A guide to capital gains tax efficiency when selling business assets for profit.

While capital gains tax (CGT) is paid by relatively few people, around 211,000 in 2013/14 according to HMRC, it can represent a significant cost for those affected.

The current tax-free allowance is £11,100, and everything above this will be taxed at either 10% or 20% depending on whether you’re a basic or higher/additional rate taxpayer.

CGT is charged on the gains (profits) made when an individual or business disposes of an asset. In most cases ‘disposal’ will be in the form of a sale, but it could also mean a gift, insurance claim or compensation payment.

But not all assets are considered equal in the eyes of the taxman and there are various exemptions and reliefs for those who are planning to make a profit on the sale of their assets.

Chargeable gains and corporation tax

Tax on gains made by limited companies is usually dealt with through corporation tax.

Gains made by companies on the sale of assets that are liable for taxation in this way are called chargeable gains. The same basic principle of only being taxed on the gain of a transaction applies.

The main kinds of asset that a business will dispose of for a gain are:

• equipment and machinery
• land
• property

Disposals of assets that are more intangible, such as intellectual property and business goodwill, are usually treated as income and taxed accordingly.

Tax on gains is paid in this way through corporation tax by:

• limited companies
• most unincorporated associations
• foreign companies with offices or branches located in the UK.

If you are a sole trader or business partner then you pay CGT in the same way as individuals. This also applies if your company is not resident in the UK, is controlled by 5 people or fewer, and the gain in question was made on UK residential property.

Talk to an FAC Group financial advisor on 01726 814935 today to talk about how you should pay CGT.

Capital allowances

If you claim capital allowances on an asset before you dispose of it, include the value of calculations in the accounting period in which the disposal occurs.

A full breakdown of capital allowances is beyond the scope of this article, but the use of the writing down allowance means that the original cost of an item can be deducted if a gain is made from its disposal.

This means that the value of the asset can be deducted from a company’s profits before tax is paid.

Getting to grips with capital allowances and using them effectively can be complex. It is advisable to seek professional guidance.

Gifts

CGT is not liable on assets that are given away as gifts to spouses or civil partners and charities. If you give away the assets to a business owned by a spouse or civil partner that are then intended to be sold on for a profit, you will be liable for CGT.

Gift hold-over relief is available when business assets (including certain kinds of shares) are gifted or sold for less than they are worth. Using this relief will mean that CGT is not liable on the gains made from the gifting, but the recipient will be liable if they later dispose of them.

If you are gifting business assets you must:

• be a sole trader, business partner or owner of at least 5% of shares and voting rights
• use the assets in your business.

If you are gifting shares, the shares must:

• not be listed on a recognised stock exchange, or
• be from your personal company, the main activity of which is trading (rather than investing).

FAC Group can assist you when it comes to gifting assets.

Reliefs

Aside from gift hold-over relief, there are a number of other reliefs that businesses can use to lower or manage their CGT liabilities.

Entrepreneurs’ relief

Individuals who sell their business or part of it, may qualify for entrepreneurs’ relief whereby they pay CGT at 10% on qualifying assets.

The eligibility criteria for this relief state that the individual must:

• be a sole trader or business partner of the business in question
• have owned the business for at least 1 year before the date of the sale
• have a minimum of 5% of shares and voting rights if you are disposing of shares or securities.

Shares that are acquired through an enterprise management scheme after 5 April 2013 and assets that the individual lent to their business or company also qualify.

If the company ceases to be a trading company, relief can still be attained if the assets are disposed of within 3 years.

The 10% CGT rate will be paid on any gains left over once the individual’s annual exemption has been deducted. Entrepreneurs’ relief is claimed through self-assessment with the final deadline for gains made in 2016/17 being 31 January 2019.

Business asset rollover relief

If business assets are disposed of and then all or part of the subsequent proceeds are used to buy new assets for use by the business, rollover relief can be used to delay the payment of CGT.

Business asset rollover relief ensures that the CGT owed on the sale of the assets won’t need to be paid until the new asset is sold. Provisional relief can be sought for those with plans to buy assets that haven’t yet and using the proceeds of the original sale to improve assets already owned is also eligible.

To qualify:

• the new assets must be purchased within 3 years of the disposal date of the original assets
• the business must be trading when the disposal and purchase occur
• both sets of assets must be used by the business.

Different rules apply if only part of the gains are being reinvested, the original assets were only partly used by the business or the assets bought are classed as ‘depreciating assets’.

Incorporation relief

If you decide to transfer your business to another company in return for shares, incorporation relief may allow you to delay paying CGT until you dispose of the newly-owned shares.

To qualify for this relief you must:

• be a sole trader or be in a business partnership
• transfer the entire business and all its assets aside from cash.

Incorporation relief is not claimed. Rather, it is awarded automatically to those that are eligible.

Talk to an FAC Group financial advisor on 01726 814935 to learn more about CGT reliefs.

Losses

The other side of gains are losses (selling an asset for less than it is worth) and it is possible that a company may have a mixture of both in any specific time period. These losses can be used to reduce a business’ chargeable gains.

Where assets have qualified for capital allowances, the loss that can be claimed will be reduced by the value of said allowances.

If your total losses exceed your total gains then the remaining losses can be carried over into future tax years and used to further reduce your future tax liability.

Talk to an FAC Group financial advisor on 01726 814935 about CGT and your business.

Important information

The way in which tax charges (or tax relief, as appropriate) are applied depends upon individual circumstances and may be subject to change in the future.

 

This document is solely for information purposes and nothing in this document is intended to constitute advice or a recommendation.

