Western Morning News Articles - RK Shipman

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Western Morning News Articles

WESTERN MORNING NEWS – SATURDAY 28^TH AUGUST 2010 

INHERITANCE TAX REMAINS AN ISSUE 

Regardless of the size of one’s estate, who gets what on death is not a foregone conclusion if there is no will.  Assuming there is a will, estates over a value of £325,000 are subject to inheritance tax.  For a married couple or civil partnership the potential threshold is £650,000.  This figure does not indicate an increase in the threshold, as promised by the Conservatives before the general election, but the fact that each member of the partnership is entitled to their own allowance.  The Coalition Government has not made any changes to the threshold and given the impoverished state of Government finances it is unlikely this situation will change any time soon.  This makes IHT planning as important today as ever it was, for estates likely to breach the threshold.   

Being able to roll up a deceased partner’s unused Nil Rate Band (NRB) on second death has certainly helped estates of lower values.  To some extent, it has also made the use of a NRB Trust provision in a will superfluous or has it?  If you are legally married or in a civil partnership, when a person dies, the ‘unused’ NRB for that person is added to the personal exemption of the second to die.  However if the first person to die had made any gifts in excess of the annual exemptions within seven years of that death, the value of those gifts is first deducted from the NRB to determine the precise value that can be added to second person’s exemption.  If the first person had given away half the value of the then NRB to anyone other than the surviving partner (spouse) whatever the threshold is at second death will be enhanced by 50%, being the unused portion on first death.  However, this has to be a valid claim – there is no automatic doubling of the threshold upon second death, as is commonly believed.  Without proper records for the first deceased’s estate, validating a claim could be difficult.  It becomes even more complicated if the second to die had been married more than once, as unused NRBs can be aggregated if each deceased spouse had actually died while still married to the claimant, subject to the maximum threshold at the time of the second death.   

A NRB Discretionary Will Trust can still be useful on first death if there are assets, which might normally pass to the survivor, likely to increase in value up to the death of the survivor.  The gain since inheriting could then be subject to 40% inheritance tax.  Had these assets been placed within a trust on first death, there is currently only an “exit charge” of up to 6%.   Another aspect is that beneficiaries may have an IHT problem of their own.  It may be better for their share to pass to their children.  It may become expedient to set up a further trust, also discretionary in nature, for the benefit of the beneficiary’s children and transfer money from the NRB trust directly into it.  The trustees of the NRB Trust can be given powers to do exactly that in order to help preserve everything you and your children have worked hard to achieve.  To depend on the transfer of an unused NRB on first death may not prove to be enough.   

Additional complications can occur in the case of a remarriage, which is becoming more common today, especially amongst older people, people who have already probably accumulated a significant estate.  Next week I will look at the unexpected tax liabilities that can occur on re-marriage and then death, when two estates might be combined.  The Revenue is constantly looking at ways of increasing the tax take and it does so within the rules as laid down by Parliament.   Mitigating one of the most easily collectable of all taxes – IHT – requires expert advice and financial planning.  Without a will you have made it very easy for the Revenue but if your will was drafted without taking advice creating, unwittingly, the Revenue as one of the beneficiaries, then the intended beneficiaries will not be very happy.   Such planning will be part of any advice given when becoming a client of independent financial advisers such as those listed below.

Send your personal finance queries to Weekend Money, R K Shipman Ltd, 1 Barnfield Crescent, Exeter, EX1 1QY, telephone 01392 278491 or email info@rkshipman.co.uk. This article is for general information only and you should seek professional advice in respect of your own circumstances and reflects the views of the author only.  Authorised and regulated by the Financial Services Authority, R K Shipman is a highly respected IFA offering personal service and innovative advice.  

