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Glossary: All-In-One Accounts and Offset MortgagesAccounts such as these can be used to offset the asset of a deposit account against the liability of a mortgage and only charge the borrower interest on the difference. These accounts offer a high degree of flexibility, but the ultimate decision must rest with the various interest rates available on an all-in-one account against conventional mortgages and deposit accounts. Some investors prefer to buy alternative investments such as antiques, pictures, wine and classic cars. For those with knowledge and expertise in their chosen area, this can be very lucrative. However, history has shown that alternative investments are not without risk. Novices can have their fingers burned unless they seek expert advice. Conventional wisdom says that it is unwise to place all one's eggs in the same basket. The process of asset allocation ensures that an investment portfolio holds elements, such as equities, gilts, property, bonds, etc. to protect against the significant reduction in value of any asset class. Smaller investors will not have sufficient funds for full asset allocation. Hence, they may be better advised to invest in collective schemes, such as unit or investment trusts, or funds offering lower risk, such as life company investment bonds.Some investment products require you to tie up your money for a set Term to qualify for (usually) enhanced benefits. For instance, Equity Bonds, Income and Growth Bonds issued generally by life assurance companies have a maturity date of normally 5 or 7 years. Some building Society accounts require the money to remain untouched for extended periods. You should only invest money that you do not require in a hurry in such products. People often use the terms 'home insurance' or 'household insurance' in a general way to refer to insurance that covers any aspect of their home and belongings. However, these policies are usually split into separate sections 'buildings' and 'contents' and not all policies cover both. Buildings Insurance, as opposed to Contents Insurance, covers the structure of a building, including the foundations, plus permanent 'fixtures and fittings' such as baths, fitted kitchens, etc. The test is can it reasonably be removed and taken to another home? If it can, then it is part of the 'contents' and it will not generally be covered by a buildings policy. Buildings policies usually include outbuildings, such as garages and garden sheds. Anyone with a mortgage should take out adequate insurance to cover the re-building. Most mortgage lenders will insist they do and it may work out cheaper to insure both contents and buildings together. Many investors have built up portfolios of residential properties, which they let. Frequently, they borrow money on a "buy to let" mortgage and offset the rental income against this cost. This can be very attractive as they benefit from both the yield (rental income) and capital appreciation. As the stock market has offered lower returns over the last few years, many investors have moved funds into residential property. Some might say that this has fuelled the rise in house prices. But, as the supply of rental property in the UK has grown, yields have dropped. We are also looking at a period of lower rates of increase in values. Investors who take out a "buy-to-let" mortgage should be aware of these trends, avoid borrowing more than a reasonable percentage of the overall value and budget for "void" periods when they are not receiving rental income. As opposed to income, is often described as the total assets of a person or organisation minus their total liabilities. If this figure is negative they are insolvent. The word can also be used in the sense of funds invested in a company, either in the form of shares (share capital or equity) or loans (loan capital). CGT was first introduced in 1965. It is charged on real net gains realised on the sale of an asset (i.e. profits after inflation) above a set annual level. The main exemptions are owner-occupied property and chattels. Pension funds and charities are exempt and no CGT is payable on assets realised as a result of the death of the owner. Fixed-interest securities issued by both the government and corporations in the UK are free of capital gains tax for most private investors as are National Savings Certificates. Investors who think they are liable for CGT should take professional advice as the rules for avoidance and other reliefs are complex. If you need to see a dentist, it can be an expensive as well as an uncomfortable experience. The most popular type of scheme on the market to prevent cavities from appearing in your wallet is a capitation plan. This is a type of budget plan that spreads the cost of treatment. You save a certain amount each month and this gives you access to most routine treatments. Business analysts use this to represent the movement of funds through a business during a given trading period, thus indicating the amount by which the liquid resources have increased or decreased during that period. The movement of funds can be shown in the form of a cash flow statement or forecast which will provide information as to the sources and application of income and capital during the period. It is as important for an individual as a