Everyone has at some point daydreamed about what they’d do if they suddenly came into a large amount of money. But what would you do if it really happened?

Whether it’s enough money to buy a new car or a gold-plated yacht, if you receive an unexpected windfall you should always think carefully before spending it. Take your time to consider your options as you might be feeling overwhelmed.

If you’ve received a large amount of money, it’s important to be mindful of the limits set by the Financial Services Compensation Scheme (FSCS) on how much compensation you will receive if the bank fails.

Temporary higher balances of up to £1 million will be compensated for in the first 12 months per person per bank or building society. But after that, you will only receive a maximum of £85,000 for any lost savings. So, if you do decide to put your new-found money in the bank, it might be worth spreading it out across several banks to ensure that it’s all protected. 

A large sum of money has the potential to transform your life if you use it wisely. So, read on for five things to bear in mind if you come into unexpected money.

1. Make a plan of what your goals are

Although we might daydream about it, most people don’t keep a detailed plan on what they’d do if they came into a large amount of money.

However, it is important to make one before you think about splashing your cash recklessly. Otherwise, it can be all too easy to get overly excited and start frittering it away on things you don’t really need.

Write down everything you might want to buy or do with the money, including giving gifts. This could be anything from going on holiday to helping a loved one to purchase a home. Don’t just think about the things you’d like to do now, but those further away too.

It can be easier to plan when you have all the information in front of you, not just vague ideas. A plan will help you see which goals you can afford now, and which goals you may be able to afford in the future, with careful management of your money. Long-term goals might include retiring early or building a legacy to leave behind for your family.

When making this plan, you may benefit from the advice of a financial adviser. We can help you to organise your finances to help you meet your goals in the short and long term.

2. Pay off your debts to avoid interest payments

Settling your debts is usually the most sensible thing to do if you come into unexpected money.

By settling debts now, you can save yourself from having to repay interest on the debt later, which compounds over time. This can save you large amounts of money, especially if it is a large debt or one with high-interest payments.

It may also be wise to pay off short-term debts, such as overdrafts or credit cards, first since they typically have higher interest rates. After you’ve paid those, you can start thinking about paying off other long-term debts, such as mortgages.

3. Keep an emergency fund

Nobody can predict the future, so no matter how well you manage your money, it’s always worth keeping a rainy-day fund. This can give you peace of mind if disaster should strike.

Although the spending power of cash is eroded by inflation, it can still be important to keep a fund that’s easily accessible just in case. As a general rule, it’s worth setting aside an emergency fund with enough money to cover three to six months of expenses.

With this, you can rest easy knowing that even if the worst should happen, you’ll have some money to fall back on.

4. Decide whether you want to save or invest

One important decision you will have to make is whether you should save your new-found money or invest it. Your goals should have a strong influence on what you decide.

If you’re averse to risk, putting your money into a savings account may suit you. Unlike investing, your money is safe from losses, assuming you stay within the limits of the FSCS. But it may not increase in value much, if at all, as current interest rates are likely to be below inflation.

Putting your money in a savings account is also useful if you have a short-term goal in mind, such as booking a holiday.

On the other hand, if you have a long-term goal, such as building wealth to pay for a comfortable retirement, it might be worth considering investing your money instead. Investing can help you grow your wealth in the long term, but it does come with risks. You should invest with a minimum time frame of five years in mind.

5. Seek the help of a financial adviser

If you come into a large amount of money, you should consider speaking to a financial adviser who can help you to use it to achieve your goals.

It might be tempting to think you don’t need one. A study by AKG revealed that 43% of people who had not seen a financial adviser in the last five years believed they already had enough knowledge to make financial decisions for themselves.

However, when you’re dealing with large amounts of money, it can be hard to use it efficiently and understand how it can support long-term goals. Financial planners have experience overcoming the issues that may arise, such as dealing with complicated tax laws, to help you get the most out of your windfall.

A study by YouGov has shown that only 27% of people would consider speaking to a financial adviser after receiving a windfall. If you want to use your money more effectively to reach your goals, you shouldn’t be one of them. Please get in touch to discuss how we can help you realise your goals.

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.