WESTERN MORNING NEWS – SATURDAY 21^ST AUGUST 2010 

PENSION SAVINGS LOOK VERY TEMPTING 

I read a comment this week by Mike Riddell, a credit specialist at M&G fund group, that UK interest rates are likely to remain low for years to come.  Although inflationary pressures looked to be gaining ground, the Bank of England is still of the opinion that these fears are unfounded and that far from increasing, inflation will decrease over the coming years.  Indeed core inflation in America and Europe is low and falling.  The monthly headline American consumer price index (CPI) has fallen for three consecutive months, which has only happened a few times since the data series began in 1947.  In the Eurozone, CPI is just 1.4%.  This means that cash savers are destined for a long haul before inflation beating rates of interest become the norm.  After tax there are few deposit accounts which actually beat even the current rate of inflation and rates are falling. 

This makes pension savings perhaps the best investment there is right now.  For many the need to buy an annuity before the age of 75 was a bar towards saving via a pension.  This argument has largely been removed, following confirmation from the government in the recent emergency budget that it would scrap the rule that makes it compulsory to turn a pension pot into an annuity by the age of 75. The rule change comes in next April (with a consultation underway to clarify the new rules), but the age limit has been raised to 77 with immediate effect to draw in those turning 75 before April.  There is an interim measure in place such that a decision on the use of a pension fund does not have to taken until age 77.  One still has to decide whether to take tax free cash by the age of 75 but drawing an income at that age is optional.   For some time now it has been possible to take an income from a pension fund in two ways and this remains unchanged - either by way of an annuity or income drawdown. 

Before getting into the detail of how a pension fund may be used one has first to accumulate enough to make it all worthwhile.  This is why the current interest rate environment makes saving into a pension plan a ‘no-brainer’ in my view.  A basic rate tax payer receives an immediate 25 per cent return on every £1 invested while a higher rate tax payer could be eligible for an effective 66 per cent return.   This is a rebate of the tax paid but you do not even have to be paying tax to receive the basic rate benefit on net contributions up to £2,880 per annum.  I know of no other means of investing cash that can provide such instant returns.  For every £1 saved you begin with £1.25.   

The disadvantage is that if you are under 55 years old then you have lost control of that money until you reach that age.  For older investors the pension fund can be utilised immediately.  If you are close to retirement and can make a lump sum payment (up to your gross salary in any one year, but with limits for anyone earning over £150,000) the gross return looks very compelling indeed.  Clearly any pension plan will have costs but these need not be onerous.  Ultimately returns will also depend on how the money is invested within the pension plan with a cash account still a possibility but this time earning gross interest.   

Choosing a conventional annuity as a source of income means that you are then guaranteed that income for the rest of your life.  A higher rate tax payer that expects to be a basic rate tax payer in retirement, will be hard pushed to find a better home for their money.  A 65 year old man might receive 5.76% gross pa (single life level annuity*) on the accumulated pension fund used to buy the annuity.  Whilst this is never going to increase, over the next few years it is likely to be way ahead of any cash deposit return.  There are so many annuity options that finding the right one for you requires professional advice.  The alternative – income drawdown, will not provide a guaranteed income, but it gives much more control and flexibility as to how the pension fund is used or passed on to others.  Whether you have an existing pension fund or are looking at maximising returns on capital currently earning very little or languishing in a poorly performing investment, it could pay to take a fresh look at the pension options and new arrangements available.  For advice see an independent adviser or telephone the number below.   

Send your personal finance queries to Weekend Money, R K Shipman Ltd, 1 Barnfield Crescent, Exeter, EX1 1QY, telephone 01392 278491 or email info@rkshipman.co.uk. This article is for general information only and you should seek professional advice in respect of your own circumstances and reflects the views of the author only.  *Based on £10,000, source Assureweb 19/08/10. Authorised and regulated by the Financial Services Authority, R K Shipman is a highly respected IFA offering personal service and innovative advice. 

WESTERN MORNING NEWS – SATURDAY 14^TH AUGUST 2010 

TRUSTS MAKE LIFE EASIER FOR THE BEREAVED 

We insure our cars, houses, contents and usually take out travel insurance automatically when going on a ‘foreign’ holiday.  Yet when it comes to protecting our own families and incomes there is a huge gap between those people that have made some provision and those that have not.  Every year in the UK, many families suffer from severe financial hardship when the main breadwinner dies prematurely or is diagnosed with a serious illness.  Unfortunately the ‘it won’t happen to me’ syndrome is proven to be incorrect and suddenly there is a need to plan for a very different future.  For all financial advisers the most satisfying aspect of the work has to be when they can re-assure a bereaved family that the family finances will be protected as a result of past advice (and probably a lot of persuasion) through one or more insurance policies that the deceased had the good sense to invest in.   