company to manage cash flow as part of their financial affairs to avoid "surprises", such as unexpected overdrafts, which can prove expensive. Nine out of ten families with children can get tax credits. Child Tax Credit is a means-tested allowance for parents and carers of children or young people who are still in full-time education. If your family has at least one child and meets the other qualifying conditions you may be able to get Child Tax Credit. To find out if you qualify, there are a number of links on the Inland Revenue website, http://www.hmrc.gov.uk/index.htm Alternatively, you can get an application form from the Tax Credits helpline on 0845 300 3900. Normally a payment to an intermediary for services rendered based on a percentage of the value of the "deal". This is usually paid to the intermediary by the product provider so there is often no direct fees paid by you. The opposite would be a fee that is fixed and agreed before the service is performed and is often paid by you. People often use the terms 'home insurance' or 'household insurance' in a general way to refer to insurance that covers any aspect of their home and belongings. However, these policies are usually split into separate sections 'buildings' and 'contents' and not all policies cover both. Contents Insurance, as opposed to Buildings Insurance, covers your possessions, such as your television set, furniture, clothes, etc. In other words, just about everything you would take with you if you moved. While it is generally easy to determine whether an item is part of the buildings or part of the contents, sometimes this is not immediately apparent and policyholders should read the small print if in doubt. The test is can it reasonably be removed and taken to another home? If it can, then it is part of the 'contents' and it will not generally be covered by a buildings policy. When buying and selling a house, conveyancing is the process of transferring the title of a property from one legal party to another. In most instances, the conveyancer will be the solicitor of the purchasing party. Some solicitors outsource this function to a specialist firm, which can offer savings. A form of insurance policy that pays out on the diagnosis of a specified serious or terminal illness rather than a death claim. Dread diseases include myocardial infarction, coronary artery bypass surgery, brain paralysis, chronic kidney failure, cancer, paralysis, and major organ transplant. These illnesses require hospitalisation, a long period of convalescence, and may lead to death. Regular life insurance only pays when the insured passes away. It cannot help with the financial burden of expensive medical treatments. Insurance on dread disease and cancer has become increasingly popular as we become more informed about serious illness. Schemes are decided at the time of insurance and professional advice as to their benefits is strongly recommended. Simple operations and medical treatments can be carried out without a patient staying overnight. This obviously offers considerable savings. Some private medical insurers offer enhanced terms to policyholders who accept day patient or outpatient treatment. Debt management principally relies on reducing debt where possible and ensuring that the borrower is paying the lowest possible interest rate. Where a borrower in over extended and in crisis, there are a growing number of organisations that can offer assistance and advice on debt consolidation. They can also offer advice on the pitfalls. Many mortgage lenders offer the incentive of a discount off their Standard Variable Mortgage Rate for a period, often two years. This will offer lower payments at the start of your mortgage. However, this may mean that there is a period after that when the lender may charge for any alteration of the mortgage. The size of the discount depends on the size of your loan and the amount you borrow in relation to the value of your home. Other mortgage scheme incentives are a fixed interest period or a cash sum. The benefits of each will depend on the individual circumstances of the borrower. If you wish to pay off your mortgage early, some lenders will charge an early redemption penalty. This is clearly a waste of your money! Borrowers are advised to read the small print and avoid this charge where possible. Some savings and deposit accounts require notice of one month or more to withdraw funds to qualify for higher interest rates or other terms. The growing breed of easy access savings accounts offer no notice or other barriers to accessing your own money and offer pretty much the same levels of return. These accounts should be much more attractive to the average saver. Equities is the term given to investments in a company listed on a stock exchange, as opposed to fixed-interest investments and property. It is a general term for ordinary shares having an interest in profits of a company. Equity markets is a general term for shares on the London Stock Exchange and similar exchanges across the world. Older homeowners can release the equity in their property to boost their income or receive a cash lump sum, or a combination of both whilst still securely occupying their own home. Homeowners generally need to be aged at least 60 to take advantage of such schemes that require them to sell their home, or a percentage of