How do you rate your work-life balance? It’s not uncommon for workplace pressures to affect our personal lives but, left unchecked, it can affect overall wellbeing and your health too.

An unhealthy work-life balance can leave us feeling irritable, struggling to focus and even affect physical health. If you want to readjust your work-life balance to better reflect your priorities, our latest guide looks at some of the key steps you can take, including:

• Understanding the work-life balance you want
• Setting clear working boundaries
• Exploring flexible working options
• Prioritising your health
• Making time for the things you enjoy
• Striving for financial freedom
• Making lifestyle goals

Taking positive steps towards striking the right balance, can not only benefit your personal life but improve your creativity and productivity at work too. Download a copy of the guide here. 

Over the last couple of months, we’ve been looking at what financial bias is and where it can come from. This month, we explore some of the most common types of financial bias. You might recognise some of the behaviours when you think back to previous decisions you’ve made.

So, here are seven types of financial bias that may affect your decision-making.

1. Self-attribution bias

When you see the results of stocks and shares, how do you assess their performance? Self-attribution bias means you tend to put successful investments down to your own judgement. In contrast, poor performance is chalked up as bad luck.

In terms of investing, self-attribution bias may lead to investors becoming overconfident in their abilities to spot a ‘winner’. Left unchecked, it can mean greater risks are taken than appropriate for the investor’s risk profile and goals because they believe they’ll be able to replicate the success, while the negative results are dismissed.

2. Confirmation bias

We all know that we should research investments before making a decision. However, even when we look at the information available, our bias can skew the conclusion we take away.

Confirmation bias refers to the tendency to seek out information that already supports the beliefs you have. It’s natural to make a snap decision about an investment opportunity. But information and evidence must be judged on its merits rather than whether it conforms to pre-existing beliefs.

3. Anchoring bias

Anchoring bias also relates to the way we process information when judging an investment. It refers to when an investor places to much focus on a single piece of data, anchoring their decisions to this.

For example, this may be how much share prices increased at a certain point in the past. It’s an approach that could misrepresent the value of investments and how they fit into your financial plan. In this instance, holding on to a past share price could mean overlooking the risk involved.

4. Groupthink

We’ve all heard the phrase ‘jumping on the bandwagon’ and it’s this approach that groupthink reflects. If you’ve ever invested or divested because others have done so, you might have fallen prey to groupthink.

Whether it’s peers in your social circle or the media, it can be easy to get swept up in how others are investing. Yet, while it may seem like everyone else is following a certain path, it often lacks context. Their goals and circumstances can be widely different from yours and, as a result, financial decisions that suit some may not be appropriate for you.

5. Loss aversion

Some of the above examples of financial bias can lead to investors taking too much risk. But taking too little risk can also be a result of financial bias. Loss aversion is one example of this. In this case, investors place a greater priority on not making losses rather than creating returns. It can lead to a more cautious approach than is appropriate once goals and circumstances are factored in.

Loss aversion can also lead to investors holding on to loss-making investments, even when a wider financial plan suggests it’s appropriate, as they hope to make their money back.

6. Disposition Effect bias

Do you label investments as ‘winners’ and ‘losers’? If so, disposition effect bias could be affecting you. It’s an outlook that can lead to a short-term focus on investing, for example, selling shares earlier than expected because the price has increased. It can also lead to investors holding on to loss-making stocks that no longer suit their profile and goals because they don’t want to ‘lose’.

It’s important that investments are considered with a ‘big picture’ approach and a long-term outlook. Thinking of individual investments as ‘winners’ and ‘losers’ can harm this.

7. Information bias

When you’re investing, you can be bombarded with different information. It can make it difficult to see the woods for the trees and select the information that should influence your financial decisions. This can be known as information bias.

For example, if short-term market movements are a core factor to investment decisions. It’s easy to see why this happens, as it’s often these gains and falls that make headlines. However, long-term prospects and opportunities are typically the areas you should be focusing on.

So, now we have a better understanding of how financial bias may be affecting our decisions, what can we do about it? Our final blog in the series will tackle this, keep an eye out for it next month.

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.