However it can take a very long time for the insurance company to pay the correct benefits to the correct person.  These difficulties are avoidable if the correct steps are taken when the policy is purchased.   A good adviser would not have allowed the policy to be set up unless it had been written in trust.  If you have life insurance policies which have not be written in trust it is not too late to make sure they are.  The trust arrangement allows the benefits to be paid out almost immediately to the nominated beneficiaries.   This is fairly straightforward if the beneficiary is a surviving spouse or partner but if children under the age of 18 are the main beneficiaries life gets a bit more complicated.  Even more reason why a policy needs to be written in trust.   The appointed trustees can then receive the cash immediately to provide funds for the appointed guardian(s).  Another difficulty arises if no guardians have been nominated because there is no will.   

Where there are young children, if they are to be cared for as you would wish, investing in an insurance policy is not enough.  It is also not sufficient to think that if there is a will, it will provide for the financial future of the children.  There may be considerable complications including potential inheritance tax and it can take many months for executors to obtain a grant of probate enabling release of the family assets.  Trusts overcome many of these problems as they pre-determine how property, such as the proceeds of a life assurance policy, can be held or distributed for or to the chosen beneficiary.  Most importantly, they allow immediate access to assets without the need to obtain a grant of probate, once all the claim requirements are met.  

What might appear as an inconvenience at the time and a bureaucratic exercise, trusts ease administration and can be set up to be as flexible as required.  Most importantly they can also reduce the amount that the Inland Revenue might otherwise receive.   Trustees can act even if there is no will, but that is not an excuse for not writing a will.  As this week’s BBC Panorama showed, who you ask to draw up a will and who you nominate to act as executors and trustees is as important as having a will in the first place.  The BBC programme highlighted the potential for delays and fraud by those entrusted to deal with your estate.  Executors are placed in a unique position of trust.  They receive the assets left by the deceased and it is their responsibility to distribute those assets according to the terms of the will.  It is easy for them to embezzle cash, make exorbitant charges, denying the beneficiaries of everything.   Therefore it is vital that when drawing up a will very careful consideration is given to who you appoint to undertake the important tasks of executorship and, where children are involved, who are appointed as guardians.  Fortunately once written a will can be redrafted but unless witnessed would have no legality.   If you have a will it pays to review periodically.  If you have life policies, it definitely pays to review those.  For advice on new or existing life polices see an independent adviser or telephone the number below. 

Send your personal finance queries to Weekend Money, R K Shipman Ltd, 1 Barnfield Crescent, Exeter, EX1 1QY, telephone 01392 278491 or email info@rkshipman.co.uk. This article is for general information only and you should seek professional advice in respect of your own circumstances and reflects the views of the author only.  Authorised and regulated by the Financial Services Authority, R K Shipman is a highly respected IFA offering personal service and innovative advice. 

WESTERN MORNING NEWS – SATURDAY 31^ST JULY 2010 

RAISING A FAMILY REQUIRES PROTECTION 

Today is the deadline for anyone who has to make an interim tax payment or for anyone who needs to renew a tax credit.  The self employed or others who have received notification of the July tax payment will now face added interest until the due payment is made.  If trading or income circumstances have changed such that this tax year’s income will mean a lesser tax bill then any overpayment will be repaid (without interest!).   As for tax credits, millions of families have been eligible for billions of pounds of payments since the system was set up in 2003.  However tax credits are to be cut significantly.  The system has suffered from complexity, bureaucratic errors and fraud. There have also been considerable over-payments in recent years.  If you are in receipt of a tax credit and think you are still eligible you need to check the accuracy of information provided to the authority in the renewal process in order to prevent over or underpayment in the coming year.  The authority can demand that money is repaid, so you should inform it of any changes to your circumstances during the year.  This includes working hours, childcare costs and pay.  If you do not renew your claim by today, your payments will stop, although I understand that provisional payments have been made since the start of the tax year based on previous information. 