 

Whilst considerable care has been taken to ensure that the information contained within this document is accurate and up-to-date, no warranty is given as to the accuracy or completeness of any information.

Buying and selling stocks and shares for the first-time equity investor.

Investing in the stock market for the first time can be intimidating. However, put aside the jargon and the process is surprisingly easy. As long as you do your research, know your goals and have a sound investment strategy, taking your first steps into equity investment will not be as daunting as it initially appears.

This guide will provide an overview of some of the things to consider when starting to invest using the stock market.

This guide is aimed at people looking to own shares directly, rather than invest via a collective investment fund such as a unit trust or an open-ended investment company.

Equity investment

Businesses issue shares in order to raise money and may pay out dividends to shareholders who decide to invest their money into the business.

Buying shares in a company will see you become a joint-owner, potentially giving you company discounts and a say in how the company is run via a shareholder’s right to vote at the company annual general meeting.

Types

Company shares come in 2 types:

• Ordinary

These are the most common type of shares. Investors owning ordinary shares receive dividends and voting rights, giving you a say in company decisions such as takeovers and directors’ salaries. Ordinary shares may be divided into classes of different value.

• Preference

Owners of preference shares will receive their dividends before ordinary shareholders. They also provide more security should the company enter administration as any money will be paid out before ordinary shareholders. However, unlike ordinary shares you will not usually get voting rights.

Benefits vs. risks

As with any investment related decision it is important to understand the potential risks as well as the potential rewards.

Benefits

Potentially high returns

Conventional wisdom tells us that investing in stocks and shares could give you a higher return in the long-term than cash, bonds and property. Of course, your success on the stock market will depend on the companies you invest in and how you diversify your portfolio.

Perks

Depending on the company you invest in and the type of shares you buy, you will be granted various perks such as discounts on the company’s goods or services. You will also gain voting rights by purchasing ordinary shares, though in practice your input to how the company is run is likely to be limited.

Risks

Volatility

Shares are seen as a higher-risk investment due to the potential for volatility and losses in the stock market. The performance of individual companies is only 1 part of the equation as prices can fluctuate wildly in response to movements and sentiment in both the UK and the wider global economy.

Your exposure to risk will also depend on the company. A business listed on the FTSE100 will usually carry less risk than a start-up venture listed on the Alternative Investment Market.

Liquidity

Shares are generally considered to be a liquid asset (i.e. quick and easy to sell) compared to other investments such as property. Be mindful that this is not always the case, and trying to sell shares in a company on the brink of default can be near impossible.

Talk to an FAC Group financial advisor today on 01726 814935 about your investment strategy.

Purchasing shares

The easiest way to purchase shares is through a share dealing platform. These online services allow you to buy and sell shares in companies listed on the London Stock Exchange and selected overseas stock markets – all from your computer or mobile device.

Always keep a close eye on any charges levied by share platforms. These include (but are not limited to):

• account fees: platforms often charge for usage. Fees will occur monthly, quarterly or yearly
• buying/selling fees: expect to pay a fee each time you buy or sell shares
• inactivity charges: many platforms will charge you if you fail to make a minimum number of trades in a designated period.

Returns

There are 2 main ways to profit from investing in equities: dividends and capital growth.

Dividends

The value of the company’s dividends (also known as the dividend yield) should be a key consideration when you choose which companies to invest in.

A dividend is a share of a company’s profits that is paid out to shareholders.

It may seem strategically sound to invest only in companies paying the highest dividend yields. While this may generate more short-term profit, it doesn’t necessarily indicate that the company is financially stable.

Capital growth

Seeing the value of your shares rise over time is known as capital growth. As an equity investor, selling your shares for a profit should be a key priority. Even after dividends are taken into account, it is hard to make an overall profit if you’re forced to sell shares for less than you paid for them.

Doing research into the company’s finances, the market it operates in and the broader economic outlook will help you be aware of the company’s potential for growth and the degree of risk.

FAC Group can help you understand your investment options.

Taxation

Dividend tax

Summer Budget 2015 saw an overhaul of the way dividends are taxed. The old tax credit system was replaced with a new £5,000 tax-free allowance while the tax rates underwent substantial changes.

This means that dividends issued on or after 6 April 2016 won’t attract tax on the first £5,000 of dividends, and anything above this will be taxed at the following rates:

Tax band	Tax rate on dividends above £5,000
Basic rate	7.5%
Higher rate	32.5%
Additional rate	38.1%

 

Dividends on shares held within ISAs remain tax-free.

Capital gains tax

Any profits you make from selling shares can be liable for capital gains tax (CGT). The current tax-free allowance is £11,100, and everything above this will be taxed at either 10% or 20% depending on whether you’re a basic or higher/additional rate taxpayer.

One way of avoiding CGT on shares is to use stocks and shares ISAs. You can put up to £15,240 worth of shares into an ISA in the 2016/17 tax year. This will rise to £20,000 in April 2017.

The chancellor’s decision to cut the basic rate of CGT from 18% to 10% has effectively removed the need for basic rate taxpayers to claim entrepreneurs’ relief.

However, the reduced 10% CGT rate available through entrepreneurs’ relief remains an advantage for eligible higher and additional rate taxpayers.

Stamp duty

How you purchase your shares will make a difference as to how you pay stamp duty. A stamp duty reserve tax (SDRT) of 0.5% is charged on UK company share purchases (and also on foreign companies with a UK share register), whether electronic (any value) or via a stock transfer form (on transfers of more than £1,000).

Electronic purchases can be made either through the ‘CREST’ system (a central securities depositary which allows shares to be held and traded electronically, as well as administer other actions like dividend payments) or outside it.

