Inherited money gift

I’ve inherited money…what should I do with it?

Inheriting money can be life changing, however, it can also quickly become somewhat of a burden. Inheritance imposes a certain amount of responsibility on the recipient, as you’ll have been entrusted by those who are no longer here to use it wisely.

Our Managing Director, Matthew Pescott Frost, has put together a list of the options that may be available to you, while being aided by an adviser.

Every case is very personal to the individual, which is why at Matthew Doulgas, we’d always want to have an in-depth conversation with you first to establish your current circumstances before making any recommendations. 

Once this is complete, we’ll then look to identify what type of investment is appropriate for you depending on your level of understanding, tolerance for risk and capacity for loss if your decision fails to deliver in the short term (while this isn’t usually the case, we always have to be prepared).

Inherited money gift

Pensions offer considerable tax breaks

We’ll then look to identify any tax saving opportunities that may be open to you, with the first recommendation being a pension. Pensions offer considerable tax breaks to encourage us to save for our long term future, and are regarded as a ‘deferred income’. If you have a pension, there may be opportunities to increase what is already within your scheme - either through your existing workplace, or a private personal pension.

It’s important to note that a pension fund can only provide you with an income once you have reached the age of 55 (soon to rise to 57), so you won’t necessarily have access to it for some time - depending on your age. It does however come with many benefits, sheltering your wealth outside of your estate.

 

The next step is typically an ISA

Once you’ve exhausted all potential opportunities with your pension, we’d then take a look at the option of individual savings accounts (ISAs). These are useful to increase wealth, while also allowing you to retain access to it should the money be required for a major purchase, such as buying a house.

ISAs provide a tax-free haven for your investments to grow, and unlike a pension, it is not taxed when you dis-invest (i.e. take the money out). Every year, you can invest up to £20,000 tax free, which is soon to rise to £25,000 with the introduction of the British ISA.

If you’ve yet to purchase your first home, and are aged between 18 and 40, you can also take advantage of a Lifetime ISA (LISA), enabling you to invest up to £4,000 per year with a 25% government uplift as first time buyers - as long as the value of the property is £450,000 or less.

 

Don’t be tempted to use a bank account

All of the above options will enable you, as the investor, to access asset-backed investments such as securities and bonds, which tend to grow at or above the rate of inflation. While cash deposits in a bank may seem like the easy option, they’ll never add interest faster than the rate of inflation over the long term - so your money will always be decreasing in value.

Don’t forget, bank accounts are also subject to tax at your marginal income tax rate - which is why we’d never advise leaving a considerable amount of money in one, unless you’ll be spending it in the very near future.

 

Buying a house is a great way to build wealth

While pensions and ISAs should be the cornerstones to any aspiring investor, there are limits on how much you can invest in this way. There are other types of investments that offer alternatives to building wealth to consider, such as purchasing property. Not only do these assets appreciate in value, but it will also provide you with a home, security, and the absence of the need to pay rent.

Buying a home is also tax efficient if it’s your ‘primary residence’, as this is free from any capital gains tax. A property also provides a secure asset that can be used to access competitive rates of borrowing that may leverage an opportunity to purchase a higher value property, if you decide to upsize.

The opportunities for investment are endless, but the risks of poor investment are real. If you’ve recently inherited a significant sum of money, seek advice from our team of professional financial advisers to make the most of your gift.

Get in touch today for a free initial consultation with one of our team.


Tax

It’s almost the end of the tax year - here’s what you need to know

The end of the tax year is fast approaching so don’t miss out on some simple ways to make your money go further.

Here is our Managing Director, Matthew Pescott Frost’s client checklist for end of year financial housekeeping..

Make the most of your £20,000 ISA allowance

Each year, you can save up to £20,000 in an ISA so this is one of the most important considerations at the end of the tax year(if you’d like to read in more detail, visit our accompanying blog here).

If you fail to use your full allowance by 5th April 2024, there’s no opportunity to backdate it - meaning that it’ll be lost.

By using your full allowance (if you are able to), it’ll enable you to shelter this investment from any future liability to income or Capital Gains Tax (CGT).

Tax

Review pension contribution limits

There may be opportunities to increase the amount of your income that you transfer to a qualifying pension scheme, before the end of the 2023/24 tax year.

