Efficient Wealth Update – April 2020

Whilst all levels of risk have seen drops, you can see even the 100/100 risk profile has fallen significantly less than the market.

Some Scary Advice, Just in Case....

Given there are a lot of people worried about their health, it is worth thinking about the actions that you should take right NOW, to get your financial house in order, just in case you were taken ill:

1. Ensure you have both types of Lasting Power of Attorney in place. Make sure that they are both certified and registered, and that you have discussed your wishes in detail with your attorneys in the event of your incapacity.
2. Ensure that your home insurance is in joint names if two people live in the house.
3. Give a record of all your passwords to a trusted member of the family under code, with another member of the family holding the access code.
4. Give a spare set of keys for your car, house and, if you have one, your safe to someone you trust.
5. Ensure that your LPAs include an investment clause.
6. Make a list of all your important contacts and give it to someone in the family.
7. Write a letter to your children and grandchildren telling them about the three most important events of your life and the lessons they taught you. Give it to a trusted friend to pass to the family if you become incapacitated.

The virus has changed everyone’s lives to a degree, some more than others. It’s important to look through the present to the future, and remember – this, too, will pass.

New CGT Rules for Property Investors

For those with additional properties as part of their investment portfolio, the changes that are due to come into effect from the new tax year will affect the time allowed to pay your Capital Gains Tax bill, the amount of tax relief you can claim if you previously lived in the property and how letting relief will work.

Tighter payment deadline

Because Capital Gains Tax on property is currently paid through your self-assessment tax return, it normally doesn’t need to be paid until the following tax year – so CGT incurred on a property sale in the 2018/2019 tax year doesn’t need to be paid until 31 January 2020.

However, the new rules that come into effect from April 2020 state that all CGT needs to be paid within 30 days of completion of the sale. Failure to do so will incur penalties.

PRR changes

Private Residence Relief (PRR) means homeowners selling their primary residence don’t have to pay CGT on profits. At present, if you own more than one home you are exempt from paying tax on the final 18 months that you owned the additional property, regardless of whether or not it was rented out. From April 2020, this period is expected to be reduced to nine months. So, if you have not lived in a property that was once your main residence for more than nine months, you will probably need to pay some CGT on profits you make when you sell it.

Letting relief changes

For those who qualify for PRR, it might also be possible to claim letting relief. This relief can reduce the Capital Gains Tax owed on a property by up to £40,000 of tax-free gains (£80,000 for a couple).

Letting relief can currently be claimed if you used to live in the property you are selling and have also let out part or all of it for residential accommodation. You can claim the lowest of the following: the amount equal to the PRR you will receive; £40,000; or the chargeable gain you make from the period the property was let.

When the new rules come into force from April 2020, you will only be able to claim this relief if you live in the property when it is sold, i.e. if you share occupancy with your tenant.

Under current rules – and with no expectation of this changing – there are certain costs that can be deducted from CGT. These include:

• Stamp duty paid on purchase of property
• Estate agent fees
• Solicitor fees
• Improvement costs (such as extensions)
• Qualifying buying and selling costs (such as surveyor fees)

All of these changes again make owning buy to let properties even less tax efficient; in fact probably the least tax efficient investment of them all. There is such a strong tax headwind you need you make significantly more from the property than you do other investments, just to pocket the same.

EPA vs LPA

A Lasting Power of Attorney (LPA) is currently one of the most important documents you could ever create as it is the only way to ensure your health and assets can be managed how you would want them to be, should you lose capacity during your lifetime.  LPAs have only been in existence since 1^st October 2007 when they replaced the previous version, Enduring Powers of Attorney (EPA).

So, what happens if you have an EPA? If your EPA was signed and witnessed before October 2007 it will still be valid and can still be used. It may, however, be in your best interests to replace it with an LPA. When deciding if this could benefit you, there are several differences between EPAs and LPAs that you should consider.

Firstly, an EPA only covers your property and financial affairs, whereas two separate LPAs can be created – one for your property and finances, and another for your health and welfare. This makes them more flexible in how they can be used and more comprehensive in the areas they cover.

