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the barrister

Personal Finance & Wealth Management Supplement

Personal finance & wealth management supplement the barrister 2017

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Supplement 2017


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Personal finance & wealth management supplement the barrister 2017


Contents: 04

Generating Income in a Low Yield World By Stephen Crewe, Director, Fulcrum Asset Management

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Are your investments stuck in a UK rut? By Jamie Black, Partner & Head of Private Clients, Sarasin & Partners LLP

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Pensions: Still worth it? By Carolyn Gowen CFPTM Chartered Wealth Manager, Bloomsbury Wealth How should I ask my partner to sign a cohabitation agreement? By Francesca Flood, Carter Lemon Camerons

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Investing in Star Wars By Daniel Wade, Paul Fraser Collectibles Make time for estate planning By Shona Lowe, Head of Private Client Services at 1825

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Tapping into expertise of a financial planner early in a divorce can secure a better outcome for your client By Mary Waring, MD of Wealth for Women, the Divorce Finance Specialist

Have you considered your digital legacy? By Natalie Payne, the Private Client team, Mackrell Turner Garrett

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Financial advice? It’s all about the plan… By Colin Dyer 1825 National Advice Manager Owning and acquiring residential property – what’s new in 2017 By Jenny Marks, Tax Director at Wolverhampton based Chartered Accountants Muras Baker Jones Limited

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The Will of the future! By Natalie Payne the Private Client team, Mackrell Turner Garrett Insurance for Junior Barristers: What do I need to know? By Andrew McErlean, Chartered Financial Planner, Saunderson House

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Personal finance & wealth management supplement the barrister 2017

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Generating income in a low yield world By Stephen Crewe, Director, Fulcrum Asset Management

Retirees are currently seeking regular income of approximately 4% to meet their annual spending requirements; they understand taking income above that level is likely to result in capital erosion. On the whole, the return available from balanced mandates has made this a sensible expectation that has been met in recent years. Since the 2008/9 financial crisis, cash rates have fallen and remain close to zero whilst bond yields have collapsed, thereby forcing retirees into alternative ways of generating the required levels of income. Even as recently as 2010, high quality government bonds offered a reasonable income yield with relatively low risk, and therefore provided investors with a viable income solution. By 2013, however, the continued fall in government yields made it necessary to complement government bonds with substantial allocations to high yielding corporate bonds. Fast forward to today and the situation is worse still; despite a backdrop of below trend economic growth, the global hunt for yield has further compressed yields in low risk and high risk assets alike, with many government bonds now offering negative yields. Regardless of whether they provide large, unexpected capital gains, it is impossible for government bonds to provide sufficient income to meet the above requirements, even if duration extension is considered. This leaves only junk bonds and high yielding equities as providers of genuine income. As a result, generating a 4% income has required an increasingly risky investment strategy. Currently, the expected risk entailed in a 4% income generating portfolio is double what it was in 2010. While this increased risk has not yet been detrimental, quite the contrary, a strategy that solely focuses on generated income, without regard to the unintended consequences for portfolio risk, will likely shock investors at some point in the

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future. For example, the least risky portfolio that currently offers a 4% income yield consists of 37% in cash and 63% in high yielding corporate bonds . Such a portfolio would have generated a capital loss of 22% during the financial crisis, in part because it no longer has the benefit of large gains emanating from government bond holdings. Investor behaviour can compound the problem While higher volatility is typically associated with higher ultimate returns, in practise this is not always the case. In particular, it is very difficult to maintain a long-term investment horizon during periods of portfolio weakness. Recent studies highlight that the average investor typically lags the returns of the underlying investment by between 1% and 3% per annum . These poor investment outcomes are typically a function of investor behaviour; experiments have suggested that losses are felt about twice as much as equivalent gains and therefore investors tend to prematurely panic out of loss making positions. This loss aversion tends to be more damaging with expensive and/or high volatility strategies; it is therefore more likely with current (higher risk) income seeking portfolios than has been the case historically. After a significant fall in portfolio value, investors are often “forced” to lock in losses and move to a lower risk portfolio in order to preserve the value of their remaining assets. As markets subsequently rebound from these “fire sale” levels, investors don’t fully participate, leading to a permanent impairment of their capital. With many investors/managers reaching out along the risk spectrum to generate income, it is important to acknowledge the impact of sharp losses (even in the absence of panic) especially if they occur close to retirement or in the early years of drawdown post-retirement.

Personal finance & wealth management supplement the barrister 2017


In practise, most retirees build their retirement savings gradually by contributing on at least an annual basis. A heightened sensitivity to losses in later years has historically led investors to de-risk their portfolios as they approach retirement, usually by switching from equities to fixed income. Given the current level of government bond yields, however, that switch may significantly crimp future potential returns, and increase the risk that the fund loses value in real terms. For example, UK 10 year government bonds currently yield a paltry 1.0% per annum versus the latest UK RPI figure of 1.9%. A similar dynamic is in play in the early years of retirement as the performance of the portfolio in those first years plays an important part in the long-term value of the retirement pool. The effect becomes increasingly important as the distribution rate approaches or exceeds the expected long term return of the portfolio. What about balanced portfolios of stocks and bonds? The ideal investment vehicle around the point of retirement should deliver stable, positive returns with adequate levels of income. Traditional portfolios simply cannot meet these objectives. Even balanced portfolios of stocks and bonds, which offered reasonable yields a few years ago, no longer provide sufficient income. In previous periods of stress, returns from fixed income were boosted by a combination of interest accrual and a fall in yields. Going into the next equity correction, balanced portfolios will no longer have a cushion from the yield on bonds to offset the equity losses, but will need to rely almost entirely on capital gains. Furthermore, a legitimate concern relates to the potential for a break in correlation between bonds and equities; rather than bonds providing stability to a balanced fund in the event of an equity correction, bonds may amplify losses.

An alternative to the balanced fund solution In recent years, diversified absolute return funds have allowed some investors to accept a combination of income and capital to meet their spending requirements, rather than follow the riskier, pure income approaches. How fund managers achieve this objective varies by fund. Some managers will purchase portfolio protection, whilst others will try to mitigate risk through diversification; most sit somewhere between the two. An obvious advantage of this tightly risk-controlled environment is that if one can maintain capital whilst others are suffering drawdowns, opportunities emerge to make investments at “fire sale� values. These same absolute return strategies can also be implemented in ways that generate real, distributable income, while following an identical underlying investment strategy. Whilst maximising income of a portfolio is a legitimate goal, it must be done with a close eye on associated risk. Traditional approaches to income generation, such as cash or government bonds, are no longer viable solutions for income seeking investors. For many years, a simple balanced portfolio offered a reasonable solution but now even this has been compromised. The market has welcomed absolute return and diversified multiasset products to meet the dual demand of return and safety. More recently, these same strategies have evolved to also provide stable income, thereby offering investors a lower risk solution to their income requirements. Fulcrum Asset Management   Marble Arch House, 66 Seymour St, London W1H 5BT Phone: 020 7016 6450

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Are your investments stuck in a UK rut? By Jamie Black, Partner & Head of Private Clients, Sarasin & Partners LLP Prior to voting on EU membership, the UK had emerged as one of the world’s strongest economies from the global financial crisis. Since then, Brexit has divided opinion about the immediate prospects for our domestic economy and our currency too. What does this mean for investment portfolios managed from the UK? Absorbing political uncertainty at home and in Europe The second major surprise at the British ballot box in under a year saw Prime Minister Theresa May lose her parliamentary majority in a snap general election. Yes, the Conservative Party polled 42% of the vote and have managed to retain power by forming a loose alliance with Northern Ireland’s Democratic Unionists, but it was Labour’s Jeremy Corbyn whose populist campaign caught the public’s imagination this summer, especially the young (and a few ageing rockers). A Tory leadership contest in the autumn after the party conference season and a repeat of 1974 (which saw a second general election nine months later) cannot be ruled out. Against that backdrop, whatever progress is being made behind the scenes on Brexit, any significant decisions and announcements will most likely have to wait until the German election is over on 24th September, leaving little more than a year for the UK to cut an extraordinarily complex deal. Despite continual protestations to the contrary, it is probably the size of our ‘departure tax’ that will determine the success of future trading arrangements. In short, uncertainty has risen, but so too has the probability of a slightly milder Brexit. Nonetheless, thus far at least, the economy has confounded the sceptics finishing 2016 on a strong footing with GDP rising 1.6% from the previous year and unemployment falling to historically low levels. Activity has clearly moderated since then (0.2% quarterly growth in Q1 2017, down from 0.7% in Q4 2016 – the lowest in the G7). This weaker trend will continue to be driven by a slowdown in consumption, as accelerating inflation and lower wage growth erodes the purchasing power of households. From an investment perspective, the pound was the most obvious victim of Brexit, falling sharply against all major currencies last year, albeit staging a small recovery so far in 2017. The impact of weaker sterling affects us all in different ways, depending on whether one is an importer or exporter of goods and services, or reliant on seasonal foreign labour in the agriculture sector for example, or most noticeably in rising inflation hitting UK consumers across the board in 2017.

