Loz Gee

Thank you very much for coming along today, it’s great to see so many of you log in, we really love doing these webinars. It’s fantastic that you you’re logging in to see what we have to say. This is our final webinar of 2021, where this year has gone, we don’t know. And so I hope you’re wrapped up warm in this cold weather and ready for a good session. As ever, here’s the small print. So I’ll just leave this up here for a few minutes for you to have a look at. Okay, so the agenda for today, for those who don’t know us or aren’t working with us, a little bit about who we are and then we’re going to go across to Ben here today to talk about investing post pandemic, very apt subject. Then Adrian is going to be talking to you about inheritance tax and legacy planning. Please do post any questions that you would like to ask us in the question section at the bottom of your screen. And then we’ll just review the session at the end. So a little bit about us. Here’s a picture we took by the lake, which is just behind our office here. We’ve got Neil Wattam there on the left, followed by Tim Kirby, myself in my bright pink coat there, Adrian and Ben you can see with me today. We’ve done things a little bit differently today and we’re all sat together as we’re now able to so it’s nice to be together rather than on individual screens. So we’re a group of five, really small team, the advisors and the investment manager here have a wealth of experience in what they do, formed in April 2021. And gone from strength to strength ever since. They brought me on in September to help with the client experience to make sure that everything was being touched upon and things are running smoothly and hopefully, that’s what you’re experiencing. Why do we do it? We love what we do. We love that client engagement and seeing the journey that our clients go on and we’re there every step of the way with you. So over to Ben to talk about investing post pandemic.