it, to a plan provider. The person can usually remain in the house rent-free until the last remaining borrower dies (if a couple) or is transferred into long term care. When the property is sold, the plan provider reclaims their percentage with the remainder going towards specified beneficiaries. However, the same percentage of any future rise in the value of the home would also belong to the plan provider. Alternative schemes require the homeowner to take out a fixed rate interest only mortgage on their property and use the borrowed money to purchase a regular income. However, some home income plans earned a very bad reputation in the late eighties and early nineties and as a result have now been outlawed. Membership of the Safe Home Income Plans (SHIP) organisation has helped restore confidence in the market. For inheritance tax (IHT) purposes, an individual's estate is his/her total assets less total liabilities. Proper estate/inheritance tax planning could save your family hundreds of thousands of pounds. IHT is essentially the tax charged on what you leave behind when you die, formerly called death duties. IHT will be due at 40% of the value of all the assets you leave behind on death above the first £312,000. Professional advice should be sought to make the best use of the various exemptions and other avoidance schemes using gifts and other transfers. Since many of these require decisions to be made several years in advance of death. Proper estate planning can offer major advantages. Investment that aims to avoid companies that are involved in certain activities such as the manufacture of armaments, cigarettes, animal research or alcohol, or that are involved in trade with countries deemed to have infringed certain human rights. They can also be investments in companies where the emphasis is placed on the protection of the environment, charitable works and medical research or other benign activities. Normally a payment to an intermediary by you for services rendered that is fixed and agreed before the service is performed. The opposite would be a commission normally based on a percentage of the value of the "deal" and paid by the product provider to the intermediary. One of the recent mis-selling scandals has been based on advisers incorrectly advising members to leave a final salary pension scheme which, owing to the cost of provision, are becoming increasingly rare. These are schemes that offer predetermined levels of pension benefit, usually expressed as a fraction of final salary, which give a higher pension than most other schemes. A typical scheme would offer a pension of one-sixtieth of the final salary for each year of service within the company or as a member of the scheme. If you are lucky enough to be in a final salary pension scheme, it is almost certainly not worth leaving it. But, although the ultimate level of pension benefits in retirement is determined, the cost of provision is not and accordingly contributions are indeterminate and need to be reviewed on a regular basis by a professional adviser. The word Ombudsman originates from an independent arbitrator sponsored by the state in Scandinavian countries. In the UK the term is used to describe a parliamentary commissioner appointed to impartially arbitrate complaints by the public against major industries or institutions. The Financial Ombudsman Service has been set up by law to help settle individual disputes between consumers and financial firms and provides consumers with a free, independent service for resolving disputes. They can consider complaints about a wide range of financial matters from insurance and mortgages to savings and investments. But the service is not a regulator ('watchdog'), a trade body or a consumer champion. Neither can it give personal advice about financial matters or debt problems. Their role is to settle disputes, without taking sides. You do not have to accept any decision it makes and are always free to go to court instead. But, if you accept an ombudsman's decision, it is binding on both you and the firm. Telephone 0845 080 1800 or visit www.financial-ombudsman.org.uk for further information. It is often difficult to see and understand how the long-term effects of financial decisions that we make now impact on both our own lives and on those who might inherit our estate. Prudent investors will plan for the future and are well advised to seek professional advice. The Financial Services Act 1986 established a framework for the protection of investors which requires the registration and monitoring of investment businesses under the ultimate control of the Treasury. This Act was superseded by the Financial Services and Markets Act 2000, which formed the Financial Services Authority (FSA) as an independent non-governmental body with the authority to regulate investment business. As from the beginning of 2005, the FSA has also taken over responsibility for the regulation of General Insurance and Mortgages. The FSA has four statutory objectives which are to maintain confidence in the financial system, promote public understanding of the financial system, secure the appropriate degree of protection for consumers and reduce the extent to which it is possible for a business carried on by a regulated person to be used for a purpose connected with financial crime. More information, including