When your EPA was created, you could choose to have either one attorney who would make all decisions or multiple attorneys who would all have to act together. The problems that this created were rectified by LPAs. An LPA allows you to have replacement attorneys whereas under an EPA, if your attorney became unable to act on your behalf, the EPA would be voided. An LPA also now allows the flexibility to choose to have decisions made jointly and severally, for example in the circumstance that not all your attorneys can be present in a particular situation.

It is also important that your attorney(s) register an EPA as soon as you, the donor, lose mental capacity. With an LPA, however, you can decide if you want it to be registered immediately or later when capacity is shown to be lost.

An LPA also puts extra safeguards in place to protect your interests and requires a certificate provider to confirm that you, as the donor, aren’t being pressured to implement the LPA or to make certain decisions.

If you would like to know more about how an LPA could benefit you, please contact us so we can discuss your circumstances.

How to Make the Most of Working From Home

In these turbulent times it is important to take care of our mental health. Staying productive and keeping to a routine can really help with this. If, however, you have recently found yourself in the position of having to work from home, it can be hard to keep yourself motivated day after day. The same can also be said when people enter retirement, going from a full-on work schedule to a more relaxed daily schedule.

To get the most from your time working at home, an important starting point is to treat your day as a ‘normal’ working day – make yourself get washed and dressed! Not only will you feel more refreshed for getting out of your pyjamas, but it will also help your brain accept that the working day has begun. Starting by making a to-do list can also help to focus your day.

Try and stick to your established routine – it helps to keep to your original working hours. This will also help to establish boundaries as you don’t want to find yourself checking your emails at all hours of the day and night. If it is possible to make a separate space from which to work where you won’t be disturbed, this will also help. When your working day ends, pack all your things away to allow yourself some separation.

As long as you aren’t self-isolating, it can help to get outside at least once a day. This could be during your lunch break to help refocus you for the afternoon or outside your working hours. Not only will this provide you with some fresh air (and maybe even some sun) but it will also help you exercise, which is so important for your mental health.

If you can, during your day try to spend 30 minutes actually talking to someone. This could be over the phone or by a video call. Not only are these methods of communication more stimulating but they can also help to increase productivity.

Finally, take regular breaks. It is important to keep moving and to have time away from looking at screens.

As we all adapt to a different working life (or, actually, a different life in general) in the interim, make sure you keep in touch with others, reach out and ask for help – or, if you are able to, offer it. Be kind, be responsible and most importantly, keep calm and carry on!

FCA Warning on Coronavirus Scams

The Financial Conduct Authority has warned of "sophisticated and opportunistic" scammers looking to capitalise on the confusion surrounding the coronavirus outbreak.

In an article published on their website on 27^th March, the FCA have identified a number of tactics being used by scammers in this current climate of uncertainty to target people who are more vulnerable or susceptible to being scammed.

The watchdog have urged consumers to be on high-alert for clone firms, those not authorised by the regulator, and scammers claiming to be from claims management companies.

You can read the full article on the FCA website here.

Charlie’s Mini Blog

Perhaps unsurprisingly, over the course of the last couple of weeks I have consumed more than ever. No, not wine, pizza or TV box sets, but content. I have finished 8 books, watched a number of documentaries that I’ve been meaning to tackle and dialled into more webinars than ever before, all whilst spending more time with my family and my business than usual.

These times are sent to challenge us, but it is how we respond to them that define who we become. We can sit back and let life happen to us, or we can grab it by the scruff of the neck and take from it what we expect. During this time isolation, we have a great opportunity to actually reconnect to the most important things in our lives. We can speak and see (by video call) the people we have been meaning to catch up with but never had time. We can spend time with the people closest to us. We can learn something new, and we can improve our health and fitness habits. All whilst sticking closely to the government guidance to stay away from other people to protect the NHS and to save lives.

If you emerge from this lockdown having not improved your life somehow and perhaps even the lives of others too, you will have missed a great opportunity. Take it as an opportunity to grow and to contribute, after all, they are 2 of our human needs that ultimately lead to our happiness.