Many countries around the world have eased lockdown measures allowing businesses to reopen and resume economic activity. Some positive signs are coming from economic data but there remains a significant level of uncertainty and measures could be reintroduced if the Covid-19 infection rate continues to rise again.

UK

In July, Chancellor Rishi Sunak delivered a Summer Statement, dubbed a ‘mini-budget’, which included measures to stimulate the economy. This included a bonus for businesses that retained furloughed staff, a VAT cut in the hospitality sector until January 2021 and the Stamp Duty threshold rising from £125,000 to £500,000 until March 2021, in a bid to get the housing market moving.

One of the key areas the Chancellor didn’t discuss was how the cost of Covid-19, which is estimated to be £300 billion this tax year, will be recovered. It’s expected announcements will be made in the Autumn Budget later this year. However, a review into Capital Gains Tax has been ordered, signalling this is an area that could be affected.

The UK economy grew by 1.8% in May, far weaker than the 5.5% forecast by economists.

Data from July show a mixed picture. UK factories have warned of a ‘jobs bloodbath’ without further government support but the CBI has also stated that the fall in orders is slowing, leading to manufacturers being more upbeat.

The UK service sector also shows signs of recovery. The closely watched PMI index gave a reading of 47.1 in June, up from 29 the previous month, with a figure above 50 showing growth. June marked the reopening of non-essential shops. However, businesses still face challenges. The number of shoppers was still 53% lower than normal.

While some of the data points towards recovering economic activity, announcements from individual businesses suggest many are still struggling. It’s estimated that 649,000 people have lost their job during the pandemic. This includes some well-known household names that intend to cut jobs:

• John Lewis announced it will not reopen eight stores, putting 1,300 jobs at risk
• Pret a Manger shuts 30 shops, cutting 1,000 jobs
• Boots revealed it will cut 4,000 jobs across optician branches, head office and store roles
• Marks and Spencer cuts 950 jobs
• Tui is set to shut 166 stores across the UK and Ireland

Unsurprisingly, the travel market continues to be severely hampered by the pandemic. International travel is not expected to fully recover for several years. In addition, the Competition and Markets Authority (CMA) received more than 17,500 complaints about package holidays refunds, highlighting the pressure businesses within the industry are facing.

Car manufacturing is another sector that has been significantly affected. Car sales are down 48.5% so far this year, making the worse fall in the industry for almost 50 years.

The Office for Budget Responsibility (OBR) has warned recovery could take years. In addition to the impact of Covid-19, Brexit deadlines are also looming, which could have an impact on economic growth. This month, the EU warned that UK firms will face trade barriers after Brexit.

Europe

The European Commission forecast a deeper eurozone recession, warning the eurozone will shrink by 8.7% this year. Germany, Spain and France all recorded deep contractions for the second quarter too.

The European Central Bank is bracing for a second wave of coronavirus affecting economic activity. The bank has left its rates and stimulus package unchanged, opting to wait and see how the situation progresses.

EU leaders agreed on a historic stimulus package too. The agreement paves the way for the European Commission to raise billions of euros on capital markets on behalf of all 27 EU states. Leaders hope the €750 billion recovery fund will help with the recovery.

But there are positive signs in Europe too. There was a record surge in eurozone retail sales and business activity is on the rise for the first time since February.

US

The headline figure from the US this month is the GDP. During the second-quarter GDP plunged by a worst-ever 32.9% due to lockdown restrictions. No other slump over the past two centuries has caused such a sharp drop. However, the economy still beat expectations, with economists previously predicting a decline of 34.7%.

With US elections nearing, the job market continues to be an important battleground for President Donald Trump. The latest figures reveal 4.8 million jobs were added in June, beating expectations of three million new jobs. However, ongoing shutdowns could see layoffs rise in the coming months. In fact, weekly jobless claims figures show a rise. Figures for the last week of July show 1.434 million jobless claims were made.

The service sector, which makes up two-thirds of the US’s economic activity, is showing signs of recovery though. The Institute for Supply Management said its activity index gave a reading of 57.1 in June, with a reading over 50 indicating growth. However, bars, restaurants and other service sector businesses could face additional lockdowns and restrictions in the coming weeks, affecting recovery.