the ability to search for regulated firms or individuals, is available on their website, www.fsa.gov.uk. A security (or stock) that carries a fixed rate of interest (coupon), normally payable for a predetermined period. Issuers of such investments can be governments, local authorities and corporations. Such stock has many different forms but is generally known as gilts for UK government issues and loan stock for corporate issues. When you buy a gilt, you are lending the government money in return for regular interest payments and the promise that the nominal value of the gilt will be repaid (redeemed) on a specified later date. The rate of interest will be in the name of the gilt (e.g. 6% Treasury 2028 is a gilt issued by the Treasury which pays 6% interest p.a. and is repayable in 2028). You don't have to hold a gilt until it is redeemed as they can be traded just like shares and their prices continually move in line with supply and demand. The main influences on prices are the market's view of future interest rates and inflation. Prices tend to fall when interest rates rise and when inflation is on the increase. Low interest rates and low inflation makes gilts more attractive. Since this is the opposite of what equities might do, gilts can form an important asset class in a balanced portfolio. Index-linked gilts pay a lower rate of interest than fixed-interest gilts, but both the rate of interest and the amount paid on redemption rise in line with inflation. If the gilts are redeemable, the redemption sum will be paid to whoever is the owner at the redemption date. Redeemable gilts are classified as longs (redeemable after fifteen years or more), mediums (redeemable between five and fifteen years) and shorts (redeemable within five years). The amount redeemed will not be the market price of the bonds at the time of redemption, but its nominal value (usually £100). You can buy gilts directly, or you can buy shares in investment and unit trusts that invest in gilts. The direct route tends to be less expensive, and the Bank of England offers a low cost service. Income from gilts is liable for income tax but capital gains are tax free. Some mortgage lenders will offer a period, normally 2 to 5 years, where the interest rate is fixed after which it will revert to the Standard Variable Mortgage Rate. This can make budgeting for mortgage payments easier for borrowers in the first years. Sometimes the interest rate is also at a discount as a further incentive. However, this may mean that there is a period after that when the lender may charge for any alteration of the mortgage. Other mortgage scheme incentives are a discounted variable rate for a set period or a cash sum. The benefits of each will depend on the individual circumstances of the borrower. All companies with five or more employees are obliged to, at the very least, offer employees the ability to contribute to a personal pension scheme. Many companies will also contribute to such schemes. However, some employers have gone one stage further and provide their own company scheme. Such schemes are usually highly advantageous to the staff. Nevertheless, there have been some notable failures, often caused by the collapse of a company, when there are not enough employees contributing into the scheme to pay pensioners what they might have expected. As a result, many employers are not offering this facility to new employees. The rules and regulations are complex and professional advice is strongly recommended, particularly regarding the merits of leaving a scheme. These bonds are issued generally by life assurance companies with a maturity date of normally 5 or 7 years. From a single premium (investment), they provide investors with either a guaranteed amount at the maturity date or a guaranteed regular income until maturity at which time the original premium is returned. Many Bonds are now using derivative products, such as futures and options, to smooth performance. However, the word to be careful about here is "guaranteed". These Investment Bonds are not always without risk, as many investors found with the so called "precipice bonds" which failed to return capital invested when an event, such as the stock market index falling below a set level, triggered a substantial reduction in the capital returned when the bond expired. A professional adviser will be able to assess the risk and advise you of the most appropriate investment for your needs. Many insurance experts advise it's worth picking a critical illness or other protection policy with guaranteed premiums. Most term policies now work this way, with the advantage that the monthly cost is fixed throughout. The alternative is a reviewable policy, which can become much more expensive as the policyholder gets older. Typically, a reviewable policy will recalculate premiums every 10 years. Whole-of-life policies are normally reviewable, but the increasing costs mean quite a large proportion of policyholders let their insurance lapse in later life. Another way to cut costs is to pick a policy that provides reducing cover over the term. This is a common feature on cheaper life assurance policies, and also available for critical illness. Typically, the policy benefit matches the outstanding capital on a repayment mortgage, which gradually decreases over the mortgage term. The