Ben Wattam

Morning, everyone. Now, I do appreciate that title of investing post pandemic, a lot of you will be thinking we’re still in the pandemic and from a healthcare perspective, we probably are however, you look at a host of economic and investment data, I’ve put some up on the screen here, we’re pretty much back to either above 2019 levels, or pretty much back to 2019 levels. I think most of the recovery, since the pandemic has been done, the easy wins have happened and now it’s going to get tougher, and we really need to see some growth coming through. We’re still pretty confident but you’ve got to be a lot more careful, I think because as I said, the easy wins, the recovery has happened. Now, one way to look at whether investors are feeling confident or gloomy about the world is looking at interest rate expectations. Bond investors are usually pretty decent, pretty good at forecasting what’s going to happen. So this orange line is the interest rate expectations for the UK towards the end of 2019. So pre pandemic, no one knew what COVID was at this point and this shows interest rate expectations for the next 30 years in the UK. The blue line is what it was two weeks ago. So you can see now, interest rates expectations are higher than where they were pre pandemic. So bond investors are more positive than they were for the economy before the pandemic started. If things are looking pretty rosy, why are we saying that actually, it’s going to become a bit tougher. And the new kind of worry is, everywhere you read the financial crisis a word called stagflation. This word called Stagflation is absolutely everywhere in the financial press at the minute, and it’s two words that stagnation and it’s inflation and someone funny decided to combine them with a snappy word called stagflation. So this just shows how many times the words stagflation has been used in financial press. And to be honest, we’re not too concerned about the stag, part of the stagnation because I think there’s still pretty decent growth levels, both in the UK around the world. The economy is actually growing quite well, it’s the inflation part that could become a problem. I get a weekly email from a fund management group called Artemis. And this was last week’s start of their blog. I kind of thought it summed up the world quite nicely at the minute. We like to panic about absolutely everything. And absolutely everything you read about is unprecedented. We agree that inflation is probably the biggest risk that you will face from a financial perspective in your lifetime but it’s important to understand what is driving inflation and whether that inflation that is being driven is actually transitory, so if it’s going to wash out in the system over the next year or two, or whether we’ve got some more permanent effects driving inflation. I don’t have to tell you that we’ve had supply issues around the world in the last 12 months, and usually supply problems that cause inflation are seen as transitory, because demand and supply will sort itself out and produce a price that stabilizes, because the issue is that prices can’t keep being pushed up by supply, because there’ll be a demand effect or a supply effect. We’re seeing some of this come through actually, at the minute, everyone has heard about gas prices rocketing in the last couple of months. But equally, probably very few people have actually heard what has happened in the last couple of weeks that gas prices have been falling sharply. I mean, one of the main benchmark gas prices in Europe is down by a third in the last two weeks, because Russia have said that they’re going to increase supply. So I think there are still problems with supply. And probably some of those transitory effects are going to take a bit longer than usual to wash through, but we still think it will be transitory and not lead to long term inflation. The usual thing that causes inflation is the demand side. Now, one impact of the pandemic is that households have saved a lot in the last 18 months and as households we are still saving a lot now. There’s a concern as to what actually happens to their savings, that could cause a demand shock in the next six months at a time when supply still isn’t quite right. But usually what happens with demand, the inflation demand shock is caused by wages because the impact of wages is permanent. If you give all employees a 10% pay rise, that’s very difficult to get back, you can’t then the next year give them a 10% pay cut. So wages is usually what drives inflation. This is what’s happening to wages in the last year in the UK, we’ve had a spike. Now a lot of that spike is due to base effects. Inflation is a year on year figure. So to work out this year’s inflation, you need to look at what inflation was doing last year. And in the autumn of last year, in the summer, we had huge deflationary impacts going on. In particular, we had furlough at its peak and we had quite a lot of redundancies as well. So wage growth actually fell last year. Now, this year, we’ve had people coming out of furlough. So we’ve had that apparent boost in wages. We don’t think this is actually sustainable over the long term because we’ve got a lot of spare capacity in parts of the economy still. There are definitely pockets where wages might remain strong but in the economy as a whole, we don’t think wage growth is going to be a key driver that makes inflation take off. Now, what’s the inflation outlook? What are the Bank of England saying? On the left hand side, the Bank of England do a fan chart. Every three months, they did this fan chart of what they expect inflation to be and you can see they think inflation is going to be at 4% or so at the end of this year, maybe the start of next year, then fall back to 2%. Now, if you’ve heard me speak before, I’m not a big fan of the Bank of England, I think a lot of their forecasting is appallingly bad. There’s a report from the University of Liverpool looking at the the accuracy of Bank of England forecasts on the right and the orange line is the Bank of England’s two year inflation forecast going back to 2006. So effectively, every single time they do this every three months for the last, what 15 years. They’ve said inflation will be at 2% pretty much consistently. They’ve never said inflation will be above 3% ever since they’ve been doing this. And this two year view is what’s driving interest rate expectations. If the Bank of England think that inflation will be at 2% in two years time, there’s no need to move interest rates. And the correlation between that Bank of England expectation of inflation and actual inflation is actually negative. So when the Bank of England think inflation will go up, inflation is actually gone down & when they think inflation is going down, inflation is actually going up. So I’m really concerned that the Bank of England are going to be wrong in their management of interest rates going forward because they’re inflate inflation expectations are wrong. Now, what happened in the last 10 years or so, this blue line is actual inflation in the UK, the gray line is the Bank of England base rate bank rate. You can see post the financial crisis back in 2009/2010, we had an inflation pickup, because we had supply issues back then, not to the same degree but we had supply issues and we had a pickup in demand, which meant inflation spiked, but the Bank of England do anything about interest rates. Over the next 10 years, I pretty much guarantee the Bank of England aren’t going to do anything about interest rates, it might move them back up to half a percent or so, but that’s not driven by inflation that’s driven by the emergency levels we’re at. I don’t think that the Bank of England is going to react to rising inflation. If they’re not going to move interest rates, a big concern, which we’ve spoken about in the past, is people have too much money in cash. Now, in the last 10 years, if you’ve had your money in a cash bank account, that account has had their interest rates linked to what the Bank of England rate has been, you’ve lost about 14% of your real wealth over the last 10 years. Now, if you think inflation might be 3%, over the next 10 years, you’re going to lose about a quarter of your wealth. If interest rates are the same in the next 10 years as the last 10 years. Now, the UK market at the minute is actually pricing in 4% inflation for the next 10 years. So if that does actually happen, you will lose over a third of your real wealth in cash in the next 10 years.

