime
  • Abolishing Stamp Duty Land Tax Multiple Dwellings Relief from 1 June 2024
  • Reducing the higher rate of CGT on residential properties from 28% to 24%.

Public services

“Good public services need a strong economy to pay for them, but a strong economy also needs good public services.” This is how the Chancellor introduced the government’s “landmark” Public Sector Productivity Plan which, it says, will restart public sector reform and change the Treasury’s traditional approach to public spending.

Our National Health Service is, said Mr Hunt, “rightly the biggest reason most of us are proud to be British.” He announced £3.4bn to modernise NHS IT systems, which is forecast to unlock £35bn of savings by 2030 and boost NHS productivity by almost 2% per year between 2025/26 and 2029/30.

This includes:

  • Modernising NHS IT systems
  • Improvements to the NHS app to allow patients to confirm and modify appointments
  • Piloting the use of AI to automate back-office functions
  • Moving all NHS Trusts to electronic patient records
  • Over 100 upgraded AI-fitted MRI scanners to speed up results for potentially 130,000 patients per year.

The Chancellor announced a £2.5bn funding boost for the NHS in 2024/25, allowing the service to continue its focus on reducing waiting times for patients.

Mr Hunt also announced £800m of additional investment to boost productivity across other public services, including:

  • £230m for drones and new technology to free up police officers’ time for frontline work
  • £75m to roll out the Violence Reduction Unit model across England and Wales
  • £170m for the justice system, including £55m for family courts, £100m for prisons and £15m to reduce administrative burdens in the courts
  • £165m to fund additional children’s social care placements
  • An initial commitment of £105m to build new special free schools.

Other key points

  • New duty on vaping products to be introduced from October 2026
  • Tobacco duty will be increased from October 2026
  • Air Passenger Duty adjustments to non-economy class rates from 2025/26
  • Energy Profits Levy one year extension from 1 April 2028 to 2029
  • Boosting local growth through a continuation of the Investment Zones programme
  • £1bn in additional tax relief over the next five years for creative industries
  • Housing investment including £124m at Barking Riverside and £118m to accelerate delivery of the Canary Wharf scheme (including up to 750 homes)
  • £120m for the Green Industries Growth Accelerator (GIGA)
  • £7.4m upskilling fund pilot to help SMEs develop AI skills of the future
  • Extension to Freeport tax reliefs to September 2031
  • Extension to and deepening of devolution in England, including the North East Trailblazer Devolution Deal
  • HMRC to establish an advisory panel to support the administration of the R&D tax reliefs.

Closing comments

Jeremy Hunt signed off his Budget saying he was delivering, “A plan to grow the economy, a plan for better public services, a plan to make work pay… Growth up, jobs up and taxes down. I commend this Statement to the House.”

It is important to take professional advice before making any decision relating to your personal finances. Information within this document is based on our current understanding of the Budget taxation and HMRC rules and can be subject to change in future. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK; please ask for details. We cannot assume legal liability for any errors or omissions it might contain. Levels and bases of, and reliefs from taxation are those currently applying or proposed and are subject to change; their value depends on the individual circumstances of the investor.

All details are believed to be correct at the time of writing (6 March 2024)

This material is intended to be for information purposes only and is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Tees is a trading name of Tees Financial Limited which is regulated and authorised by the Financial Conduct Authority. Registered number 211314.

Tees Financial Limited is registered in England and Wales. Registered number 4342506.

How can I start investing ethically?

Posted on by Sophie Soraf

Here are a few suggestions to get you started:

Know your values

Take time to think about which ethical approaches matter most to you. There are so many different ethical and sustainability issues that it may be hard to find one option that fits everything. Being clear what matters most to you, will help you navigate your way through complexities such as a fossil fuel company that also has a renewable energy project.

Work out where you are already investing

Your current investments, including your pension, may have ethical elements already. You need to know what you’re happy with and what you want to change. You can also consider whether you want all your investments to be based on ethical investing, or just a proportion.

To make changes, you may need to just change the fund, or possibly for a more comprehensive approach, look to a new investment management provider.

How is ESG performance worked out?

The information used to define whether a business is strong on ESG is often subjective. There are multiple frameworks that people use, with different methods of calculation, so it’s impossible to get totally accurate answers – so you should aim for an approximation.

The Financial Conduct Authority (FCA), states that ESG assertions made by companies must be ‘reasonable and substantiated’. The investment research firm, Morgan Stanley Capital International provides a grading system ranking businesses from AAA to CCC. They collate information from published corporate documents, plus academic, government and a range of other databases.

How to choose an ethical investment fund

As well as the usual things to consider when choosing a fund, for example, levels of risk, costs etc, when you want to invest ethically there are a few additional factors to consider. It’s important to ensure that investment companies are genuinely upholding ethical standards. If you look at the fund manager’s website you will often find the answers you need. You need to research the following points and if you can’t find the answers you want, don’t hesitate to ask the investment companies directly. If they are responsive and open that can say a lot about their ethical approach and their attitude to investors generally.

Find out about the following

  • Ethical Investment Policies: Carefully examine the investment company’s ethical investment policies. Look for clear guidelines that outline the specific environmental, social and governance (ESG) factors they consider when selecting stocks. A well-defined, transparent policy should cover areas such as: carbon emissions, working standards, diversity, animal welfare and corporate governance.
  • Their philosophy and screening process: the corporate reporting (such as website, prospectus, annual report) should demonstrate how comprehensively the fund managers are embracing socially responsible investing principles. Look out for impact assessments which can be an indication that the fund is genuinely committed and it is a key element. Be wary of funds that seem to present ESG as a sort of ‘nice box to tick’. Another good sign is if they have robust selection criteria for the stocks they include in their portfolios.
  • Research and data: ideally, you’d want a fund that has its ESG research conducted in-house as that is an indication of its level of commitment to ethical investing. Relying on third-party ESG research gives less reason to be impressed. Ratings, such as those from MSCI, can be a useful guide, however there are a lot of different views as to how these should be assessed and so they may not be that significant in reality.
  • Compare the investment company’s ethical policies and practices with their peers. Look for benchmarking reports that evaluate different investment companies’ ethical performance and compare them across the industry. This analysis can help identify companies that excel in ethical investing and have a proven track record.
  • Voting behaviour and engagement: fund managers should vote at the annual meetings held by the companies they invest in. Proxy voting allows shareholders to exercise their rights and influence corporate decision-making. If they have voted against management at any time, this shows they are willing to engage and have a proactive commitment to ethical investing. You should be able to find this information from their website where they will record how they have engaged with investee companies.
  • Accreditation and Certifications: Are they signatories to the United Nations’ Principles for Responsible Investment (PRI) and the UK Stewardship Code 2020 which is a code that establishes a benchmark for sustainable investment? Additionally, consider certifications specific to industries, such as Fair Trade certifications for companies involved in agriculture or manufacturing.
  • Transparency: Look for investment companies that provide regular and comprehensive reports on their portfolio holdings and their performance against ethical criteria. Check to see whether you can see the whole of a fund’s portfolio and that listings are not limited, for example, to the top 10 holdings. You need to be able to see and check all the underlying companies to be knowledgeable about how socially responsible the investments are.

How can I match my values to the right investment?

To effectively align investments with your values, you need to ethical investment companies that offer the following:

  • robust screening and selection process: they should have a rigorous screening process to identify stocks that meet specific ethical criteria. This process involves assessing environmental, social, and governance (ESG) factors and excluding companies involved in industries or practices that conflict with the investor’s values. Clear guidelines should be in place to ensure transparency and consistency in stock selection.
  • customisation and flexibility: they should offer customisation options to accommodate individual investors’ values. This may include providing different investment themes or portfolios aligned with specific causes, such as climate change, gender equality, or human rights.
  •  regular portfolio reviews: they should conduct regular reviews of their portfolios to ensure ongoing alignment with investors’ values. This involves monitoring the ESG performance of companies held in the portfolio and making adjustments as needed. If a company’s practices no longer align with ethical standards, the investment company should consider divesting from that stock and finding alternatives that better meet the investor’s values.

Environmental, Social and Governance (ESG) investing has become an increasingly important focus for many of our clients.

There has been a substantial rise in the popularity of sustainable and ethical investments in recent years, driven by an increasing desire for investors to know where and how their money is being invested.