the 10 biggest companies listed on the London Exchange representing more than one third of its total value. Looking at it another way from across the pond, the combined value of the 6 biggest companies quoted in America is greater than the entire UK stock market. Furthermore, most of the world’s largest companies now generate a significant proportion of their revenues in overseas markets; hence the location of their stock market listing has become increasingly irrelevant in terms of assessing future growth potential. Income risk is also significant, with two thirds of all UK dividends currently being paid by just twenty companies. Remember the catastrophic collapse in income suffered by UK equity portfolios when the banks slashed their dividends in 2008-09 after the financial crisis. After the banks’ debacle, Royal Dutch Shell and BP found themselves paying a staggering 24% of all UK dividends, until BP’s disaster in the Gulf of Mexico forced it to suspend dividends for a year, before resuming with a reduced pay out in 2011. Income hunting investors focused largely on the UK are therefore precariously dependent on the fortunes of a very narrow set of companies and industries. So why limit one’s equity exposure to our domestic stock market when the UK now represents less than 6% of the world equity index? The simple answer is you shouldn’t. In our view, a truly global outlook is a better option for your financial well-being, bringing a wealth of diversification, dividend and growth opportunities, which the UK stock market simply cannot compete with. Set against the political risks facing the UK and sterling, and improving corporate governance standards across the rest of the developed world and in emerging markets, global investment has never looked more attractive for a UK portfolio. The traditional investment approach for private wealth in the UK has been to focus the majority of equity exposure in the domestic UK index, with some overseas positions around the edges. We would argue that for portfolios still stuck in a UK rut, the events of the last twelve months have re-emphasised the argument for tipping the scales in favour of a genuinely global approach, giving access to the best in class companies across all industries, regardless of where they are located or quoted. Global and thematic stock selection has been the bedrock of our approach at Sarasin since the mid-1990s. We realised then that the trend towards globalisation, along with technological and demographic changes, would all become significant drivers of investment returns. The evidence of the last twenty years has strengthened our conviction, with Brexit and the recent demise of sterling reinforcing the point.

One thing we can be sure about, however, is that sterling’s demise will have had a correspondingly positive impact on the value of overseas shares in your investment portfolio (the value of a share priced in US dollars, for example, is currently enjoying a boost of c. 12% since 23 June from the currency impact alone when translated back into sterling). These developments should encourage anyone with a UK centric investment portfolio to ask themselves if and why their portfolio needs to be wedded to the UK stock market. Tipping the scales away from the UK But why does any of this really matter from an investment perspective? First and foremost because it has re-emphasised the UK stock market’s very significant concentration risk across a few sectors, e.g. too much in financials and energy, against far too little in technology (less than 1%!), not to mention its stock specific risk, with

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Personal finance & wealth management supplement the barrister 2017


Personal finance & wealth management supplement the barrister 2017

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Pensions: Still worth it? By Carolyn Gowen CFPTM Chartered Wealth Manager, Bloomsbury Wealth

The former Pensions Minister, Ros Altmann, wrote an interesting piece in The Telegraph earlier this year detailing how the continued reductions in the Lifetime Allowance (LTA) – now at £1m – are resulting in more and more long-serving and middle-ranking workers being affected. What was once seen as a curb on the wealthy building up ‘excessive’ pension funds is now starting to bite, and bite hard, many who are earning at relatively modest levels. The calculation for determining whether the LTA has been breached is a fairly crude one for final salary schemes as the accrued annual pension is simply multiplied by a factor of 20. This means that anyone on course to receive a pension of £50,000 or more from their final salary pension scheme at their normal retirement age will – if they have no form of protection in place – be hit by a LTA tax charge. So that’s pretty much all long-serving doctors, dentists, head teachers, consultants and senior civil servants in the public sector and an awful lot of ‘middle management’ in the private sector. It could be argued that those in defined contribution (investment-related) pension schemes are even worse off, since whilst a member of a final salary scheme can receive a pension of £50,000 before being deemed to have breached the LTA, just try to buy a £50,000 annual pension with a pension fund valued at £1m. No chance. At best, at current annuity rates you’re looking at that sort of fund value buying you an inflation-linked annual pension, with 50% spouse’s pension of about £20,000 at age 60. So under this scenario, not only are you penalised for saving hard during your working life but if you save to the maximum, in order to avoid a tax charge you’re limiting yourself to a very modest pension income in retirement.

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As well as there being limits on the total value that you can build up in pension entitlement, there are of course also limits on how much you can contribute (or accrue for defined benefit schemes). Again, thanks to constant tinkering, we now have four different annual allowances in place: 1. Annual allowance (AA) of £40,000; 2. Money purchase annual allowance (MPAA) of £10,000 (to be reduced to £4,000 from 6th April 2017 but confirmation of the reduction was delayed until after the June 2017 general election and the government has now stated that this will be included in the second 2017 finance bill following the summer recess); 3. Tapered annual allowance (TAA) of between £10,000 and £40,000 depending on income (which is assessed according to two different tests) and 4. Alternative annual allowance (AAA) of £30,000 or less (may be reduced by the taper). Confused? You should be. Determining which one (or more) of these annual allowances applies can be a minefield. The introduction of the TAA and the reduction of the MPAA mean that more and more people will now find themselves breaching the limit and having to pay an annual allowance tax charge. Whilst those contributing to personal pensions can of course control the level of contributions made each year, members of final salary pension schemes have no control over the amount of annual allowance deemed to have been used. For such defined benefit schemes, the increase is calculated using a formula based on the amount by which the individual’s accrued benefits have increased by more than inflation during the relevant tax year.

Personal finance & wealth management supplement the barrister 2017


In situations where the increase in benefits in the scheme results in a breach of the annual allowance, and the tax charge is more than £2,000, the member can request that the ‘scheme pays’, in which case the scheme administrator will pay the tax due to HMRC and there will be a resultant reduction in the pension benefits accrued in the scheme. In order to be able to utilise this option it is only the AA which must be exceeded. If it is only the TAA or MPAA which has been breached then ‘scheme pays’ cannot be used. In these instances, it is necessary to make use of ‘voluntary scheme pays’. Under this route the pension scheme administrator can pay the tax charge as detailed above (although they do not have to offer to do so). However, an additional option exists, whereby the member can choose to have the tax charge paid from an alternative scheme if they so wish. For example, a high earner in a final salary pension scheme could breach the TAA within that scheme. Rather than choosing to have the tax charge paid by that scheme – with the resultant reduction in accrued benefits – they can, instead, choose to pay the tax charge on a voluntary basis from a personal pension that they also hold. This might well be worth considering if the final salary scheme is generous in terms of increases to pensions in payment – especially given the high cost of purchasing an increasing pension via an annuity. It is undoubtedly the case that as the regulations become more and more complex, and the restrictions on both contribution levels and benefits accrued increase, many people are being put off using pensions at all as a means of saving for retirement. It is not unusual for us to meet with new clients who have done little or no pension planning in recent years for those very reasons. However, in my opinion, pensions should not be dismissed so easily. In spite of the complications and restrictions, with the flexibility in

terms of how benefits can be drawn and the tax reliefs still available they should remain the cornerstone of everyone’s retirement planning. As a simple example, we have recently been engaged by a lawyer couple, one a partner in a large firm and one operating via her own limited company. Neither had contributed the maximum to pensions in recent years. When we calculated what it was now possible for them to do legitimately in 2016/17, without any tax charges, and taking into account unused annual allowances from previous years, they were able to contribute more than £160,000 between them (at a net cost of considerably less, as much of that qualified for tax relief at 45%). Complicated? Yes, definitely. Nevertheless, pensions should not be ignored and with the help of a financial planner who understands them, there is still much value to be had from including them within your lifetime planning.

