Galleon Wealth Management
Tel: 01473 636688 |
Menu

Galleon Wealth Management Blog

How many times have you heard or read about a particular stock that you should invest in? It can be tempting to follow exciting investment fads, but there are reasons why you shouldn’t.

From speaking to a friend that’s made a ‘good’ investment to reading the headline news, it can sometimes seem like you’ve missed an amazing opportunity by not piling all your investable assets into one particular company. It’s something we sometimes hear from clients too.

At the moment, Tesla is one of the companies that falls into the category. But others have in the past too, including Microsoft, Apple, and even Bitcoin.

Take a look at the recent stories about Tesla and it’s easy to see why this question comes up. The American electric vehicle company founded by Elon Musk has seen its share price soar. In 2020, the share price increased by 700% to become the world’s most valuable car company. Anyone would want to see their assets grow by that amount.

So, why shouldn’t you just pile all your money into Tesla? 

1. Has the share price reached its peak?

Tesla shares have benefitted from astronomical growth in 2020, a particularly impressive feat given the pandemic meant many car companies, and other firms, struggled. Yet, that doesn’t mean it will replicate the same level of growth, or even grow at all, in 2021, let alone in the next ten years.

One of the golden principles of investing is that past performance isn’t a reliable indicator of future performance. It can be tempting to jump on an investment when it’s done incredibly well, but there’s no guarantee that you’ll benefit.

Consistently predicting market movements is impossible, numerous factors need to be considered and some influences can be unexpected, as Covid-19 highlighted last year. When you’re focusing on a single share, it’s even more difficult.

Going back to Tesla, the difference in investor opinions highlights the challenges.

Backers of Tesla, dubbed Teslanaires, argue that the share prices will continue to rise as the firm pushes technology boundaries. However, critics note there is growing competition in the electric vehicle market, including from players with deep pockets, such as Apple.

Others say that Tesla shares are already overvalued. A research note from analysts at JP Morgan said: “Tesla shares are, in our view and by virtually every conventional metric, not only overvalued but dramatically so.”

So, who is right? Only time will tell but investing in stocks with the benefit of hindsight only can lead to a disappointing performance or selecting investments that don’t suit your goals and situation.

2. Sorting the ‘good’ from the ‘bad’

Another challenge to putting your money on a single stock is deciding which one to choose. For every Tesla, there are dozens of firms that see a fall in their value and some that collapse. It could mean that you receive a far lower amount back than you invested or even nothing at all.

It’s the investment version of putting all your money on a single number at the roulette table, it’s a significant gamble.

When you hear about stocks that you should invest in, whether from colleagues or the media, it’s a suggestion that’s usually made with the benefit of hindsight. It’s far easier to say that something is a ‘good’ investment after a rise than sorting the ‘good’ from the ‘bad’ without this benefit.

Acting after a huge rise means you end up paying a higher price for the shares. Of course, it could rise further, but as mentioned above, there’s no guarantee.

So, how should you invest?

For most investors, an investment strategy should mean building up a well-balanced portfolio that contains a range of assets that reflects their risk profile.

Within this portfolio, you may choose to invest in the likes of Tesla, but it should be balanced with assets from a range of firms, industries, locations and more. In this way, you’re not fully reliant on the performance of just one asset. The risk is spread across a range of assets, this helps to balance out the ups and downs of market movements.

Your goals and risk profile should be central to your investment decisions. For some investors, a conservative approach with an overall portfolio that is low-risk makes sense, for others, a higher-risk investment strategy is right for them. Financial planning can help you understand where investments fit into your lifestyle and goals.

Please contact us to discuss your investments, building a portfolio and how they can help you achieve your aspirations.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

The Office of Tax Simplification (OTS) is reviewing Capital Gains Tax (CGT) after being ordered to by chancellor Rishi Sunak. Changes that are made following the review could affect tax liability and how you make use of allowances. While changes have yet to be announced, there are two key areas that are being considered for modification: the CGT allowance and rates.

What is Capital Gains Tax?

CGT is a type of tax you pay when you dispose of some assets. Disposing of assets could include selling or gifting them. The profit you make may be taxed.

Assets that may be liable for CGT include:

  • Most personal possessions worth £6,000 or more, apart from your car
  • Property that is not your main home
  • Shares that are not held in a tax-efficient wrapper, such as an ISA
  • Business assets.