However, while these products have now become an established part of the mainstream investment landscape, many people remain confused about the terminology associated with this type of investing and are often unsure as to how to get started.

What is ESG investing?

ESG investing involves considering environmental, social and governance factors alongside financial considerations when assessing investment opportunities. When investment managers are deciding which companies to invest in, they may seek out and include companies based on their ESG characteristics.

Environmental factors refer to how companies are performing in their stewardship of the environment, for example:

  • Carbon footprint
  • Energy consumption
  • Greenhouse gas emissions

Social factors consider how companies manage relationships with employees, suppliers, customers, and the areas where they operate, for example:

  • Human rights and social justice
  • Working conditions and employee relations
  • Health and safety standards

Governance factors focus on company leadership, for example:

  • Board diversity, structure and pay
  • Avoidance of bribery and corruption
  • Management & culture

ESG investing offers the potential to invest in ways that reflect the values that are important to you through using investment solutions that aim to take related ESG characteristics into account.

However, with investment managers and funds using varying terms such as Ethical, Sustainable, Socially Responsible, Impact Investing or simply Green, it can be difficult for clients to really understand what these labels truly mean and how they translate into an investment strategy that matches their personal views and reflects the values that are most important to them.

Ethical investing

One of the most well-known terms is Ethical Investing. This involves actively avoiding those types of firms or industry sectors which are considered to have a negative impact on the environment or society. This approach is also known as ‘negative screening’ as it involves filtering out specific types of investment based on a series of ethical or moral judgements.

For instance, negative screening may exclude all gas and oil companies regardless of whether a firm operating in the sector generates any form of green energy. Other types of excluded ‘sin stocks’ typically include the likes of alcohol companies, tobacco producers, weapons manufacturers, the gambling industry and firms involved in animal testing.

Sustainable Investing

Sustainable Investing uses ESG principles to actively select those companies that have a positive impact on the world, often in line with the United Nations Global Goals for Sustainable Development. This approach is therefore less restrictive than ethical investing as it allows for the fact that organisations are typically not either all good or all bad.

For example, under a sustainable investment strategy, a fund manager would be allowed to invest in an oil company that was developing clean, renewable energy sources.

Socially Responsible Investing (SRI)

SRI is one of the oldest ethical investment strategies, which involves focusing on a range of socially conscious themes such as employment rights, awareness of LGBTQ factors, social justice and corporate ethics.

Impact Investing

This involves using an investment strategy which targets those companies that have a positive social and/or environmental impact whilst demonstrating high levels of accountability and governance.

Green Investing 

Green Investing involves a strategy of selecting companies considered to be positive for the environment, such as those offering alternative sources of energy or those with a proven track record in reducing their environmental impact.

Are ESG funds higher risk?

There was often a perception in the early days of ESG investing that investors were putting principles before profit, with ethical or green investments generally considered to be significantly riskier than their traditional counterparts. Nowadays, however, with more and more companies adopting ESG principles within their corporate and social governance policies, there is a much wider choice of stocks available to ethical and sustainable investors, and so this style of investing can provide a compelling investment opportunity capable of generating long-term stable and sustainable returns.

Our bespoke planning process

Building a strategy around your personal core beliefs aimed at delivering financial success is central to our planning process.

One of the challenges with ESG investing is that it’s highly subjective; whilst you may want to prioritise the social impact companies can have, others may be more concerned about the environmental effects. It’s worth spending some time thinking about what is most important to you.

At Tees, as your independent financial adviser, we will work with you and take the time to truly understand your values including any ‘red lines’ you may have and where you may be willing to compromise. We take account of your financial aspirations and plan for how these can be delivered via an ESG investment strategy, that is tailored to you, so that you can feel comfortable with the investment decisions you are making.

We will also seek to understand the balance between your views and overall financial performance, as well as what impact you want your investment to have – i.e: to ‘do no harm’, or to ‘do good’.

‘Do no harm’ or ‘do good’

Seeking to invest in companies that promote ESG values that are important to you is referred to as positive screening, as you look to ‘do good’.  This may mean actively looking for opportunities in certain sectors or even dedicating a portion of your portfolio to this area.

Let’s say climate change and fossil fuel use are something you want to reflect in your investments. A negative, or ‘do no harm’ screening process may mean cutting out firms that are involved in the fossil fuel industry. In contrast, a positive ‘do good’ screening method could mean diverting a portion of your portfolio towards companies that are focused on renewable energy.

When looking to build an ESG investment strategy, it’s important to bear in mind that there often needs to be compromise, rather than trying to find a portfolio which exactly matches a particular set of ethical values. There is no such thing as 100% good or bad.

Ongoing monitoring of investment managers and performance

We continually monitor the investment managers that we recommend and hold them to account to ensure that their investment strategies remain in line with the policies and beliefs for which their investments were selected on your behalf.

Monitoring and engaging with investment managers encourages good behaviour and is the best way to ensure they are practising what they are preaching.

We will also look to benchmark an investment manager’s performance comparative to their peers as well as assess performance against mainstream funds. There may be times when an ESG portfolio underperforms compared to traditional investments, as certain stocks (and indeed, whole sectors) can move in and out of favour during periods of economic and political stability.

We will look to focus on your overarching investment goals to ensure that we maximise your investment returns whilst continuing to invest in companies that work hard to manage their legacy and impact on the world.

There’s a great deal to consider when assessing ESG investment opportunities. Our clients tell us that taking professional independent financial advice from Tees, helps them to invest their money more in line with their core values and beliefs.

This material is intended to be for information purposes only and is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Tees is a trading name of Tees Financial Limited which is regulated and authorised by the Financial Conduct Authority. Registered number 211314.

Tees Financial Limited is registered in England and Wales. Registered number 4342506.

Saving for school or university fees

Posted on by Sophie Soraf

It’s often said that the value of a good education is priceless, but in today’s money that means on average, for a university student, you’ll be looking at around £20,340 a year, including tuition fees.

When it comes to school fees, according to School Fees Checker, fees increased by 5.1% in September 2022, with an average annual cost of an independent day school likely to be £20,480 per annum and £34,790 per annum for boarders. So, if you’re a parent or grandparent looking to build up the cash needed for school or university fees, it certainly pays to start saving as soon as you can.

Ways to save for school or university fees

An Individual Savings Account (ISA) is a simple way to save or invest. The advantage of these types of accounts is that you don’t pay tax on the interest you earn, or the increase in value of your investments, so you don’t need to declare income and capital gains from ISA savings or investments on your tax return. They are flexible too; you can save or invest a lump sum or make regular monthly contributions.

Junior ISAs are a great way to build up savings tax-efficiently for a child aged under 18. Your child can have a Junior cash ISA, a Junior stocks and shares ISA or a mixture of both, and save up to a total of £9,000 pa for the tax year 2023/2024. When your child reaches 18, they can access the funds, making them a good way of saving for a university education. The great advantage of a Junior ISA is that once it’s been opened by the parent or guardian, anyone can make contributions, including grandparents, friends and family. For families looking to save for school fees, parents and grandparents can also put away up to £20,000 tax-free into their own ISAs during the 2023/2024 tax year.

You could also consider investing a lump sum into an investment bond. When the time comes, you can make withdrawals from the bond to pay the fees. You can also assign the bond to the child. As the beneficiary, the child would be liable to pay tax on any income and gains, however as most children don’t receive enough income or gains to exceed their annual allowances, this could be an attractive option, especially for parents who are higher or additional rate taxpayers.

Here to help

If you could do with some help and advice on saving for a child’s education, then do get it touch. We can help you put a plan in place to meet future education costs, helping you give your child the best possible start in life.

This material is intended to be for information purposes only and is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Tees is a trading name of Tees Financial Limited which is regulated and authorised by the Financial Conduct Authority. Registered number 211314.

Tees Financial Limited is registered in England and Wales. Registered number 4342506.

 

ISAs 101: your guide to Individual Savings Accounts

Posted on by Sophie Soraf

ISA stands for individual savings account and is an investment vehicle that has great tax breaks. It allows you to earn interest on cash savings or dividends from investments without paying income tax or capital gains tax.

To ensure this tax break is not exploited, there is a restriction placed on how much you can pay into them each tax year.

How do they work?

