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September 27 2020 4.31am

Financial Guidance Thread

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View Eden Eagle's Profile Eden Eagle Flag Kent 26 May 20 7.48pm Send a Private Message to Eden Eagle Add Eden Eagle as a friend

Originally posted by the.universal

When it comes t these decisions, no one knows what will happen so I think itís fair enough for GM to give his view.

Itís a question of risk appetite. If youíre happier to invest in the stock market itís higher risk, with higher potential returns or even a negative as you mention.

Low risk = pay down the mortgage. Not sexy but it will give you a completely predictable Ďreturní.

Then itís up to the person to decide.

I get that the choice is with the individual - for the short term (5 years) the default position for an Adviser is usually to recommend clearIng down debt rather than invest.

Not a pop at GM as I enjoy his commentary...

 

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View the.universal's Profile the.universal 26 May 20 7.56pm Send a Private Message to the.universal Add the.universal as a friend

Originally posted by cryrst

And who doesnt like a gamble. Probably loads which is why I'm potless I guess still a buzz though.

Itís great when it works :0)

 


Vive le Roy!

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View Goal Machine's Profile Goal Machine Flag The Cronx 27 May 20 9.52am Send a Private Message to Goal Machine Add Goal Machine as a friend

Originally posted by Eden Eagle

I do enjoy your articles GM but have some concern over your ďadviceĒ in this instance - if John is considering purchasing another property within 5 years then I would look at reducing the mortgage balance through over payment as, which you point out, there are no guarantees that an investment will grow at 5% pa whereas reducing the mortgage provides certainty of the debt reducing and could ensure that John qualifies for a lower rate mortgage in the future as he would have a reduced LTV. This could also help John to achieve a shorter mortgage term on the new property which would reduce the interest payments.

Were the 5 years to coincide with a market contraction such as we have seen recently then he might be in a position to sell his investments at a low price (and a probable significant loss) to enable him to purchase a property.

I would take the same view with the cash ISAís and not consider transferring to a S & S ISA.

Just a thought....

Morning Eden. Iím pleased you enjoy my articles. You do raise a valid point here.

I do need to clarify that I have purposely avoided the word Ďadviceí and have opted for Ďguidanceí instead. I donít mean to be pedantic, but the moment I give advice, as a regulated IFA, I become liable. To give advice there is a rigorous process whereby I would fully understand the clients financial position, circumstances and objectives before making a formal recommendation.

You are correct that an Advisers default position would be to clear debt first. However, things such as the individual risk appetite, capacity for loss and feelings towards debt would influence a recommendation. My personal feelings, as an experienced stock market investor, are that we are in a unique time where interest rates are at an all-time low which brings opportunity. Over a period of 5-10 years, I would be confident (others may not) of investment returns which would outperform the low interest rate debt. Of course, this is not guaranteed. I accept my suggestion is a little outside the box, itís a new angle for people to consider.

For a risk averse individual who is uncomfortable with investing and debt, they would be steered towards clearing the mortgage debt first.

I donít know what will happen over the next 5-10 years, but we can use history to help predict trends. The Barclays Equity Gilt Study 2016 found that equities have a 75% chance of outperforming cash over a consecutive 5-year period and a 91% chance over a 10-year period. I take on board that there could be a market crash at the time he needs the money, but looking at a basic Ďmoderateí risk passive fund (Vanguard LifeStrategy 60%), it is still +36.8% over 5 years despite Covid. At the bottom of the trough (23rd March 20), it was still +19.36%.

Everyone will have a different take on this.

 

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View Goal Machine's Profile Goal Machine Flag The Cronx 27 May 20 12.23pm Send a Private Message to Goal Machine Add Goal Machine as a friend

Originally posted by cryrst

I see tax limits and brackets are changing next year. What's the difference GM.

Hi Cryrst, the autumn budget announces changes which come into effect at the start of the next financial year, which is the following April.

Therefore the announcements made in November 2019 recently came into effect in April 2020.