total amount that you are able to borrow from a mortgage company is based on a multiple factor of the income of the borrower(s). This is to ensure that the borrower has a reasonable chance to meet the monthly payments. A typical lenders' income multiples would be for a maximum loan of 3 times the main income plus 1 times the second income or 2.5 times joint incomes if higher. If the ration of Loan to Value (LTV) is lower, say around 70% or less, the multiples may be increased. According to Norwich Union, of all the people currently unemployed, over 2 million people are off work for more than six months due to a long-term illness or injury. Statistically, you're almost twenty times more likely to suffer a breakdown in health lasting more than six months than you are to die before you are 65. There are a lot of protection products to select from, such as private medical insurance, mortgage protection cover, critical illness cover, accident, sickness and unemployment cover, that all, to varying degrees, overlap with each other. The products you need will depend largely on your life stage and what you and any dependants would stand to lose if you died or became unable to work. The features and benefits of the various schemes are complex and it is worth seeking professional advice, as some cover can be very expensive. "But in this world nothing can be said to be certain, except death & taxes", said Benjamin Franklin in 1789. Income tax is payable on all forms of income received by citizens in the UK. Tax on earnings is normally deducted from an employee's pay packet via PAYE (Pay as You Earn). Other income must be declared in a tax return and assessed by the Inland Revenue according to current tax rates (Basic rate (currently 20% on first £34,800) and Higher rate (currently 40% above £34,800)) less allowances. You may well need professional advice if you have complex tax affairs, such as multiple sources of income, or are self-employed. More information is available from the Inland Revenue website, http://www.hmrc.gov.uk/index.htm The Financial Services Act in 1986 introduced the concept of an Independent Financial Adviser (IFA). IFAs are obliged to make recommendations to clients in the light of all the various financial products available. They can accordingly be impartial in their recommendations on the basis of offering "best advice". All IFAs must offer their clients the ability to pay an agreed fee as opposed to the IFA deriving a commission from the sale of an investment product. The alternative would have been advice from a tied agent or a direct salesman who can both only offer advice on the products of one provider. However, the biggest change surrounding the provision of financial advice has been introduced by the Financial Services Authority (FSA) on the 1st December 2004. The new rules, known as "de-polarisation", will allow some tied agents (such as some banks and building societies), as well as some advisers who are currently independent, to become multi-tied. The multi-tied adviser will offer consumers the choice of products from a limited range of companies they have selected. Some organisations feel that with these changes comes the added risk of increased consumer confusion, making it a more important time than ever to highlight how the advice process works and help consumers to decide what is the right type of advice for them.IHT are the death duties that replaced capital transfer tax in the 1986 Finance Act. More than 96% of estates do not have to pay any inheritance tax because they are below the threshold, which after 6 April 2008 is £312,000. A person's estate includes the total of everything owned in his or her name, the share of anything owned jointly, gifts from which he or she keeps back some benefit, for example, a house still lived in and maintained, although given to someone else and assets held in trust from which he or she gets some personal benefit, for example, an income. If your estate (including assets held in trust and any gifts you have made within seven years of your death) is less than the threshold, no inheritance tax will be due. However, some outright gifts are exempt. To make best use of the available reliefs, careful Estate Planning is required, which may require professional advice. More complex operations, where a patient must be kept in hospital overnight, are obviously more expensive than simple operations and medical treatments that can be carried out without an overnight stay. Some private medical insurers offer enhanced terms to policyholders who accept day patient treatment. The exact cover required will depend on personal choice and cost. A borrower's monthly payments will only cover the interest on the outstanding loan, without reducing the loan itself. The advantage is that monthly outgoings will probably be lower than those on an alternative repayment mortgage, where each monthly payment pays off interest and something towards the quantum of the loan. With a repayment mortgage, the loan is reduced to zero at the end of the term. The disadvantage of an interest only loan is that the loan is still outstanding and it will either require an investment built up elsewhere to pay it off, such as an endowment policy, or the sale of the property to release funds. Professional advice is strongly recommended to avoid unwelcome surprises. A