Each tax year, which runs from 6 April to 5 April the following year, you have an ISA allowance. Currently the ISA allowance is £20,000 for this tax year. This means you have until 5 April to use your ISA allowance for this tax year.

Use it or lose it. If you miss the tax yearend deadline, you cannot back pay to catch up missed contributions. Any money you pay into an ISA will count towards your ISA allowance for the following year. This regularly catches people out with busy lives each year.

To be eligible to open an ISA, you need to:

  • Be 16 or older for a cash ISA
  • Be 18 for stocks and shares ISA
  • Be the parent or guardian of a child under 18 to open a Junior ISA
  • Be 18 to 39 to open a lifetime ISA
  • Be a resident in the UK (or a Crown employee if abroad)

An ISA can only be held in one person’s name. It’s not possible to have an ISA in joint names. Hence the title individual Savings Account.

There are two main types of ISA: cash ISAs and stocks and shares ISAs. There are also some specialist ISAs to choose from.

Cash ISAs

These are similar to regular bank / building society savings accounts with the advantage of a tax efficient wrapper. They should be used as short-term investments ie up to 5 years for maximum effect.  Beyond this time scale inflation has the potential to reduce the value of the funds. There are two basic types of cash ISA:

  • Instant access:  Allows you to withdraw and deposit funds in line with the provider’s terms.
  • Fixed term: Your money is wrapped up for set period of time during which you receive a fixed rate of interest but have no access.  As the interest rates rise there are some very good rates on offer.

Stocks and Shares ISAs

These are stocks and shares investment accounts that use your ISA allowance as a wrapper to make them tax efficient. There are a huge variety on offer covering several investment styles and client attitudes to risk. This can make it very hard to compare apples with apples. Care should be taken also to ensure that any charging is made clear from the start.

As with most investment-based products your money is at risk as the value of stocks and shares can fluctuate. However over the longer term (5 years plus) you have the potential to receive better returns than say with Cash ISAs. These tend to form the basis of most investors portfolios as the starting point due to their tax efficiency.

Specialist ISAs

  • Junior ISAs: for under 18s only, limited up to £9,000 per annum currently. Can be Cash or Stocks and Shares based.
  • Lifetime ISA: for adults under 40 saving for retirement or to buy their first home.   At a very high level they let you earn a 25% bonus on savings up to £4,000 a year. Care and advice should be taken because although you can access the funds whenever you like. You only get the bonus if you use the cash to either buy your first home or take it out after you turn 60. If you withdraw the money for any other reason, you will lose 25% of it as the government takes its money back plus a little extra.
  • Innovative finance ISA: Peer-to-peer investments which earn interest by lending money to individuals, businesses and property developers. These usually require financial advice to be taken to ensure suitability. 
  • Business Property Relief (BPR) based ISAs: ISAs are not totally tax free; they are liable to Inheritance Tax upon death.  Using an ISA that can take advantage of BPR can help ringfence funds from inheritance tax.  These tend to be higher risk options and should be discussed with an IFA before proceeding.

You can open a Cash ISA either in a bank/building society branch, online, by post or over the phone, depending on the type of account and provider you choose.

Investment ISAs are similar but best taken out via an Independent Financial Adviser who can source the right plan for your circumstances.  They should also ensure that the scheme is covered by the Financial Conduct Authority and the Financial Services Compensation Scheme. They will also explain the risk level and ensure that you do not over commit too much of your hard-earned funds in one go. For some Cash ISAs you can start with as little as £1. For investment ISAs this tends to be higher for lump sum investments. A regular premium amount typically start around £50 pm. There is no right amount to start with.  It will depend on your own situation.  Always ensure that you have enough hands on cash available to cover emergencies. As a guide this is typically 3 – 6 months of expenditure. You will also need to supply your National Insurance number. Always read the small print before signing to ensure that you understand what you are investing into.

How many ISAs can you have?

You can build up several ISAs over the years. You can consolidate your past ISAs by transferring them to your current ISAs if they offer better terms.

You can only pay into one cash ISA, one stocks and shares ISA, one lifetime ISA and one innovative finance ISA in each tax year, and the total you invest across the types of account must not exceed your ISA allowance – currently £20,000.

You can transfer to a new ISA within a tax year – but only if you take all the money you’ve already saved into the old ISA to your new one.

If you have opened a junior ISA for a child, this is not included in your £20,000 allowance (it’s the child’s allowance, which is £9,000 a year currently).

Can you withdraw money from your ISA and put the money back later?

This depends on the terms and conditions of your ISA, so ensure you find out before opening a new ISA whether:

Your ISA is flexible

  • You can withdraw money and pay it back in during the same tax year without it affecting your ISA allowance (eg if you deposit £10,000 then withdraw the same amount, you can still pay in a total of £20,000 this tax year)
  • You can also withdraw any ISA money you have from previous tax years, and have until the end of the tax year to pay it back into the same ISA.

Always, check the small print before doing anything as some ISAs may limit the number of transactions you can make in a year. Not all providers allow transfers either, you should also check the T&Cs before making a withdrawal.

Your ISA is not flexible

  • Any money you pay in then withdraw, still counts towards your remaining ISA allowance (eg if you pay in then withdraw £5,000, you can only deposit up to £15,000 for the rest of this tax year).
  • Deposits that exceed the allowance will be rejected

Once taken out of an ISA your money will lose its tax-free status if you pay it into a normal savings account.

Can you transfer an ISA to another ISA?

You may want to move holdings in a previous year’s ISA to a new one if the rate of return or fees are more competitive.

This is allowed under the rules; just don’t attempt a transfer until you’ve checked whether your new ISA allows transfers in.

To retain your tax advantages, you need to transfer your ISA directly from one provider to another.

However, if you try to move your ISA by withdrawing the funds, you will lose its ISA status, as it’s no longer within the tax-free wrapper.  You may find that a lifetime of tax efficient savings is lost by making this common mistake.

What happens to your ISA upon the death of the plan holder?

Upon death an ISA becomes part of your estate and loses its tax-free status, meaning it’s liable to income tax.

The exception is if you leave behind a spouse or civil partner. Then they would see an amount equivalent to your ISA added to their current year’s allowance, tax-free.

E.g. you pass on leaving £20,000, your spouse or civil partner would receive a one-off addition to their own ISA annual allowance of this sum, giving them a total allowance of £40,000 to invest.

Even if you leave your ISA to somebody else in your will, your spouse or civil partner will still gain the £20,000 additional ISA allowance.

What protection does your ISA have?

The Financial Services Compensation Scheme (FSCS) protects the first £85,000 of any cash or investments held in ISAs with each separately registered institution.

To qualify, your ISAs must be in a financial company, such as a bank or investment house, that’s regulated by the Financial Conduct Authority.

CARE, if you have more than £85,000 in savings with one institution, or two separate companies within the same group, you could end up out of pocket should the group go under as the FSCS only guarantees a payout of £85,000.

The above should be viewed as impartial guidance as to ISA options and what they might mean. The final decision to invest would be yours but as with any investment, if it’s not an area you are completely familiar with you should seek Independent Financial Advice.

 

This material is intended to be for information purposes only and is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Past performance is not a reliable indicator of future returns and all investments involve risks. Some information quoted was obtained from external sources we consider to be reliable.

Tees is a trading name of Tees Financial Limited which is authorised and regulated by the Financial Conduct Authority. Registered number 211314. Tees Financial Limited is registered in England and Wales. Registered number 4342506.

Why Choose SIPPs? The Advantages of Personal Pensions

Posted on by Sophie Soraf

If you want a flexible and straightforward way to save for your retirement that puts you in the driving seat, a self-invested personal pension, or SIPP, might be appropriate. Here, we explain how a SIPP works so that you can consider whether it could be the right pension plan for you.

What is a SIPP?

A SIPP (Self Invested Personal Pension) is a type of personal pension that gives you the freedom to choose and manage your own investments, allowing you to make decisions that determine how your pension pot performs. A SIPP acts as a wrapper that can hold a number of different investments and is invested until you want to make withdrawals when you retire.

You can also choose to transfer in existing pensions, but it’s important to check whether you will be charged transfer fees for doing so. If the fees are high, it’s generally best to leave your existing pensions where they are.

What are the tax benefits?