It’s always important to review this, particularly because the cap on the lifetime allowance has been lifted - removing the danger of breaching this limit and incurring unwanted tax charges later on in life.

There has been little change to the rate and banding of Inheritance Tax (IHT) thresholds, making the movement of capital into pension schemes increasingly important. Pensions are a trust, therefore they are not subject to IHT upon death. Due to this, they are the best way to reduce your taxable net worth, without losing control of your assets.

Don’t forget your children’s ISA allowances

As well as your own ISA allowances, it’s also important to consider any ISA allowances that you may have for your children.

Junior ISA limits for under 18’s are currently at £9,000 per child. For those over the age of 18, you can also make use of the £4,000 annual Lifetime ISA (LISA) limit, as the government will increase this by an additional 25%. They will add to your savings, as long as the full value is used to help them purchase their first home (up to the value of £500,000).

Inheritance tax allowances

Where relevant, it may also be worth considering your available inheritance tax allowances. You are allowed to make gifts in the form of potentially exempt transfers, up to the value of £325,000 (or £650,000 as a joint gift for a couple).

Providing that you survive seven years after gifting, it will not form part of your estate and will therefore be free of any inheritance tax penalties.

You also have the option to make smaller gifts each tax year; your annual exemption means that you can give away a total of £3,000 worth of gifts each tax year, without them being added to the value of your estate.

Consider any potential capital gains

This year, it is particularly important to also consider any potential capital gains that you may have, in connection with any investments (such as unit trusts) held outside of an ISA (which is exempt from capital gains tax).

This year, the CGT nil rate band is capped at £6,000, which is less than 50% of the level from the 2022/23 tax year. In the 2024/25 tax year, this will unfortunately halve again to just £3,000, which is why it may be wise to identify any gains that you may wish to act upon before this allowance halves as of midnight on 5th April 2024.

Do any of these apply to you? If so, we can help!

At Matthew Douglas, our team of experienced financial advisers are on hand to help you make the most out of your money.

Get in touch with our team today - we’re happy to provide advice and guidance in any way we can to enable you to make the most of your allowances.


What does the Spring Budget 2024 mean for UK investors?

From “market manipulation” to “grabbing [the British ISA] with both hands”, what are the impactful changes from March’s Spring Budget? Director of Matthew Douglas, Matthew Pescott Frost, features on Citywire’s ‘The Advice Show’ podcast reviewing the 2024 Spring Budget and what it means for you.

With an impending (but yet to be announced) general election, UK investors may have been expecting sweeping changes to be announced in this month’s Spring Budget. 

However, the response has been lukewarm from many business sectors with some feeling it lacks the targeted support needed to underpin sustainable economic growth.

I found it fairly underwhelming, as most of the content had been leaked already. However, there was a small bounce in UK stocks with the announcement of the British ISA, suggesting that it was more positively than negatively received by the City.

Reduced Capital Gains Tax allowances

The continued reduction in Capital Gains Tax allowances is unsurprising and unwelcome.

Having dropped from £12,300 in 2022/23 to £6,000 2023/24 and down to just £3,000 in 2024/25, it’s a big drop and it increases the taxable assets of people selling high-value items.

British ISA introduced

If it materialises, the British ISA will be very interesting indeed. While I do not doubt that investors and financial advisers will grab it with both hands, I can’t help but wonder if it provides enough choice. While promising, a lot of our clients, as with most IFAs, are retired, so they are simply not going to feel the benefit of this.

Broadly, I don’t agree with the manipulation of markets and there has, I feel, been a general bias against the UK since Brexit. While it offers an opportunity for greater savings, it’s inconvenient on a practical level as advisers will need to create a separate model to monitor UK stocks outside of the wider global market. 

Listen to ‘The Advice Show’ podcast

How can we encourage greater UK investment? And, on a measurable level, how will the budget likely impact you? Listen to the Citywire’s ‘The Advice Show’ podcast in full to explore more with me and Citywire reporters Nicola Blackburn and Zach Sharif.

 


Matthew Douglas named ‘Best IFA in East of England’ at National Awards

We’re so proud to share that we have been named as the “Best Financial Advice firm in The East of England” at the annual Citywire New Model Adviser Conference & Awards 2024.