collection of investments held by or to the account of an individual, corporation, fund or trust. Normally the portfolio will have predetermined objectives, such as capital growth or income. It may also be managed in a certain way such as a discretionary portfolio, or even contain certain types of investment, such as an equity portfolio or unit trust portfolio.ISAs are an ideal way to build up a fund to, for instance, pay off a mortgage. They were introduced on 6th April 1999 to replace PEPs and TESSAs. They are not an investment in their own right but are a tax-free wrapper in which you can shelter investments. Adults living in the UK can invest a maximum of £7,200 per year in each tax year or up to £3,600 in a cash ISA. Capital gains are exempt from CGT. ISA plans are sold by stockbrokers, IFAs, fund managers, banks and other authorised financial institutions. You can buy a plan and take advice on what to put in it, or you can have a 'self-select' ISA and make your own decisions. But, investment is not without risk. Careful choice should be taken of the funds invested. For instance, many investors lost out when technology shares tumbled. As the fund grows, professional advice should be sought to ensure the capital is protected as much as possible. All advisers must provide customers with two 'keyfacts' documents, explaining their status, tied, multi-tied or independent, the services they offer and a menu of their charges. This should enable consumers to properly understand the value and cost of the adviser's proposition, and to shop around for the best type of advice for them. This is insurance against any legal liability to pay compensation and court costs where the insured has been found negligent in respect of injuries sustained by another person or damage to property. It may or may not be included in other insurance schemes, which is worth checking. Literally, a life insurance policy will pay a lump sum on the death of the insured. This is usually called Term Assurance and the insurers liability ends at the end of the term. Term assurance is often used in conjunction with a mortgage to pay off the outstanding loan in the event of the death of the borrower. This might avoid the deceased dependants being without a roof over their heads. In the case of life policies that include investments, which have a cash value, in addition to the life cover, a savings element provides benefits which are payable before death. In the UK, endowment assurance provides the policyholder with life cover or a maturity value after a specified term, whichever is the sooner. Many mortgage lenders will insist that a borrow takes out appropriate life cover.
(Assurance is peculiar to some English Insurance companies but means the same as insurance where life insurance is concerned). This is the ratio of a mortgage sum to the value of the property to be purchased. If the LTV exceeds 80%, some mortgage lenders will charge a higher rate of interest or some other penalty to accept the higher risk. The current maximum limit is £7,200 that can be invested by an individual in an ISA during one tax year. See Individual Savings Account (ISA) for more details. The current limit is £3,600 that can be invested by an individual in a Cash ISA during one tax year. The investment must be held in cash and, as it is not possible for an individual to take out more than one ISA a year.This insurance will pays your mortgage for a limited period if you can't work or are made redundant. Since the introduction of the Financial Services Act in 1986, the biggest change surrounding the provision of financial advice was introduced by the Financial Services Authority (FSA) on the 1st December 2004. The new rules, known as "de-polarisation", will allow some tied agents (such as some banks and building societies) to become multi-tied, as will some advisers who are currently independent. Under the previous system, there were only two types of financial adviser, independent (who advise on all products in the market) and tied (who can only advise on products from one company). Under the new rules a new type of adviser, called "multi-tied", is created. The multi-tied adviser will offer consumers the choice of products from a limited range of companies they have selected. Some organisations feel that with these changes comes the added risk of increased consumer confusion, making it a more important time than ever to highlight how the advice process works and help consumers to decide what is the right type of advice for them.Some savings and deposit accounts require notice of one month or more to withdraw funds to qualify for higher interest rates or other terms. The growing breed of easy access savings accounts offer no notice or other barriers to accessing your own money and offer pretty much the same levels of return. These accounts should be much more attractive to the average saver. Simple operations and medical treatments can be carried out without a patient staying overnight. This obviously offers considerable savings. Some private medical insurers offer enhanced terms to policyholders who accept day patient or outpatient treatment. The long-term nature of pensions saving requires careful planning to ensure that the complex rules are taken advantage of early enough to make a difference. The amount required to fund a pension