The chancellor has asked the OTS to: “Identify opportunities relating to administrative and technical issues as well as areas where the present rules can distort behaviour or do not meet their policy intent.”

While the main aim of the review is to make CGT simpler and fairer, there is also a need to raise revenue. The cost of supporting the economy during the Covid-19 pandemic means the Treasury is left with a deficit. Updates to CGT could go some way to plugging the gap.

The government raises a relatively low amount from GGT; around £8.3 billion a year. Under the current rules, only 265,000 people pay CGT each year, with effective use of allowances and tax breaks meaning many can avoid paying it. However, changes implemented following the review could change that.

The 2 Capital Gains Tax rules that could change

1. The Capital Gains Tax allowance

Under current rules, every individual receives a CGT allowance of £12,300. If the profit you make when disposing of assets falls under this threshold, no CGT is due. Reducing this allowance is one focus of the review.

A small reduction is unlikely to affect many people. In 2017/18, around 50,000 reported net gains just below the threshold. However, the reduction could be more significant. There are suggestions that it could be scaled back to as little as £2,000 – £4,000. For many people, this allowance is an important part of their tax planning and could lead to a higher tax bill than expected.

If you’d be affected by a reduction in the CGT allowance, making use of other allowances will be even more important. For example, selling shares that are held in an ISA, rather than those that aren’t, could help reduce the amount of tax due. Effectively managing the disposal of assets each tax year to make full use of the allowance could also play a role in effective tax management.

2. Capital Gains Tax rates

When CGT is due, how much you pay depends on your Income Tax band and the assets you’re disposing of:

  • Standard CGT rate: 18% on residential property, 10% on other assets
  • Higher CGT rate: 28% on residential property, 20% on other assets.

If you’re not sure what rate of CGT tax you’re liable for, please get in touch.

There are suggestions that the above CGT rates will be brought in line with Income Tax bands. This could mean that higher and additional rate taxpayers face far higher tax bills. It could mean disposing of some assets no longer makes financial sense or that profits would be significantly reduced.

Bill Dodwell, tax director at the OTS, said: “If the government considers the simplification priority is to reduce distortions to behaviour, it should consider either more closely aligning Capital Gains Tax rates with Income Tax rates, or addressing boundary issues as between Capital Gains Tax and Income Tax.”

As with the first point, if this change were brought in, careful management of allowances would become even more important in tax planning. This should be incorporated into your financial plan to reduce tax liability and help you get the most out of your assets.

Reflecting changes in your financial plan

The CGT review highlights why it’s crucial that your regularly review your financial plan. For some people, potential changes to CGT could mean adjustments need to be made in how they hold and dispose of assets to keep goals on track. Continuing with a financial plan that hasn’t considered changes means tax liability could unexpectedly be higher, potentially harming your income or asset growth.

We know that keeping up to date with changes to allowances, tax rates and other areas of finance can be complicated and time-consuming. We work with all our clients to ensure their financial plan consider allowances and more to get the most out of their finances, with frequent reviews to reflect changes.

Please get in touch if you have any questions and to discuss your financial plan.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The Financial Conduct Authority does not regulate tax planning.

Following a year of uncertainty, you may be worried about your finances. Covid-19 has had an impact in many ways, from reducing income to affecting investments. Some financial firms have also been affected and this may mean you’re concerned about how secure your assets are. The good news is that there are protective measures in place.

More than 4,000 financial firms are at heightened risk due to the Covid-19 crisis, according to the Financial Conduct Authority (FCA). The FCA added that nearly a third of these businesses could potentially harm consumers if they collapsed. The regulator said insurance intermediaries and brokers, payments and electrotonic money firms, and investment management companies experienced the largest drop in cash and assets. The firms at risk are mostly small and medium-sized.

If you’re worried about the security of your assets, the Financial Services Compensation Scheme (FSCS) can provide peace of mind, but it’s important to understand what it does and does not cover.

What is the Financial Services Compensation Scheme?

The government set up the FSCS in 2001 to protect consumers if a financial firm fails. In 2018/19 the FSCS paid out £473 million to over 425,000 customers who had been affected by a firm collapsing.

How much compensation you’re entitled to is dependent on the financial product you have.

Cash accounts

If you hold money in cash, for example, your current account or a savings account, the FSCS covers up to £85,000 per eligible person, and up to £170,000 for joint accounts. To be eligible, the money must be saved with a UK-authorised bank, building society or credit union.