What about other assets, this is a bit of a busy slide. The dark green bars are equity returns and the light green bars are bond returns, depending on how inflation has been over the last 120 years. So in the far left, in the lowest inflationary environments, has produced the highest returns for equity and bonds, on the far right on the highest inflationary environments. It’s produced the lowest returns for equity and bonds, which kind of makes sense. Now, when we looked at inflation at the start of this year and asked is it going to be a concern? We still think it might be a little bit higher than it’s historically been comfortable. But we don’t think it’s going to get to a level that’s going to cause significant disruption to equity and bond markets. So on that slide, if inflation gets above 7% or so a year, that’s going to cause significant disruption. Now, we don’t think inflation is really going to get to those sorts of levels sustainably over the next few years. But we do think it might be sticky. So what can you do about managing inflation in your portfolios. One traditional way is to buy index linked gilts, so buying government backed securities, which have inflation protection. Now, the current interest rate yield on those assets is minus 3%. So you get minus 3% plus inflation. So if inflation is 3% a year, you’ll end up with zero, it’s not going to protect you against inflation. Commercial property is also another popular area, I’ve got a bit of a worry about rental growth, rental growth drives the protection around inflation protection, we’ve got big pockets of commercial property that is still in stress or you could buy oil and gas equity. So you could buy BP and Shell and buy commodities. I have massive concerns about the sustainability of those areas and we try and have minimal areas of exposure to those sectors. So what have we been doing? We’ve bought this asset since we actually started back in April 2020. It’s called tufton oceanic assets, and they own and lease ships. Pretty simple business model. But as everyone knows, shipping has actually boomed this year, you can get a really healthy dividend yield on this of over 5%, it’s really well covered by cash so they can they can easily increase that dividend. They’ve had strong dividend growth, and we’ve had decent total returns. Another thing we’ve been owning since we started is renewable infrastructure which is actually really topical at the minute. This is a UK listed company that owns wind farms around Europe. Again, a nice healthy dividend of 5%, well covered, a bit of dividend growth and decent total returns from an area that’s probably expected to grow in the next few years. Another area we’ve been investing in is gold. Now I have no idea what the gold price is going do over the next few years, absolutely no idea. However, this chart looks at the gold price in gray, and the real interest rate in the US in blue. So the real interest rate is the Federal Reserve interest rate minus inflation, there’s a pretty good correlation when the real interest rate drops gold price does well, which makes sense and if we think that the central banks aren’t going to really react from an interest rate perspective, but inflation might kick in, that blue line could go further down, which could provide a bit more support for the gold price. The way we structure our portfolios is all of our portfolios apart from our income portfolio is structured to beat inflation by different degrees. And the reason for that it is because we think it’s the biggest financial risk for clients. Our number one goal is to ensure that our portfolios grow in real terms year on year because that will produce real growth for our clients. Now, if you want to understand how we’re doing that more, please speak to any of us after the webinar, we’re happy to talk you through how we structure the portfolios. Just to finish off, often you hear people saying, I think you need to structure your portfolio’s for the long run, the long term. Often the long term is so far out that it’s almost kind of irrelevant, which is what John Maynard Keynes was saying 100 years ago. I think some current themes are actually long term themes. When we started, we wanted all our portfolios to be structurally long towards the environment, healthcare, and technology. And we think they’re great long term themes. They’re not long term themes anymore. They’re short term themes. This last week is a great example of the amount of energy and investment going into the environment. Healthcare we’ve seen in last two years, we need huge amounts of investment into healthcare and everyone knows how technology has changed your life over the last couple of years. These are growth sectors that you need exposure to. Whilst over the last month or two, we’ve had booms and energy prices that we don’t really have much exposure to, you still need to be positioned for next year, the year after, and the year after which we think these areas will be key to have exposure to. So with that, I’ll hand over to Adrian.