SDRT will be deducted automatically if the purchase is done through CREST. SDRT will not be deducted automatically during off-market transactions (i.e. outside CREST), and you will need to send HMRC a written notice with details of the transaction.

SDRT will be rounded up to the nearest £5 on shares purchased through a stock transfer form, potentially costing you more in tax.

Forms must be sent to the Stamp Office within 30 days of purchase and the SDRT must be paid to HMRC.

FAC Group can advise you on your finances today.

Important information

The way in which tax charges (or tax relief, as appropriate) are applied depends upon individual circumstances and may be subject to change in the future. ISA eligibility depends on personal circumstances.

 

This document is solely for information purposes and nothing in this document is intended to constitute advice or a recommendation. You should not make any investment decisions based upon its content. The value of equities can fall as well as rise and you may not get back the full amount you originally invested.

 

Whilst considerable care has been taken to ensure that the information contained within this document is accurate and up-to-date, no warranty is given as to the accuracy or completeness of any information.

SAVINGS & ISAs. A guide to starting saving and some of the products available.

Saving is a lot like exercise, we could all probably do with a bit more but sometimes it can be difficult to motivate yourself to actually do it.

A common reason many people give for not saving enough, or at all, is that they don’t have a sensible savings strategy.

Another common reason is that there can appear to be such a vast range of options available that people don’t know which is best for them.

Your savings strategy

A savings strategy is built upon the answers to the following questions:

• Why are you saving?
• Are your saving goals long-term or short-term?
• Are you prepared to risk your savings in investments for potentially higher returns or do you want low risk and lower interest rates?
• How will your tax position affect your savings?
• Will you need to access your savings quickly?

Once these questions have been answered then it will be easier to work out a sensible strategy with achievable goals.

Creating a plan

First, create a document detailing all monthly income and expenditure. This should include one-off large payments which can be divided across 12 months.

This document should indicate what money remains after all of your regular payments and whether there is any money that can be saved on monthly outgoings.

Next, bearing in mind the amount of money available to save, set goals such as saving a minimum of £100 per month.

Risk and interest

Investing in the stock market is a potential strategy to try and secure a higher return on the money invested. However, investing carries increased risk and there is no guarantee that your investment will increase and may go down over time.

Putting your money in a savings account or ISA is lower risk but the returns are likely to be lower.

The effect of inflation on savings

Inflation has a marked effect on savings. If the rate of inflation is high and an individual’s savings are in a low interest account then the net result could be that the buying power of their savings is lower (the value is lower relative to prices).

A simple rule of thumb with reference to inflation and savings is that your money will still grow if it earns interest, but its buying power/relative value will only grow as well if the interest rate (net of any taxes) is higher than inflation.

We can advise you on creating a savings strategy. Contact a financial advisor at FAC Group today to talk about our financial services. Call 01726 814935.

Personal savings allowance

Anyone starting to save should also be aware of their personal savings allowance. At present anyone paying the basic rate of tax (20%) can earn up to £1,000 per year tax-free from interest on savings.

Savers paying the higher tax rate (40%) can earn up to £500 per year from interest on savings. There is no savings allowance for savers paying the highest tax rate of 45%.

Interest earned on tax free accounts such as ISAs or Premium Bond wins does not count towards the personal savings allowance.

ISAs

An ISA is a tax-free account for individuals to use for their savings or investments. There are a range of ISAs available to savers and this is where some confusion can arise.

You can save up to £15,240 into an ISA in 2016/17. The annual saving limit is due to increase to £20,000 a year in 2017/18.

ISAs can take the form of cash ISAs and stocks and shares ISAs which are slightly higher risk depending upon the type of investments you hold in them.

Cash ISAs can be fixed rate or easy access, it should be noted that fixed rate ISAs will have a better interest rate than an easy access ISA.

There is also a Help to Buy ISA aimed at first home buyers and an innovative Finance ISA which offers up to 6% interest but is more complex than an ordinary ISA.

The innovative finance ISA is based on peer to peer lending, whereby individual investors lend out their money to other individuals or businesses. Innovative finance ISAs are higher risk in that if a borrower cannot return the lender’s money, the money is lost. Additionally the lender’s money is not protected by the Financial Services Compensation Scheme.

Lifetime ISA

The new Lifetime ISA (LISA), which will be available from April 2017, is designed to help people save for the purchase of their first home of for their retirement.

The LISA works in the following way:

• you must be aged between 18-40 years old to apply for a LISA
• individuals can save up to £4,000 per year in the LISA (as part of the overall £20,000 annual ISA contribution limit ) and the government will add a 25% bonus to this sum
• people can contribute and receive the bonus until they are 50

Early withdrawals will lose the bonus, and interest or growth on the bonus. There will also be a 5% charge.

Talk to one of our financial advisors about the lifetime ISA. Call 01726 814935.

Other savings options

Another straightforward option for saving is a saving account with a bank or building society. However, it should be noted that some current accounts have ‘in credit’ interest rates which are higher than savings account interest rates.

It might take a little research to find these accounts but it would be beneficial to anyone looking to save using a bank account.

Easy access savings accounts have a lower interest rate but the money can be accessed instantly. These interest rates do fluctuate so it is advisable to monitor them and switch account if need be.

Savings accounts include fixed rate accounts which also require the saver to leave the money in the account for a set time period. Although they do frequently offer a higher interest rate to savers compared to easy access accounts.

Premium Bonds are a secure way of saving; they are no risk as they do not pay any interest. The prizes represent an annual interest rate, but only for the winners and the prizes themselves are tax-free.