The annual event, organised by Citywire - a London-based media group covering the global asset management industry - celebrates the very best financial planners across the length and breadth of the UK.

We faced stiff competition from many highly-recognised firms, including Beckett Investment Management Group, Chadwicks, Kingsfleet and SG Wealth Management.

Our Director, Russell Brett, attended the awards ceremony at London’s Park Plaza Westminster Bridge Hotel. He said:

“We’re absolutely thrilled to be named the Best IFA in the East of England in Citywire’s NMA Awards. We pride ourselves on providing the very best service to all of our valuable clients, both in the East of England and further afield.

“We’re constantly striving to improve our offering, and I’m so pleased that this has been recognised once again on a national level, especially after facing such strong competition against other high-performing firms in our region.

“I’d like to offer my appreciation to Citywire for once again hosting a fantastic event, and to the whole team at Matthew Douglas for their constant determination, hard work and ambition that has got us to where we are today.”

Our Managing Director, Matthew Pescott Frost, also attended the awards ceremony in London, alongside our Independent Financial Adviser, Frank Wampamba. Matthew said:

“In over 20 years of business, this company has grown into a successful, multi-award winning firm, boasting a fantastic team of individuals who go above and beyond for our clients. We now provide support and guidance to over 800 families whether they’re based in the East of England or further afield.

“This award is testament to their hard work; it most definitely is a team effort, and I was very proud to represent them by accepting this award in London alongside my colleagues, Russell and Frank.

“It’s taken sheer perseverance! We do a good job, we’ve got a great legacy team, and a young team coming through – doing our bit to help the industry develop – and we plan to consolidate next year. Our youngsters are in their 20s and they’re being primed to take over in around four or five years.

“Independent financial planning is essential. We are genuinely independent – all our shareholders actually work in the business, and not many firms can say that.”

You can read more about it here.


Citywire Outsourcing 2023

Cultivating ‘great relationships’: Matthew Douglas features in Citywire’s Outsourcing 2023 Report

What makes a perfect union between adviser and discretionary fund manager? Our CEO, Matthew Pescott Frost, explains in Citywire’s newest report.

Citywire, the financial news site, has released a special new report for investors talking about why financial advisers work with discretionary trust managers; how these partnerships are formed, and how they benefit clients.

Broken down into three distinct chapters, the Outsourcing 2023 Report explores:

  • Catalysts driving demand for outsourcing
  • Discretionary fund managers reveal their secrets for the perfect partnership
  • Outsourcing 360: what other functions are being outsourced besides investment management?

In chapter 2 of the report, our CEO Matthew Pescott Frost explains our recent outsourcing journey with Evelyn Partners, which began last year.

Under this partnership, clients with invested assets below £250,000 are offered a bespoke managed portfolio run by Evelyn, on our behalf. This constitutes nearly half of our clients, but critically only 15% of assets under advice.

Very often, these clients have less demanding portfolios, but are still growing their assets and saving for the future. Of course, this doesn’t mean that these portfolios are any less vital than our wealth clients - but it is prudent from an admin and time perspective to outsource this offering so that we can focus on the generally more  nuanced needs of our larger clients.

“The strength of any relationship is a strong mutual understanding,” explains Matthew. “We’re now 10 months into our discretionary fund manager [DFM] partnership and I can see the competitive edge it’s providing us.”

To explore what makes the perfect partnership between discretionary fund managers, read the full report here: 

https://citywire.com/new-model-adviser/special-reports/outsourcing-2023 


Citywire Top 100 NMA 2023

Matthew Douglas listed in Top 100 Advice firms for 10th year running!

We’re so proud to announce that we have once again been listed in the annual Citywire New Model Adviser Top 100, which celebrates the very best of the UK’s professional financial planning community.

Matthew Douglas Ltd is also the only Independent Financial Advice (IFA) business across East Anglia to have achieved this for ten consecutive years.

Top 100 Citywire

Here’s why we were nominated

Survey responses for the list were assessed using a point-scoring system, looking for evidence of the following:

Well-qualified staff

Robust investment propositions

Carefully segmented client bases

Good use of technology

Willingness to share best practice

Client education

Recruitment

Contribution to professional standards

….and more!

The use of a weighting system meant that large and small firms were compared fairly, to ensure that no bias was seen to larger corporations.