Adrian Mee

Thank you, Ben. Very good. So I’ve got the super fun, happy section of inheritance tax planning, so death and taxes. So at WKM, we like to create financial plans for clients. It’s the linchpin of all of our client meetings now and it really gives structure to the meeting. So the investment performance, which historically is why you employ a financial advisor, a wealth manager, is known by you daily via our app. It allows the focus of all of our meetings when we get together to look at the true plan of that family and we’ve now launched our inheritance tax plan section to that. So I thought I’d walk you through a bit of a hypothetical example to bring out some general themes and some directions of travel that we see coming on this section of planning for clients. I’ve used the movie example as being my test clients, ages are about right for what I think they should be aging at right now. And if you spot the movie, let me know. But I want to know specifically which movie in this line we’re talking about. So let’s first start with principles. One of the principles of inheritance tax. A very big government policy was to create a £1 million band of assets that can be passed from parents to children inheritance tax free, and naturally in tax planning, it came in, in a very difficult to understand process. So with inheritance tax, every individual with a UK domicile has a nil rate band of £325,000 of assets they can pass to their children or any beneficiary to be fair, free of inheritance tax. If you own a main residence on date of death, and you pass up main residence to family to children, you can also pass over £175,000 worth of that main residence inheritance tax free. In theory, you can pass half a million pounds worth of assets per individual to your family inheritance tax free on death. When you’re a couple you can double those allowances. So therefore we get to the million pound allowance that can pass the family inheritance tax free. Any assets that are outside of your estate, which commonly are pensions, business relief assets are exempt from inheritance tax and a business relief asset could be shares in unquoted companies, commercial property you own leased to your own business that you control still, or classically AIM shares. Any assets above the exempt assets above your £1 million allowance are taxed at 40%. If your total assets are greater than £2 million, you then start to lose this residence nil rate band of £175,000. So that can swing you quite heavily and interestingly, the £2 million allowance is actually an individual allowance. So if you’re a couple, you have a £1 million allowance which is whittled away by a pound for every 2 pounds, you’re above £2 million. If you’re an individual, you can pass over your half a million and that only starts to reduce when your assets go above £2 million. That’s an interesting planning bit of knowledge there. We believe there are four common tactics to approaching the inheritance tax problem. And the first Classic is to spend it, which is one of the biggest topics of all of my client meetings, there’s a reason why I’m sat here advising you, it has been to help you accumulate wealth during your lifetime. That’s the end objective, most people spend it, how you spend your capital, you have some really interesting effects on the inheritance tax side of the world. So hypothetically, you can enjoy your capital during your lifetime, not minimize your expenditure to maximize the inheritance but if you spend it from the right categories, you will minimize inheritance tax your beneficiaries pay to inherit your wealth, which actually creates more family wealth over the longer term, which to be fair is a big agenda for most of my clients. Giving the money away is also a fantastic tactic. Giving it away and living seven years, allows that gift to completely wash away from any reference to inheritance tax. In making gifts, there will be some tax consequences to consider. If you’re trying to give the commercial property or residential property to an individual, you must pay the CGT in most cases before that’s paid over to them to inherit. So you could have a position whereby if you made a gift of an asset, you must pay the capital gains tax on making the gift in most scenarios and if you die, within seven years, the recipient might have some inheritance tax to pay on that. You have to really think through how you’re going to gift assets to next generation to make sure you’re not compounding tax problems if something unforeseen were to happen. Third tactic is to convert assets. So here we’re looking at converting assets from, let’s say, your ISA portfolio that you’re not spending from, if you converted it into being an AIM share ISA portfolio. After two years, the AIM shares are exempt from inheritance tax, you still have the ISA wrapper for you, you can fall back to that capital if you need to during retirement but now it’s exempt for inheritance tax. Another idea might be to convert assets into a trust. Trust planning has become highly complex over the past 15 years, and actually quite expensive from a running tax point of view that trusts pay top whack for income tax and capital gains tax with only half of the ordinary exemptions for those. You have to work a trust really hard in making it tax efficient ongoing, to then make it worthwhile having assets exempt from inheritance tax. So actually, for many of our clients, yes, a trust is a worthwhile conversation to have, but maybe other assets and the tactics should take preference mainly being numbers 1 &2 . Number four, and this is a long term objective of the government, is insure your tax liabilities because the government are getting paid, which is exactly what they want from death. They want to get paid, allowing you to create life insurance for your life to pay that inheritance tax bill on death, ticks that box squarely being slightly pessimistic about life insurance if you insure your life for life, then surely from the insurance point of view, the premiums they expect to collect over a typical life expectancy will equal what they’re going to end up paying out in the insurance policy. Typically with clients that have insurance policies that insure their inheritance tax liabilities, they’re reviewable every five and 10 years as they get older, and the premiums start to ramp up because death becomes more likely the older you get.