Contact us for more information on savings.

Important information

The way in which tax charges (or tax relief, as appropriate) are applied depends upon individual circumstances and may be subject to change in the future. The LISA information in this document is based upon our understanding of the Government’s ‘high level design’ document for the LISA, the details of which may change when the final requirements are published later this year.

This document is solely for information purposes and nothing in this document is intended to constitute advice or a recommendation. You should not make any investment decisions based upon its content. ISA eligibility depend on personal circumstances. The value of investments can fall as well as rise and you may not get back the full amount you originally invested.

Whilst considerable care has been taken to ensure that the information contained within this document is accurate and up-to-date, no warranty is given as to the accuracy or completeness of any information.

SAVINGS & ISAs. A guide to starting saving and some of the products available.

Saving is a lot like exercise, we could all probably do with a bit more but sometimes it can be difficult to motivate yourself to actually do it.

A common reason many people give for not saving enough, or at all, is that they don’t have a sensible savings strategy.

Another common reason is that there can appear to be such a vast range of options available that people don’t know which is best for them.

Your savings strategy

A savings strategy is built upon the answers to the following questions:

• Why are you saving?
• Are your saving goals long-term or short-term?
• Are you prepared to risk your savings in investments for potentially higher returns or do you want low risk and lower interest rates?
• How will your tax position affect your savings?
• Will you need to access your savings quickly?

Once these questions have been answered then it will be easier to work out a sensible strategy with achievable goals.

Creating a plan

First, create a document detailing all monthly income and expenditure. This should include one-off large payments which can be divided across 12 months.

This document should indicate what money remains after all of your regular payments and whether there is any money that can be saved on monthly outgoings.

Next, bearing in mind the amount of money available to save, set goals such as saving a minimum of £100 per month.

Risk and interest

Investing in the stock market is a potential strategy to try and secure a higher return on the money invested. However, investing carries increased risk and there is no guarantee that your investment will increase and may go down over time.

Putting your money in a savings account or ISA is lower risk but the returns are likely to be lower.

The effect of inflation on savings

Inflation has a marked effect on savings. If the rate of inflation is high and an individual’s savings are in a low interest account then the net result could be that the buying power of their savings is lower (the value is lower relative to prices).

A simple rule of thumb with reference to inflation and savings is that your money will still grow if it earns interest, but its buying power/relative value will only grow as well if the interest rate (net of any taxes) is higher than inflation.

We can advise you on creating a savings strategy.

Personal savings allowance

Anyone starting to save should also be aware of their personal savings allowance. At present anyone paying the basic rate of tax (20%) can earn up to £1,000 per year tax-free from interest on savings.

Savers paying the higher tax rate (40%) can earn up to £500 per year from interest on savings. There is no savings allowance for savers paying the highest tax rate of 45%.

Interest earned on tax free accounts such as ISAs or Premium Bond wins does not count towards the personal savings allowance.

ISAs

An ISA is a tax-free account for individuals to use for their savings or investments. There are a range of ISAs available to savers and this is where some confusion can arise.

You can save up to £15,240 into an ISA in 2016/17. The annual saving limit is due to increase to £20,000 a year in 2017/18.

ISAs can take the form of cash ISAs and stocks and shares ISAs which are slightly higher risk depending upon the type of investments you hold in them.

Cash ISAs can be fixed rate or easy access, it should be noted that fixed rate ISAs will have a better interest rate than an easy access ISA.

There is also a Help to Buy ISA aimed at first home buyers and an innovative Finance ISA which offers up to 6% interest but is more complex than an ordinary ISA.

The innovative finance ISA is based on peer to peer lending, whereby individual investors lend out their money to other individuals or businesses. Innovative finance ISAs are higher risk in that if a borrower cannot return the lender’s money, the money is lost. Additionally the lender’s money is not protected by the Financial Services Compensation Scheme.

Lifetime ISA

The new Lifetime ISA (LISA), which will be available from April 2017, is designed to help people save for the purchase of their first home of for their retirement.

The LISA works in the following way:

• you must be aged between 18-40 years old to apply for a LISA
• individuals can save up to £4,000 per year in the LISA (as part of the overall £20,000 annual ISA contribution limit ) and the government will add a 25% bonus to this sum
• people can contribute and receive the bonus until they are 50

Early withdrawals will lose the bonus, and interest or growth on the bonus. There will also be a 5% charge.

Talk to a member of our team about the lifetime ISA.

Other savings options

Another straightforward option for saving is a saving account with a bank or building society. However, it should be noted that some current accounts have ‘in credit’ interest rates which are higher than savings account interest rates.

It might take a little research to find these accounts but it would be beneficial to anyone looking to save using a bank account.

Easy access savings accounts have a lower interest rate but the money can be accessed instantly. These interest rates do fluctuate so it is advisable to monitor them and switch account if need be.

Savings accounts include fixed rate accounts which also require the saver to leave the money in the account for a set time period. Although they do frequently offer a higher interest rate to savers compared to easy access accounts.

Premium Bonds are a secure way of saving; they are no risk as they do not pay any interest. The prizes represent an annual interest rate, but only for the winners and the prizes themselves are tax-free.

Contact us for more information on savings.

Important information

The way in which tax charges (or tax relief, as appropriate) are applied depends upon individual circumstances and may be subject to change in the future. The LISA information in this document is based upon our understanding of the Government’s ‘high level design’ document for the LISA, the details of which may change when the final requirements are published later this year.

