Equity Investments – Look to the Long Term

The recent share price fluctuations across the world stock markets should have caused little concern to the clear sighted long term investor.  To a large extent, the sharp movements – both upwards and downwards – were simply knee jerk reactions of the day traders, or speculators to give them their proper name.

Despite the dramatic falls in capital values shouted from the newspaper headlines, investors have actually made money in the stock market over the last year. When the stock market was at 5130 (albeit briefly), the FTSE 100 was down by 0.5% over the year. However, the FTSE was up by 2.9% if dividends are taken into account.

Over three years, share prices are down 6.2% but up by 5% if dividends are added back. Over the past ten years, the FTSE 100 is up by 33.2% after dividend payments.

The media concentrates on short term price movements. Canny investors, of whom Warren Buffet is a prime example, look to the total return of a share which includes both capital growth and dividend income.

It is all too easy to overlook the contribution dividends make to overall returns. Many of the UK funds Homecroft Cavendish recommends are producing yields of around 5% which provides a healthy underpin to capital values.

Furthermore, it should be remembered that the aim of every quoted company is to increase the dividend. Managers who fail in this task are liable to be swiftly shown the door by their institutional investors. It is a little known fact that in the first half of this year dividends increased by 27% and where yields increase, sooner or later capital values will follow.

Homecroft Cavendish is a firm of professional and progressive independent wealth management advisors. Our highly qualified team works according to the highest possible ethical standards in providing bespoke jargon-free advice and developing LifeLong™ financial strategies for all stages of both the personal and corporate financial lifecycles. Established in 1978, we are privately owned and proud of an enviable reputation for high standards of personal service and long standing client loyalty.

 

IHT – The Most Hated Tax of All (Part 6)

There is now a new generation of life policies where the sum assured is guaranteed no matter what happens to investment markets. For many, the whole life policy will be the most practical solution to their inheritance tax problem.

However the fact is there are no easy answers to the IHT question. Everyone is different, no one size fits all and the best solution is a bespoke one that addresses personal circumstances, aims and aspirations.  To this end the best advice will come from a financial services practitioner who can take a holistic approach and consider the whole spectrum of financial products rather than being limited to the offerings of just one company.

Homecroft Cavendish is a firm of professional and progressive independent wealth management advisors. Our highly qualified team works according to the highest possible ethical standards in providing bespoke jargon-free advice and developing LifeLong™ financial strategies for all stages of both the personal and corporate financial lifecycles. Established in 1978, we are privately owned and proud of an enviable reputation for high standards of personal service and long standing client loyalty.

IHT – The Most Hated Tax of All (Part 5)

Business Property Relief offers 100 percent exemption from IHT. Because the relief is restricted to small trading companies it is usually considered inappropriate for the average person. However, there are now a number of investments on the market which provide exposure to this asset class – without the usual associated risks.

Whole of life policies written to mature on the death of the surviving partner can provide a highly tax efficient way of funding IHT. Unfortunately, in the past a lot of policies were sold on the basis that the premiums, although low at the outset, would increase in the future if the investment performance did not turn out as expected. Needless to say, the investments did underperform and policy holders had the choice of increasing their premiums or reducing their sums assured.

Homecroft Cavendish is a firm of professional and progressive independent wealth management advisors. Our highly qualified team work according to the highest possible ethical standards in providing bespoke jargon-free advice and developing LifeLong™ financial strategies for all stages of both the personal and corporate financial lifecycles. Established in 1978, we are privately owned and proud of an enviable reputation for high standards of personal service and long standing client loyalty.

 

IHT – The Most Hated Tax of All (Part 4)

The other insurance based scheme is based on a “carve out” arrangement. An income stream is carved out of an investment which is then given away. The value of the investment is reduced by actuarial factors depending on the age of the client and the amount of income carved out of the investment.

It can be overlooked that a pension fund, where no benefit has been taken, can be paid on death before age 75 to anyone (including a trust) without any liability to inheritance tax. It is for this reason that well advised clients often defer taking their pension for as long as their finances permit.

The “spousal bypass” trust is a method of routing a pension fund directly into a trust rather than having it paid to the surviving spouse and forming part of their taxable estate.

Homecroft Cavendish is a firm of professional and progressive independent wealth management advisors. Our highly qualified team works according to the highest possible ethical standards in providing bespoke jargon-free advice and developing LifeLong™ financial strategies for all stages of both the personal and corporate financial lifecycles. Established in 1978, we are privately owned and proud of an enviable reputation for high standards of personal service and long standing client loyalty.

IHT – The Most Hated Tax of All (Part 3)

However, for many people, lifetime gifts are not a practical proposition because they need the income the capital produces. Although they come in various guises and under different names the insurance industry offers two main stream IHT plans which solve this problem.

The interest free loan is a well established tax planning vehicle. Under this plan, an interest free loan is converted into a trust. There is no chargeable transfer because  only a loan has been made to the trust.

The trustees invest the loan proceeds, usually in a non income producing investment such as an investment bond. The loan is repaid by regular partial withdrawals from the bond. In practice, these loan repayments are treated as income which is used to meet current expenditure.

Homecroft Cavendish is a firm of professional and progressive independent wealth management advisors. Our highly qualified team works according to the highest possible ethical standards in providing bespoke jargon-free advice and developing LifeLong™ financial strategies for all stages of both the personal and corporate financial lifecycles. Established in 1978, we are privately owned and proud of an enviable reputation for high standards of personal service and long standing client loyalty.

 

IHT the Most Hated Tax of All (Part 2)

 The next step is to look at the feasibility of making life time gifts. If the primary intention is to benefit the family (rather than simply avoid tax) then immediate life time gifts have a lot to recommend them.

It is a fact of financial life that most people are likely to find their personal finances are most stretched during their thirties and forties. Gifts received at this stage of life are likely to be of greater practical help than those later in life. Parents who wish to truly improve their children’s lot in life would be well advised to make gifts at a time when their children really need financial help.

For those clients who want to retain control of their gift, trusts can provide an effective solution. Clients need to be made aware of the ten year anniversary charge although in practice the 6% charge is a very palatable alternative to the 40% otherwise payable.

Homecroft Cavendish is a firm of professional and progressive independent wealth management advisors. Our highly qualified team works according to the highest possible ethical standards in providing bespoke jargon-free advice and developing LifeLong™ financial strategies for all stages of both the personal and corporate financial lifecycles. Established in 1978, we are privately owned and proud of an enviable reputation for high standards of personal service and long standing client loyalty.

IHT the Most Hated Tax of All (Part 1)

Creating a Will Trust

Of all the personal taxes people pay the one that is most resented is inheritance tax  (IHT). Having paid tax on our earnings and savings as we built up capital, it is not surprising most of us begrudge having to face yet another tax at the end of our lives. So what can we do?

The starting point for IHT planning is correctly prepared wills. The freezing of the IHT nil rate band at £325,000 for the next three years has revived the concept of the will trust. Where assets are likely to appreciate in value, there is an obvious benefit in transferring them into a will trust where future capital appreciation will not increase the survivor’s IHT liability.

Homecroft Cavendish is a firm of professional and progressive independent wealth management advisors. Our highly qualified team works according to the highest possible ethical standards in providing bespoke jargon-free advice and developing LifeLong™ financial strategies for all stages of both the personal and corporate financial lifecycles. Established in 1978, we are privately owned and proud of an enviable reputation for high standards of personal service and long standing client loyalty.