SIPPs work in a similar way to other types of pension in that you can pay into them whenever you want and they enjoy the same generous tax perks. This means that for every contribution you make, the government will give you 20% tax relief. So, if you paid in £100, this would effectively be topped up to £125. This basic-rate tax relief is added to your pension automatically as your provider will claim it for you from the government.

Higher-rate taxpayers (40%) can claim up to a further 20% in tax relief through their tax return, while additional-rate taxpayers (45%) can claim up to a further 25%.

Are there any limits on SIPP contributions?

You can pay as much as you like into your pension, but there is a limit on the amount of tax relief you can claim. Most people get tax relief on pension contributions up to 100% of their salary each tax year, capped at the Annual Allowance of £60,000 (for the 2023/24 tax year). This limit includes the total value of all contributions, including those from your employer and the addition of basic-rate tax relief.

If you do not earn enough to pay Income Tax, you can pay a maximum of £2,880 a year into your pension and still benefit from basic-rate tax relief, which boosts your total contribution to £3,600 per tax year.

Once you have used up the current year’s Annual Allowance, you may be able to carry over unused allowances from the past three years, providing you were a pension scheme member during those years and your total contribution does not exceed 100% of your current year’s earnings.

A Tapered Annual Allowance was introduced in 2016-17 which currently applies for individuals with a ‘threshold income’ of over £200,000 and ‘adjusted income’ of over £260,000.

Why should I choose a SIPP over other pension arrangements?

The biggest benefit of a SIPP is that, unlike other pension plans, you can choose from a much wider range of investments, which could have significant growth potential. You can also have complete flexibility and control over your investment portfolio.

In addition, SIPPs are portable, so if you change your job or stop working you can continue to contribute to your pension. If you have a new employer, they can decide to make contributions too.

However, with this flexibility comes responsibility so it’s important to research your options carefully and make sure you are comfortable making your own retirement decisions. The value of your investments can go down as well as up which means you could get back less than you put in.

What types of investment can I have?

With a SIPP, you can invest in a wide range of assets, such as:

  • Stocks and shares
  • Unit trusts
  • Open ended investment companies (OEICs)
  • UK government bonds
  • Gilts and bonds
  • Exchange traded funds (ETFs)
  • Offshore funds
  • Commercial property
  • Cash

SIPPs allow you to pick your own individual investments or choose a ready-made portfolio based on your investment goals and attitude to risk. By picking your own investments, it’s important to ensure you spread risk by choosing a variety of investments across a range of assets, regions and sectors.

How can I take money out of my SIPP?

You can usually start to take money from your pension from the age of 55 (rising to 57 in 2028). You can take up to 25% of your pension pot tax-free and you’ll be taxed on the remainder as if it were income. You can choose to receive your tax-free cash as a single lump sum or in stages.

You can take money from a SIPP in three main ways and you can choose just one option or a combination:

  • An annuity: This pays a guaranteed income for life and you can choose whether your income remains the same throughout your retirement, increases by a fixed percentage each year or increases with inflation.
  • Drawdown: This enables you to take your tax-free cash and leave the rest of your pension invested. You can make further withdrawals as and when you need to.
  • Lump sum: Known as Uncrystallised Funds Pension Lumps Sums (UFPLS), this allows you to take money directly from your SIPP without choosing drawdown. Every time you do so, 25% is usually tax-free and the rest is taxed as income.

How we can help

SIPPs give you much greater flexibility than other types of pension, but they won’t be suitable for everyone. If you’re not sure whether a SIPP is right for you, our expert pension advisers are on hand to discuss your options and help you make the right investment choices.

They will assess important factors such as your attitude to risk, investment perspective and tax position to help you make the best retirement decisions for you. Why not get in touch today?


This material is intended to be for information purposes only and is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Past performance is not a reliable indicator of future returns and all investments involve risks including the risk of possible loss of capital. Some information quoted was obtained from external sources we consider to be reliable.

Tees is a trading name of Tees Financial Limited which is authorised and regulated by the Financial Conduct Authority. Registered number 211314. Tees Financial Limited is registered in England and Wales. Registered number 4342506.

Spotlight on EIS vs VCT and AIM investing

Posted on by Sophie Soraf

If you’re an investor looking to diversify your portfolio and maximise tax efficiency, you could consider more complex investments such as an Enterprise Investment Scheme (EIS), Venture Capital Trust (VCT) or shares in Alternative Investment Market (AIM) listed companies, providing you are comfortable holding high-risk investments.

EIS vs VCTs explained

Enterprise Investment Schemes and Venture Capital Trusts are investments made into small, unquoted trading companies which are trying to raise capital in their early stages of development.

The rationale behind both EIS and VCT schemes is that they benefit the economy by promoting innovation amongst the small higher-risk business community which in turn drives productivity, creates jobs and boosts economic growth.

EIS and VCT schemes are appealing to investors who are typically seeking greater diversity across their portfolio as the investments held have a low correlation to more mainstream holdings in pensions and Individual Savings Accounts (ISAs).

What tax benefits do these schemes offer?

Since their launch in the 1990s, EIS and VCT schemes have become increasingly popular, in large part due to the tax benefits they enjoy. Schemes such as these have been particularly important to investors who may be struggling to find ways to invest tax-efficiently, for example those who are close to breaching pension allowances, but who still want to save for retirement in a tax-efficient way.

There are a number of generous tax breaks. For example, when you invest in an EIS or a VCT, you get income tax relief of 30%: invest £100,000 and you could get up to £30,000 back. In order to qualify for these benefits an EIS investment must be held for at least three years and a VCT for five years, but investors would normally expect to hold the investments for longer.

For EIS schemes there is also ‘deferral relief’ which effectively allows you to defer capital gains tax payable on profit earned from an investment by reinvesting it in an EIS. So you only have to pay the CGT due on your initial investment once you exit from your EIS, but you could carry on deferring the tax bill by reinvesting your gain indefinitely.

There are also ways of using an EIS to minimise your inheritance tax bill. After two years from when you buy the EIS-qualifying shares, as long as you still hold the shares on death, your investment should be free of inheritance tax liability. There is no inheritance tax advantage with VCTs however, as when you invest you acquire shares in the trust, rather than in the underlying companies.

How do EIS and VCT schemes differ?

In the case of an EIS, investors typically purchase shares directly in firms, while VCTs are listed companies and follow a similar approach to that of investment trusts, allowing investors to spread the investment risk over a number of companies by subscribing for shares in the VCT itself.

For the 2023-24 tax year, the following limits apply:

In the case of an EIS, investors typically purchase shares directly in firms, while VCTs are listed companies and follow a similar approach to that of investment trusts, allowing investors to spread the investment risk over a number of companies by subscribing for shares in the VCT itself.

For the 2023-24 tax year the following limits apply:

For an EIS, the maximum annual investment you can claim tax relief on is £1m. This is increased to £2m, as long as at least £1m of this is invested in ‘knowledge-intensive’ companies.

Investments in an EIS can be carried back to the previous tax year.

For a VCT, the maximum annual investment you can claim tax relief on is £200,000. New investments in VCTs cannot be carried back to previous tax years.

VCTs may pay out tax free dividends to investors, although early-stage companies may not be able to afford this, without affecting growth, so investors certainly shouldn’t rely on receiving dividends. Dividends payable from EIS are taxable.

What are the risks of EIS and VCT schemes?

Despite the attractive tax benefits of these schemes, they are only suitable for people who are comfortable holding high-risk investments. This is because EIS and VCTs invest in smaller, fledgling companies that are inherently likely to be more fragile enterprises and could fail.

Another risk to consider is the illiquid nature of the investments as they are harder to sell than mainstream investments such as listed shares or unit trusts. As a result, such schemes are considered to be high risk and will normally only be suitable for a relatively small proportion of your overall portfolio.

If you are considering a long-term investment and want to maximise tax efficiency and diversify your portfolio, our independent financial advisers can provide you with expert guidance on such schemes, advising on the full range of investments and ensuring that the associated risks are fully understood.

Alternative Investment Market (AIM) investing

The Alternative Investment Market was launched 25 years ago (in 1995) with the aim of helping smaller companies that needed capital to grow but couldn’t afford the costs associated with listing on the London Stock Exchange, or were unable to meet the stringent requirements needed to float. As at Feb 2023 there were around 727 companies listed on AIM, with a combined market value of over £90bn.