often surprises, and frightens off, savers. However, professional advice at an early stage is strongly advised to maximize benefits. A premium bond is a returnable £1 deposit entered for monthly draws for tax-free prizes of between £50 and £1,000,000. There is a maximum holding of 30,000 premium bonds per person. They are administered by the Department of National Savings and the prize fund is distributed to winners drawn at random by ERNIE (Electronic Random Number Indicator Equipment). Premium bonds are eligible for prize draws once they have been held for a complete calendar month, following the month in which they were bought. Each bond is then eligible for every subsequent draw. Statistically speaking, if you have the maximum allowance of £30,000, with what National Savings calls 'average luck', you can expect to win 10 to 12 times a year. If you win the minimum prize of £50 twelve times a year that's an effective return of two percent on your capital. If you have £5,000 of bonds, statistics from National Savings show you have a one in 6.5 chance (or 13 to 2 if you prefer bookies' odds) of winning any of the 550,000 prizes every month. Some savings and deposit accounts require regular contributions to qualify for higher interest rates or other terms. The growing breed of easy access savings accounts offer no notice or other barriers to accessing your own money and offer pretty much the same levels of return. These accounts should be much more attractive to the average saver. Some financial advisers will ask for a retainer fee to keep your name on their client list. This might be presented as an annual subscription, a quarterly report service, an annual review or other service. The fee may or may not be deductible from any other fees you generate from requesting further advice. The assessment of the viability of taking insurance policies to protect certain risks as against the cost of bearing them oneself. This can apply to individuals where in business they may assess the risk of a key executive dying and cover him with insurance, or with insurance companies where they may decide to reinsure a certain proportion of their risks elsewhere. The State Second Pension replaced the State Earnings Related Pension Scheme (SERPS) in April 2002 to pay a top-up pension based on employed people's earnings. It may be better for anyone earning over an upper limit to opt out in favour of a private or occupational pension scheme. As there will be less and less State pension money available to go around, it is vital that we all make extra provision for our retirement through some form of savings vehicle. A professional adviser will be able to help you choose. For those that are self-employed or otherwise unable to demonstrate a regular income, some mortgage lenders allow borrowers to "self-certify" their earnings to calculate the amount that can be borrowed. Expect to pay a premium of a percent or two over the Standard Variable Mortgage Rate of interest to use such a mortgage. SIPPS are a personal pension where you or your appointed fund manager is directly responsible for choosing from the wider range of investments that other Pension Schemes allow. With a traditional personal pension, your choice is limited to funds run by the insurance company. With a SIPP you can invest in the shares of any company listed on a stock exchange recognised by the Inland Revenue, which is appealing to people who are interested in the stock market and think they have the knowledge and skill to get superior performance themselves. SIPPs incur higher charges than normal personal pensions of around 2% per annum as opposed to charges on a stakeholder pension that are capped at 1%. This really makes SIPPs only suitable for those with at least £50,000 to invest, and preferably nearer £100,000. Any less, and the charges will be disproportionately high. However, the new breed of internet SIPPS do allow individuals to manage their own pension investment portfolios at lower charges. Stakeholder pensions were introduced in April 2001 to provide a low-cost, transparent and flexible way for people to save for their retirement. Charges are capped at 1% per annum. Money invested in stakeholder pensions will be invested in the stock market. On retirement a quarter of the accumulated capital can be taken out as a tax-free cash sum, and the rest has to be used to buy an annuity that pays the retirement pension. Employers with five or more employees who do not offer any kind of pension scheme will have to provide access to a stakeholder scheme. £3,600, including basic rate tax relief, can be invested in the stakeholder pension each year. Basic rate tax of 20% will be claimed on your behalf by the pension company running the pension. So, the maximum you actually pay is £2,880 per year. Many investors would be better served with a personal pension plan, that mostly have the same charging structure, and a professional adviser will be able to recommend an appropriate product. Government tax on the transfer of assets imposed by the Inland Revenue who need to stamp documents to complete the purchase of such assets. Currently, stamp duty on share purchases applies at the rate of 0.5%. It does not apply to sales of shares. Stamp duty on property purchases applies on a sliding scale. For property over £175,000 it is 1% of the purchase