From April 2011, according to the Government, 1.1 million fewer households will be eligible for the financial help (where earnings exceed £40,000) but for those that do receive Child Tax Credit it will rise by £150.  This is yet another indication of the likely reduction in State financial help in times of need.  According to Liverpool Victoria Friendly Society, it can cost over £200,000 to raise a child from birth to age 21.  With or without State aid, finding nearly £10,000 a year for 21 years is a financial burden for most families, which is why it is truly astounding that repeated research shows a third of households do not possess any life insurance at all.  Last week I emphasized the relevance of insurance to cover contraction of a major illness, which can also be tied in with provision of life cover.  There are many ways of making sure that family members will receive financial help and future security should one of the main partners die.  This is why it is important to discuss needs with a financial adviser rather than simply going on line and ticking a few boxes for some cover, which may not actually be the cheapest or the most efficient way of providing the cover needed.   

It is not just the less well off that can find themselves in difficulty after the loss of the main provider of a family’s income.  Often the ‘wealth’ of richer families is tied up in assets and not readily available on death.  The more complex an estate the longer it can take to obtain probate and even longer if there is no will.  If assets are not jointly owned then the surviving partner will have to wait until probate has been granted.  However if an insurance policy on the life of the deceased exists and it is written in trust for the surviving partner or children, financial aid is immediate.  Whilst sitting on the beach or sipping a glass of wine this holiday it might be worth thinking about how your lifestyle can be secured for others if you were to die or be killed in an accident.  For example, you might want to leave enough money to pay off your mortgage, cover school and university fees for your children, or provide your spouse (the term spouse can apply to husband, wife or civil partner) or partner with a cash sum to live off or invest after your death.  Insurance cover may be provided through an employer’s benefits scheme.  This could be lost in the case of redundancy.  Sadly, hardly a year goes by without the summer holidays bringing sad news for visitors to the southwest and residents alike.  Insurance cannot replace a loved one but it can ease the financial pain and provide important financial security.  To find out how much this might cost and for a guide to family protection readers can call the telephone number below. 

Send your personal finance queries to Weekend Money, R K Shipman Ltd, 1 Barnfield Crescent, Exeter, EX1 1QY, telephone 01392 278491 or email info@rkshipman.co.uk. This article is for general information only and you should seek professional advice in respect of your own circumstances and reflects the views of the author only.  Authorised and regulated by the Financial Services Authority, R K Shipman is a highly respected IFA offering personal service and innovative advice. 

WESTERN MORNING NEWS – SATURDAY 24^TH JULY 2010 

FINANCIAL SUPPORT NEEDED IN CRITICAL TIMES 

It should come as no surprise that younger people are more likely to become seriously ill than die.  Illnesses such as cancers, heart problems and stroke, more often associated with the elderly are just as likely to affect people in their working prime.  The average age for a Legal & General critical illness claimant is 44 and a staggering 80% of claims from women are from those below the age of 50.  McMillan Cancer Care highlight the potential financial impact, not least on a patient’s ability to hold on to his or her home:

COULD YOU SURVIVE ON £14,400? 

When I first began offering financial advice 23 years ago, £15,000 seemed quite a lot of money.  I suggested this was the minimum annual income that would be required to live a reasonable if not wild life in retirement.  This week the Joseph Rowntree Foundation has suggested that the minimum salary required today is £14,400.  According to the Bank of England’s inflation calculator over the last 23 years, £15,000 would now have to be worth £31,445 to be worth the same in new money, based on an annual inflationary rise of 3.4% to 2009.   Consequently, it is no wonder that people actually earning £14,400 a year are saying how difficult it is to make ends meet.  If that is so then pensioners on even less will have a real struggle and as we know, matters are not going to improve.  Fortunately, the ‘lid’ seems to be firmly on actual inflation and retailers et al may well find it more difficult to raise future prices, other than through the rise in VAT. 