Not all AIM-listed companies are start-up companies, but they tend to be smaller and potentially higher risk than those listed on the FTSE. The main investors in AIM shares will therefore normally be institutions and wealthy individuals.

What are the tax advantages of investing in AIM-listed shares?

Since 2014 investors have been able to include AIM-listed shares in their stocks and shares ISAs, meaning there is no Capital Gains Tax to pay on disposal and no Income Tax payable on dividends. More and more people, therefore, have considered including AIM-listed shares within their ISA portfolios in recent years.

Furthermore, most AIM stocks qualify for Business Property Relief and are exempt from IHT if held for more than two years, making this type of investment one for consideration when planning for inheritance tax.

As described earlier in this article, AIM shareholders are also able to benefit from Income Tax relief and Capital Gains Tax relief when the investments are held via an Enterprise Investment Scheme or Venture Capital Trust.

Considering EIS, VCT and AIM investments? Talk to us

These types of investments have grown in popularity over recent years, as they are now among the few remaining tax-efficient investment avenues still available to wealthier investors.

If you are unsure as to whether investing in tax-efficient vehicles such as EIS, VCT or AIM is suitable for you or you need professional advice on any other area of saving and investing, we are only a phone call away.

Don’t invest unless you’re prepared to lose all the money you invest. This is a high‑risk investment, and you are unlikely to be protected if something goes wrong – two-minute read IMPORTANT information about key risks.

Tax rules can change, and tax benefits depend on individual circumstances. The value of investments can go down as well as up and you may not get back the amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.

This material is intended to be for information purposes only and is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Some information quoted was obtained from external sources we consider to be reliable.

Tees is a trading name of Tees Financial Limited which is authorised and regulated by the Financial Conduct Authority. Registered number 211314. Tees Financial Limited is registered in England and Wales. Registered number 4342506.

Pension planning during times of uncertainty

Posted on by Sophie Soraf

There have been various difficulties in recent years, affecting the UK economy that have had an impact on pension savers.  These include Brexit, the COVID-19 pandemic, the conflict between Russia and Ukraine as well as political instability in Westminster.  These events have caused turbulence in the markets, leading to a decline in share prices and other investments. If you have a workplace pension or a personal pension you may have noticed that its value has decreased as a result.  While this can be concerning, it is important to remember that it is a temporary setback and there are ways to weather the storm.

What should I do about my pension if I see the value dropping?

Even though these are unprecedented times, as an investor, it’s useful to put any short-term volatility into historical context, to get the bigger picture, rather than focusing too intently on short-term events and market fluctuations.

Market analysts and investors aren’t infallible, they become nervous in uncertain times. This is because the loss of trade and tourism can pose a threat to companies of any size. So, it’s little wonder that stock markets have fallen and you are likely to have seen a drop in the value of your pension pot over the course of the last few years.

However, it’s worth remembering that the recent falls have come after some very strong rises in recent years. Also, your pension pot is unlikely to be invested solely in equities, so a 5% fall in the market does not necessarily equate to a 5% fall in the total value of your pension fund. In fact, the typical pension pot will contain a broad range of assets, which have been identified to fit in line with your attitude to risk, personal objectives and time frames.

A typical pension fund contains around 60%-65% in shares, with the rest in government and corporate bonds, property and cash. In contrast to equities, government bonds have actually increased in value during the crisis.

Will my pension pot ever recover?

Investment requires a disciplined approach and a degree of holding your nerve if markets fall. Experienced long-term investors know that the worst investment strategy you can adopt is to jump in and out of the stock market, to panic when prices fall and to sell investments at the bottom of the market.

The importance of keeping to your long-term plan is evident by studying the performance of the FTSE 100 over the last 20 years or so. Back in the autumn of 1998, the FTSE 100 fell by 1,000 points, amidst an environment of high-interest rates and other threats to UK economic growth. However, it had almost fully recovered by the end of 1998 and the index soared close to 7,000 in 1999. A global slowdown brought it back down to around 3,600 in the spring of 2003, before taking another five years to climb back to around 6,500. Then, the global financial crisis happened and the index was back at 3,500 in March 2009. After a long haul back, the index was at over 7,000 in January 2020 before the pandemic affected global markets.

Over the last 20 years, despite a variety of market shocks and rebounds, the index still has a long-term growth trend. It’s important to remember that some market volatility is inevitable. Markets will always move up and down, but it’s important to stick to your long-term plan.

Is now a good time to top up my pension?

Providing you are investing for the long term, you may wish to consider investing more into your pension pot. Even a small increase in contributions could make a difference to your final pension pot if it benefits from an upturn in the market and makes up for recent losses.

Remember that whatever type of pension plan you hold, you get tax relief at the highest rate of Income Tax you pay, on all contributions you make, subject to annual and lifetime allowances. This effectively means that some of your earnings which would have gone to the Government as tax are diverted to boost your pension pot instead.

You receive ‘relief at source’ if you pay money into your personal pension yourself or if your workplace pension contributions are taken directly from your pay packet. In both circumstances, you automatically receive 20% tax back from the Government in the form of an additional deposit into your pension pot. So, for instance, if you’re a basic-rate taxpayer investing £800 of your take-home pay into your pension, the tax relief would amount to £200. Effectively the taxman tops up your £800 contribution to £1,000.

How do I make sure my pension is protected?

As well as taking a long-term view of your pension, regular reviews are essential to ensure you remain on track with your well-defined plan, in accordance with your objectives and attitude to risk. If there have been any changes in your objectives or circumstances, it is particularly important to review and make any adjustments where needed.

When investing, you have to decide how much risk is right for you. Successfully achieving your long-term goals requires a balance between risk and reward, so you can construct a diversified portfolio with the potential to improve returns that matches your elected level of risk. While a diversified portfolio should incorporate strategies to help reduce risk, it cannot be eliminated altogether. The process of building such a portfolio is very difficult to achieve without professional advice.

Can I get advice about my pension?

In these uncertain times, more than ever, it’s important to take professional independent financial advice, from someone who will help you to make the right financial decisions and identify and meet your goals and aspirations. Research shows that those who take advice are likely to accumulate more wealth, supported by increased savings and investments in equities. Also, those in retirement are likely to have more income, particularly at older ages.

We’re here to help

Planning is a continual process of anticipating and adapting to changes in your personal circumstances over the long term. When you work with us you benefit from informed, professional advice, reinforced by up-to-date market intelligence and years of experience. Tees Financial Ltd is the independent financial advice and wealth management arm of Tees.  It has been awarded the Pension Transfer Gold Standard as well as Corporate Chartered Financial Planner status.

 

This material is intended to be for information purposes only and is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Past performance is not a reliable indicator of future returns and all investments involve risks. Some information quoted was obtained from external sources we consider to be reliable.

Tees is a trading name of Tees Financial Limited which is authorised and regulated by the Financial Conduct Authority. Registered number 211314. Tees Financial Limited is registered in England and Wales. Registered number 4342506.

Investing for the long term – lessons from the past

Posted on by Sophie Soraf

The emergence of COVID-19 brought a rapid end to the drawn-out recovery of major stock markets from the share price lows associated with the financial crisis a decade ago. When the scale of the threat to lives and livelihoods became apparent, market analysts and investors reassessed the global economic outlook and corporate prospects; they didn’t like what they saw and a wave of selling followed, with inevitable consequences. Most share prices, and thus stock indices, were impacted, with market volatility continuing throughout 2020.

Market analysts and investors aren’t infallible, but when something like COVID-19 strikes they get nervous because closed borders, flight bans and lockdowns can pose a threat even to large companies, especially in exposed sectors. Axed dividends and distressed rights issues are anathema to the jittery; and the largest blue-chip companies aren’t immune. Little wonder then that the 100 shares comprising the UK’s blue-chip share index, the FTSE 100, rapidly lost about one-third of their combined value in late Februaryv and March 2020.