A high level summary of the main taxes are as follows:

Income Tax:
-First £12,500 (0% tax) - the Personal Allowance*
-Next £37,500 (20% Basic rate / 7.5% dividends)
-Up to £150,000 (40% Higher rate / 32.5% dividends)
-Over £150,000 (45% additional rate / 38.1% dividends)

*Personal Allowance reduces by £1 for every £2 over £100,000.

Capital Gains Tax
-Annual Exempt Amount: £12,300
on gains over this:
Basic rate: 10% investments/18% property
Higher rate: 20% investments/28% property

Inheritance Tax
-Nil rate band: £325,000*
-Residence nil rate band (RNRB): £175,000**
-Excess: 40% (reduced to 36% if 10% or more of the estate is left to charity)

*If married, this can be transferred to the surviving spouse on death.
**Can also be transferred to surviving spouse. This only applies if your main residence is to be inherited by direct descendants and is intended to protect the family home from IHT. If property value of below the RNRB, RNRB is limited to the value of the property.

There were no major changes to the tax bandings this April and we won't know next years until the autumn budget. Does this answer your question or is there a particular tax you wanted to query?

 

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View cryrst's Profile cryrst Flag Chatham 27 May 20 2.06pm Send a Private Message to cryrst Add cryrst as a friend

Originally posted by Goal Machine

Hi Cryrst, the autumn budget announces changes which come into effect at the start of the next financial year, which is the following April.

Therefore the announcements made in November 2019 recently came into effect in April 2020.

A high level summary of the main taxes are as follows:

Income Tax:
-First £12,500 (0% tax) - the Personal Allowance*
-Next £37,500 (20% Basic rate / 7.5% dividends)
-Up to £150,000 (40% Higher rate / 32.5% dividends)
-Over £150,000 (45% additional rate / 38.1% dividends)

*Personal Allowance reduces by £1 for every £2 over £100,000.

Capital Gains Tax
-Annual Exempt Amount: £12,300
on gains over this:
Basic rate: 10% investments/18% property
Higher rate: 20% investments/28% property

Inheritance Tax
-Nil rate band: £325,000*
-Residence nil rate band (RNRB): £175,000**
-Excess: 40% (reduced to 36% if 10% or more of the estate is left to charity)

*If married, this can be transferred to the surviving spouse on death.
**Can also be transferred to surviving spouse. This only applies if your main residence is to be inherited by direct descendants and is intended to protect the family home from IHT. If property value of below the RNRB, RNRB is limited to the value of the property.

There were no major changes to the tax bandings this April and we won't know next years until the autumn budget. Does this answer your question or is there a particular tax you wanted to query?

So 50k is the start of 40% ?
Is so does overtime count against basic salary if I want to transfer my mrs allowance as she pays no tax.

 

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View Goal Machine's Profile Goal Machine Flag The Cronx 28 May 20 9.19am Send a Private Message to Goal Machine Add Goal Machine as a friend

Originally posted by cryrst

So 50k is the start of 40% ?
Is so does overtime count against basic salary if I want to transfer my mrs allowance as she pays no tax.

Morning Cryrst. Yes, earnings over £50,000 are taxed at 40% higher rate.

Overtime will count as additional earnings. If your basic salary was £46,000 and you had £6,000 of overtime, your total earnings would be £52,000.

Worth mentioning that if you are making pension contributions, this reduces your earnings. For example, if your gross earnings were £53,000 and you were making £4,000 of gross pension contributions, your 'adjusted net income' would be £49,000, meaning you could apply for the marriage allowance.

Here is a link to the HMRC website to apply: [Link]

 

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View cryrst's Profile cryrst Flag Chatham 28 May 20 12.02pm Send a Private Message to cryrst Add cryrst as a friend

Originally posted by Goal Machine

Morning Cryrst. Yes, earnings over £50,000 are taxed at 40% higher rate.

Overtime will count as additional earnings. If your basic salary was £46,000 and you had £6,000 of overtime, your total earnings would be £52,000.