Carolyn Gowen CFPTM Chartered FCSI Chartered Wealth Manager Investment Manager and Branch Principal Carolyn Gowen is a Chartered Wealth Manager and Certified Financial Planner at award-winning City-based wealth management firm Bloomsbury Wealth. She has been advising successful individuals and their families on wealth management strategies for over 25 years. Carolyn can be contacted on email truewealth@ bloomsburywealth.co.uk or by calling 020 7965 4480.

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How should I ask my partner to sign a cohabitation agreement? By Francesca Flood, Carter Lemon Camerons get in return for your money. This is the ideal time to raise the possibility of a cohabitation agreement. However, it can still be challenging, even in this context. If you find that your partner is not keen to discuss the possibility of drawing up a cohabitation agreement, a good analogy to use might be that of a Will or life insurance – both of which would be prudent investments when you move in together. Just like insurance, a cohabitation agreement exists to protect you and your loved ones, is never meant to be used but can exist in the background, just in case it is needed one day. It is also important to explain to your partner that a cohabitation agreement can protect both of you, not just the wealthier individual. Depending on the precise agreement reached, the less wealthy partner can find that they are actually better off at the end of the relationship than they might have been had the cohabitation agreement not been made.

The wisdom of couples putting cohabitation agreements in place before they move in together is obvious. They are a highly effective way of protecting the assets and wealth that each person brought to the relationship, safeguarding them against the possibility of leaving the relationship worse off than when they entered it. A cohabitation agreement can be drawn up in such a way as to reflect the specific needs of a couple and can include provisions such as how much each person will contribute towards household expenditure and the arrangements that will apply should the relationship end. It could even define the specific actions that constitute the end of the relationship, such as infidelity or one of the couple moving out. However, for all the hard-headed logic of putting a cohabitation agreement in place, for many people, broaching it can be an extremely difficult, emotionally fraught, task. It certainly isn’t very romantic. So how should you start a conversation with your partner about drawing up a cohabitation agreement? Firstly, it is something that you should draw up together. An agreement prepared by yourself and presented to your partner to sign without any independent legal advice is unlikely to be upheld by the courts. Instead, it is worth sitting down together to discuss and talk through the practical considerations involved in moving in and cohabiting. There will be bills to pay, household chores to complete and even decisions about whose furniture and possessions are kept in the shared home. The exact conversation you have will depend on your specific circumstances, such as whether you are buying a home together or whether one of you is moving into the home owned by the other person. This type of conversation is virtually unavoidable – you have to know where the money is coming from to pay for your home and to pay your bills. You also need to know what you

Another point you can make to a reluctant partner is that you have obligations to other people, such as children or to family members who have gifted assets to you. It is completely justified for you to explain that it is important in these circumstances to protect your existing assets. Remember, it is entirely reasonable to seek a cohabitation agreement, and doing so does not call into question the strength of the relationship. In fact, it is more likely to be an indication of the strength of a relationship, showing that you are able to have a mature discussion about what might happen in the future and how you would deal with it if it does. Once you have both agreed to draw up an agreement, the next step is to instruct solicitors and seek independent legal advice.

About Francesca Flood Francesca Flood is a commercial litigation solicitor at Carter Lemon Camerons LLP. Francesca works for SME owners and individuals to resolve business and personal investment disputes quickly and efficiently. Francesca joined Carter Lemon Camerons LLP in March 2016. After graduating from the University of Durham, Francesca completed her Legal Practice Course at the University of Law in London. She completed her training at Maclay Murray and Spens LLP’s London office, has worked for many years at a boutique City litigation firm, and prior to joining CLC was the head of business and legal affairs at a West End media company. Francesca is a member of the London Solicitors Litigation Association. About Carter Lemon Camerons Carter Lemon Camerons is based in the City of London, in offices at 10 Aldersgate, close to St Paul’s Cathedral and the Museum of London. Our firm began life in Kingston upon Thames in 1915 as George C. Carter & Co., named after its founder George Copplestone Carter. We moved to London in 1959 and to our current offices since 2007.

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Investing in Star Wars By Daniel Wade, Paul Fraser Collectibles

,000 s posters sell for £4 1978 concert serie e Auctions) (Courtesy of Heritag

December 27, 2017 marks 40 years since the original Star Wars opened in UK cinemas. Pre-order seats were fully booked until March 1978. Moviegoers queued for days to get their hands on the few non-reserved tickets. Today, the love for Star Wars endures. It translates into huge competition for the rarest and most coveted pieces of Star Wars history – keeping prices strong and offering an exciting way to diversify. And with new films set for December and 2019, there’s a new generation about to fall in love with the franchise. Collectors prize memorabilia from the first three films, Star Wars (1977), The Empire Strikes Back (1980) and Return of the Jedi (1983), above the recent movies. Pieces from the original film have the most cachet of all. Here’s how to get a piece of the action:

Action figures Think packaging, packaging, packaging. Unless it has its original “cardback” and plastic “bubble” (unopened preferably), most serious Star Wars action figure collectors aren’t interested. And without the packaging, you lose at least three-quarters of a figure’s value. The late 1970s figures are the most coveted. Palitoy distributed them in the UK; Kenner in the US. Original C-3POs, R2-D2s and Chewbaccas with their original packaging, and in excellent condition, sell for around £300. Prices quickly escalate as you reach the rarer action figures. Only 24 Boba Fetts with a miniature rocket launcher ever made it out of the factory. The reason? The rocket launcher was declared a choke danger and production was halted. One of the 24, in rare French packaging, sold for £26,000 in 2016.

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Other rare and desirable specimens to look out for include a Jawa with a vinyl cape (instead of his more common cloth variant), Han Solo holding a blaster and Luke Skywalker wielding a double-telescoping lightsabre. All regularly sell for more than £1,000. Posters 20th Century Fox produced separate posters in each country that Star Wars appeared. You can drive yourself mad trying to collect them all. A better bet, if you’re buying with investment potential in mind, is to concentrate on a couple of the standout pieces. “Style A” 69 x 104cm posters from the 1977 US release of the first film are hugely desirable. They make around £3,000 in top condition. Or how about a “Revenge of the Jedi” poster? That’s what George Lucas planned to call the third film, before deciding Jedi Knights weren’t the vengeful type. Early posters featuring the movie’s original title exist in small numbers and sell for around £2,000. Please buy from a dealer you trust as these are often faked. Many of the fake ones have a fuzzy 20th Century Fox logo in the right bottom corner. Also keep an eye out for the rare posters from the 1978 Star Wars concert series, which served up live performances of the film’s score. In top condition they make around £4,000. Think of the most iconic props and costumes from the first three films. They have probably already sold for big sums at auction. And many will come round again – at some point. Cloth caped Jawas such as this achieve around £600. The rarer, vinyl cape variety can exceed £2,000 (Courtesy of Heritage Auctions)

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A complete Stormtrooper costume used in the first two films: £200,000 Luke Skywalker’s lightsabre from the original film: £160,000. In contrast, one he used in Return of the Jedi sold for £20,000 – evidence of the extra cachet of pieces associated with the 1977 picture. The first prop seen in the first film, a Rebel ‘Blockade Runner’ ship: £300,000 – making it the most valuable Star Wars prop.