Lessons from history

Created in 1984 with a starting level of 1,000 points to provide a wider index of leading shares quoted in London, the FTSE 100 largely superseded the narrower Financial Times 30-share index launched in 1935. As a barometer of economic outlook and corporate prospects, the FTSE 100 has gauged a few storms over the past 36 years. A chart of its progress reveals a plethora of spikes and dips, the starkest of which can be associated with key events in recent financial history.

graph2

Chart: FTSE 100 since inception to 1 September 2021, source Yahoo and Trading Economics

Not the first FTSE 100 dip

After its launch on 3 January 1984, the FT’s new share index only slipped very briefly below 1,000 points that year. It then made progress, sometimes faltering, to hit 2,000 points by March 1987, by then buoyed by the effect of the previous October’s ‘Big Bang’ modernisation of the London Stock Exchange’s trading structure. Six months of further upticks followed and the index broke through 2,350 in early October 1987. It would be two years before that level was attained again.

On 19 October 1987, the Monday after The Great Storm ravaged Southern England, global stock markets suffered a crash so severe that the day became known as Black Monday. A tsunami of selling, much of it blamed on new-fangled computer-program trading, rapidly took the FTSE 100 down to around 1,600, starting with an 11% drop on the Monday and 12% the next day.

A 1,000-point drop

High interest rates and other threats to UK economic growth and even talk of an impending recession brought a 1,000-point drop in the FTSE 100 in the autumn of 1998, almost all of it recovered by the year-end. General bullishness continued through 1999, which ended with the index nudging 7,000. As the year 2000 unfolded, a combination of overvaluation, epitomised by the rapidly inflating ‘dotcom bubble’, and a global economic slowdown brought further investor jitters.

The bull market had marched the FTSE 100 up the hill; the ensuing three-year bear market marched it back down again to around 3,600 in the spring of 2003. The index would take another five years to climb back above 6,500, where it was delicately poised for the next big shock: the 2008 collapse of US investment bank Lehman Brothers and the cascade of failures prompting what became known simply as ‘the global financial crisis’. By March 2009, the index was down around 3,500 again.

Long term trend

It was a long haul back from there for the FTSE 100 but, after gyrations associated with various stages of the Brexit process, the start of 2020 saw it comfortably above 7,000. News of a new virus outbreak in an unfamiliar Chinese city seemed at first like a distant threat. As the outbreak turned into a pandemic, global markets faltered again and the FTSE 100 headed below 5,000 before recovering some of the loss. COVID-19 has brought a reset of the blue- chip barometer, the FTSE 100 index.

Despite a variety of market shocks and rebounds, the index still has a long term growth trend. It is important to remember that some market volatility is inevitable; markets will always move up and down. As an investor, putting any short-term market volatility into historical context is useful.

Financial advice and regular reviews are essential to help position your portfolio in line with your objectives and attitude to risk, and to develop a well-defined investment plan, tailored to your objectives and risk profile.

The ascent of the 1990s

Share-price recovery was slow, hampered by a short UK recession in 1991-92 caused in part by high interest rates and an over-valued pound associated with efforts to keep sterling within Europe’s exchange rate mechanism. After Chancellor Norman Lamont took sterling out of the ERM in September 1992, having spent billions and upped base rate to 15% trying to stay in, the index gained about 14% in six months.

As 1994 dawned, a decade on from its launch, the FTSE 100 stood at around 3,400; although then, as now, changes had been made to its constituent shares as companies’ respective market capitalisations waxed and waned. Concerns about the economy and tax plans dampened sentiment and the index fell below 3,000 during the first half of 1994 before starting a five-year ascent to break the 6,000 barrier in the summer of 1998. After a 500% rise in 14 years, what came next for the FTSE 100?

 

The value of investments can go down as well as up and you may not get back the full amount you invested.
The past is not a guide to future performance and past performance may not necessarily be repeated.

This material is intended to be for information purposes only and is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Past performance is not a reliable indicator of future returns and all investments involve risks. Some information quoted was obtained from external sources we consider to be reliable.

Tees is a trading name of Tees Financial Limited which is authorised and regulated by the Financial Conduct Authority. Registered number 211314. Tees Financial Limited is registered in England and Wales. Registered number 4342506.

How inflation impacts your finances

Posted on by Sophie Soraf

Following a sustained period of historically low inflation, the recent upsurge in price pressures has vividly highlighted the impact inflation can wreak on people’s finances. A sharp rise in the cost of living effectively takes a large chunk out of the purchasing power of money and thereby erodes the real value of cash savings. It is therefore important to understand the concept of inflation and the impact it has on your wealth. Here, we consider these issues and look at the potential benefits of longer-term investment as a way of protecting your money from the effects of inflation.

Inflation is a term used to describe the increase in the general level of prices for goods and services over time, with the rate of inflation quantifying how quickly prices are rising. There is no single approach to measuring inflation, partly as figures differ depending upon which specific bundle of goods and services are included in the calculations. However, the Office for National Statistics (ONS) publishes a number of consumer price indices each month which provide its latest estimate of inflationary trends. The UK’s official headline measure is the Consumer Prices Index (CPI) 12-month rate which compares prices in the current month with the same period a year earlier.

Measure inflation

A good way of understanding how a price index works is to think of an extremely large shopping basket containing a mix of the various goods and services a typical household buys – the price index basically shows changes to the overall cost of that basket over time. For the CPI, prices for around 700 things people regularly buy are recorded each month. These cover a variety of items including a loaf of bread and ready-meals, the cost of a cinema ticket and a pint at the local pub, as well as larger items such as a holiday and a car. To calculate the index, ONS compares the current cost of the basket with what it was a year ago – the change in price level is the annual rate of inflation.

The impact of high inflation

A healthy economy generally requires inflation to be low and stable. While a small amount of inflation is considered helpful, high and unstable rates can cause extreme economic difficulties as it erodes the purchasing power of household finances and makes it difficult for people to plan how much they can spend, save or invest. In the UK, the government has a 2% target for how much prices should go up each year with the Bank of England tasked with keeping the figure around that level. The Bank’s principal tool for maintaining a low and stable inflation rate is to raise or lower interest rates.

What is “bank rate”?

Bank Rate is the most important interest rate in the UK and has a significant impact across many aspects of the economy. It is sometimes referred to as the Bank of England Base Rate and is set by the central bank’s nine-member Monetary Policy Committee. The rate directly influences other interest rates, including the lending and savings rates high street banks and building societies offer their customers. The level of the Bank Rate therefore ultimately determines both the cost of mortgages and loans, and how much people can expect to receive on savings held in deposit-based accounts.

Interest rates and inflation

Economic theory shows there is an ‘inverse’ relationship between inflation and interest rates: in other words, when interest rates are low inflation tends to rise, and when rates are high inflation tends to fall. This is because high interest rates make it more expensive for people to borrow money and encourages them to save, which means they typically spend less on goods and services, and this results in prices rising more slowly; and vice versa. So if prices are deemed to be increasing too rapidly, the Bank of England will typically raise interest rates in order to try to slow inflation down.

Purchasing power

When the rate of inflation is low, its impact can seem relatively modest, but when inflation is high it can drastically erode the purchasing power of money. For example, if the rate of inflation is 1%, then the price of a loaf of bread that cost £1 a year ago would now be £1.01. However, if inflation is running at 10%, the price of the same loaf would rise to £1.10. In other words, households can buy less for the same amount of money or, to put it another way, money has effectively lost value.

shopping carts

Inflation makes things more expensive over time.

Impact on savings

Inflation has a similar devaluing effect on deposit-based savings balances. For instance, a saver who held £10,000 in a building society account a year ago earning a rate of 1%, would receive £100 in interest and thereby see their total balance rise to £10,100. However, if inflation was running at 10% then the same £10,000 worth of goods and services that could have been bought a year earlier would now cost £11,000. So, although the saver may feel they have earned £100, when factoring in the effects of inflation, the value of their cash savings has actually declined by £900 in real terms.

Investment potential

While cash savings will always be important, particularly as a source of rainy-day funds, in the current economic climate people holding a large proportion of their assets in cash look set to lose money in real terms. For anyone planning to put money aside for a number of years, it may therefore be worth considering investments as a potential way to protect capital from the effects of inflation. Although past performance is no guarantee of future profits, stock market investments have tended to produce returns that could potentially inflation-proof money over the longer term, providing savers are prepared to take some degree of risk.

Tax-efficient investments

As well as potentially offering protection from inflation, some investment products also enjoy significant tax advantages that make them particularly attractive investment propositions. Both pensions and stocks and shares ISAs fall within this category.