Just looking at a financial plan now looking at some actual ages, we’ve got husband and wife, husband (80) spouse is 75. Life expectancy for these two individuals and male age 80 can now expect to live on average to age 89. A female aged 75 can expect to live until 87. We haven’t got long, you’ve got sort of nine years until first death. And then you’ve got 12 years until second death. When you’re talking about gifting capital and needing to live seven years, you’ve got to get going. And this is typically where we find some of our clients, they have understood that from the get go and they’ve got this life cover policy of half a million that’s currently in trust, insuring any potential inheritance tax liability for their for their beneficiaries. But what these two clients have found, which is very common, is that the life cover premiums are now starting to get very, very expensive. And what they’re having to do is increase their annual income from their pension fund, which they’ve always seen as their fuel of their retirement income, which is then costing them income tax. So at the moment, the couple has got an income tax bill of £7500, coming from £62,500 of gross income, which is fine, but actually, that needs to increase because the live cover cost is getting higher. So we’re now getting to a pinch point of, should they be doing something differently? In addition, their house has grown really well. So the house is now worth £1m, that’s inside their estate. If that stays frozen at a million, yes, that can go over to the children inheritance tax free. But they’ve got £400,000 of ISA’s that aren’t being touched, and they’re still growing so that £400,000 will compound and compound again. So again, we’ve got an increasing inheritance tax exposure, and at the same time, they’re drawing from their their private pensions, which is fine because that is what they’re meant to do to give you an income in retirement but that’s their one asset that’s exempt from inheritance tax. Instead of taking the income that they’re drawing from the pension schemes, what they could do is draw the net amount from their ISA’s. So if they drew the £35,000 net that they need from their ISA’s to balance their expenditure. The ISIS will actually be depleted over 16 years, if you assume a 5% return on the ISA’s taking on our medium risk category. What that will do, that will take £400,000 over 16 years out of their inheritance tax equation, allowing withdrawals from the pension scheme to pretty much stop allowing that capital to escalate exempt from inheritance tax, that then leaves you free to basically shave down on the life cover.

All clients need to have objectives. It’s a key reason why you’re going to instruct a financial advisor to help. These objectives for the clients, are to spend £60,000 a year, they can’t spend more because they just can’t. I’ve got clients who shop at Waitrose who absolutely look at the bargain sections first, before they go to the rest of the supermarket, you can’t change who you are particularly in life. And don’t think you can radically ramp up your expenditure to solve inheritance tax problem, because the ability of spending money when you’re 80, is probably a bit lower than when you were 70. So expenditure for this cup was pretty much static. They do want to pass assets down through the line. But they’ve got this problem that the house that they live in, they can’t sell that because they want to sell that and that will keep increasing during retirement as well, that will give them a further inheritance tax problem. So effectively, we’ve got to look at all of these issues in the round and one tactic that they could do is yes, convert their ISA’s into AIM shares. After two years, the value of the AIM shares drops outside of their estate for inheritance tax. More importantly, they retain the capital under their management, you’re increasing the risk significantly investing in AIM shares, versus a medium risk portfolio but a key reason you’re doing that is arguably because you don’t see those ISA’s to really be your primary support of your income during retirement. You’re setting the actual ISA’s to be inherited. Therefore, you’re investing the money for your children’s appetite for risk and your children’s expected life expectancy, which is much more than yours. Other example will be to stop pension fund withdrawals begin drawing from the ISA’s and save income tax in the process. I mean, that’s a double win. That is a great piece of strategy with tax legislation as it sits right now and it’s extremely simple to enact, you still spend what you want to spend, you actually spend less of your capital to spend what you want to spend, and the inheritance will be even greater and the inheritance tax bill will be even smaller, extremely simple concepts and to enact that perfectly you then need to run through a capital decumulation strategy to ensure you’re not drawing too much from the ISA’s, so you’re left with nothing. But even if you are left with nothing, you can still go back to the pensions and draw from there which will become bigger because of the enhanced compound growth because pensions don’t pay as much tax on their growth. Lastly, if you adopt either one of those two approaches you can then redress the life cover, do you still need it? Can you shave that down, that will shave down the premiums. If you’re shaving down the premiums, you’re increasing the income that you’re potentially receiving and you can make gifts out of excess income every year above your annual allowances to again, be outside of your estate for inheritance tax point of view, the idea of transgressing wealth down that family line. Next steps for inheritance tax. And this is maybe not more of a client context but just generally, allowances are going to get frozen. We’ve already heard that the pension lifetime allowance is frozen for the next five years, that there’s going to be no increase to these allowances, this is going to be a problem that is going to exist for quite some time with the increase in asset prices, we can clearly see that if we do have growth in asset values, homes, ISA’s and pensions, inheritance tax problems going to get greater for many clients. Tax rules will change. Tax rules will change multiple times over your life and you’ve got to keep flexibility. I’ve seen clients who’ve been previously advised to go down one route exclusively and then all of a sudden, the clients liquidity is run out, so now they’re going to go to another strategy, which then is actually against their inheritance tax objectives. It then becomes a case of, don’t get stuck behind that kind of blackball, don’t get stuck into a corner because you put assets into trust, you’ve allowed your free capital to be tied up into fixed assets that can’t be sold into liquidity, because you’re not helping the inheritance tax position and you’re not creating the greatest family wealth, because that’s exactly what we’re trying to create here is greater family wealth. We’re not trying to maximize wealth for Mum and Dad and we’re not trying to maximize wealth for son and daughter per se, we’re trying to maximize wealth across both and by looking at both at the same time is very powerful. Try and avoid running your planning and extremes in big lumpy moves. Trying to gift everything on one day to everybody is a recipe for disaster. Making small moves over a long period of time usually creates the best result. It also gives you that first bullet point of being flexible, that you can change tactics whenever you want to. Revise how you draw your expenditure and ensure you’re balancing it across all fronts. So I try not to see life as a black or white, I try to see there being a bit of a blend of the two. So yes, we want to pretend the pension funds because they’re exempt from inheritance taxes but at some point we don’t run the ISA’s down to zero because the ISA’s are actually a decent source of capital that can be readily realizable without an income tax liability to get the capital. Maybe draw it down to a level that you feel comfortable with, and then start taking pension income thereafter. So now we’ve got a question and answer section.