This document is solely for information purposes and nothing in this document is intended to constitute advice or a recommendation. You should not make any investment decisions based upon its content. ISA eligibility depend on personal circumstances. The value of investments can fall as well as rise and you may not get back the full amount you originally invested.

Whilst considerable care has been taken to ensure that the information contained within this document is accurate and up-to-date, no warranty is given as to the accuracy or completeness of any information.

An outline of the basic tenets of financial planning for beginners.

Developing a solid financial plan is arguably the single most important feature of running a successful business.

You may have the best product on the market, a well thought out marketing campaign and industry contacts your rivals would kill for, but if your finances don’t add up your chances of a bright future in business are slim.

Whether or not the numbers line up is ultimately going to determine the success or failure of your business.

Unfortunately for many businesses this is easier said than done, and for start-ups and established businesses alike financial planning can be a daunting task. Many small businesses simply don’t have the time, resources and expertise needed to build a comprehensive financial plan.

This guide is designed to walk you through the key concepts involved in creating an effective financial plan: goal-setting, risk mitigation and budget management.

Goals

Think of goal-setting as the preliminary stage of financial planning. The overall financial plan is the ‘how’, but first you must answer the ‘what’. If you don’t know where you to want to go, how are you going to get there?

Whatever your goals may be, you should think in terms of short, medium and long-term. Perhaps you want to increase your net sales value to 7% by the end of the current tax year. Maybe you want to expand overseas and open a new office in the US by 2020.

Financial plans only cover 12 months and are, in a sense, short term but there should always be an overarching target for the next 2, 5 and 10 years.

Structuring your goals in this way allows you to put in place the stepping stones to your business’ success and provides helpful indicators you can use to measure your performance. Just remember to keep it realistic.

We can advise on setting financial goals.

Risks

Conducting a financial risk assessment is an intrinsic part of the planning process. You can’t expect to have a sound plan if you haven’t identified your business’s vulnerabilities and put contingency measures in place.

The type of financial threats your business might face will depend on several factors, such as the type of business you run, its structure, and the sector you operate in. Interrogate each area of your business – customers, suppliers and employees – and ask yourself questions such as:

• Are you dependent on a handful of suppliers?
• Are you reliant on a key member of your team to generate sales?
• How diverse is your client base?

After identifying the potential risks, you can begin thinking about ways to mitigate them. The solutions will depend on the nature of the threat. Investigating insurance policies, targeting new customer bases and diversifying your suppliers are 3 general ways to protect yourself against losses, and hedge against falling demand and problems in your supply chain.

We can help you with risk assessment.

Numbers

The budget is the centrepiece of your financial plan; your business’ guiding light, the document that forecasts your sales, expenditure and cash flow.

As such, it will provide the framework for your financial targets, your benchmarks and your approach to business management.

Everything you’ve worked on previously – your goals, market research, and risk assessment – will ultimately determine the shape of your budget and you can now turn to looking at your ingoings and outgoings.

Sales, expenditure, cash flow

Your budget must contain at least the following 3 essential pieces of information: sales, expenditure and cash:

• Sales: These figures provide you with an estimated turnover for the year ahead; use figures recorded in previous years as a guide and think about factors that may impact your future sales such as marketing campaigns, consumer demand and your competitors’ strategies.
• Expenditure: you’ll need to include all your fixed and variable costs while considering how these are likely to change in the future.
• Cash: This is used to help you forecast your monthly cash flow; note down the timings of when you expect money to enter and leave your account. This will enable you to work out your balance sheet projections.

Start-ups without an existing set of figures will instead have to make informed guesses, making the first budget a tougher process.

Though it might be tempting, there’s no advantage to be gained in overestimating your sales and downplaying your expenditure. Be realistic and err on the side of caution.

Contact us on financial planning.

1 budget or 3?

Think about how you will organise your figures. Do you work from 1 large spreadsheet or do you break it down into 3: 1 for your sales, 1 for your expenditure, and 1 for your cash flow?

Having a single spreadsheet might work for the very smallest of businesses, however we recommend that you do the latter.

Putting all your critical data into a single document can quickly get confusing. Keeping track of every penny that enters and leaves your business, from equipment purchases down to teabags can quickly become a complex endeavour. If you have never down anything like it before, it is advisable to seek out advice from a professional or a fellow business owner.

A budget is supposed to provide you with quick and easy information about your business. If it’s taking you hours to interpret your figures once the initial structure and data collection process is over, you’re doing it wrong.

Nothing is set in stone

The world of business is constantly shifting; sectoral changes, government policy and movements in the broader economy can surprise even the most experienced of financial planners.

An important concept to embrace when financial planning for a business is the idea of flexibility. If your goal is to increase your sales by 70% by the end of the year, you also need to forecast your sales targets for the first quarter. What happens if you miss your target on the first quarter? Is the 70% goal now unattainable or do you have some resources to free up to try and reach your target?

Part of doing business is coping with change and acting accordingly. While your budget is supposed to be as accurate as possible, none of us can see into the future, and it’s critical that you take a reactive approach in the face of changing conditions.

Software

Gone are the days of the ‘pen, paper, calculator’ method of drafting a budget. Nowadays most businesses use software to create and update their budgets. Not only does it make the process quicker and easier, software performs automatic calculations and automatic links between multiple budgets.

The foundations you lay today will propel your business forward with a particular goal in mind. You won’t act like a headless chicken in the face of unforeseen challenges. Rather, you will consult your plan, adjust it if necessary and continue chugging forward.

We will work with you step-by-step to develop a realistic financial plan, built to ensure your business’ future.

Contact us for more information on business planning.