Citywire said: “The business, which prides itself on having a diverse range of ages, background and ethnicities among its employees, was recently nominated for a national diversity award. More than half of the firm’s employees are less than 40 years old.

“The business engages regularly with local charities and has close partnerships with local schools and universities. Its advisers offer personal finance sessions and career advice at three schools and a targeted service, called Springboard, for the children of its advice clients. The firm also offers work placements to students at Essex University.”

Here’s what our Director, Matthew Pescott Frost, had to say about the news:

“We’re absolutely thrilled to once again have been named in the Citywire NMA’s Top 100 for the tenth year in a row. It’s such an incredible achievement and one that we are very proud of at Matthew Douglas.

“It’s a credit to our whole team that we have been able to achieve this for ten consecutive years, and really reflects the hard work that everyone puts in - both when directly helping clients and all of the work that’s done behind the scenes in the office.

“To also be the only firm across the whole of East Anglia to achieve this is just fantastic. We really go above and beyond for our customers, and that’s reflected in our ability to retain this award for so many years.”

You can read more about it here.


Money questions

SJP announces fee overhaul for post-2025 clients

SJP has announced that they will be set to overhaul the firm’s fee structure following regulatory pressure, but only for clients who join them post-2025. This means that all existing clients, and those who invest with the firm between now and 2025, will not benefit from these changes.

In a Stock Exchange notice on 17th October, the £158.6bn giant said the updates will result in three key changes: the removal of early withdrawal fees, plus any new investment bond and pension business will operate with initial charges, together with ongoing charges from 2025.

SJP announces fee overhaul for post-2025 clients; Matthew Douglas

In a Stock Exchange notice on 17th October, the £158.6bn giant said the updates will result in three key changes: the removal of early withdrawal fees, plus any new investment bond and pension business will operate with initial charges, together with ongoing charges from 2025.

SJP has long faced scrutiny from industry professionals for their ‘expensive’ charges and exit penalties, and now the UK’s biggest wealth manager has bowed to pressure to ensure that it complies with new customer duty requirements. .

The changes will come into effect in the second half of 2025, meaning that clients still have to wait two years before they’ll benefit from lower fees.

The firm has also announced that it plans to improve disclosure on fees by “unbundling” them into component parts - meaning that there will now be separate charges for initial and ongoing advice, plus product administration and investment management. Currently, it discloses fees on an ‘all inclusive’ basis - meaning that many clients struggle to understand what they’re actually paying for and how much it’ll cost.

SJP has also stated that next year it will introduce a ‘more consistent’ approach to fund charges to reflect the value that each fund provides. This move comes after the firm’s share price fell by over 20% in mid-October. 

Matthew Pescott Frost shares his views on the announcement:

“These changes are ultimately all to do with consumer duty rules. SJP has got away with it for so long, but now they’ve reluctantly been forced to make these alterations - even though they’ve still got two years to go before these new rules actually come into effect. Pressure has definitely been building on them for some time now.

“The new FCA consumer duty directive means that in our industry, you now have to justify everything that you do - and rightly so! If you’re recommending a product to a client, regulators have every right to ask you to justify why you recommended it, to ensure that you’re providing the correct option and working solely in the best interests of your client. 

“We’re likely going to see some unhappy SJP clients as a result of these changes, as ultimately, their existing customers (and those from now until 2025) will still be subject to the same high fees and exit charges that we’ve become accustomed to. Share prices have been falling significantly since these rumours began, which is not a surprise.

“After 2025, we should see a much more dynamic market, as clients at SJP will be free to move if they’re unhappy without facing any large penalties. Currently, exit fees with the firm lie at 6% in the first year of investments, then slowly reducing each year for six years - meaning that it can be very difficult to move. Only after spending six years with the firm can customers leave without paying any fees - up until 2025.

“Here at Matthew Douglas, we very much welcome these new and improved consumer duty regulations. Feel free to get in touch with our advisers if you have any concerns following the SJP announcement.”

 


Romantic Senior Couple Sitting On Wooden Jetty By Lake

The hidden impact of inflation on savings

A closer look at a financial understanding among Britons

A recent study has revealed that over half of the British population may not fully comprehend the hidden impact of inflation on their savings and buying power[1]. The research explored participants’ understanding of basic financial principles, including inflation, compound interest, risk and return, and the significance of life stages in financial planning.