If you hold more than £85,000 in cash, it’s worth spreading it across several different providers to ensure all of it is protected. It’s important to note that some firms operate under different brand names that use the same banking licence. For instance, Nationwide also operate under the names Derbyshire Building Society and Cheshire Building Society, among others. In the unlikely event of Nationwide collapsing, only £85,000 would be protected, even if it were spread between these different brand names.

As a result, it’s important to check how firms are linked if your assets exceed the £85,000 threshold. The easiest way to do this is by checking the FCA’s financial services register.

In some cases, the threshold is temporarily increased to £1 million for 12 months. This provides you with increased protection if a significant amount is deposited in an account following certain life events, such as selling a property or receiving an inheritance, and means you don’t need to make immediate decisions to ensure your assets are protected.

Pensions

Pensions are likely to be among the largest assets you have and are crucial for security in your later life. The good news is pensions are covered by the FSCS:

  • If a pension provider fails, you’d receive 100% compensation, with no upper limit. This will include defined contribution pensions, such as your workplace pension.
  • Up to £85,000 per eligible person, per firm if your self-invested personal pension (SIPP) operator fails.

It’s important to note that the FSCS does not provide compensation based on investment performance. It provides cover if your pension provider were to collapse, not if your investments perform poorly. As a result, it’s still important that investment decisions reflect your risk profile and long-term goals.

If you have a defined benefit pension, you’re not covered by the FSCS. Instead, these are covered by the Pension Protection Fund.

Investments

Your investments may also be protected. Some investments come under the FSCS if a firm has failed, with an £85,000 limit per eligible person, per firm.

Again, the FSCS only covers you if a firm fails, not if your investment values fall. You should ensure your investment portfolio aligns with your risk profile and wider financial plan.

Other financial services may be covered by the FSCS too, including debt management, mortgages, and insurance policies. Before you take out a product, open an account, or use a service, it’s worth checking if you’ll be covered by the FSCS. It can provide confidence and peace of mind.

3 things to do to ensure you’re covered by the FSCS

  1. Always check firms are regulated. Not all services and financial products offered are FCA regulated and if you took out one of these, you won’t be covered by the FSCS. This may be a bank that isn’t authorised in the UK or unregulated investments. You can use the FCA register to check.
  2. Check your existing products. In most cases, your assets will be covered by the FSCS but it’s always worth checking, and ensuring you have not exceeded compensation limits.
  3. Get in touch with us. We want you to have confidence in the products and services used as much as you do in your plans. If you have any questions about whether you’re covered and the risk to your assets, you can contact our team.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available.

Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.

Saving into a pension and accessing it comes with a lot of challenges as you need to think about how much income you need throughout retirement.

Research from the People’s Pension suggests that looking at the bigger picture is something many people are putting off, even as they near retirement age and start drawing an income. It’s an outlook that could mean they face financial insecurity later in life or even risk running out of money in retirement.

Pension Freedoms: Understanding income throughout retirement is even more important

In 2015, Pension Freedoms were introduced. This gave retirees far more flexibility and freedom over their income in retirement. However, the greater choice has come with more responsibility and extra complexities.

Those retiring in the last five years and the coming years are likely to enjoy a lifestyle that is very different from their parents. Part of this is because of the flexibility in how you can access your pension.

Previous generations would have given up work on a set date, often purchasing an annuity with their pension savings to generate an income that would be guaranteed for the rest of their life, creating income security throughout retirement. Today, retirees may choose a phased approach to retirement, meaning they need to access a portion of their pension while still earning an income. Or they may choose to flexibly access their pension to suit changing income needs through flexi-access drawdown over an annuity.

These increased options allow retirees to match their income with their lifestyle goals. But it also means more decisions need to be made, including how much income to take and considering how this relates to financial security later in life.

Just half of those nearing retirement have seriously considered how they’ll manage financially

The People’s Pension research asked those over 55: ‘Have you thought about how you are going to manage financially when you retire?’

Worryingly, just 51% said they’d given it some serious thought. In contrast, 36% said they’d thought about it a little and 13% had not considered it at all. Even more concerning is that a third of the people who that hadn’t thought about it or had only given it a little thought, had already accessed their pension in some way. This could mean they’ve made a financial decision that will affect the rest of their life without fully thinking it through.