Chewbacca wins the battle of the collectable heads. One of five mohair and yak hair masks created for the character sold for £115,000. An original C-3PO helmet worn by Anthony Daniels during Return of the Jedi made £80,000, while the Darth Vader mask sported by Olympic fencer Bob Anderson in The Empire Strikes Back achieved £77,000. Lower down the pecking order, Imperial Officers’ tunics from the first three films auction for around £6,000, single panels from models of the Death Star can be yours for around £1,500, while Paul Fraser Collectibles has pieces of Krayt Dragon bone, which appear in a scene with C-3PO in the first film, available for £1,500. You’ll do well to find props from the later films. The insistence on CGI means most props are stored inside a computer. Looking for an entry-level piece of Star Wars memorabilia? Cast members’ autographs are a great option. Many actors appear at pop culture events, and (for a fee) will sign a piece of memorabilia or photo. Mark Hamill (Luke Skywalker) is a regular convention attendee. You can meet the man and get his autograph for around £150. Or how about the signature of Chewbacca or C-3PO? Peter Mayhew and Anthony Daniels, who played the iconic roles, charge around £50. Even the smallest bit-part actors command a fee. Hugh Spight, who played a Gamorrean guard in Return of the Jedi, will sign for £15. Clem So, who plays a Resistance Fighter in 2015’s The Force Awakens, is even cheaper – just £10. Some actors don’t attend conventions, or can’t. Harrison Ford doesn’t often turn up. Online you’ll pay around £150 for his signature. Carrie Fisher-signed photos (currently around £50) will likely rise in value following her death in 2016, as the supply + demand equation takes hold. If you’re buying on eBay, beware. Around 80-90% of autographs on there are fake. Or how about Lego? You can find anything with a Star Wars logo on it. Yet if you’re buying with a view to future profit, think rarity + desirability at all times. The limited edition 2007 Millennium Falcon Lego set is a perfect example. According to BrickPicker, which tracks Lego prices in FTSE100 fashion, the 5,197-piece set is worth £2,726 today in completely new condition – or £1,401 used. New ones cost £342 when released in 2007. Can’t bear to spend £3,000 on Lego? How about £240 for a plastic bag? That’s the price a rare bag bearing The Empire Strikes Back logo realised last year…

The 5,187-piece Millennium Falcon has soared in value over the past 10 years (Courtesy of Lego Millennium Falcon to 2007 LEGO Group)

For more details visit paulfrasercollectibles.com.

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Make time for estate planning By Shona Lowe, Head of Private Client Services at 1825

Make time for estate planning People always assume that lawyers are really organised. And in many ways we are. But if you’re anything like me, how organised you are at work bears no resemblance to how organised you are with your home admin. While office filing is completely up to date, there’s a pile of paperwork on top of the microwave to be dealt with; until very recently, our draft Wills and Powers of Attorney were in that pile. I’ve spent my career telling clients how important estate planning is so I knew I should have these in place but it never quite got to the top of the pile. We’re busy people, so there needs to be a really good reason to take up our valuable free time with something like that. So it’s those good reasons that I’m going to be focusing on. Estate planning means different things to different people. I believe it’s about helping people to maximise what they have to enjoy and pass on, whilst protecting the people they care about. So let’s see whether spending time on your estate planning would be time well spent. How tax efficient are you? Now that should be a simple question but often isn’t. As the tax specialists reading this will know, the UK has a hugely long and complicated tax code and hiding within it are lots of valuable reliefs, exemptions and allowances. The problem is that it’s not always easy to know what you could claim or make use of, but with a bit of planning you may be able to benefit more. This is where specialist personal tax advice can add real value. By taking the time to understand your existing asset base, an adviser can spot opportunities to take advantage of those reliefs, exemptions and allowances across income tax, capital gains tax and inheritance tax. This applies not just to your investments but also any business or farming interests and any commercial or residential property you own in addition to your main home. And it is vitally important not to forget the much unloved tax return. A necessary evil for many, particularly the selfemployed, this is an important point in the tax planning calendar that allows you to take stock. Do you have the right tax code? Are you claiming and making use of all the allowances, exemptions and reliefs that you can? Are you avoiding penalties and interest? Are you confident you’re paying the right amount of tax? If you have any doubts, or would simply rather not spend your precious time completing your tax return, engaging a tax compliance specialist could be a good idea and one that gives you peace of mind. Do you have someone you trust that can make decisions for you if you can’t?

For many, Powers of Attorney are simply associated with older people and often only come to mind when they have an elderly relative they are concerned may be becoming less able to look after their own affairs. But they are so much more than that. They can give the peace of mind that comes from knowing that critical decisions can be made without you and by someone you trust. It’s not just about losing capacity, it could be about being out of the country on holiday without a decent phone signal or simply being really busy at work. Whatever the reason, ensuring a carefully structured plan doesn’t get derailed is key. It also protects loved ones from being faced with an emotionally challenging court process (and the associated costs) to have someone appointed to make those decisions. Would you like to share assets within the family whilst keeping control? Sharing assets could be right for some for tax reasons or simply because of individual family circumstances. And because of those family drivers, people are generally fairly comfortable with sharing but they are even more comfortable if they don’t have to hand anything over, can keep control and can ensure no-one else can spend the money! And as trust specialists will know, that’s all possible. That’s because it will generally need a trust of some kind and they shouldn’t be discounted based on some misconception that they are all expensive, complicated and unpopular with HMRC. That’s simply not true. Used in the right way and in accordance with legislation and established HMRC practice they can be a very effective way of sharing assets while keeping control.

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Are you doing everything you can to pass on as much as possible to the people you choose?

complex area so unless you’re a specialist, advice is recommended.

This needs a comprehensive succession plan that encompasses all of your assets. Now a Will, kept up to date, is vital - and I’ll come back to that - but there’s a common misconception that you can say what you want to happen to your pension in your Will. You can’t. You need to capture those wishes in a nomination form that’s tailored to your pension(s). It has to be kept up to date and needs to sit alongside an equally up to date Will.

That leads us neatly into inheritance tax planning. Many people underestimate how much they’re worth and if they do, they won’t really know what potential inheritance tax bill their family could be left with. Others know exactly their worth and the amount of that bill but think that, to make any real difference to it, they’ll have to give everything away and sacrifice the quality of life they’ve worked hard to secure. That’s not the case. It’s about understanding what’s right for you from the variety of options available: gifts from income, gifts from capital, gifts to people, gifts to trusts, small gifts, large gifts…the list goes on. There’s normally something in there that can help and it’s best to start sooner rather than later as it can take some years to take full effect and make a real difference.

Despite the fact that a Will sets out what you want to happen with what you’ve worked hard to build up, less than half of UK adults have one. Just like me until recently. And as we know, that means that the law says who gets what. The problem is the law isn’t particularly good at dealing with the huge array of family circumstances we see today and can result in an outcome that doesn’t reflect what you would have wanted to happen. Now that, in itself, seems like a pretty powerful reason to have a Will in place, but just in case that isn’t enough, the residence nil rate band was introduced at the beginning of April. This means having the right Will in place can make a significant financial difference by allowing someone to leave more of their estate free of inheritance tax. So for a couple, the tax free amount can be up to £1m instead of £650,000 and for a single person, it can be up to £500,000 instead of £325,000. But it’s not something you get automatically. You have to be eligible and your executors have to make a claim. The value of your estate, who you choose as beneficiaries and the inclusion of trusts in existing Wills can all get in the way. It’s a fairly

So that’s what I mean by estate planning. But it doesn’t really matter what you call it. It’s just something that’s worth spending a bit of time on to benefit you and the people you care about.

Email us at appointments@1825.com or go to www.1825. com for more information.

Personal finance & wealth management supplement the barrister 2017

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Financial advice? It’s all about the plan… By Colin Dyer 1825 National Advice Manager

What’s a goal without a plan? Not much more than a wish. And this couldn’t be truer than when it comes to your financial future. While wishing for the future you want might make you feel better, a plan is far more likely to get you there. That’s the power of financial planning; turning your wishes into something proactive to help you live the life you choose. And “planning” is the crucial word here – I haven’t mentioned “advice” at all - yet. I’m a self-confessed pedant when it comes to financial planning vs. financial advice. In general vocabulary the two phrases are often used interchangeably, but in practice I think planning goes a whole lot further. For me, financial advice is a little bit ‘old school’, and is not where the true value lies. Traditionally, it’s when a client asks for an opinion that’s directly related to a product or an investment. But these days most products offer very similar options, so for clients to really benefit you need someone to look further than the facts and figures. Instead of focusing on solutions and specific problems, financial planning aims to create a better life as you go along. Why’d you have to go and make things so complicated? The financial world today gives you far more choice and responsibility over your money than ever before. With more control now placed in your hands about retirement, the choices you make are critical in determining your financial future. That’s a big responsibility, especially as these choices have significant, long-term implications. Part of the problem is understanding the variety of choices you actually have to make. One obvious, but interesting, choice is finding the right balance between spending money on your life today and saving for your future. Then just as you think you understand what you can afford to invest, another more complex question arises – how much can you afford to lose? A skilful financial planner can help you assess your capacity for loss and the impact of this on your longterm goals, helping create a robust investment strategy to maximise your potential returns, within an agreed level of risk. However, I do believe that increased choice is fundamentally a good thing. It’s just that in practice it doesn’t exactly make

financial decisions any easier. More often than not, it’s not a lack of options that upsets humans; it’s our compulsion to always make the right choice. This is true in everyday situations as well – think about how hard it is to pick a film on Netflix from the thousands that are available. If you’re anything like me you may have lost an evening or two just browsing through the options. We want to make the best possible decision every time, and as illogical as it sounds we can sometimes feel worse about a sub-optimal outcome than about an actual loss. This is where it’s useful to have the support of a financial planner. They help you make informed decisions and plans, just as much as they help with the actual implementation and advice. It’s not about the money, money, money… To bring their a-game, a financial planner needs to have a complete understanding of your (or your family’s) financial situation, including your relationship with your money. The relationship is important because money on its own doesn’t make things better – it’s what it enables you to do that makes it valuable. It’s this mind-set that separates planning from advice, by putting the client’s life at the heart of the process, rather than just their finances: Your finances are just one aspect of your life, vying for attention against other (probably more appealing) parts like your family, career and social life. How your money integrates with these other parts is very important for financial planning because of the impact it has on your goals and what you want to achieve. A financial planner will help you realise what that is; challenging your perceptions and clarifying your priorities, before working to create the best plan to help you get there. That’s where the focus on finance comes in. A planner will thoroughly test the financial viability of your plan to give you confidence for the future. They’ll look at the things that matter to you – some of the most common areas our clients want help with are on the diagram above, such as retirement planning, working out how to best pass on money to your loved ones, using your allowances properly so you don’t pay too much tax, and tackling the things you’re worried about head-on – long-term care for example. Then they bring it all together into a cohesive financial plan and work with you to stay on track. The power of the plan Of course a financial plan isn’t static (a plan once written, will never come to fruition!) it’s a living, breathing roadmap that changes as your circumstances change. Advice doesn’t evolve in the same way – it’s given at a point in time, on specific problems, and won’t adapt with you. The planning process on the other hand is extremely fluid, enabling you to make the most of opportunities that come your way and proactively protecting you against the unexpected. It encourages you to think about this in advance so you’re not caught out – after all you don’t wait to fix the roof until it’s raining! When this is done properly, it can provide an extraordinary and empowering context to your life and your money, giving you confidence to make the decisions you want because you understand the impact they will have. For example, imagine that you want to give some money to your children, but you’re not sure how much you can

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afford to share without it having a detrimental effect on your future. A financial planner can model different amounts and show you how they could affect your long-term financial plan. The impact of that is huge – and goes far further than just financial repercussions. Suppose through doing this you realise you can confidently afford to give your daughter £50,000, which she uses to buy her first home. The extra money from you means that she’s able to afford a two-bed rather than a one-bed home, making it easier to think about starting a family and ultimately results in grandchildren arriving several years earlier than they otherwise might have. This is purely a fictional example, but it highlights what I mean when I say financial planning is about your life, not just your money. And when people understand that for the first time, it really is a Eureka moment. Why should I work with a financial planner? I appreciate that I’ve mainly been focusing on some of the softer benefits of financial planning. That’s partially because some of the main benefits of financial planning are emotional. The value is often disproportionately experienced during times when rational decision-making becomes harder. This could be during a period of market volatility or when things aren’t going as planned in your personal life. That’s because part of what a financial planner does is to firstly help you choose a path, and then give you the

confidence and on-going reassurance required to remain calm and stick with it. Most people know in principle that it’s best to “keep calm and carry on” when the market is jittery, but it’s very hard to do that on your own. It’s similar to having a headache and self-diagnosing your symptoms on the internet – more often than not you can convince yourself things are worse than they are and you won’t feel comforted until you talk to a doctor. Of course, there are some more tangible advantages to financial planning as well. I said earlier that financial planning is about more than just facts and figures, but I can’t resist sharing some key statistics to highlight its value – please excuse any irony. 1. The value of advice – research report from ILC-UK 2. The value of financial planning – Financial Planning Standards Council 3. “Alpha, Beta, and Now… Gamma”, Journal of Retirement – Morningstar Financial planning is not just for people who don’t know how to look after their finances themselves. In actual fact, individuals who are highly financially capable are more likely to use a financial planner than people with low financial capability1. In life, people often refuse help because they feel like they should be able to do things themselves. But in the case of financial planning, there is absolutely no shame in paying for professional support and it’s highly likely that the benefit will outweigh the cost. 1 The value of advice – research report from ILC-UK

Email us at appointments@1825.com or go to www.1825. com for more information.

Personal finance & wealth management supplement the barrister 2017

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Owning and acquiring residential property – what’s new in 2017 By Jenny Marks, Tax Director at Wolverhampton based Chartered Accountants Muras Baker Jones Limited As always the new tax year brought a number changes in tax legislation. This article considers several of these insofar as they relate to owning, acquiring and investing in residential property. It covers younger savers looking to buy their first home, more wealthy individuals dying owning their home and investors letting out property. Younger Savers New ‘Lifetime ISA’ The new Lifetime Individual Savings Account or ‘LISA’ was introduced to provide another option for younger people looking to save flexibly for the future. It is intended to be a longer-term tax-free savings account that will provide savers with a 25% bonus on the amount invested. As with other ISAs no tax will be payable on interest, income or capital gains arising on cash or investments held within the product.

Withdrawals and Transfers Funds held in a LISA can be withdrawn at any time, but from 6 April 2018 they will be subject to a withdrawal charge of 25% of the amount withdrawn, except in the following circumstances: • • • •

For use towards the purchase of a home by a first-time buyer; If the individual is aged 60 or over; If the individual is terminally ill; To transfer to another LISA with a different provider. Transfers to a different type of ISA will not qualify however.

This withdrawal charge could result in receiving back less than the amount invested. For example, if an individual pays in £4,000 and receives a bonus of £1,000, but then withdraws the full £5,000 they would receive £3,750 after the 25% charge is applied to the £5,000 withdrawn.

Details

Buying a First Home

The LISA is available to any UK resident aged between 18 and 39, and is intended to help those saving for their first home or for retirement.

The LISA investment can be used towards buying the savers first home without incurring a withdrawal charge if:

There is an annual limit of £4,000 that can be paid into an account and the government will add a 25% bonus to the amount paid in, up to a maximum of £1,000 a year. The bonus will be paid by HMRC at the end of the tax year for 2017/18, but for subsequent years the bonus will be added on a monthly basis. It should also be noted that the £4,000 limit will form part of the overall annual ISA limit, which for the 2017/18 tax year is £20,000. Payments can continue to be made into a LISA until the saver reaches 50. The account can stay open after this, but no more payments can be added however the savings remain tax-free as long as the money stays invested.

• • •

The house is valued at less than £450,000 The purchase is with a mortgage A conveyancer or solicitor is used for the purchase, and the funds are paid directly to them by the LISA provider.