Pensions

Investing via a pension is one of the most tax-efficient methods of saving for the long term as investors receive tax relief at their highest marginal rate of Income Tax on all contributions made subject to annual and lifetime allowances. This means that some of your earnings which would have gone to the government as tax are instead diverted to boost your pension pot. This effectively results in it costing you less to save more in a pension plan.

Stocks and shares ISAs

Individual Savings Accounts (ISAs) are another tax-efficient investment option and provide greater flexibility than a pension as they allow access to your money before the age of 55. Investors can save up to £20,000 each tax year in a stocks and shares ISA with the money having the potential to grow free of UK Income Tax and Capital Gains Tax. These products can be a particularly good way to save for medium or long-term financial goals, such as a wedding or new car.

real growth

This graph shows the effect of a 2% inflation rate on £100 over a 40-year period with cash assumed to earn no interest – maybe kept under your mattress! A growth rate of 7% per annum is assumed for equities but is for illustrative purposes only and not an indication of future performance. After 40 years, the initial £100 can only buy goods that would be worth just under £45 at today’s prices, compared to an equity investment which would have the purchasing power of £704.

growth of 1 pound

Obviously, very few of us would keep cash under the mattress, but even with cash deposits earning 1% a year, £1 would only be worth £1.49 after 40 years if held in cash, or over 10 times that amount if invested in equities, assuming a growth rate of 7% p.a.

 

 

This material is intended to be for information purposes only and is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Past performance is not a reliable indicator of future returns and all investments involve risks. Some information quoted was obtained from external sources we consider to be reliable.

Tees is a trading name of Tees Financial Limited which is authorised and regulated by the Financial Conduct Authority. Registered number 211314. Tees Financial Limited is registered in England and Wales. Registered number 4342506.

Use your will to save inheritance tax

Posted on by Sophie Soraf

The question of how to structure your will is a complex one involving consideration of a range of different factors.  Married couples with significant assets should consider the option of using an appropriate will trust on first death due to the tax planning opportunities available.

What is the inheritance tax nil rate band?

The inheritance tax “nil rate band” is the threshold below which no inheritance tax is payable. In recent years the nil rate band rules have become ever more complex with the introduction of three new elements alongside the standard nil rate band; they are:

  • transferable nil rate band
  • residence nil rate band
  • downsizing relief.

The complexity and quirks of the legislation offer many opportunities to save inheritance tax through (amongst other things) an appropriately structured will.

Please note: references to spouses and married couples include civil partners and it’s   assumed that all the persons in the examples are UK domiciled. Depending on your circumstances there may be other tax and/or legal issues to consider so it’s always important to take advice.

Married couples where one or both of the couple have previously been widowed

Married couples where one or both of the couple have previously been widowed may be able to save significant inheritance tax by maximising their ability to transfer the unused nil rate bands of their late spouses (known as the “transferable nil rate band”).

Example 1:

Bob and Mavis, a married couple, have both previously been widowed. Bob’s late wife, Gill, died in 2008 and Mavis’s late husband, Jim, died in 2009. Both Gill and Jim left their estates to their respective surviving spouses.

Bob and Mavis each have assets worth £650,000 (which they own separately). Unusually, they do not own and have never owned their own homes (so residence nil rate band does not apply to them, more on which below).

They would like the survivor of them to inherit the assets of the first to die and on the second death for the total estate to be divided equally between Bob’s son and Mavis’ daughter. In the circumstances the full standard nil rate band applies to both of them and to their late spouses’ estates.

Bob dies in 2019 and leaves his entire estate to Mavis. Mavis dies in 2021, leaving everything to her daughter and Bob’s son in equal shares. For simplicity, assume no changes in asset values between their deaths.

The inheritance tax position: On Bob’s death there will be no liability for inheritance tax because of the spouse exemption. On Mavis’ death her executors will be able to use her nil rate band (£325,000) and claim a transferable nil rate band (also £325,000). However, even though she has now been widowed twice, she can only claim one transferable nil rate band.

Therefore, the  inheritance tax liability on Mavis’ death will be £1.3 million – £650,000 x 40% = £260,000.

Example 2:

The facts are the same as in Example 1, except that Bob and Mavis make wills leaving the available nil rate band of the first to die and any transferable nil rate band from that person’s late spouse to a nil rate band discretionary trust.

On Bob’s death his entire estate (£650,000) will pass to the nil rate band trust. Mavis is included as a beneficiary of the trust so can benefit from funds if required at the discretion of the trustees. There is no inheritance tax liability on Bob’s death because of the nil rate band and transferable nil rate band available to his estate (his own nil rate band and the transferable nil rate band from his late wife, Gill.)

On Mavis’s death her estate of £650,000 will also be free from inheritance tax because her executors can claim her own nil rate band and the transferable nil rate band from her late husband, Jim. Hence there would be no inheritance tax on the death of either Bob or Mavis.

Mavis’s estate is left to the two children and the trustees of the discretionary trust could then decide to wind up that trust and appoint the assets to the two children.

Please note: There would be a small inheritance tax charge on the discretionary trust, which will vary depending on how long the trust runs for. In the example, if the trust was wound up shortly after Mavis’s death this charge would be approximately £4000. This would still mean an overall inheritance tax saving of approximately £256,000!

It should also be noted that this approach could have saved significant tax even if only one of them had previously been widowed (whichever one of them died first).

It is also the case that there are other reasons why the first of them to die might want to leave some or all of their assets to some form of will trust, e.g. to protect the intended inheritance of their own child. These issues are not considered here for simplicity but you can contact us to discuss any of these issues.

Standard nil rate band has been frozen until at least April 2026

The amount of the standard nil rate band has been frozen at its current level (£325,000) since 6 April 2009 and the government has announced that it will remain at that level until at least 5 April 2026.

Many married couples do not use the nil rate band on the death of the first of them to die, taking advantage of the transferable nil rate band. However, the freezing of the nil rate band means that the benefit of the transferable nil rate band can often be eroded by inflation. A nil rate band trust can avoid this erosion so could save tax on second death (assuming the nil rate band does not increase significantly in future).

Example 3:

Tony dies in 2021 leaving his entire estate to his wife, Georgina. This includes an investment portfolio worth £325,000 (which Tony was advised had strong growth potential). Neither of them has previously been widowed and their full nil rate bands of £325,000 are available.

Georgina dies in 2025 leaving a chargeable estate of £1.5 million, which is inherited by their children. This includes the investment portfolio she inherited from Tony, which is now worth £425,000.

While the investment portfolio has grown by £100,000 since Tony’s death (and so will increase the inheritance tax charge on Georgina’s death), the nil rate band remains unchanged.

Example 4:

The facts are as per Example 3 except that Tony leaves a nil rate band discretionary trust in his will. After his death the decision is taken to fund the trust by transferring the investment portfolio to it. Under the terms of the trust, Georgina can benefit if required at the discretion of the trustees. The portfolio is left in the trust.

The £100,000 growth on the investment portfolio is now held in the trust and is outside of Georgina’s estate for inheritance tax. This will achieve an inheritance tax saving of £40,000 compare to example 3. There would be some capital gains tax issues to consider.

Clawback rules

In 2017 the Government introduced an additional nil rate band for people who leave an interest in their home to certain qualifying beneficiaries (including children). This is known as the residence nil rate band. The rules for residence nil rate band are very complex so specialist advice should always be taken.

One point to note is that the residence nil rate band starts to be clawed back once your estate exceeds £2 million. The clawback rules are very complicated, but will eliminate residence nil rate band altogether, once the estate reaches a maximum of £2.7 million (depending on your circumstances, residence nil rate band could be eliminated before that level). Assets that qualify for business property relief or agricultural property relief are included when working out whether clawback applies.

Some married couples can reduce or even eliminate the impact of the clawback by using a nil rate band discretionary trust.

Example 5:

Martha and Henry are married and have a combined estate of £2.7 million, divided equally between them. Neither of them has previously been widowed and both have their full nil rate band of £325,000 available. Their estate includes their home worth £900,000. On Marta’s death in 2018 she leaves her entire estate to Henry. Henry dies in 2021, leaving his estate to their two children.

Because Henry’s estate (including the assets inherited from Martha) is at the maximum clawback threshold, no residence nil rate band applies.

Example 6:

The facts are the same as example 5 except that Marta leaves her available nil rate band to a discretionary trust. Henry’s estate is now worth £2.375 million, meaning that only a partial clawback of the  residence nil rate band applies. Henry’s executors will be able to claim a residence nil rate band of £187,500, saving inheritance tax of £75,000.