The ongoing trade war with China continues to have an impact on business and stock. Tensions have continued to escalate, with tariffs continuing to impress tax on UK companies and consumers, as well as creating more red tape.

Asia

China continues its recovery following an economic hit due to the pandemic. The country’s service sector PMI hit a ten-year high in June, rising from 55 in May to 58.4. The optimism in the Chinese economy led to a surge in the markets too. It also reported that GDP grew by 3.2% in the second quarter when compared to a year ago, making it by far the best-performing big economy.

Keep an eye out on our blog for our next market update and financial news.

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 Power of Attorney is just as an important part of estate planning as writing a will. Yet, it’s something that many people overlook, potentially leading to challenges for their loved ones and placing themselves in a vulnerable position.

Power of Attorney gives someone you trust the ability to make decisions on your behalf, if you don’t have the mental capacity to do so. This may be temporary, for instance, following an accident, or permanent, due to an ongoing illness.

It’s often overlooked because we think it’ll never happen to us. However, it’s estimated that there are 850,000 people with dementia in the UK, with the figure projected to rise to 1.6 million by 2040, and this is just one example of an illness that can affect mental capacity. There are many other examples of where an individual cannot make decisions entirely on their own. Having a Power of Attorney in place can ensure someone can make decisions for you.

One important thing to note is that a spouse or civil partner doesn’t have the automatic right to make decisions on your behalf. A Power of Attorney is still required.

There are two types of Power of Attorney. The first covers health and welfare, allowing a trusted person to make decisions about medication, life-sustaining treatment and your day-to-day routine. The second covers property and financial affairs and may include collecting pension benefits, paying bills or deciding to sell your home.

Thinking about handing over the ability to make potentially life-changing decisions to someone else, even those you trust, can be daunting. But the alternative is often far more complex, time-consuming and costly.

Applying to the Court of Protection

If you lose the capacity to make your own decisions and don’t have a valid Power of Attorney, the application goes to the Court of Protection. The court can:

• Decide whether you have the mental capacity to make a decision
• Make an order relating to health and care or property and financial decisions if someone lacks mental capacity
• Appoint a deputy to make decisions on behalf of someone who lacks mental capacity

A deputy is a similar role to that of attorney, including the principle that they must make decisions based on your best interests. The ability of the Court of Protection is a useful safety net but it’s not one that should replace naming a Power of Attorney for three key reasons:

1. The decision may not align with your wishes: The person appointed as deputy may not be your preference. Using a Power of Attorney means you’re in control of who will be making decisions on your behalf. This gives you a chance to discuss what you’d want to happen. 
   
2. Initial and ongoing costs will usually be more: To apply to become a deputy through the Court of Protection costs an initial fee of £365, with a further £485 needed if the court schedules a hearing. On top of this, a security bond may have to be set up if someone is appointed a property and financial affairs deputy and an annual supervision fee will be due. The cost of this will depend on the size of your estate. In contrast, it costs £164 to register both types of Power of Attorney.
   
3. It takes time to arrange: Once an application has been made, the Court of Protection aims to issue an order within four to six months. During this time, you may be left in a vulnerable position, with loved ones unable to make a decision on your behalf. 

Putting a Power of Attorney in place

The good news is that more people are naming a Power of Attorney. Between January and March 2020, the number of applications was up 5% compared to the same quarter last year. This is partly attributed to the government taking steps to make the process easier and faster.

You can access the online service to create a Power of Attorney here. Remember, you will need to register your Power of Attorney with the Office of the Public Guardian for it to be valid, this can take between eight and ten weeks.

As you name a Power of Attorney, it’s worth reviewing your wider estate plans too. It can help you have an open conversation with the person you trust about what your preferences are and how your wealth may change over time. Please get in touch with us if you have any concerns or questions.

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 estate planning.

While the health concerns of the Covid-19 pandemic remain, some of the focus is now shifting to the economic impact. Measures taken to reduce the spread of infection and save jobs have cost the government a huge amount that will need to be recouped in some way.