Surprisingly, only 44% of respondents could accurately determine the buying power of money when considering both savings interest rates and inflation. This lack of understanding persisted even among those who rated their financial knowledge as ‘very or moderately good,’ with only 50% answering correctly.

Impact of compound interest and inflation on savings
Moreover, less than four in ten (37%) participants grasped the concept of compound interest on savings. This figure rose to only 45% for those who considered themselves ‘very’ or ‘somewhat’ confident in their financial knowledge.

While it is encouraging that nearly six out of ten people believe they possess good financial knowledge, their confidence may be misplaced. Understanding the impact of compound interest and inflation on savings is essential, as these are crucial factors in making sound financial decisions.

Riskier investments are less suitable for older individuals
The study also assessed participants’ comprehension of fundamental investment principles, such as the relationship between risk and return and how risk profiles should change according to one’s life stage.

Almost two-thirds of respondents understood that higher risk generally results in higher rewards, a percentage that increased to 71% among those who were confident in their financial knowledge. However, only 48% recognised that riskier investments are less suitable for older individuals, as they have less time to recover from potential losses.

Reviewing financial choices at different life stages
This gap in understanding was more pronounced among younger age groups (under 44), with just 39% showing comprehension of the need to adjust risk profiles based on age. It is essential to review financial choices at different life stages or after significant life events to ensure they remain appropriate.

The study highlights the need for better financial education and awareness, as a lack of understanding can lead to poor financial decisions with long-lasting consequences. By improving our knowledge of essential financial principles, we can make more informed choices and safeguard our financial well-being for years to come.

Source data:
[1] The research was conducted by Censuswide with 2004 18+ nat rep between 04.11.2022 - 07.11.2022. Censuswide abide by and employ members of the Market Research Society which is based on the ESOMAR principles and are members of The British Polling Council.


Pleasant family couple sitting at big wooden table in modern kitchen

Are we entering an Investment Bond renaissance?

Exploring why they are an attractive option to mass-affluent investors

Onshore investment bonds typically carry a lower risk and contribute significantly to a well-rounded portfolio. Historically, numerous investors have opted for a 60% equities and 40% bonds split in their portfolios, as these two assets often (keep in mind, not always) exhibit contrasting performances under varying economic circumstances – a beneficial attribute during market volatility.

Following the Capital Gains Tax (CGT) changes announced in last year’s November Budget, many investors are likely considering investment bonds a more attractive option. The Chancellor’s decision to reduce the CGT allowance to £6,000 this year and to £3,000 in April 2024 means investment bonds are more attractive to mass-affluent investors who previously held money in OEICs and unit trusts.

Investment bonds offer several benefits:

Onshore bonds are not liable to CGT. Onshore bonds are treated as having already paid 20% tax on any gains when calculating a chargeable gain. In reality, the tax deducted is likely to be less than this.

They can be ideal for Inheritance Tax (IHT) planning and are exempt from IHT after seven years if held in a trust.

Investors can withdraw up to 5% of their initial investment annually without triggering a chargeable event or any immediate tax liability.

Top slicing relief available to reduce tax liability, which can eliminate or significantly reduce any tax liability when a chargeable event is incurred – helpful if investors are in the accumulation phase and are preparing for retirement (maybe a higher rate taxpayer while owning the bond, but a basic rate taxpayer when encashing).

Options to assign a bond (for example, between husband and wife). For tax purposes, the assignment will generally be treated as if the new owner had always owned it - If one is a basic rate taxpayer, they could have no tax to pay on encashment.

Have you exhausted your other tax allowances?
Changes to CGT and the tax-free dividend allowances are also likely to appeal to investors looking to reduce IHT liabilities and those who have used their Individual Savings Account (ISA) allowances or received a large windfall payment.

THIS ARTICLE DOES NOT CONSTITUTE TAX OR LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH.

THE VALUE OF YOUR INVESTMENTS CAN GO DOWN AS WELL AS UP AND YOU MAY GET BACK LESS THAN YOU INVESTED.

THE TAX TREATMENT IS DEPENDENT ON INDIVIDUAL CIRCUMSTANCES AND MAY BE SUBJECT TO CHANGE IN FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE.