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Essentially Wealth Autumn 2019

4th November 2019

CAN YOU AFFORD TO BANKROLL YOUR KIDS?

While the Bank of Mum and Dad is now firmly established as one of the country’s leading mortgage lenders, there are growing concerns this generosity is putting parents’ future finances in peril.

Making home ownership a reality

Parents are increasingly finding themselves in a financial conundrum: if they don’t provide money for a deposit it may prove impossible for their children to buy a home but doing so can place their own retirement plans in jeopardy. And evidence suggests that, for many, there is a tendency for hearts to rule heads, with research1 showing more than half of over-55s help family simply because it’s ‘a nice thing to do’.

But at what cost?

The research also highlights how funding children’s property ambitions can have significant financial consequences for parents. For instance, over a quarter who provided support are not confident they will have enough to live on in retirement, while more than one in seven have had to accept a lower standard of living.

Seek advice

All parents will clearly want to help their children financially; but it’s vitally important that doing so doesn’t put their own financial security at risk. So, if you are thinking about helping your children onto the housing ladder, make sure you seek sound financial advice first. Get in touch.

1Legal and General, Aug 2019


UNCOVERING THE MYTH – COMMON-LAW MARRIAGE

The number of cohabiting couples in the UK is on the rise, with an estimated 3.3 million couples living together who are not married or in a civil partnership. It’s a common misconception that if you live with your partner for a couple of years, you are afforded the same legal and financial rights as couples living together who are married or in a civil partnership.

Confusion surrounding the concept of common-law marriage still exists. However, in reality, couples living together have hardly any rights automatically. In fact, your financial affairs need more careful planning to make sure your family is protected.

Where there’s a Will there’s a way

Making a Will is vital for unmarried couples because cohabiting partners have no automatic right to inherit if their partner dies. Making a valid Will helps to ensure that assets go to those you wish to receive them. Under the laws of intestacy (not identical across the UK), the unmarried partner is only entitled to jointly owned assets if their partner dies. If you have children together, the estate of the deceased partner will pass to them when they are 18. If there are more than two children, they will each inherit the same amount. This rule applies regardless of whether they are children of the existing marriage/civil partnership. If there are no children, the estate will go to the deceased partner’s closest relatives, not to the surviving partner.

Insure to ensure

Taking steps to protect your finances should also be a priority for cohabiting couples. A life insurance policy provides a valuable safety net and would help your loved ones maintain their lifestyle if you were to die. Take the time to calculate how much money your family would need if they lost your financial support, including paying off the mortgage, covering regular household bills and clearing debts.

So, if you are cohabiting, no matter how long you live together, moving in doesn’t give you automatic rights to each other’s property, or entitle you to inherit, leading to potentially catastrophic consequences for a surviving partner.

STAY SAFE DURING BREXIT

It’s worth reminding yourself of the Financial Conduct Authority’s (FCA) advice regarding staying safe from scams taking advantage of Brexit.

On leaving the EU, because most UK financial services regulation is drawn from EU directives, the government requires financial services companies to proactively contact anyone likely to be affected. For example, transfers of money to Europe or paying for a purchase in euros could take longer. Any disruption during this time could present a perfect opportunity for scammers, who may contact people pretending to be from their bank, insurer or other financial services provider.

Top tips

  • Beware of all unexpected calls, emails and text messages
  • A genuine bank or organisation will not ask for your PIN, full password or to move money to another account
  • Never give out your personal or financial details unless it’s for a service you want to use and where you trust the provider
  • Don’t be pressured into acting quickly – a genuine bank or financial services firm won’t mind giving you time to think
  • Always double-check the web link and company contact details in case it’s a ‘clone firm’ pretending to be a real firm
  • If you get an email, expand the pane at the top of the message and see exactly who it has come from – if it’s a scam, the email address of the sender may be filled with random numbers or be misspelled
  • Beware that fraudsters can ‘clone’ real email addresses to make their emails seem genuine

If you have any doubts about what you are being asked to do, don’t respond to the message or click on any links. Check with your provider using contact details you can trust, for example the phone number on your bank statement or policy documentation. You can also ask your adviser to verify that the message you received is genuine.

ScamSmart

Don’t forget, the FCA’s ScamSmart website is a reassuring way of checking an investment or pension opportunity you’ve been offered and avoiding scams. For more information read the FCA pension scams leaflet, or find out more at www.fca.org.uk/scamsmart.

IN THIS ISSUE

IF YOU VALUE IT – PROTECT IT

Choosing the right type of protection and level of cover for you and your family, is crucial. You may be confident with the terminology and know the differences between life insurance, critical illness cover, income protection and home insurance, but it’s sometimes tricky to tell, especially when they’re all wrapped up in the blanket term ‘protection’.

Don’t let the jargon put you off

Regard protection insurance as something that safeguards everything that is important in your world: your health, your life, your home and your job. If you have a partner or dependants, these are obviously a top priority too. Having the confidence to know that everything you hold dear is protected is a good place to be.

We’ve got your back

We can help you understand the value of each type of insurance protection and find affordable cover, so you can rest assured you are selecting suitable policies to secure your financial future.

PROTECTION FOR PROPERTY PORTFOLIOS OVERLOOKED

Many owners of buy-to-let properties may have overlooked the importance of protecting their property portfolio on death.

Despite what you may think, buy-to-let properties won’t automatically be inherited by your family on death. The lender is usually well within their rights to ask for the mortgage to be repaid in full, whether the loan was arranged in sole or joint names. Without access to sufficient funds to repay any mortgage, the property may have to be sold, with a resulting loss of rental income.

With Inheritance Tax (IHT) payable on estates over £325,000 (£650,000 for a couple) and normally payable at 40%, it’s easy to see how buy-to-let landlords could leave a substantial Inheritance Tax bill for their family to pay. HMRC require this bill to be settled within six months and have the power to force the sale of properties to settle this.

Taking out life insurance to protect your property portfolio is essential and we can advise you on the best type of policy for your individual circumstances, as well as how to put the policy in trust, so that it remains outside your estate for IHT purposes.

It is important to take professional advice before making any decision relating to your personal finances. Information within this document is based on our current understanding and can be subject to change without notice and the accuracy and completeness of the information cannot be guaranteed. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK.
The guidance and/or advice contained within this website is subject to the UK regulatory regime, and is   therefore targeted at consumers based in the UK.