 

Important information

 

This document is solely for information purposes and nothing in this document is intended to constitute advice or a recommendation. Whilst considerable care has been taken to ensure that the information contained within this document is accurate and up-to-date, no warranty is given as to the accuracy or completeness of any information.

The FAC Group guide to successfully getting onto the property ladder.

Buying your first home is one of the biggest financial decisions you’re ever likely to make. Understandably it can be a stressful and daunting process.

Stricter lending conditions and increasing house prices mean that purchasing a first home is harder than ever.

Despite these challenges, there are steps you can take today that will put you in the best position possible to secure your first property.

Saving for a deposit

Getting enough money for a deposit is the biggest hurdle for many prospective first time buyers. Even with an inheritance or financial help from family members, saving takes time and perseverance.

As well as planning your savings strategy you’ll need to decide where to put your money in order to get the best interest rates to maximise your savings.

Help to Buy ISAs

Help to Buy ISAs were launched on 1 December 2015 and allow individuals over the age of 16 to save up to £200 into an account per month. Buyers can also deposit a lump sum of up to £1,000 when they set up their account.

The money will earn interest and will also qualify for a 25% bonus (up to £3,000) from the government provided that you save at least £1,600 and the funds are used to buy a house.

To be able to open a help to buy ISA, you must:
•            be aged over 16
•            be a UK resident with a valid national insurance number
•            be a first time buyer
•            not have another active cash ISA in the same tax year.

To be eligible for the government bonus, the property you buy must:

• be in the UK
• not be a second home or a buy-to-let
• cost no more than £250,000 (£450,000 in London)
• be purchased with a mortgage
• not be rented out once you have bought it.

Other ways to earn interest on your savings include:

• bank accounts – some current accounts offer generous interest rates though there are usually conditions to meet each month in order to receive interest
• ISAs – save up to £15,240 (2016/17) a year tax-free and earn interest
• regular savings accounts – these accounts offer good rates but have a maximum contribution each month.

It is likely that you’ll use a mix of different products. Shop around for the best rates but also look at restrictions such as savings limits and restrictions on accessing your money.

The personal savings allowance allows basic rate taxpayers to earn up to £1,000 a year in interest tax-free. The allowance is £500 for higher rate taxpayers and additional rate taxpayers do not have a personal savings allowance.

Talk to FAC Group about your savings on 01726 814935

Deposit size

At the very minimum you will need a 5% deposit. However, a larger deposit will allow you to access to better rates on mortgages.

A key piece of terminology to familiarise yourself with is loan-to-value ratio (LTV). This refers to the amount of money you are borrowing compared to the value of the property.

The difference between the 2 is the percentage you put down as a deposit. For example, an 80% LTV means that you are borrowing 80% of the property’s value and putting down a deposit of 20%.
The lender will value the property and the LTV will be based on the figure they think it is worth (not how much you have agreed to pay for it). If they value it as less than you have offered, you will either need to renegotiate with the seller or increase your deposit.

How much can I borrow?

Lenders base their calculations on affordability rather than salary alone. This involves looking at your income and your outgoings including bills, credit card and loan repayments.

Lenders will often stress test the amount they are willing to lend against a higher interest rate to see if you could still afford the monthly repayments.

On top of this some lenders use credit scores to help decide if they are willing to lend and if so, how much.

Getting into good habits will help improve you credit score. For example:

• not missing any payments
• closing credit accounts you no longer use
• making sure you are on the electoral register
• fixing any mistakes you find on your credit report.

Property taxes

Stamp duty land tax or land and buildings transaction tax in Scotland are charged at different rates according to a band system.

Rates apply only to the portion of the property’s value that exceeds the relevant band threshold.

 

House price
England, Wales, Northern Ireland	Scotland	Rate
Up to £125,000	Up to £145,000	0%
£125,001 – £250,000	£145,001 – £250,000	2%
£250,001 – £925,000	£250,001 – £325,000	5%
£925,001 – £1,500,000	£325,001 – £750,000	10%
£1,500,001 and above	£750,001 and above	12%

You should also budget for:

• mortgage arrangement fees
• legal and survey fees
• moving costs
• buildings and contents insurance
• renovations, redecorating and furniture.

Helping a child buy a house

It’s not uncommon for parents to want to help their child buy a home. Here are some of the options and the tax implications.

Gifts

Money from parents can provide a boost to a child’s deposit. Although there is no immediate tax implication, the gift could become liable for inheritance tax if the donor dies within 7 years of making the gift.

Your child won’t have to pay income tax on the gift but it may affect their eligibility to other benefits.

Lending money

There are 2 choices if you want to lend money: repayment over time (you child pays back the loan in instalments over time) or repayment when they sell the house (you’ll receive a lump sum when your child sells the house).

In either case you may wish to have formal agreement drawn up by a solicitor to avoid any misunderstandings or disagreements.

Using your home

Equity release allows home owners over 55 to use some of the value of their property to provide a lump sum or income.

Another option is to borrow money from your home in the form of a secured loan.

It is important that you understand potential implications if you are considering either of these options.

Mortgages

If your child is finding it difficult to get a mortgage you could act as guarantor for part or the entire mortgage. You won’t be listed as an owner but you will be liable for repayments and arrears.

Other options include joint mortgages and offset mortgages.

FAC Group can advise if you are considering helping your child financially.

Important information

The way in which tax charges (or tax relief, as appropriate) are applied depends upon individual circumstances and may be subject to change in the future. ISA eligibility depends upon personal circumstances.