Overall, the research found that it’s rare to find someone who has made a detailed calculation of their future living expenses. Most people, even those with less than six months until their expected retirement date, preferred a ‘wait and see’ approach. Understanding how much your lifestyle will cost, and how it will change in later years, is essential for ensuring you have enough to last throughout retirement.

Instead, the responses found those nearing retirement were focused on assembling pension information and the ‘fun stuff,’ like thinking about how they’ll spend their time. Both of these are important steps for helping you get the most out of retirement, but they also need to be part of a wider plan.

One example of this is the 25% tax-free lump sum you can take from your pension from the age of 55, rising to 57 in 2028. For most of those questioned, this was viewed as a ‘no brainer’. However, taking a lump sum out of your pension at the very start could mean you run out of money later in life.

If you knew taking out a lump sum at 55 meant you wouldn’t be able to maintain your lifestyle in your later years, would you still do it?

Understanding the impact of your decisions and thinking about these kinds of questions can help you fully prepare for retirement and allow you to enjoy it, safe in the knowledge that you can manage financially.

Balancing retirement aspirations with security

The good news is that most clients find they’re able to balance their retirement goals with long-term security through effective financial planning.

Planning your retirement before you access your pension means you can balance enjoying the retirement lifestyle you’ve been looking forward to with goals you may have for later in life, such as providing a financial helping hand to loved ones, or ensuring you have enough for the unexpected, like potentially paying for care.

If you’ve yet to consider how you’ll manage financially or would like to review your plans with a financial planner, please get in touch. Our goal is to help you get the most out of retirement while ensuring your finances are secure for the rest of your life. With big decisions to make, financial planning at the point of retirement can set you on the right track.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available.

Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.

More people are considering and starting to pay into a self-invested personal pension (SIPP). Increased engagement with retirement planning is good news, but a SIPP isn’t the right option for everyone. If you’re thinking about opening a SIPP, it’s important you understand what they are and the drawbacks as well as the advantages.

While there’s a growing interest about SIPPs across all consumers, it’s women and younger generations who are driving the change, according to research from Interactive Investor.

Among women and men aged 25 to 34, there has been a rise of 200% and 185% respectively in the number of people with a SIPP. Across all generations, the rise in women choosing a SIPP surpasses men. For instance, there was an 89% increase in women aged between 55 and 64 opening a SIPP, compared to 66% for men.

Women have traditionally had lower amounts saved in their pensions and it can be hard to encourage younger generations to think about retirement plans that are several decades away. So, the rise in people actively opening a SIPP and, hopefully, making regular contributions, is positive. However, it does come with risks and responsibilities that are important to understand.

What is a SIPP?

A SIPP is a type of pension. As the name suggests, you choose how your contributions are invested. This gives you more freedom, but also means you need to make investment decisions that will affect how much income you have in retirement.

Like other defined contribution pensions, a SIPP becomes accessible at the age of 55, rising to 57 in 2028. At this point, you can choose how you access it, from taking a flexible income through drawdown to purchasing an annuity which would provide a guaranteed income for life. You can also take a 25% tax-free lump sum from your pension.

As with other pensions, you’ll also benefit from tax relief when saving into a SIPP. This means you’d receive an instant boost to your contributions. Tax relief is given at the highest rate of Income Tax you pay.

The pension annual allowance also applies to SIPPs. This is the maximum you can contribute to your pension each tax year, including tax relief and third-party contributions, and it still is tax-efficient. This is usually 100% of your annual earnings up to £40,000. However, some circumstances would mean your annual allowance is lower. Please contact us if you’re not sure how much you can contribute to your pension.

Is a SIPP right for you?

There is no straightforward answer to this question. It will depend on your circumstances and how comfortable you are managing investments.

The key advantage of a SIPP is that it gives you more control and access to a wider choice of investments. This means you can tailor your portfolio to suit your risk profile and goals. You can also hold commercial property in a SIPP, which can be attractive in some circumstances.

However, while the above is an advantage for some, it can also be a drawback. You will need to take responsibility for how your pension contributions are invested and keep in mind that investment values can fall. If you do choose to open a SIPP, it’s essential that you have a clear, long-term investment plan in mind.

The costs associated with a SIPP may also be higher than using other types of pensions, so it’s important to understand the charges and how they compare before selecting a platform.