Please note: The impact of the residence nil rate band clawback rules will become more widely felt over the next few years following the government’s decision to freeze the clawback threshold at £2 million until at least 6 April 2026. Many estates will become subject to a full or partial reduction in the residence nil rate band assuming asset values rise in the interim. Again, a nil rate band discretionary trust can mitigate this in appropriate circumstances by keeping down the value of the survivor’s estate.

Downsizing relief

Residence nil rate band may not be available (or fully available) where you sell your home. A common example is where elderly clients sell their home and leave the property market altogether or downsize late in life to funds care needs.

Where you sell your home or downsize on or after 8 July 2015, there is an alternative relief called downsizing relief which may be available instead of or alongside any remaining residence nil rate band. However, the rules for this are extremely complex and you should take advice to make sure it will be available. The £2million clawback threshold mentioned above, also applies to any downsizing relief so, again, there are opportunities to reduce or eliminate the impact of clawback in appropriate cases.

Impact of equity release on nil rate band

Decisions about equity release or other borrowing secured on your home can impact on the amount of residence nil rate band available. It’s important to take both legal and wealth management advice when making decisions about your home, where your estate is or may be subject to inheritance tax.

Will trusts can help you protect your loved ones

Posted on by Sophie Soraf

Trusts often get bad press, being portrayed by some as vehicles to help the super-rich to avoid tax. While trusts can legitimately save tax for many people (most of whom are not super-rich!) their purpose is often to protect the position of loved ones.

Making a will involves consideration of many different factors and you should always consider, not only who you would like to benefit but how they should benefit. While the simplicity of outright giving will be appropriate in some circumstances, there are situations in which it may be more appropriate to protect the beneficiaries with some form of will trust.

What is a will trust?

A will trust can be thought of as a gift ‘with rules attached’. If you leave your assets to someone absolutely, you give total benefit and control of the assets given to them. They will own the assets and have the right to do with them as they wish. In contrast, where you leave assets to a will trust, you transfer ownership to trustees, who are charged with managing the assets for the benefit of beneficiaries. The will sets out who the trustees and beneficiaries are and the rules the trustees have to follow.

Some will trusts can be very simple, for example, if you leave assets to your trustees to hold for the benefit of your child when they reach age 18. It’s also possible to create more flexible trusts that give trustees discretion to decide who should benefit from capital or income and when that should be. You can also give different beneficiaries different rights, for example giving one person the right to benefit from the income generated by an asset, or to occupy a property for a set period, and giving other beneficiaries the benefit of the asset at the end of that period.

When you die, you give away all the assets in your estate under the terms of your will (assuming you make one, which you should!). For many people, this involves a significant transfer of wealth. It’s a good idea to consider whether you’re comfortable transferring that wealth absolutely or if you would prefer to use a trust.

Who are the trustees and what do they do?

The role of a trustee is to manage the assets in the trust and to exercise any discretions they are given. Depending on the wording of the trust, beneficiaries can act as trustees. You could also appoint outsiders such as trusted family members or friends or professional trustees.

The role of trustee is very important, and (as the name suggests) you should certainly choose people you trust! It is always sensible to take professional advice on the options and the factors to consider when deciding who to appoint.

You choose the initial trustees of a will trust under the terms of your will. You can either appoint the executors named in your will or separate trustees.

How does a will trust protect my family?

There are many different forms of will trust for different purposes. The protections offered and tax consequences will depend on the type of will trust chosen and you should always take professional advice on the different options.

Here are some of the many situations where an appropriately worded ill trust can protect your beneficiaries:

Where there is more than one family

If you, or your partner, have been married before or have children from a previous relationship, you might be concerned to ensure that your assets ultimately pass to your own children or family, while also looking after your spouse, if they survive you. A will trust can help to achieve this.

Where the surviving spouse may remarry or form a new relationship

Many people worry that if they leave their assets to their surviving spouse, their children may not inherit if the survivor remarries or forms a new relationship. Even if the survivor does not give away or leave the assets to their new partner, problems can still arise. For example, the new spouse might have a claim on assets if the new marriage ends in divorce, or they might make a claim for financial provision from the estate of the surviving spouse. Again, a will trust can reduce the risk of such problems.

Where the intended beneficiaries may be at financial risk

There are many situations where wealth left to a beneficiary may not end up going where intended, or may do them more harm than good, for example:

where the beneficiary is getting divorced or going through marital difficulties, there’s a risk that the inheritance may be included or taken into account in any divorce settlement.
where the beneficiary (or their partner) is immature, reckless, bad with money or at higher than usual risk of bankruptcy (for instance if they are engaged in risky business enterprises).
For young or otherwise vulnerable beneficiaries.

A will trust can reduce the risk of such problems arising.

Where an inheritance might affect the beneficiaries’ means tested benefits

Will trusts can often prevent the loss of a beneficiary’s means tested benefits, or reduce the impact of the inheritance on the benefits available.

Where an inheritance might complicate the beneficiaries’ tax position

An outright inheritance might complicate the beneficiary’s tax affairs if, for instance, they pay income tax at a high rate or their estate will be liable to inheritance tax on their death. While this is a complex area, the flexibility of will trusts can alleviate such problems, giving scope for some of the wealth to be used in a more tax efficient manner. For example, a child with significant wealth might prefer some of the trust funds to be used for their own children instead of them. A will trust can give the flexibility to focus the estate in the most tax efficient manner, depending on the circumstances at the time.

Where substantial wealth is involved

Substantial wealth (particularly when acquired suddenly) can cause its own problems. For example, it can affect a beneficiary’s outlook on life or the attitudes of those around them or increase their tax exposure. So it’s sensible to consider using a trust when passing down substantial wealth, even where the beneficiaries do not otherwise seem in need of protection.

How are will trusts taxed?

There are important tax issues to consider with will trusts including capital gains tax and income tax.  The rules are extremely complex so it’s vital that you get specialist tax advice.

Will trust case studies

We’ve set out a couple of illustrative case studies of situations where a will trust might be useful.

Will trust case study 1

Gill, aged 70, has an estate worth £800,000 including her home (which is in her sole name), which she occupies with her second husband, Brian. She has two adult children (Simon and) Beth) from her first marriage, which ended in divorce. Brian does not have significant assets and is largely dependent on Gill. Brian also has two children from a previous relationship.

Gill would like to look after Brian if he survives her, but also wants to make sure that her assets pass to her children, after his death.

If Gill leaves the assets outright to Brian, then he will decide what to do with them during the rest of his lifetime and who to leave them to after his death. If Gill is uncomfortable with this, then she could use a will trust to control what happens to her estate after her death.

Will trust case study 2

Jake is a widower with an estate worth approximately £ 5 million. He wants to provide for his three adult children, Karen, John and Steven and their children after his death. However, he knows that Karen’s marriage is in difficulty and Steven has had money problems in the past. John has a significant wealth of his own and has mentioned that a large inheritance might cause tax problems.

Again, a will trust could be used to protect the shares of Karen and Steven and give flexibility for John’s children to receive some of the trust fund instead of John, if this is more tax efficient.

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All legal services provided by Tees are regulated by the Solicitors Regulation Authority. Tees is a trading name of Stanley Tee LLP is authorised and regulated by the Solicitors Regulation Authority (SRA Number 464615) and is registered in England and Wales number OC327874.

All financial services provided by Tees are regulated by the Financial Conduct Authority. Tees and Tees Wealth are trading names of Tees Financial Limited which is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales number 4342506. Registered office address Tees House, 95 London Road, Bishop’s Stortford CM23 3GW.

Copyright © 2025 Tees Law. All rights reserved.

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All legal services provided by Tees are regulated by the Solicitors Regulation Authority. Tees is a trading name of Stanley Tee LLP is authorised and regulated by the Solicitors Regulation Authority (SRA Number 464615) and is registered in England and Wales number OC327874.

All financial services provided by Tees are regulated by the Financial Conduct Authority. Tees and Tees Wealth are trading names of Tees Financial Limited which is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales number 4342506. Registered office address Tees House, 95 London Road, Bishop’s Stortford CM23 3GW.

Copyright © 2025 Tees Law. All rights reserved.

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