price. Over £250,000 it is 3%, and over £500,000 it is 4%. Structured investment products use futures or derivatives contracts to provide performance, rather than investing in the underlying assets. Inevitably, we will see more investment products that use structured vehicles to smooth performance. However, these are not always without risk, as many investors found with the so called "precipice bonds" which failed to return capital invested when an event, such as the stock market index falling below a set level, triggered a substantial reduction in the capital returned when the bond expired. A professional adviser will be able to assess the risk and advise you of the most appropriate investment for your needs. Where a mortgage borrower has a poor credit record, such as County Court Judgments (CCJs) or bankruptcy, they can find a loan from the growing number of Sub-Prime lenders. However, borrowers can expect to pay several percent over the Standard Variable Mortgage Rate to access these loans. A professional mortgage adviser will be able to advise on the most suitable loan. As our financial affairs get more complex, the opportunities to avoid paying tax by careful use of the rules and regulations become more relevant. In the same way as with Financial Planning, prudent tax management to avoid Income Tax and other taxes, particularly Inheritance Tax (IHT) can be very beneficial. A professional adviser will be able to help you minimize the tax you pay now and in the future.The Financial Services Act in 1986 introduced the concept of "polarisation" of financial advice where an Independent Financial Adviser (IFA) is obliged to make recommendations to clients in the light of all the various financial products available as opposed to a Tied Adviser or a direct salesman who can both only offer advice on the products of one provider. However, the biggest change surrounding the provision of financial advice has been introduced by the Financial Services Authority (FSA) on the 1st December 2004. The new rules, known as "de-polarisation", will allow some tied agents (such as some banks and building societies), as well as some advisers who are currently independent, to become multi-tied. The multi-tied adviser will offer consumers the choice of products from a limited range of companies they have selected. Some organisations feel that with these changes comes the added risk of increased consumer confusion, making it a more important time than ever to highlight how the advice process works and help consumers to decide what is the right type of advice for them.An indirect tax levied on the value added in the production of a good or service, from primary production to final consumption. A company or trader registered for VAT pays suppliers VAT additionally to the cost of goods or services purchased, which is known as input tax. VAT is also added to the sales cost of their product to customers, which is known as output tax, which is borne in full by the consumer. The difference between output tax and input tax is payable to the government through Her Majesty's Customs and Excise. In the UK, housing, books, education, health services, basic foods, exports and some financial services are excluded from the tax, which has been 17.5% since April 1991. A type of mortgage agreement in which, according to variations in the Base Rate (as set each month by the Bank of England) and other market rates, the interest rate of the mortgage is varied by the lender. Where a property is available to be rented, voids are periods when the property is empty between tenants. Where the property in question has been purchased as an investment, for instance on a "buy-to-let" mortgage, there will not be any income during void periods to repay the mortgage or other outgoings. It is therefore important to budget for reasonable "voids" when considering such an investment. Whole-of-life insurance, as opposed to term insurance, lasts throughout your life so your dependants are guaranteed a payout. It should not be a surprise that it can cost substantially more than term assurance, which expires after a set period. Care should be taken when considering whole of life policies and professional advice is strongly recommended. Schemes can be attractive as they give you life cover and have a surrender value at any time. But, to surrender and get your hands on the money, you have got to cancel the policy and lose the life cover. Also, some policies are reviewable. You may find that, after 10 years, your insurance company tells you that either your premiums are going up or you are going to have to accept a lower level of cover. A general term for the rate of income from an investment expressed as an annualised percentage and based on its current capital value, i.e. the relationship between income generated and the value of the principal. Yield is normally quoted as a gross annual equivalent. See: annual percentage rate, compound interest, coupon. There are a number of different types of yield applied to various types of investment. Most are quoted as a gross figure (i.e. without making deductions for charges and tax) and some as net figures (showing the actual return to the investor before higher rates of tax). Where the investment fluctuates in value exact calculation can be quite complex and often shorter approximate formulas are used. |