If you’re currently employed and have a workplace pension, you should also keep in mind that you could be missing out on ‘free money’ if you choose to pay into a SIPP over your employer’s scheme. If you’re paying into your workplace pension, your employer must contribute in most cases. However, if you choose to add to another pension, this is not the case.

Essentially, a SIPP can provide opportunities for some investors and can be particularly attractive for business owners. However, it isn’t a simple decision. You should carefully weigh up the pros and cons of your options for saving for retirement before proceeding. In some cases, another type of pension will be more suitable.

One key question to consider is; am I confident in making investment decisions?

If the answer is ‘no’, an alternative way to save for your retirement may be more suitable for you. If you answered ‘yes’, that doesn’t automatically mean a SIPP is the right place for you to invest. It’s still important to explore other options and fully understand the decisions you’ll need to make.

Please get in touch if you’d like to discuss a SIPP or other pension arrangements you could make to secure your retirement lifestyle.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available.

Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.

The current 2020/21 tax year will end on 5 April 2021. As a new year starts, many allowances reset. For some, it will be your last opportunity to use them. Using these six allowances before the deadline can help you get the most out of your money.

1. ISA allowance

ISAs are a popular way to save and invest. They are tax-efficient, you don’t need to pay Income Tax or Capital Gains Tax on the interest or returns earned. Maximising your ISA contributions to make use of the annual allowance can reduce your tax bill. The current ISA allowance is £20,000 per tax year.

Remember, you can also use a Junior ISA (JISA) to save or invest for a child. Similar to an adult ISA, they are tax-efficient. You can contribute £9,000 per tax year. Money contributed to a JISA is locked away until the child turns 18.

2. Pension annual allowance

The annual allowance is the amount you can pay into a pension each tax year while still benefitting from tax relief. Tax relief provides an instant boost to your pension savings and is given at the highest rate of Income Tax you pay. As a result, it makes paying into a pension an effective way to save for retirement.

If you’re in a position to do so, increasing pension contributions to take advantage of this can significantly increase your pension and income when you retire. Usually, you can invest up to 100% of your annual earnings, up to £40,000, into your pension and still benefit from tax relief. However, if you’ve already accessed your pension or are a high-earner, your allowance may be lower. Please contact us if you’re not sure what your annual allowance is.

3. Gifting allowance

If your estate may be liable for Inheritance Tax, gifting money or other assets during your lifetime can reduce the bill, as well as allowing you to see the benefits gifts bring to loves ones. However, some assets are still considered part of your estate for Inheritance Tax purposes for up to seven years after they are gifted.

Making use of gifts that are immediately outside of your estate provides one solution. One of these is the annual gifting allowance, which means you can pass up to £3,000 on to a loved one tax-free. This is per individual, so as a couple you can gift £6,000 without worrying about Inheritance Tax each year.

4. Capital Gains Tax allowance

When you sell or dispose of certain assets, you may be liable for Capital Gains Tax (CGT) on the profit made. The current CGT allowance of £12,300 means that most people will not have to pay this tax. However, if you’re likely to exceed the limit, spreading out the sale of assets across several tax years can make sense.

5. Dividends allowance

If you’re invested in dividend-paying companies, the dividend allowance can be a useful way to boost your income without increasing tax liability. For 2020/21, the dividend allowance is £2,000. If you’re a company director, you can also pay yourself in dividends to make use of this allowance.

6. Marriage Allowance

Finally, if you’re married or in a civil partnership, make use of the Marriage Allowance if one of you doesn’t fully use their Personal Allowance.

The Personal Allowance is the amount you can earn in total each tax year before paying Income Tax. Your total income may include your salary, pension benefits, investment returns and more. For the 2020/21 tax year, this is £12,500. If you or your partner don’t exceed the Personal Allowance, you can usually pass on a portion to the other. This can mean reducing your tax bill by up to £250 as a couple. 

Get in touch to discuss your allowances and financial plan

The above list isn’t exhaustive, other allowances may be valuable to you. If you’d like to discuss your financial plan and the allowances, tax reliefs and incentives that could help you get the most out of your money, please get in touch.

While allowances are often discussed as the end of the tax year approaches, putting a medium-term plan in place that considers these can be beneficial. For instance, if you’re investing through an ISA, spreading contributions across the 2021/22 tax year to fully use your allowance over 12 months can make sense. Likewise, spreading pension contributions across a year is preferable to a lump sum for many people. If you want to create a plan for 2021/2022, please contact us.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available.

Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.