Loz Gee

Many thanks for sending your questions. So first question, what’s the track record of an AIM ISA portfolio?

Adrian Mee

Historically, AIM has been a pretty good hunting ground for ISA’s. Portfolios do exhibit more volatility but the track record has been pretty strong and if you can look back over 10 years or so, you’d be pleasantly surprised that it is for some of my clients, their best performing asset.

Loz Gee

Okay, if I draw my tax free cash, does that negatively impact my inheritance tax bill?

Adrian Mee

Yes and no. So pension world changed a few years ago to say if you draw a tax free cash from your pension scheme, the pension pot itself was subject to a tax charge and passing over to your beneficiaries but that rule was changed in 2012. Now you can draw tax free cash from your pension scheme and the pension scheme itself assuming you use it as a pension fund and not a not a vehicle of aggressive tax planning, that pension fund can pass down to the family inheritance tax free. But be mindful there, that any capital you’re drawing from the pension fund and then spending, that capital technically is inside your estate. It may be better in that scenario to spend capital that’s already inside your estates, such as ISA’s, cash in the bank, because that then saves you the inheritance tax bill on that asset passing over because it’s no longer there and the tax free cash is still in the pension scheme to be taken in the future and while you’re waiting to take it, it’s exempt from inheritance tax.

Loz Gee

What would you suggest here? My concern with reducing my inheritance tax bill is lack of control?

Adrian Mee

Lack of control is a serious concern, to whom you’ve passed the money to that’s a common theme across client meetings. I’d like to pass capital down the line, but I just don’t know what they’re going to do with it and are they going to spend it? Is it going to go away somewhere? Is there going to be a mysterious attack on them on their capital? In those scenarios, try not to think about keeping ultimate control all the way in through until death because it rarely works out into a nice space. You can keep control of your ISA’s, as I say, consider changing them into an AIM portfolio to avoid inheritance tax, that is a decent bit of planning. Try and think if you’re putting assets into a trust, what is that trust designed to do? Yes, you can control the investment direction of that capital, but are you locking the actual capital withdrawals away. If you can only spend the income that has been highlighted, the income space for investments is going to get pretty tough. So be wary of those caveats to that style of planning as well. But you certainly can keep control of your assets during your lifetime and exempt from inheritance tax. You’ve simply got to be on your toes with understanding how the exemptions work, and where you’re spending your money from.

Loz Gee

Is there a place for equity release within inheritance tax planning?

Adrian Mee

Yes, on the proviso that you’re spending the capital, absolutely. Doing equity release to then put the money somewhere else doesn’t really work because you’re still not decreasing your assets. Equity release works well, historically, it’s expensive because somebody wants a premium for advancing capital to you early in life, on the basis that they have to wait a number of years to have their loan repaid in most equity release scenarios. You could certainly contend with that. I actually quite like equity release over and above downsizing the main home, for example because downsizing the main home is quite an emotional event. But equity release is expensive. So you need to balance the two really?

Loz Gee

What does your crystal ball say about future anticipated tax rule changes affecting pensions?