This document is solely for information purposes and nothing in this document is intended to constitute advice or a recommendation. You should not make any investment decisions based upon its content. Your home may be repossessed if you do not keep up repayments on your mortgage. Equity release may involve a lifetime mortgage or a home reversion plan. To understand the features and risks, ask for a personalised illustration. Equity release is not right for everyone. It may affect your entitlement to state benefits and will reduce the value of your estate.

Whilst considerable care has been taken to ensure that the information contained within this document is accurate and up-to-date, no warranty is given as to the accuracy or completeness of any information.

An FAC Group guide to planning for individuals who are approaching retirement.

Despite our best intentions, it can be hard to commit to a savings plan and squirrel away as much as we would like for our retirement. It can often seem like life is made up of one large expense after another, with getting on the property ladder and starting a family in particular often impacting an individual’s ability to save.

This can lead many people who are nearing retirement age to look at their savings and realise that they may need to do more to ensure the kind of retirement that they want.

If you are nearing your post-employment life and want to make sure you can retire with as much as possible, here are the key things to think about.

Calculating your position

It is vital that you get an accurate picture of your current situation, otherwise any plans you make may not be based on the sturdiest of foundations.

There are a number of different pieces that need to be put together to give you an accurate picture of your position. To start with, you will need:

• your state pension age – the age at which you will be eligible to begin receiving the state pension (by 2018, it will be 65 for both men and women)
• state pension income – the maximum state pension for people retiring after April 2016 is £155.65 a week
• the age you are planning to retire.

If you want to retire before you reach state pension age you will need to have enough income to support yourself without the state pension.

Next, you need to look at:

• any workplace pensions
• any private pensions.

If you have multiple pensions from different employers, you will need to make sure that you track them all down as many are forgotten about. In 2015, the then pensions minister Steve Webb said that unless action was taken there could be “50 million dormant pension pots drifting away from savers by the middle of this century”.

So, your state, private and workplace pensions will from a large part of your retirement income, but there may be other factors to consider:

• any other savings you have
• any other sources of income such as rental properties
• equity tied up in property
• any investments
• any inheritance that you are likely to get.

Tax

The next step is working out what your tax obligations are going to be. For 2016/17 the annual tax-free personal allowance is £11,000 after which the following rates of tax apply to income:

• basic (income of £11,001 – £43,000): 20%
• higher (£43,001 – £150,000): 40%
• additional (£150,000 +): 45%.

It is possible to withdraw all of your personal pensions as small cash lump sums, of which the first 25% is tax-free and the remainder being taxed at the individual’s marginal rate.

Other factors

A clear picture should be beginning to form in front of you now, but there may be a few more things to add to the equation.

You might be entitled to certain benefits such as assistance with council tax and heating bills.

You should also be mindful of the wider economic environment. In particular, inflation could have powerful effects on the size and clout of your retirement income. Inflation is currently low but is always capable of rising.

FAC Group can assist you in getting an accurate picture of your retirement income.

What are your retirement goals?

Once you have worked out what your current position is likely to be, you need to assess whether or not this will realistically provide you with enough income to allow you to live the life you want in retirement.

An important part of this is to consider any debts and obligations you may have, particularly mortgages and family commitments.

For example, a 2016 study by SunLife found that the grandparents surveyed spent an average of £62 a month on their family.

These kinds of costs are often ad hoc and unpredictable so it is important to have some flexibility built into the amount of money you will have at your disposal.

So, what options are available to those who don’t think they are in the position they would like to be as they near retirement?

Pensions

When it comes to your workplace, state and private pensions, you essentially have 2 options to help you try and maximise your retirement income:

• pay more in to get more out later
• push back the date you begin receiving the income.

Paying in more

A major strategy for increasing your retirement income is simply putting more money into the pot.

For 2016/17 an individual can receive tax relief on pension contributions equalling 100% of their earnings or a £40,000 annual allowance (whichever is lower), provided that you haven’t crystallised a pension (when your annual allowance would drop to £10,000 the year after), or if your ‘adjusted income’ is over £150,000 (when your allowance will reduce by £1 for every £2 over this amount, down to a minimum £10,000 allowance).

For example, if you earn £15,000 a year and contribute £25,000 to your pension, only £15,000 will get tax relief.

If, on the other hand, you earn £70,000 and want to contribute your entire yearly earnings, you will only receive tax relief on £40,000. Any contributions that are not entitled to tax relief will be subject to income tax.

Deferring payment

This might at first seem a little counter-intuitive, but there can be benefits to delaying when you start receiving certain parts of your income.

With regards to a work or personal pension, delaying may mean:

• you have more time to pay into the pension at your current rate – although the way the money is invested may still expose you to significant levels of risk
• annuity rates tend to increase as your age increase, so a delay could lead to a higher rate of income.

If you reach state pension age after April 2016 and defer your state pension for a year you will receive an increase of 5.8%.

It may be a useful strategy to delay certain parts of your retirement income to increase it, but only if you will be able to live comfortably while you are deferring it.

Savings income

You do not have to rely solely on your pensions. You may have equity tied up in property that you could utilise or you may have other savings that could also contribute to your income.

A new personal savings allowance was introduced on 6 April 2016 which allows individuals to earn £1,000 savings income tax-free. Higher rate taxpayers can earn up to £500.

ISAs can also be utilised to save in a tax-efficient manner. In 2016/17 the maximum amount that can be saved into an ISA annually is £15,240.

Investing

It is also possible to invest money in order to try and secure a bigger return. Investing of course carries potential risks that your investment could go down as well as up and it is always advisable to seek professional guidance before starting.