The account must also have been open for at least 12 months before funds can be withdrawn so it will be April 2018 before such funds will be available to first time buyers. Where an individual is buying with another first time buyer, and they each have a LISA, then they will both be able to use their government bonus towards the purchase. It is important to note that the’ Help to Buy ISA’ has also been available to first time buyers for a while but the interaction between this and a LISA is complex. Individuals

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who already have a Help to Buy ISA should therefore seek professional advice before taking out a LISA. Whilst a LISA may not be appropriate for everyone due to the exit penalties associated with certain withdrawals, they do offer an attractive tax-free option for younger people looking to buy their first home or starting to save towards retirement. It is worth remembering that it does not have to be the individual themselves who pays into the Lifetime ISA, it may be an option for parents or grandparents who want to help contribute towards their child or grandchild’s savings. Passing away owning a main residence Inheritance Tax Main Residence Relief The new Residence Nil Rate Band (“RNRB”) for Inheritance Tax (“IHT”) came into effect on 6 April 2017. It is being phased in over a period of four years but ultimately could save a couple up to £140,000 of tax, up to £80,000 of which arose ‘overnight’ on the day it was introduced. Currently, the IHT Nil Rate Band for an individual is £325,000 although any unused amount can be transferred to a surviving spouse, to give them a maximum of £650,000. Details The RNRB will apply, in addition to the basic nil rate band, where a residential property which has been the individual’s residence at some point is included in their estate and left to a direct descendant (broadly a lineal descendant or a spouse of a lineal descendant) on death. The enhanced relief is being introduced over 4 years as follows: • • • •

Residential property investors While the changes above bring new tax breaks for home owners the regime for residential property investors continues to get more penal. Interest Restriction for Buy to Let Landlords From 6 April 2017 tax relief for finance costs in respect of residential rental property has been restricted. This does however only affect property owned by individuals, trusts and unincorporated businesses. Prior to 6 April 2017 interest costs were fully deductible where a mortgage was used to purchase such assets. By April 2020, relief will be given only as a deduction from the tax liability at 20% of the finance cost. There a common misconception that basic rate (20%) tax payers are unaffected however this is not the case as the changes can push a basic rate tax payer into higher rate, especially with a highly geared property portfolio. The restriction will be phased in over four tax years as follows: 2017/18

2018/19

2019/20

2020/21

% of interest allowed as a deduction

75%

50%

25%

0%

% of interest given as a relief at 20%

25%

50%

75%

100%

Example

£100,000 for 2017/2018 £125,000 for 2018/2019 £150,000 for 2019/2020 £175,000 for 2020/2021

Married couples are both entitled to the enhanced relief, giving a couple a total of £350,000 by 6 April 2020 and £1 million when combined with the maximum Nil Rate Band of £650,000. If one spouse has passed away before 6 April 2017 then their unused allowance is still available to transfer to the surviving spouse. This relief is worth a maximum of £140,000, being £350,000 at the IHT rate of 40%. The relief is reduced however where the estate is worth over £2 million. Example Taking a simple example, an unmarried individual passes away on 5 April 2017 and leaves the only asset in their estate – their home, worth £450,000, to their child. On that date the individual is only entitled to a nil rate band of £325,000, so the excess (£125,000) is charged to IHT at 40% being £50,000. If the same person passed away on 6 April 2017, they would be entitled to the enhanced relief plus the nil rate band, being £425,000 in total, giving a tax bill of only £10,000 - a reduction of £40,000. Downsizing Under certain circumstances where an individual downsizes to a smaller property which does not use up the whole RNRB, the balance of the relief may be applied to other assets left to direct descendants, subject to several conditions. This ‘Downsizing Relief’ is potentially very valuable, however is particularly complex. An executor seeking to take advantage of any of these reliefs should take professional advice to ensure their claim is maximised.

A higher (40%) rate payer with annual rental income after other expenses of £15,000 and mortgage interest costs of £5,000 each year would have had taxable rental income in 2016/17 of £10,000 and a tax liability of £4,000 (40% x £10,000). In 2020/21, the taxable rental income will be £15,000 with no deduction for interest and a higher rate tax liability of £6,000. There will be a deduction allowed from the liability of £1,000 (£5,000 at 20%), leaving net tax to pay of £5,000 – an increase of 25%. Planning The increase in taxable income may have other hidden effects such as reducing an individual’s personal allowance where their income exceeds £100,000, contributing towards a claw back in child benefit where income exceeds £50,000 or restricting allowable pension contributions for higher earners. As a result landlords may wish to consider ways to mitigate the effects such as transferring ownership to a lower earning spouse, owning rental property through a limited company or investing in commercial property or qualifying furnished holiday lets, which are not affected by these changes. Alternatively investors may wish to look at reducing their mortgage. Professional advice should, of course, be sought before implementing any of these measures.

For more information Jenny Marks can be contacted at Muras Baker Jones Limited on 01902 393000 or at jenny. marks@muras.co.uk

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Tapping into expertise of a financial planner early in a divorce can secure a better outcome for your client By Mary Waring, MD of Wealth for Women, the Divorce Finance Specialist will be impacted by multiple factors including inflation, investment growth, withdrawals, tax impacts and life events. And by inputting tax-efficient strategies such as use of Isas, pensions, bonds and income and capital gains tax allowances into a cash flow modelling tool it is possible to explore and demonstrate more efficient ways to meet income needs. Depending on which side of the case the legal team is, cash flow modelling projections can be used as an evidence-based tool to accurately support or challenge assertions of the levels of assets needed to maintain a particular lifestyle.

The complexity of today’s financial products and the way they interact with the tax system mean expert financial advice is needed to achieve accurate and equitable settlements in high-value divorce cases. The fiscal separation that comes with divorce is a significant shock to the financial security of both parties, and to any dependent children. Achieving a settlement that meets the real long-term needs of both sides can be best achieved by involving a financial planning professional at the outset. By engaging a financial planner early on it is also possible to use tax efficiencies and other synergies to achieve a sum of assets that is greater than the whole. This is because certain assets can be worth considerably more or less depending on which party gets to keep them. So, whether the separation is being dealt with on an amicable basis or by way of aggressive litigation, by obtaining a deeper understanding of the value of each asset to each party, legal representatives can deliver better financial outcomes all round. The financial planner is an essential expert witness in large or complex financial divorce settlements. Without knowing precisely how much is in the pot, and what each asset is worth to each party after tax, it is impossible for the barrister to know whether he or she is on course to deliver a genuinely equitable settlement. As well as gathering all the information to accurately assess what is there to be divided, it is important to establish the income that will be needed over the long term to support a lifestyle of a certain level, and the assets that will be needed to deliver that income. Sophisticated cash flow modelling tools can deliver this information by using complex algorithms to project how an individual’s future cash flow

Cash flow modellers can also show, in a way that is very easy for both the barrister and client to understand, how different assets can have different values to different parties. Probably the most compelling example of how the same asset can be worth more to one person than another is in the realm of pensions. Take a situation where one spouse has a £1.8m pension pot and the other has nothing. The current Lifetime Allowance for pension saving stands at £1m, meaning, unless certain special protections have already been applied for, £800,000 of the pot will be hit with an additional Lifetime Allowance Charge tax of 25 per cent, assuming the excess is taken as income. But by splitting the pension in two, each party will be within the Lifetime Allowance, and a tax bill of £200,000 can be avoided. A Lifetime Allowance charge could arise at a later date if the funds grow to a level higher than each individual’s Lifetime Allowance by the time benefits are taken (or at age 75 if earlier), but there is some scope for further planning in this respect, and the tax would almost certainly be less than £200,000. Even if neither party has yet breached the lifetime allowance, savings can still be made. An example of this is a middle-aged divorcing couple where one party has a pension worth £800,000 and expects to continue to earn into the future, while the other party has no pension and little expectation of ever working again. In this scenario, it can be in the interests of the working party to hand over pension rather than other assets, as this will increase their scope for future saving with the benefit of pension tax relief and to benefit from tax-free increases in the value of their fund.

The articles in this supplement are intended for general information only and should not be construed as advice under the Financial Services and Markets Act.

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The financial planner will also be able to help the barrister and the solicitor work out how best to provide a home for both parties, and again, smart use of pension assets can be a real help here. Not only can each spouse take up to 25 per cent of their pension fund as tax-free cash once they reach age 55, but since the flexible pension withdrawal system was introduced in 2015, it is now possible to take even bigger lump sums out. While there can be tax consequences for doing this, if the alternative is not having enough funds to provide each party with a suitable home then pension withdrawals may provide an answer. And it is not just defined contribution pensions that can be a source of cash. Final salary or defined benefit pension schemes from private sector employers can now be accessed too, if they are transferred to a defined contribution scheme. The matrimonial home may have been the most valuable asset in the relationship for most couples. But these days the huge sums of money being offered by pension schemes for surrendering defined benefit pensions can in some cases exceed property values. It is not uncommon for pension schemes to offer one-off payments amounting to multiples ranging from anywhere between 18 and 50 times the annual income. For someone who has accrued a defined benefit pension entitlement of £20,000 a year, that can mean a transfer value of £360,000 or £1m, a quarter of which can be accessed tax free.

in multiple scenarios. A buy-to-let income of £10,000 a year will be of more value to a non-earner or basic rate taxpayer than a party paying income tax at 40 or 45 per cent. There may also be efficiencies to be found relating to capital gains tax, for example where one party has a large portfolio of shares that has experienced significant losses. If they also expect to create a capital gains tax liability in the future, for example by selling an investment property or business, then it makes more sense to retain the poorly performing share portfolio, rather than other assets, so the capital losses on them can be used to offset the capital gains. Perhaps most importantly of all, expert financial planning advice can help a party to a divorce along the difficult emotional journey to financial independence. Fear of financial ruin may have been the glue holding the relationship together longer than necessary. Often, just showing the nonearning spouse that they can and do have a financial future on their own is a key step towards a good divorce. That is a message that is best delivered sooner rather than later.

mary@wealthforwomen.biz

A range of £360,000 or £1m in return for surrendering a £20,000 income is considerable – it is caused by the discretion exercised by the actuary running the scheme. Due to the complexity of valuing defined benefits, a financial planner may ask a specialist actuary to prepare a valuation report. When it is ready, the planner will discuss the report and its recommendations with the lawyer and client. This range of possible surrender values means the defined pension may, or may not hold the key to providing enough cash to give each party a suitable property. So too might each parties’ attitude to investment risk and their desire for secure income in retirement, and their wish for what happens to their pension on their death. By ensuring a financial planner is engaged early in the process, the barrister will not only be sure to get an accurate figure of how much cash is potentially available, but also an expert view of whether this cash offer should be accepted. Caution is also needed in deciding which assets should be surrendered as part of a settlement, as some will be worth less if they are cashed in. Annuities taken out many years ago, for example, should not normally be shared, as the spouse receiving half the value of it would only be able to buy their own future income at today’s annuity rates, which are considerably worse than those available years ago. Likewise, pension savings that have been accrued in older-style plans that offer guaranteed annuity rates should almost never be cashed in because they can offer access to annuities paying 10 or 12 per cent, more than double the rates available today. Investments in Venture Capital Trusts, meanwhile, may be worth considerably less than their face value, so should be assessed properly. Smart use of tax allowances can create financial synergies

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Have you considered your digital legacy?

By Natalie Payne, the Private Client team, Mackrell Turner Garrett Our world is becoming ever more digital, changing how we interact nationally and internationally. Traditional barriers are being broken down without the need to travel, creating a whole new form of human interaction. The result is that the internet has created a new type of property and with cyberspace having no physical boundaries legal rights have to be redefined in relation to matter such as ownership, transferability and duration of ownership. It is estimated that the value of our digital assets is approximately £25 billion and this is only set to increase as more and more of our lives are captured and stored in digital form. As a result we now have to also consider our digital footprint in light of incapacity during our lifetimes and, inevitably, death. The question is: have you considered your digital legacy? What is a digital asset? Surprisingly, there is no legislative definition of what constitutes a “digital asset” in the United Kingdom. Digital assets can be understood to be any information that exists in digital form and this can be online or on a storage device.

prevent fraud, as it can restrict operations. Making provisions for your digital assets is a modern day issue but should be considered as important as making provisions for your tangible assets, such as your home and personal possessions. Safeguarding your digital legacy How do you provide access for your attorney (during your lifetime) and/or personal representative (upon death) to your digital assets? You should not assume that friends and family know what digital assets you have. It can quite frankly be a nightmare to trace assets with no paper trail and no place to start. Digital assets still need to be valued the same way that tangible assets are. Gaming assets and intellectual property may require a specialist valuer. In your Will you may also wish to consider about an executor purely to administer your digital assets especially if you have a business assets and you may wish to appoint someone with more technical abilities and/or you wish to limit you has access to your data.

Your digital legacy Our personal digital assets include digital photos, online accounts, domain names, fiat currencies such as Linden dollars and Bitcoin, and social media profiles. Just consider how many text messages do you send each day? How many photos do you take but never print? They are all held in cyberspace and at some point will need to be accessed. If you would like your digital assets to be protected and to generate maximum financial return for your beneficiaries then you need to consider such assets in estate planning when preparing a Will, or you may need to update your existing Will.

Therefore, it is recommended that you take an inventory of your digital assets as this will make it easier for your attorney or personal representative to locate accounts and so on. Also you can leave clear instructions in a letter of wishes as to how you would like matters to be dealt with such as “delete my twitter account”. This should also save time and money, and most importantly it should prevent sentimental and valuable material never being recovered. However, such a list must be kept safe and it is recommended that information is encrypted. We do not recommend listing passwords and pins. There are password management companies that can store such data on your behalf.

However, it is not just our personal digital data we have to be concerned with but also those owned within a business. If you own your own business you also need to consider the business’s digital footprint, from online stores and mailing lists to company email accounts. It can be disastrous for a business when, for instance, accounts are frozen upon death, to

Apart from locating assets the other issue when making provision for your digital legacy is that every provider seems to have different rules on how an attorney or personal representative may access your digital data. This is because, as mentioned above, no uniform legal procedures are yet in place and so it is down to the individual providers to determine what

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occurs. It is hoped that this will be addressed in legalisation the near future as in the United States of America via the Fiduciary Access to Digital Assets Act, Revised (2015), which has been enacted in some States.

to digital assets.

Some providers such as Facebook have brought in procedures such as the “Legacy Contract� feature so that you can nominate someone to have access to your account upon death. Many of the assets we have are licensed to you such as Kindle content and Apple Music. Thus, the contract ends on death. This means it cannot be passed on to a beneficiary unlike say a CD.

1. 2. 3. 4. 5.

Word of warning It is important that an attorney or personal representative does not access any of your digital assets before checking the terms of service and sending a certified copy of the power of attorney or grant of probate to the provider. A failure to do so may be considered an offence under the Computer Misuse Act 1990. Therefore even if an attorney or personal representative has your password they must be very careful in using it in case they break the law. Also consider crossborder issues as what may be permitted in one country may not be in another. The USA, Canada and Australia all have legislation making it an offence to gain unauthorised access

5 practical things you can do now to protect your digital legacy: Make a list of your digital assets Decide upon a safe place to store this information If you own a business review its digital profile Contact me on 02072400521 Make or update your Will and/or power of attorney to include your digital assets

This is a developing area, which cannot be ignored or overlooked when making a Will or a power of attorney. Please contact the Private Client team at Mackrell Turner Garrett who are able to guide you through the matrix of your digital profile and how it should be dealt with.