This will also mean that employees will find it more difficult to extract pay rises (and public sector pay is to be frozen for many) and pensioners on fixed incomes have no way of adding to this without indexed employer or personal pensions.  To suggest that in these austere times one ought to consider saving some of this income is likely to fall on deaf ears.  Yet in the days when Prudential and Pearl Insurance Company salesmen went from door to door collecting tiny amounts of actual cash to be placed in extremely expensive (cost wise) savings policies, these householders managed to find the required amount each week.  As costs, disclosure and customer awareness developed this culture died out.  The Child Trust fund was an attempt to perhaps rekindle a savings culture but at the expense of the tax payer, and understandably this also has got the chop.   

Without somebody knocking on your door to collect a premium each week how can people be encouraged to save, even if it is just a small amount regularly?   I understand the Government is looking at developing a range of ‘simple’ products to do just that.  Quite how Government involvement would work without any tax incentives is another matter.  ISAs (Individual Savings Account) and Pension contributions already exist and benefit from tax relief.  In reality these types of saving wrappers are already simple enough and accessible to most people.  However, it helps if you take financial advice first to ensure that the money placed within these wrappers is invested wisely.  By saving, I am thinking of putting money away for the longer term.  This means that cash deposits are not likely to provide the kind of return that would be worthwhile. 

I have just reviewed a Child Trust fund set up in October 2008 with the money from the Government and an addition from the parents.  A total of £1,200 was invested equally between two investment trusts – F&C Investment Trust and Scottish Mortgage Trust.  No further capital has been added.  By the middle of this week the investment was worth £1,725, inclusive of the £45 to set up the investments.  Even I was surprised at the growth shown given that share prices continued to fall from October 2008 to March 2009 only to then rise like a rocket before falling back again this year.  It is unusual to gain so much in the early years but this investment has certainly set this youngster’s savings on the path to potentially greater returns over the intended18 years.  The fact that this was a Child Trust fund is irrelevant.  The same investments could have been made within an ISA or pension plan.  One of the problems of obtaining advice for small amounts of money is the cost to an independent adviser of providing it – if you are already a client then the adviser should be only too willing to help initiate a plan without perhaps levying a separate fee.  Otherwise it could be worthwhile paying a small fee for access to knowledge and expertise.  The saying “little acorns” does have some truth in it. 

Send your personal finance queries to Weekend Money, R K Shipman Ltd, 1 Barnfield Crescent, Exeter, EX1 1QY, telephone 01392 278 491 or email info@rkshipman.co.uk. This article is for general information only and you should seek professional advice in respect of your own circumstances and reflects the views of the author only.  Authorised and regulated by the Financial Services Authority, R K Shipman is a highly respected IFA offering personal service and innovative advice.   The value of shares can rise as well as fall and the income from them is not guaranteed.  Investing in equities is not the same as holding capital with in a deposit account - you may not get back your initial investment. 

WESTERN MORNING NEWS – SATURDAY 10^th July 2010 

FIND AND REWARD TALENT  

The germ for this week’s column had already been sown before reading last week’s interview with Baroness Judith Wilcox (new Business Minister) in which she stressed the importance of giving youngsters access to worthwhile jobs in new and innovative companies in the south west, by way of apprenticeships and work placements.   A university degree may well be the ultimate in education but does not necessarily equip to provide what the nation and the south west actually needs – the skills and aspirations to forge a profitable vocation or one’s own business.  It is tapping into these skills and hidden talents that education and post school does seem to fail so many youngsters.  Watching Gareth Malone draw performances out of a group of disparate youngsters from ‘deprived’ areas around Brighton, once again showed that virtually any youngster left to ‘drift’ does actually have harnessable skills and abilities if they have the right mentor. 

