insight - spring 2013
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DESCRIPTIONNews and comment from HW Fisher & Company
News and comment from HW Fisher & Company
Bank of Mum and Dad - we look at the importance of nancial planning
Budget 2013 - an analysis of the changes
Celebrating 80 years - a history of the rm
Bank of Mum and Dad
Since the economic crisis began, tougher lending criteria and higher deposit requirements have led to increasing numbers calling on The Bank of Mum and Dad for help. This accommodating source of funds can help children in numerous ways from topping up a deposit to reducing borrowing rates.
An emotional quandaryHowever, as the bleak economic outlook worsens, parents today are faced with a multitude of monetary issues themselves, including; rising living costs; diminishing pension pots; and the prospect of ultra-low annuity rates.
These pressures along with the natural desire to assist their offspring are putting many mums and dads into an impossible situation.
Over the years, we have seen a number of cases where parents have overgifted and have found themselves nancially vulnerable later on in life.
Planning is imperativeIncreased life expectancies mean that nancial planning is crucial to ensure quality of life.
the prospect of aiding a deposit for a rst house is a huge challenge - even for wealthier families.
In some cases, people may have left these decisions too late, but for parents whose children are still relatively young they at least have time on their side.
This is certainly key. Even now university fees can be up to 9,000 per year and this is likely to increase in future years time. The addition of university rent, everyday living costs and the prospect of aiding a deposit for a rst house is a huge challenge even for wealthier families.
To avoid nancial pitfalls further down the road, parents should start saving and the sooner, the better.
Where do you start? The key is to try and determine exactly how much will be required and work back from there.
It may be that it is not nancially viable to cover three years of university fees, but you may be able to fund one year of tuition or living costs or rent. It is important to strike a balance to ensure that your targets are realistic.
Once you have a number, how and where you invest to meet that number should always reect your risk prole. With this in mind it is worth seeking the advice of an independent nancial adviser to ensure you are in the correct type of investment vehicle.
Ideally, this vehicle will be tax-efcient. A Junior ISA, for example, enables parents to invest 3600 a year tax-efciently for their children.
A parental guaranteeFor parents who are being approached right now by their children for support during university or a deposit, all is not lost.
If you simply have not got the funds to lend to your children, it may be that you could support them in other ways.
Many parents, for example, can help to get their children onto the property ladder by acting as a guarantor of their mortgage payments a number of lenders currently have guarantor mortgages in place.
One or two high street banks are also offering schemes where the applicant is only required to place a small deposit of approximately 5%, with the parents placing 20% of the value of the property into a savings account with that lender as a guarantee (effectively making a 75% loan-to-value mortgage). The savings still gain interest but act as a safety net for the lender should prices fall.
In both cases, of course, this is placing the risk rmly onto the parents and may even affect their own ability to apply for credit, but it is a way to avoid immediate cashow problems.
In some cases, asset rich, cash poor parents are even resorting to downsizing or equity release in order to free up funds for deposits or university fees. In the case of equity release, which in most cases should be avoided, it is especially important to seek advice rst.
And while parents will be uncomfortable with the idea of their child taking on debt to pay their way through higher education, bear in mind that student loans are a much cheaper way to borrow than a standard personal loan, or even a remortgage.
Also, your child will not have to start repaying the loan until he or she starts earning over an annual income threshold.
Parents can help to get their children onto the property ladder by acting as a guarantor of their mortgage payments
Originally coined as a joke, the term The Bank of Mum and Dad now has a nancial connotation that is very much a reality.
www.hwsher.co.uk2 | Insight
Grandparents and giftsOften, of course, grandparents also want to contribute to their grandchildrens education or property deposit.
Not only are they helping their grandchildren but they will also be mitigating their inheritance tax (IHT) liability, where anything in their estate over the nil-rate band (currently 325,000) could be taxed at 40%.
Another option for grandparents is to make a gift into a trust, which also allows them to control how and when benets are paid.
Cultural changeIn this country, there is little doubt that we need to adopt the college fund mentality that is prevalent in the United States. Usually, when children are born in America, parents start a college savings account almost immediately to cover the high fees.
It is clear that as people start to live longer and house prices spiral ever more out of reach, strategic nancial planning is the key to offsetting a bleak nancial future.
In this issue...
Bank of Mum and Dad Budget 2013
Raising equity nance
A life in numbers Harold Fisher remembered
Finance Bill brings clarity at last
CIOs a new route for charities
New rules put Members Voluntary Liquidations on top
Why HMV survived as a retailer
Sustainability is a civil right
Getting strategic about sustainability
In the spotlight... Matthew Brewster
The role of licensing agents
The future of UK accounting
Accounting for academies it is far from academic
Outsourcing - taking the pain away and cutting costs
Financial red ags for law rms Why UK Plc still appeals to inward investors Private client insurance more important than ever
HW Fisher news
Richard Brand, Financial Adviser,
Eos Wealth Management
T 020 7874 1194
Tony Bernstein, Tax Partner
T 020 7380 4977
Facts & Stats
U Housing charity, Shelter, says that 1.6m people aged between 20 and 40 are currently living with their parents because they cannot afford to either rent or buy
U According to a survey by HSBC, 73% of parents who loan money to their children want interest on it, which ranges from 2.1% to 2.5%
U Research from the Council of Mortgage Lenders found that 66% of rst time buyers in recent years have had help with their deposits - rising to 72% for those in the capital
Eos Wealth Management Limited is authorised and regulated by the Financial Conduct Authority (FCA).
Any tax reliefs or legislation mentioned are those currently available or in force and are subject to change.
You should remember that the capital value and income from investments can go down as well as up
and is not guaranteed. Past performance is not a guarantee of future returns; it is merely a guide to the
investment strategy of the underlying fund. It is important to periodically review your investment to
ensure that the investment continues to meet your objectives. Content and information about potential
investments are designed for general use and so cannot be considered personal to your circumstances
or your nancial position. Your home may be repossessed if you do not keep up repayments on your
mortgage. The FCA does not regulate tax or trust planning.
www.hwsher.co.uk Insight | 3
Notwithstanding the fact that the ner details were all over Twitter before he even stood up, thanks to an inadvertent tweet at the Evening Standard, the Chancellors Aspiration Nation Budget, overall, was relatively positive, especially for business. Although, the growth forecast for 2013 was cut in half, from 1.2% to 0.6%, and the Chancellor announced that government borrowing would actually rise this year, to 114bn, but then bad macro-economic news these days is in the price.
Headline announcementsU The headline announcements of Budget 2013 included the rise in
the personal allowance to 9,440 for the current tax year and more importantly that the increase to the symbolic 10,000 has been brought forward by a year, to 2014. This was always on the cards given that it is a cornerstone Liberal Democrat policy but for lower income earners, in particular, it is a very welcome step.
U Likewise, the cut in corporation tax to 20% as of 1 April 2015 was not entirely unexpected but will be welcomed by business. There is still an argument that small companies should not be paying corporate tax at the same rate as large companies but this cut is a step in the right direction and will certainly make the UK more attractive to overseas businesses.
U UK businesses will also benet from the new Employment Allowance, which will cut employers national insurance bills by up to 2,000 from April 2014. Again, this is another welcome rst step in lowering the cost of employment, specically for small rms.
Help to Buy initiative By far the