Worth mentioning that if you are making pension contributions, this reduces your earnings. For example, if your gross earnings were £53,000 and you were making £4,000 of gross pension contributions, your 'adjusted net income' would be £49,000, meaning you could apply for the marriage allowance.

Here is a link to the HMRC website to apply: [Link]

Ooh interesting about the pension contribution.
What if I claimed and then I hit the threshold in say January as overtime can be sporadic. Would I then be penalised the whole amount or just the bit over. This can be the case more often than not with O/T.

 

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View cryrst's Profile cryrst Flag Chatham 28 May 20 12.05pm Send a Private Message to cryrst Add cryrst as a friend

Also would hmrc have my contributions against my N/I number because it goes to a private pension company or would I need to go back through all of my pay slips or dig out my p60 or p11d.

 

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View Goal Machine's Profile Goal Machine Flag The Cronx 28 May 20 12.41pm Send a Private Message to Goal Machine Add Goal Machine as a friend

Originally posted by cryrst

Also would hmrc have my contributions against my N/I number because it goes to a private pension company or would I need to go back through all of my pay slips or dig out my p60 or p11d.

In answer to your first question, if you do claim for the current year and end up going over the threshold, any underpaid tax would be recovered through a tax code change the following year.

For your second question, your private pension company will report your contributions to HMRC so you don't need go through old paylslips.

So that you know, its the non-taxpayer who would need to apply for it. Here's a really useful link you might find interesting: [Link]

 

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View cryrst's Profile cryrst Flag Chatham 30 May 20 7.41am Send a Private Message to cryrst Add cryrst as a friend

Originally posted by cryrst

Food for thought GM. Thanks.
Savings mmm never in a position too tbh. This and my house are those I'm afraid, possibly not alone.
My main reason to draw the full 25% and still work is to not need any extra drawdown hopefully. I know it might lose me some dollar as an investment but with all that's happening with people clearing their whole pension pots out HMG could decide to change the rules. Never say never. I will still have the existing work pension in play and (hope I get there) that should be quite tidy as well when I'm mid 60s. IF i did draw down the frozen pension does the MPAA affect the live pension contributions as it's a different investor? That's certainly a consideration against drawdown at any time if it does. I Genuinely appreciate any advice and take on board suggestions professionals give me. Boilers I know, clearly finance is not my best subject
I suppose having a plan is at least a start point to be tweaked as like the present global situation it can change at any time.

And wow has it changed.
My pot reduced by 20% between Jan and April. This was a belated paper statement I got yesterday. I was shocked so went and set up the online account and it's gone back up and is now about 7 % lower than January. Imagine if i were looking to take some in the last few months. There will be some dropped jaws atm as mine was.

 

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View cryrst's Profile cryrst Flag Chatham 30 May 20 7.45am Send a Private Message to cryrst Add cryrst as a friend

I will add to this that I have chosen half of my investment as high risk and split the other bit low and medium. My own fault really but it is true that returns and drops are relevant to risk. Not sure now whether to split it up to have a lower high risk or just leave as is because rises which might happen are again going to be on a sliding scale.
And that's why I'm a gas fitter

 

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View Goal Machine's Profile Goal Machine Flag The Cronx 01 Jun 20 10.49am Send a Private Message to Goal Machine Add Goal Machine as a friend

Originally posted by cryrst

I will add to this that I have chosen half of my investment as high risk and split the other bit low and medium. My own fault really but it is true that returns and drops are relevant to risk. Not sure now whether to split it up to have a lower high risk or just leave as is because rises which might happen are again going to be on a sliding scale.
And that's why I'm a gas fitter

Cryrst, you are not alone with the the recent rollar coaster! High risk investments should be viewed as long term, not short. Out of interest, how have those same high risk investments performed over the past 5 and 10 years?

The markets have certainly done well since mid March and look to be on the road to recovery. I'm sure it will continue to be choppy until we've seen the back of coronavirus though.

 

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