Gareth Malone deserves a knighthood.  In the recent BBC series on producing at Glyndebourne a new opera, fittingly called Knight Crew, he showed he can get to parts that others fail to reach.  The opera is based on gangland ‘culture’ involving a stabbing and death.  Two of the Crew (the teenage chorus) had actually been stabbed in real life, so the opera’s story was not a million miles from reality.  Why is it that it is left to TV to bring these youngsters to life?   As has been shown a number of times now, dedicated individuals in the arts when given the resources both in time, personnel and platforms, can turn a no-hoper into a star.  This is not to say that there are many people outside the media who are also doing wonders with the under dogs of teenage society.  But the TV series are surely suggesting that there is something fundamentally wrong with our education system in that these talents are never brought to light.  But it is more than just developing those talents – it is also about self esteem, confidence and aspiration – just as Baroness Wilcox thinks where we should be directing our attentions.  Having trawled the more deprived areas of the South Coast, Gareth managed to get together over 200 youngsters who were prepared to audition for a part in the opera.  None of them had sung before and none had ever seen an opera. 

The music was of the ‘modern age’ and for most, even expert opera singers, very difficult to sing.  The finished production was of a very high, professional standard and well worth watching.  Every youngster that took part was eminently employable and would have much to offer.  But sadly I guess for most this won’t happen which is why we need people like Gareth Malone in business who are prepared to go that extra mile and provide youngsters with the opportunities.  The financial benefit to the nation is incalculable.  In times of austerity clearly more difficult which is where the Government will still need to help and as the Baroness says, learning on the job needs to be valued – that is paid for.  But these youngsters need more than a regular pay day from an employer – they are going to need financial support from parents and grandparents.  This is why regular savings for young children can be so beneficial once they reach 18 years or later, even to the extent of helping them into a pension savings plan.  The Child Trust fund may be getting the axe but it need not stop the build up of a small capital sum to help youngsters on the way when they most need it.  Saving in a cash deposit should not be the default option.  The compounding affect of low interest rates means low returns.  Equities – within unit or investment trusts – offer much more potential for greater financial rewards and the choppier the ride in the early years the better.  The more you can buy of an asset when prices are depressed the better.  Given time these holdings should deliver as share prices increase.  Pension savings for youngsters will mean decades for future growth and anybody can invest up to £2,880 net each year for any youngster, who will benefit immediately from £720 in tax relief within the pension.  To help youngsters on to the financial ladder and for advice readers can telephone the number below. 

Send your personal finance queries to Weekend Money, R K Shipman Ltd, 1 Barnfield Crescent, Exeter, EX1 1QY, telephone 01392 278 491 or email info@rkshipman.co.uk. This article is for general information only and you should seek professional advice in respect of your own circumstances and reflects the views of the author only.  Authorised and regulated by the Financial Services Authority, R K Shipman is a highly respected IFA offering personal service and innovative advice.   The value of shares can rise as well as fall and the income from them is not guaranteed.  Investing in equities is not the same as holding capital with in a deposit account - you may not get back your initial investment. 

WESTERN MORNING NEWS – SATURDAY 3^rd July 2010 

AUSTERITY DEMANDS FINANCIAL INITIATIVE 

I am tired!  I am tired of lame excuses by the manager of our national football team.  For once I think it is not outspoken to suggest that the payment of £10 million plus is obscene should he be sacked.  How is it that a nation of more than 60 million only just survives being beaten by a team from a nation (Slovenia) of just 2 million?  Football and investing would seem to not have much in common but it is all about assets.  England has not reaped the rewards from all the money poured into the great game but from now on supporters ought to be demanding value.  Whilst the UK has dealt investors a poor hand its overseas competitors have come up trumps, as in the World Cup.   All the talk of bankers’ bonuses pales into insignificance when it comes to football and I do not hear politicians clamoring for a cap on pay in that sphere.  However if higher rate tax payers are to be hit then perhaps the economy might benefit from the money supporters are prepared to allow their football players and managers be paid.   