Your retirement income is vitally important. Contact FAC Group for expert and experienced advice on 01726 814935

Important information

The way in which tax charges (or tax relief, as appropriate) are applied depends upon individual circumstances and may be subject to change in the future. Pension and ISA eligibility depend upon personal circumstances. You cannot usually access your pension until age 55.

This document is solely for information purposes and nothing in this document is intended to constitute advice or a recommendation. You should not make any investment decisions based upon its content.

Whilst considerable care has been taken to ensure that the information contained within this document is accurate and up-to-date, no warranty is given as to the accuracy or completeness of any information.

Finance Update: Unit trusts and OEICs

Your guide to collective investment funds.

Effectively managing your own investments requires time, knowledge and a good deal of experience. For many of us the demands of daily life mean that we cannot dedicate as much time and energy to investments as we would like.

Researching which companies to invest in can take considerable time. A lack of expertise could result in severe losses. And some asset classes are simply beyond the financial reach of many.

With these common problems it is easy to see why collective investment funds – particularly unit trusts and open-ended investment companies (OEICs) – have become so popular.

What are unit trusts and OEICs?

Unit trusts and OEICs allow investors to put their capital into a shared fund with other investors.

These are known as collective investment schemes; rather than taking on the risk of going solo and investing your money directly into the equity and bond markets, these funds share it among an unlimited number of investors, spreading the risk.

Since the fund managers make the investment decisions, these types of fund are popular among people who don’t have the time or expertise to make the big calls.

Unit trusts vs OEICs

Unit trusts are divided into ‘units’. Your purchased units will be newly-created by the manager and will be cancelled when you decide to sell up. How much you pay for a unit will depend on the value of the assets held by the fund.

OEICs are set up in much the same way as unit trusts. You buy a part of the fund at a price that reflects the underlying value of the fund’s assets. However, there are a number of key differences between the 2:

• Structure

Investing in an OEIC will mean buying shares in an investment company, allowing you to own a share of the company’s assets. Unit trusts operate on a more complex basis. Buying units does not actually grant you ownership, but instead allows you to participate in the fund. This difference means that unit trusts are governed by trust law while OEICs are governed by company law.

• Prices

Unit trusts carry 2 separate prices: the buy price and the lower sell price. The sell price must rise above the price at which you bought the units in order for you to make a return on your investment. OEICs however have a single price, which will rise and fall according to the performance of the assets held by the fund.

• Choice
  OEICs can cater for many different types of investor, and offer different types of charges, commissions and investment strategies. Unit trusts do not offer this kind of flexibility; what the fund manager invests in is what your money goes into.
• Management

Fund managers are responsible for managing the assets in both a unit trust and an OEIC, while trustees are responsible for overall governance for a unit trust and corporate directors carry out this role for OEICs.

We can help you decide on an investment strategy.

Where do they invest?

Investors can choose from more than 2,000 unit trusts and OEICs that invest in different asset classes, sectors and places around the world. Most funds will invest in multiple sectors, assets and countries.

The standard portfolio will consist of equity and corporate bond holdings. This means that the performance of your investment will very much depend on how well companies perform.

The Investment Association identifies 3 types of managed funds that allow you to choose how much exposure you want in the equity markets:

• mixed investment 0-35% shares
• mixed investment 20-60% shares
• mixed investment 40-85% shares.

Sometimes funds will buy into other investments such as property in order to mitigate against risk. On top of this, some funds invest into other collective funds.

Active vs passive

Most funds will be managed actively. This means that the fund manager will actively conduct research and analysis into the assets held by the fund and future investment opportunities.

Other funds operate passively. Here, there is no fund manager actively taking decisions; instead the funds buy all equities in a specific stock market and track its ebbs and flows, rising and falling in line with the market. This is the way to go if you believe the market will produce better returns than the choices made by fund managers.

Charges

Many unit trusts and OEICs will ask for a minimum investment of £1,000 in order to acquire a unit or a share. Additionally, investors may face 2 charges when putting their money into funds.

Up-front buying fees charged upon investment are becoming increasingly rare, but an additional fee of 0.5-1.5% will usually be charged annually.

Funds are up-front about the charges they levy. They will be shown clearly on the fund’s Key Investor Information Document (‘KIID’) or fund information document which you should be given before investing, and will also be shown on your transaction confirmation, so you needn’t worry about being hit with hidden fees.

Access your returns

It’s generally pretty easy to get your money out of unit trusts and OEICs, provided the fund has invested in liquid assets such as shares and bonds. Most funds will permit you to sell your units or shares at any time during normal business hours on a working day. However, if the fund has invested in assets that are harder to sell (such as property) you may face restrictions on when you can sell up.

In these cases, there may be monthly, quarterly or biannual windows in which you can get your money out.

There are 2 ways you can access your returns:

• Income units/shares: These will pay you regular income in the form of dividends and any interest earned by the fund. You can also choose to reinvest income so that you buy more units or shares.
• Accumulation units/shares: These will automatically reinvest any returns back into the fund, which results in the price of units and shares increasing.

If you are thinking about putting money into a collective investment fund it is essential to seek professional financial advice. No matter what your asset and risk preferences are, we can help you choose the fund that’s right for you, at the lowest cost.

Get in touch today to talk about investing.

 

Important information

The way in which tax charges (or tax relief, as appropriate) are applied depends upon individual circumstances and may be subject to change in the future.

This document is solely for information purposes and nothing in this document is intended to constitute advice or a recommendation. You should not make any investment decisions based upon its content. The value of investments can fall as well as rise and you may not get back the full amount you originally invested.

Whilst considerable care has been taken to ensure that the information contained within this document is accurate and up-to-date, no warranty is given as to the accuracy or completeness of any information.