Independent Scotland. The (close) result is in!

I have watched the debate about the possible divide of our United Kingdom union with interest over the last few weeks. Let's face it, media coverage has made it unavoidable, but from a fiscal perspective with good reason. I remain surprised by the panicked 'surprise' of our senior politicians of all denominations that around 10 or so days before the crucial Referendum vote they realised that this was going to happen and was not just an idle threat.

Having now worked in the UK financial services world for 29 years, I started in the mid-80's with the introduction of 'Yuppies' and excess before experiencing my first economic recession at the end of that decade. What was instilled in me from this tender age was the strength (and at the time power) of Sterling as a global currency. I maintain that sadly we as a nation underestimate the real value of Sterling (or GBP) in the new digital-by-default era that we live in. This is especially relevant when we view the slow if not stopped progress of the Euro as a currency example.

Economies run in cycles. As I suggested in my book, The Recession is Over, Time to Grow, produced in the late spring of last year, an economy is like carrying a bucket of water. When it sloshes one way (prosperity), it will surely slosh the other way on the rebound (recession). The cycle is usually (not guaranteed) 10-12 years and this might point to a prosperous decade ahead with economic turbulence in the early years of the 2020's.

The arguments and convictions proffered by the 'Yes' campaign were strong and cannot now be ignored by Westminster. With Scotland now secure (for the time being) in our union, I have no doubt that this has whetted the appetite of other regions to request additional and new autonomy. The physical landscape of the UK will not change, but the economic outlook for us all may look very different.

Yours Aye

Summary

If you would like to consider the points noted above further then please do not hesitate to contact the team at Chapters Financial, who will be able to help you further with your pension enquiries. No individual advice is provided during the course of this blog. If you would like to receive further information regarding your own individual situation and circumstances, please contact the Chapters Financial team in either Guildford or Woking.

Keith Churchouse BA Hons FPFS
Director, Chapters Financial Limited
Chartered Financial Planner
Certified Financial Planner
ISO22222 Personal Financial Planner

Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899.

Where there’s no will…….there’s new intestacy rules from October 2014

There are not many people who readily consider death and its effects on their family and finances. As financial planners, this is something that, like taxes, is certain and needs to be addressed in the course of our planning considerations with clients. The first question we would ask is ‘Have you made a will?’ You will see in the context of this blog that we would always anticipate that clients would have up to date wills that would reflect their current circumstances.


If you die without a will in England & Wales, you are known as an ‘intestate person’ and your estate will be disposed of according to the Intestacy Rules. This means that the state will determine how your property is distributed on your death. After many years, the Intestacy Rules are changing.


The Gov.uk website has a useful tool to help you determine how your estate would be distributed if you died without a will: https://www.gov.uk/inherits-someone-dies-without-will
Chapters Financial is not responsible for the content of external websites


The changes to the Intestacy Rules which are being brought in by the Inheritance and Trustees’ Powers Act 2014 will take effect from 01 October 2014 and will have a significant effect on the way in which the estates of intestate persons are distributed.


Each of us is different and we have detailed below some of the possible scenarios and outcomes.


If you are married or in a civil partnership and you have children


Under current rules, if you are married or in a civil partnership and you have children, your spouse or civil partner will inherit £250,000 absolutely, and all of your personal belongings. Your spouse would also be entitled to a life interest in half the remaining estate. A ‘life interest’ means that your spouse would be entitled to the income from this half of the estate, but they would not be entitled to the capital. Your children are entitled to the other half of the remaining estate at age 18 and to the rest of it when the life interest ends on the death of the second spouse.


It is clear that this method of distributing the estate could cause significant problems for the surviving spouse. This could be in terms of access to sufficient capital to meet their ongoing needs or even the ability to stay in the family home if this was in the deceased’s sole name.


From October 2014, these rules will change, with the surviving spouse still receiving all the personal belongings and £250,000 absolutely. However, instead of simply receiving an income from half of the remaining estate, the surviving spouse will now inherit this half outright. The children will still inherit the other half of the remaining estate at age 18.




If you are married or in a civil partnership, with no children


If you have no children, the current Intestacy Rules dictate that the surviving spouse will receive £450,000 absolutely plus personal belongings and half of the remaining estate. The deceased’s parents, or the deceased’s siblings, will receive the other half.


From October 2014, the surviving spouse will inherit the entire estate.


If you are unmarried and in a relationship


It is important to note that the Intestacy Rules do not recognise unmarried (“common-law”) partners. If you die without a will whilst in a relationship (but not a marriage or civil partnership), your partner would not inherit any of the assets or property that are held in your sole name.


Make your wishes heard…make a Will 

Both of the above changes are improvements from the point of view of the surviving spouse. However, the Chapters Financial perspective has not changed – the Intestacy Rules and the strict order in which the estate is distributed only highlight the vital importance of making a will to ensure that your estate is dealt with according to your wishes. If you don’t, the state will choose for you. And, if you have no surviving relations, your entire estate will go to the Crown.


Summary
Chapters Financial strongly recommends that our clients should have an up-to-date, valid will. We don’t offer a will writing service – however, we have a panel of professional local solicitors who we can refer clients and enquirers to.


If you would like support and advice on your estate planning then please do not hesitate to contact the team at Chapters Financial, who will be able to help you further. No individual advice is provided during the course of this blog. If you would like to receive further information regarding your own circumstances, please contact the Chapters Financial team in either Guildford or Woking.


Vicky Fulcher Dip PFS
Trainee Financial Planner


Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899.

Back to school, back to school fees

Ah! The start of a new school year – the joys of trying to gather together all the sports kit and school books that you stowed away in July thinking that September was weeks away. There’s nothing like last-minute preparation. Great for uniforms, but not for planning school fees.