As sporting highlights begin to fade from our TV screens minds will probably now turn to the life of austerity the rest of us are going to have to endure and how the recent Emergency Budget and the next one to come in November will impact on finances.  Given the noises off, especially from the recent G8 meeting in Canada, the UK is going to have to be even more ruthless in reducing the deficit.  Apparently the interest alone on the money borrowed is equal to that spent in the year on health and education.  No one will be spared some of the pain.  Therefore it means that every penny that can be saved will make some difference to your overall balance sheet.  For home owners the biggest expense is likely to be a mortgage.  Fixed rate deals come to an end sooner than you think and now is the time to be seeking advice on the best replacement.  At around 4.00% for five years this is about as good as it gets.  The Bank Base Rate is likely to remain low for some time to come but my guess is that over the next five years it will slowly creep higher.  Fixed rates always anticipate and thus taking a five year time horizon might not be such a bad move but seek professional advice. 

Whilst looking at interest rates I find it difficult to believe that ISA cash savers show so much inertia and fail to shop around for a better rate.  At last savers have been victorious now the Office of Fair Trading have decreed that ISA accounts should be transferred from one provider to another within 15 days and that interest should start to accrue no more than two days after funds have been received from the old provider.  This should mean that it is much easier to transfer ISA accounts.  So take the initiative and secure a better rate for your savings.  Beware that often the existing provider does not provide an option on their form to enable a transfer to another deposit taker.  But does it need to be in cash?  Will you want to access your ISA capital in the next five years or so?   The fall in share prices this week makes the yield or dividend payment look more compelling even if BP has been forced by an unstately clamour from the US to suspend its dividend.   

Whatever your views on stock market investing, an income in excess of cash interest rates (tax free within an ISA) suggests that the risks associated with equities are worth taking if you are unlikely to need that capital for the foreseeable future.  Just as it has proved to be unwise to have all your capital invested in one share the same could apply to investing in just one investment fund.  A spread of funds will ensure that your own capital is invested in as wide a range of shares as possible.  If one of those shares fails to pay a dividend then the overall effect on your income will be very minimal.  If one of the companies actually goes bust the effect on the overall return is also going to be less significant.  That is why advisers go to great lengths to match portfolios, large or small, to your needs and try and minimise or mitigate the risks involved, always available as below.   

Send your personal finance queries to Weekend Money, R K Shipman Ltd, 1 Barnfield Crescent, Exeter, EX1 1QY, telephone 01392 278 491 or email info@rkshipman.co.uk. This article is for general information only and you should seek professional advice in respect of your own circumstances and reflects the views of the author only.  Authorised and regulated by the Financial Services Authority, R K Shipman is a highly respected IFA offering personal service and innovative advice.   The value of shares can rise as well as fall and the income from them is not guaranteed.  Investing in equities is not the same as holding capital with in a deposit account - you may not get back your initial investment.

WESTERN MORNING NEWS – SATURDAY 26TH JUNE 2010

WORLD CUP FEVER – PAYBACK TIME

It would be remiss of me to let the World Cup pass by, although that is what has largely happened in my case, until Wednesday. In the national interest I did join a group to watch this week’s match in a pub in Exeter. To my surprise I found myself cheering when England were on the attack and grimacing at the misses. Talk of playing to save their lives, England certainly did that and were much the stronger side, delivering a much more exciting game. This column began with two possible outcomes – fortunately the country and fans can look forward to the next round. I am sorry if you were hoping for an early exit – what with football and tennis on at the same time it is clearly a good time to go on holiday instead if sport does not take precedence in your life.

One of the reasons I so dislike football is due to what I feel are excessive salaries paid to players and managers alike. Is football really of greater importance than running UK plc? Perhaps it makes a large contribution to the nation’s wealth, and now that Slovenia has been beaten, retailers and the catering industry can look forward to another week of buoyant sales. Otherwise what would have happened to the stocks of football shirts and other memorabilia, to say nothing about the vast quantities of alcohol that greet you as you walk into any supermarket? As Mary Portas said on TV this week running a business is all about making a profit and making people want to support you and return again and again – until Wednesday, the England football team looked unlikely to be very profitable. Success in the second round might well justify the £millions poured into the game through payback into the UK economy.