The final Covid-19 bill is impossible to estimate, we don’t know how things will change over the coming months. However, the Office for Budget Responsibility estimates the cost for the current tax year is likely to be more than £300 billion. The government was expecting to borrow around £55 billion for the whole of 2020/21. But in the first two months of the tax year alone, it has borrowed £100 billion to cover the costs of the scheme implemented due to the pandemic.

Chancellor Rishi Sunak was appointed Chancellor in February this year. He’s already delivered a delayed Budget in March, as the pandemic was starting to take hold in the UK, followed by the Summer Statement in July. Both have focused on protecting people and the economy as Covid-19 spread. As the Autumn Budget is now approaching, his attention may be turning to how some of the costs can be recovered.

While nothing has been formally announced yet, speculation is mounting that some allowances will be reduced, some of which may affect you.

1. Capital Gains Tax

Speculation that changes to Capital Gains Tax (CGT) will come in are rife after the Chancellor commissioned The Office of Tax Simplification to investigate if it’s “fit for purpose”. Compared to previous levels of CGT, the current rates are relatively low. This provides plenty of scope for allowances to be reduced or rates to rise.

CGT is paid on the profit when you sell certain assets. This may include a property that isn’t your main home, personal possessions worth more than £6,000 (excluding your car), investments not held in an ISA, and business assets.

Individuals have an annual exemption of £12,300 per tax year. Profit beyond this allowance is taxed. Basic rate taxpayers have a CGT rate of 10%, this rises to 20% for higher and additional rate taxpayers. Where the profit is made on property, an additional 8% tax is added for all Income Tax bands.

2. Pension tax relief

A change in pension tax relief hasn’t been mentioned by Rishi Sunak yet. However, his predecessor Sajid Javid has called on the government to reduce the amount of tax relief paid to high earners. It could now be something the current Chancellor is exploring too.

Assuming you don’t exceed your annual pension allowance, you receive tax relief at the highest level of Income Tax you pay. As a result, higher and additional rate taxpayers receive far more through this incentive. The Pensions Policy Institute found workers earning less than £50,000 made up 83% of taxpayers, but they received less than a quarter of pension tax relief paid.

A change to pension tax relief is likely to make it ‘fairer’ by offering a flat-rate tax relief for all pension savers.

3. Pension triple lock

The pension triple lock guarantees that the State Pension will rise every year in line with either inflation, average wage growth or a minimum of 2.5%. It helps to protect spending power among pensioners. Maintaining the triple lock was a manifesto pledge, but some signs are pointing towards changes in the future.

The Chancellor told the Treasury Committee that it would be appropriate for the government to look at the triple lock at the “right time”. There are concerns that a spike in wages would make the guarantee to pensioners unaffordable in the coming years.

4. Pension tax-free lump sum

Currently, when you access your pension, which is available from the age of 55, you can withdraw 25% of the money tax-free. Any further withdrawals are subject to Income Tax, the same way your salary or other sources of income may be.

The tax-free lump sum has proved a popular option among retirees and it’s a decision that’s likely to be unpopular with those approaching their retirement date. Reducing the tax-free lump sum to 20% could add £1.8 billion of extra revenue, the IFS has suggested, making it an attractive option for the Chancellor.

5. Inheritance Tax

Again, any changes to Inheritance Tax rules would prove unpopular but there have been growing calls to reform the system to make it fairer and simpler.

At the moment, individuals can take advantage of two allowances when leaving wealth to loved ones. The nil-rate band is currently £325,000, with no Inheritance Tax due if your estate is below this figure. Those passing on their main home to children or grandchildren can also use the residence nil-rate band, currently set at £175,000. Unused allowance can be passed on to a surviving spouse or civil partner. In effect, this means couples can leave up to £1 million without worrying about Inheritance Tax.

Reducing the allowances or scrapping the additional residence nil-rate band could help raise tax revenue.

Rishi Sunak has some decisions to face before the Autumn Budget, and it’s likely some allowances will be affected. It may be appropriate to change plans when these are announced, but you shouldn’t act on speculation. If or when things change, we’ll be here to help you.

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

Please do not act based on anything you might have read in this article. All contents are based on our understanding of HMRC legislation which is subject to change.