If you would like to know more about the new rules please contact the Private Client team at Mackrell Turner Garrett by calling 00 44 (0) 20 7240 0521 or emailing Natalie.Payne@ mackrell.com-

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The Will of the future! By Natalie Payne the Private Client team, Mackrell Turner Garrett The legal requirement to make a valid Will dates back to the 1830s, which has caused many to suggest that Will making in the UK is archaic and needs to be updated to come into line with the digital age. The Law Commission wishes to pave the way for the introduction of electronic Wills so that text messages, emails and voicemails could be considered legally binding as a person’s Will. Therefore, in the future you may need to be careful with what you write in a text message! At present it is believed that about 40-50% of people in the UK die without making a Will or do make a Will which they do not realise is invalid as they have not complied with the stringent legal requirements for making a valid Will. The Law Commission want to amend the current formal rules to make a valid Will where the deceased made their intentions clear in another form, such as in a text message. The family would be permitted to submit these alternatively formed intentions to a Judge for him to determine whether they constitute a Will. This would give wider powers to the Court to recognise a Will in cases where the formal rules haven’t been followed. It is hoped that, by allowing a Will to be made via digital devices, which is permissible in countries such as Australia and Canada, that more people would make a Will – or of course would it result in more Wills being contested? If digital forms such as text messages were permissible, dissatisfied relatives “…may be tempted to sift through a huge number of texts, emails and other records in order to find one that could be put forward as a Will on the basis of a dispensing power.” If the law does change it will remain advisable for all persons living in England and Wales or owning assets here to still make a paper Will and not to leave it to the last minute in order to try and avoid unnecessary costs to their Estate and family. While bringing Will making into the digital age is to be commended, there do need to be many safeguards before such new methods can be used. The Law Commission is also reviewing the age at which a person can make a Will. At present you have to be an adult to make a valid Will in England and Wales, although exemptions do apply for those in the armed faorces and other public services such as the police force. The Law Commission has suggested that the age for making a Will should be lowered to 16, as some people have great responsibilities under the age of 18. Other jurisdictions do have lower ages such as Scotland where you can make a Will from the age of 12. The current law does not properly take into account

conditions that affect decision making such as dementia and the Law Commission is proposing that a new capacity test should be introduced. Also it is proposed that there will be an overhaul of the current laws on undue influence. The intent of the Law Commission’s proposals is to make Will drafting more straightforward with the aim that this will encourage more people to make a Will. Professor Nick Hopkins who is in charge of the project has said that “…Our provisional proposals will not only clarify things legally, but will also help to give greater effect to people’s last wishes.” This is welcomed news as the complications that arise through people dying intestate are expensive and can be emotionally draining for the family. Also, next generations are likely to affiliate more readily with digital devices and so the law needs to change to reflect this. However, great consideration needs to be given to what constitutes a valid Will as it could create more avenues to challenge a person’s estate. The news today reiterates again the reasons why people should make a Will. If you wish to make a Will or to make some changes to your existing Will, please contact our expert Private Client team at Mackrell Turner Garrett by calling 00 44 (0) 20 7240 0521or visiting www.mackrell. com. Our team will be able to guide you through the process and ensure that your wishes are correctly recorded giving you and your family invaluable peace of mind. Natalie Payne, Associate Solicitor within Mackrell Turner Garrett’s Private Client department.

About Mackrell Turner Garrett Mackrell Turner Garrett is a full service law firm with offices in Central London and Surrey. The firm was founded by John Mackrell in the City of London in 1845 and maintains its strong commercial background.

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Insurance for Junior Barristers: What do I need to know? By Andrew McErlean, Chartered Financial Planner, Saunderson House

Insurance arrangements can be put in place to pay out in a number of scenarios. This article summarises the key arrangements barristers should consider and the points to take into account when structuring each policy. The arrangements considered below pay either an income due to an inability to work or a lump sum on death or diagnosis of a specified illness. Income Protection Insurance (IPI) IPI can provide earnings protection in the event of being unable to work due to injury or illness. Policies typically pay up to 55% of an individual’s gross earnings per annum, but do not allow you to take out more cover than this as the cover is paid tax-free and, it is argued, a higher percentage might act as a disincentive to return to work following a successful recovery. Cover can be taken out over a range of terms, with a term to age 65 (or a specified retirement age) being most common, and provide insurance against being unable to work as a barrister or other occupation. An issue for barristers is taking out cover where one is selfemployed. The ‘dark art’ of a financial adviser is knowing which providers to ask in this regard – some insurers will not cover self-employed individuals; others will, but only

to a fairly low maximum and a third group will only cover on provision of evidence of the previous three years of earnings, where those earnings are relatively consistent and the level of cover represents a reasonable proportion of those earnings. Costs can be reduced considerably by having a deferral period of six months or more, between when the claim is made and when benefit comes into payment. For junior barristers, income shortfalls can be met in the interim period from existing savings and investments, or aged debt. Critical Illness Cover (CIC) CIC pays out a lump sum on diagnosis of pre-specified illnesses during the term of the policy, such as cancer, heart attack and stroke. Such policies are, all other things being equal, more expensive than life insurance, reflecting the greater probability of one suffering a critical illness relative to one dying. You should be aware that providers cover different illnesses and often define those illnesses differently. An experienced adviser can add value by comparing different policies and reviewing the effect of any pre-existing conditions or lifestyle factors on the level of premiums that may be incurred.

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Life Insurance Barristers can find that their need for life insurance evolves. At the outset, cover may be needed for a mortgage liability, and to provide for a spouse and young children. With career progression, and as mortgages are repaid, assets are accumulated to provide a comfortable retirement and children become financially independent. At this point, life insurance may instead be needed more to cover a potential Inheritance Tax liability.

Great care should be taken in selecting the appropriate trust – selecting an incorrect trust can complicate or impact the speed or ability to pay out benefits to the correct beneficiaries. This is particularly the case where a combined term assurance/critical illness policy is used. There are three types of trust typically used in conjunction with insurance policies: •

Level Term Assurance pays out a lump sum on death of the life assured within a pre-specified term. Such policies are usually put in place to cover an interest only mortgage or to provide for surviving family, with a term running until when the mortgage might be paid off or to a selected retirement age. Decreasing Term Assurance policies pay a lump sum, which decreases over the term of the plan – eventually to zero. Such policies are often used in conjunction with capital repayment mortgages, where the policy is set up so the sum assured will broadly reduce in line with the expected reduction in the outstanding mortgage liability. Another example of a decreasing term assurance policy is Family Income Benefit, which pays a regular income for the remainder of the term, rather than a one-off lump sum. Whole of Life Insurance pays a lump sum on death, whenever this may be, and is often used to provide the means to fund an expected Inheritance Tax liability. Premiums can be fixed and guaranteed for life, or a reviewable policy can be used. Under the latter, premiums are reviewed after ten years, and every five years thereafter, and usually increase, often markedly, at each review in line with higher mortality at higher ages. Though premiums are much cheaper to begin with, there will invariably come an age beyond which the premiums payable under a reviewable policy exceed those payable under a guaranteed policy. A Convertible Term Assurance policy (a Level Term Assurance policy with the option to later convert the policy to a Whole of Life policy) may be worth considering, as there is no need for further underwriting at the point of conversion, whereas otherwise underwriting is required each time a new policy is applied for. An experienced adviser can tailor life insurance to your specific needs, working out the most cost-effective way to ensure your current needs are met and that cover is flexible enough to adapt to your needs and circumstances as these may change in the future. Trusts Using a trust ensures that benefits can be paid quickly and are not typically subject to Inheritance Tax. Trusts can also offer a surviving spouse greater flexibility from an estate planning perspective.

• •

• •

Bare trusts – these allow pre-specified beneficiaries to receive the policy proceeds, providing certainty and peace of mind as to who benefits. Discretionary trusts – the trustees can pay the policy proceeds to a wide range of beneficiaries, or hold these until they believe certain beneficiaries are ready to inherit, providing flexibility and control over who benefits and when they do so. The settlor is typically a trustee during his/her lifetime, and can leave a letter of wishes to instruct the remaining trustees thereafter. Split trusts – most typically used in combined term assurance/critical illness policies, a split trust allows the benefits payable in the event of a critical illness to be paid to the insured, while the benefits payable in the event of death are paid to other beneficiaries.

A policy is usually placed into one of these trusts by way of completing a trust deed. ‘Off the peg’ trust deeds are available from most mainstream insurance providers at no extra cost, but bespoke trust deeds can also be drawn up by a solicitor. A discussion of the advantages and disadvantages of the types of trust and the different tax implications is beyond the scope of this article, though an area where an experienced financial adviser can add tremendous value. Conclusion There are a range of policies available to suit younger barristers and their families which provide peace of mind against the unknown, though taking appropriate advice is essential.

Saunderson House is a leading independent wealth management firm, providing a complete financial planning and investment service to individuals at the Bar and within other professional services disciplines. For more information on Saunderson House and a free, no obligation initial meeting, please contact us on 0207 315 6500, mentioning The Barrister magazine, or visit www.saundersonhouse. co.uk. This note is for general guidance only and detailed advice should be taken before entering into any transaction.

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Financial supplement 2017  

The barrister Financial and Wealth Management Supplement

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