That the UK needs some payback is clearly evident from the Emergency Budget. In a momentous week for the Coalition Government the impact of the Budget on ‘ordinary’ households will take time to take effect. But one tax change, widely touted before Budget day, Capital Gains Tax, could indeed hit basic rate as well as higher rate tax payers. As often mentioned in this column the gains allowances available to all, are rarely used. Most assets that gain in value attract tax, but only when sold (or gifted) for a monetary value. If you own a single asset, such as a property, it is impossible to sell this in bits each tax year (or give away bits), to utilize your personal gains allowance (currently £10,100 and unchanged in the Budget). When it comes to selling, you have to sell the whole property (usually). Despite the recession, it is likely that any property (not your main residence) will have gained significantly since purchase or inheritance or however acquired. If the gain, after all expenses and the CGT allowance and personal income tax allowance, when added to all your income (both earned and from investments) takes you above the higher rate tax threshold, you will now have to pay 28% tax on the ‘income’ above the threshold, instead of 18%.

This will make property as an asset less profitable than other forms of investment such as shares and unit trusts and other collectives which can be sold at a profit (or loss) in small parcels thereby helping to utilize the CGT allowance every tax year. If a higher rate tax payer it will also make fund of funds that are managed for you tax efficient, in that the managers can crystallise profits within the fund without triggering CGT. Creating a tax efficient income either now or for the future is even more important, whether you work in the public or private sectors or are already retired. Only a few may be able to enjoy top footballer incomes but it is possible to enhance income from even modest savings with advice and planning. This is what good independent financial advisers are very adept at helping companies and individuals achieve, if only you are prepared to sit down and discuss your needs and aspirations. Calling the telephone number below is one such way of accessing this advice.

Send your personal finance queries to Weekend Money, R K Shipman Ltd, 1 Barnfield Crescent, Exeter, EX1 1QY, telephone 01392 278491 or email info@rkshipman.co.uk. This article is for general information only and you should seek professional advice in respect of your own circumstances and reflects the views of the author only. Authorised and regulated by the Financial Services Authority, R K Shipman is a highly respected IFA offering personal service and innovative advice.

WESTERN MORNING NEWS – SATURDAY 19^TH JUNE 2010 

INVESTORS LOOK OVERSEAS FOR INCOME 

I hesitate to mention BP for a third week running but the implications of a suspension of dividend payments for income seekers and those dependent on dividends for that income are very important.  Who would have thought in the last three years, that some of the main pension fund and personal investor income generators would either be no more or would not be paying dividends to share holders today?  The status quo accepted by generations is no longer.  From major UK banks to BP, the loss of or threat to dividends, has shown that alternative sources of income are needed if cash flow is not to be affected. 

That a major company traditionally seen to reward share holders by way of a share of the profits can suddenly cut their dividend is inconceivable, or at least it was until the credit crisis closely followed by a major environmental disaster.  If the circumstances of these cuts are extreme then those same companies will want to ensure that share holders are once again rewarded as soon as possible.  But this situation shows how important it is not to be over reliant on just once source of income.  This goes for cash deposits to owning individual shares.  It also applies to businesses in general with respect to how they make an honest profit.  An over reliance on one product or one type of customer can lead to failure.  Understanding your market and thus your current and potential customers is crucial. 

This is something that the fund management industry is very good at.  Perhaps too good – the choice is enormous and far too wide.  Far too many unit trusts are available, many of which should be closed.  There just is not the talent or skills in management personnel to warrant such a plethora of funds from the esoteric to the mundane.  But to be successful a fund management group does need to offer enough choice and the right choice to attract customers or fund buyers.  Large is not necessarily a good thing as regards a particular fund but fund size is important in keeping costs down.   Because pension funds and other investors need income, this is one area that good fund managers excel.   However over the last eighteen months more and more of them have increased their holding in BP shares.  They saw this company as solid and reliable and a good source of income and a defense against the recession.  It would be difficult to find a unit trust investing in the UK Equity Income sector that did not list BP as one of their top ten share holdings.  If 5% of your fund was in this one stock then the unit price of the entire fund will have taken a knock since the crisis in the Gulf of Mexico.