Adrian Mee

The rumours on pensions are always rife around, they’re going to change the rules and they’re going to remove tax free cash and they’re going to come back to pensions for death duties. I simply don’t see that. I don’t hear that from the policymakers. They’re great headlines for the broadsheets and tabloids, but there’s nothing of substance. Does it create the country any easy wins? What would happen if pensions were now subject to inheritance tax again? Well, I think quite simply, people will be drawing from their pension funds and paying a bit of income tax. That creates a revenue, some initial tax revenue on income receipts, but it’s going to be decades before they then get our hands on death duties on the capital. Making big moves in that style of legislation really ripples through so I’d be very surprised if pensions have their inheritance tax landscape changed, I can see more of the squeeze continuing that the lifetime allowance is frozen for the next five years, that will squeeze money going into pensions, which then limits the tax rate that the government are giving away on pension contributions. That’s their agenda. They’d rather not give the money to you as tax relief than trying to attack you for inheritance tax later, because the inheritance tax bit isn’t going to be a benefit for their treasurer, not giving you income tax relief now certainly is. Change in the contribution tax relief system is way too complex. It is way too complex. And I can’t see them changing how companies, self employed, employees receive income tax free from their pension contributions, they won’t disband higher rate tax relief, in my opinion, I think they’ll stay with the banding system for relief. So you get higher rate tax relief, if you’re a higher rate taxpayer but I can see them saying if you earn £200,000, £100,000 like they have done, you can’t get the relief at all, they just taper you away down to a zero relief position. Having said that, if making a contribution gets you an inheritance tax relief, it’s actually not off the table from discussion.

Loz Gee

Would you recommend opening an ISA for a young man who will soon be starting a family thinking very long term for when I pop my clogs?

Adrian Mee

Yeah, it’s “grab it whilst you can” in terms of your tax reliefs and if you’ve got confidence in the investment strategy of your ISA, always make returns tax free if you can, and ISA’s sit pretty well for that. You can think later in life of converting it into something that’s exempt from inheritance tax. If that’s an ISA, it’s probably still going to be an AIM portfolio. I’d say that would work quite well.

Loz Gee

Gifting sounds easy, what are the known pitfalls?

Adrian Mee

Known pitfalls on gifting is making sure they don’t spend the money, you die in seven years, and then they pay inheritance tax on the gift they receive, but they’ve got no cash to pay the tax, that’s a disaster. It’s also a problem, if you’re trying to gift them an asset, and you forget that you’ve got to pay capital gains on your base cost before you give them the asset, it’s still a nice thing to look at, because would they rather pay 40% tax on your death on the entire asset value? Or are they better off if you just pay tax on the gain that you’ve incurred and your lifetime? So be careful of gifting assets in chunky fashion, because it doesn’t lend itself well to tax rules and if you’re gifting them cash, make sure they’re putting 40% of that gift away somewhere, just for the next seven years to pay the potential inheritance tax, you can insure the tax bill for them but for me, that’s kind of negating the point of giving them a gift, you’re giving them a gift, then you’re insuring your life on the tax liability of that gift if you died in seven years, I probably wouldn’t do that.

Loz Gee

Your growth portfolio position is CPI plus 5%, it feels quite modest.

Ben Wattam

So the CPI, the Bank of England’s target, CPI at 2%. 2% plus five is about 7% a year, historically, equity markets have averaged about 7.5% I think over the last 30 years. We did actually benchmark that against our peer group over the last 15 years, and our peer group have generated returns in that space of about seven. So what we want to do with a with a target is to make it realistic. We do hope to generate more than that. But 7% I think is actually a pretty reasonable target. I think everything in the last 18 months has gone up, doesn’t matter what you bought but in the next three to five years, that’s going to be much tougher. So I think a 7% annualized return over the next few years is going to be a good result.

Loz Gee

Thank you for your questions. But next steps from us. Please, we do this for you. So if you have any feedback, any suggestions, please do come forward to us because we want this to be really beneficial for you as viewers of it. Our next webinar is in March, it seems crazy to think of March next year, but it will soon be here. We’d love to see you all attend that again. We haven’t come up with the title of that webinar yet but we will communicate that as soon as we have. A recording of today’s webinar will be made available on our website and I will send emails around with a copy of the deck as well for you. Those are contact details so if you don’t have them already, make a note and as I say please do get in touch with us. Thank you so much for logging in today. It’s been great to see you all, have a great day. Thank you.