If you are considering independent / private schooling as a future (or current) option for your children, achieving careful financial planning as early as possible will help you to gauge affordability, maximise your options for fee payment and could save you substantial amounts of money in the future. If your children are already at private school, you will no doubt have had school fees on your mind way before the start of the new term.

School fees, pupil age and inflation

The Independent Schools Council (ISC) Annual Census 2014, which is based on data gathered in January 2014 from the ISC membership of over 1,250 independent schools, states that the overall average termly fee across the membership is currently £4,998 (excluding nursery fees). The average boarding fee is £9,596 per term and the average day fee is £4,241 per term. Fees will of course vary depending on factors such as geographical location and reputation, and the differences can be extreme.

It is also important to bear in mind that school fees do not remain level. The amount you pay will increase in two ways. Firstly, the fees will increase by school year/pupil age – i.e. you will pay more for a child in Year 6 than for a child in Year 2. Secondly, fees across the board are likely to increase every year by far more than inflation.

ISC figures suggest that the cost of sending a child to private school has risen by approximately 40% since 2007. In its Annual Census 2014 the ISC notes that the average fee across its member schools (excluding nursery fees) has risen by 3.9% from January 2013. This is the lowest annual fee rise since 1994. However, it is still significantly higher than the rate of inflation over the same period which was 1.9% as measured by growth in the Consumer Prices Index/CPI (source: Office for National Statistics).

The ISC Annual Census 2014 may be viewed here:

http://www.isc.co.uk/Resources/Independent%20Schools%20Council/Research%20Archive/Annual%20Census/2014/ISC_Census_2014_11Apr14%20v2%20(2).pdf

Chapters Financial is not responsible for the content of external websites

School fees are usually not inclusive of extras

When parents try to assess the affordability of private education, or work out a savings plan for future fees, the figures used are often the basic fees quoted in the prospectus or on the school website. The ‘extras’ are often left out of the calculation and can bump up the cost considerably. From personal experience, the main potential areas of additional expenditure are as follows:

• Uniform: the biggest single outlay takes place when the child joins a new school and requires a whole new set of uniform and sports kit. Bought new, it can be cripplingly expensive, especially if the school has a dedicated shop from which all uniform must be purchased. In this situation, an initial outlay of £400 would not be unexpected. It is worth checking whether any generic items can be bought through other sources and it’s definitely worth looking at the school’s second-hand uniform shop. It’s also important to bear in mind that many private schools change the uniform requirement or design fairly regularly, so you should be prepared to replace items of clothing /sports kit that are ‘out of date’. Particularly frustrating when the ‘old’ kit still fits…
• Out of hours care: many schools now offer wrap-around care (e.g. breakfast and after-school clubs), which are particularly useful where the parent(s) work full-time. However, this service comes at a cost, which is often forgotten in budget planning. As an example, the cost of putting a Year 6 child in one local private school into breakfast and after-school clubs every day (care from 7.30am to 6.30pm) would currently amount to nearly £700 per term.
• Trips: in many cases, the cost of outings and residential trips offered by private schools is charged on top of the basic fees. It is sensible to plan in another £100-£200 per term to cover these eventualities, and potentially more for senior school children.
• Lunches: some private schools charge extra to provide lunch, whereas for others this is a service included within the basic fees. If lunch is not included, this could add in the region of a further £100 per term to the bill.
• Extracurricular lessons and clubs: there will often be a wide range of additional activities available, from music lessons to sports clubs. Again, most of these will cost extra - for one-to-one piano lessons alone, for example, I would suggest factoring in another £120 per term.

 

It’s easy to see, therefore, how the ‘extras’ can mount up – for a child entering a new school and requiring wrap-around care five days a week, the additional costs over and above the basic fees could well amount to over £1000 in the first term. 

Funding 

 

Early preparation is key. Paying for school fees out of net income (after-tax income) can have a significant impact. For example, a year’s school fees of £15,000 would be £25,000 before tax for a 40% taxpayer. However, with some forward planning, this situation can be at least partially improved. Strategies to consider include:

 

• Saving / investing: As early as possible. ISAs (or New ISAs/NISAs as they are now known) are a tax-efficient way to put aside money every year for future private education commitments. The NISA allowance for the 2014/2015 tax year is currently £15,000 and this can be invested in stocks and shares, cash or a combination of the two, according to your needs and your attitude to risk. Obviously the earlier you start saving, the more you can accumulate before school fees begin.
• Scholarships and bursaries: It is sensible to investigate the availability of scholarships and bursaries. Bear in mind, though, that bursaries are generally means-tested, although every school will have a different system in place. Scholarships are awarded for prowess in a particular academic or other area, such as music or sport.
• Family help: It may be the case that grandparents or other family members are willing to help out with school fees. If this is the case, a ‘bare’ trust arrangement could be a tax-efficient way for them to provide support. A ‘bare’ trust can be set up by anyone for a specific child or children. The trustees will withdraw money as required to pay towards the school fees. Gifts to the bare trust are usually treated as Potentially Exempt Transfers (PETs) and will usually fall out of the estate of the donor for Inheritance Tax purposes after seven years.

 

Summary 

 

Private school fees can be a significant drain on your household income and advance planning is the key to assessing affordability and minimising the financial impact as far as possible. If you would like support and advice on planning for school fees then please do not hesitate to contact the team at Chapters Financial, who will be able to help you further. No individual advice is provided during the course of this blog. If you would like to receive further information regarding your own family situation and circumstances, please contact the Chapters Financial team in either Guildford or Woking.  

 

 

Vicky Fulcher Dip PFS

Trainee Financial Planner

  

Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899.