Echo: March 2009

Welcome to the latest Ovation newsletter, giving you a few thoughts about your money in these 'interesting times' (is anyone else fed up with that phrase yet?!).

In this newsletter, we cover topical issues such as ISAs, mortgages and forthcoming changes to pension retirement ages, and also an interesting idea for saving inheritance tax. I also attach a recent article that appeared in Clifton Life on the state of investment markets.

We have also recently updated our website, take a look here www.ovationfinance.co.uk. This now includes the ability to log on and get real time valuations of investments (for those that have already been moved to the new service).

Finally, a vast majority of new clients to Ovation come from referrals from our existing clients and contacts. Please do therefore feel free to forward this email to anyone who you think would be interested in talking to us.

It’s that time of year again when the tax season draws to a close and this presents an opportunity for clients to maximise their ISA allowances. The last 7 months have been a turbulent time for investors but low market levels represent a great time for stock market investing for anyone who fancies an equity or bond based investment and does not mind a 5 year plus investment with risks attached.

As you will be aware, we are making a strategic change in the route we take to gain access to the stockmarket through an online portal we are calling the Ovation Investment Service. This allows Ovation to access inexpensive stock market trading for our clients and removes the reliance on the fund managers and insurance companies which dominate the market.

The market volatility this year makes it difficult to pin point specific funds for us to recommend to our clients, but the low markets make trackers attractive in the current climate, although this year due to the nature of the market conditions we feel a more bespoke approach is required. Therefore, if you wish to utilise your ISA allowance in the current tax year and have not already done so, please contact us directly and we will provide you with specific recommendations suitable to your own circumstances.

The terms for the service in relation to Ovations fees will also remain the same as previous years at £100, whilst we have been able to cut fund costs through our new Ovation investment service, and we can offer clients access to a wide range of funds with no initial charges and nominal trading charge of £4 per fund, this is an incredibly competitive offer.

As house prices continue to fall, and interest rates follow suit, many people on variably mortgage rates are paying vastly lower monthly amounts than they were just a few months ago.

Does this mean we can all sit back and thank our lucky stars? Well, perhaps. Those people who are on fixed rates clearly may not be quite so pleased
with themselves.

Louise Poole, a Mortgage Advisor with St James's Place, comments that "currently many clients are reviewing their mortgages whether they are tied into a deal or not. In some cases the savings to be made with a bank base rate of an all time low are greater than the penalties for moving early".

Of course, this is not always the case, and each deal should be carefully reviewed. However, waiting before reviewing can prove expensive.

Louise quotes a situation currently with Cheltenham & Gloucester, whereby the interest rates offered are different depending on how much of the valuation of the house the mortgage constitutes (known as loan to value). A client currently at 75% of their loan to value would get an interest rate of as much as 2.3% less than someone with loan to value of 80% (source: Louise Poole, Cheltenham & Gloucester).

This means that if you were to wait a few months and your house price drops even further, then the interest rate when you do eventually get around to remortgaging could be considerably higher.

Another interesting dilemma is that of the fixed rate. Some might think it rather strange that our disposable income can be so greatly affected by factors outside out of our control e.g. variable interest rates. Locking into a fixed rate could give you much greater security, however it would mean paying over the odds now (typical rate would be 4.79% for five years). However, interest rates will undoubtedly rise again from their current position, and paying more now, could mean less later.

There are lots of other mortgage products around at the moment, including offset mortgages, all weather mortgages and so on. However, in line with the Ovation philosophy to establish long term relationships with our clients, it is essential that the mortgage broker that you use contacts you as you approach the end of your current deal, and ensures that you are moved to new deal in accordance with your prevailing circumstances.

Playing the mortgage game can result in significantly reduced monthly outgoings, however you need to make sure that you are not going to set yourself up for problems in the future. Make sure you take careful advice from an experienced mortgage advisor, who has access to a full range of products in the market, before making any long
term decisions.

Your home may be repossessed if you do not keep up repayments on your mortgage

The above question is the ultimate for anyone looking at reducing their inheritance tax liability. There are lots of ways of reducing your estate, and therefore the inheritance tax liability on death, however a fundamental rule is that money has to be out of your reach. If you are able to access the money, either the capital or the income, then it is generally said to be a ‘gift with reservation', and therefore still within your estate.

This makes inheritance tax planning, as most people don't want to simply give their money away. Trusts have been a way of getting money out of your estate but retaining a degree of control, however recent taxation changes have reduced the attractiveness of such schemes.

We have come across certain types of schemes, however, that can give you your cake and a good slice of it to eat as well. These schemes use the tax rules applying to business assets (known as business property relief).

The fund is set up as a limited liability partnership, and therefore investments in the fund should mean that the investment would be fully outside of your estate two years after investment has been made. This is considerably better than gifting money, which can take seven years, and potentially even fourteen years (depending on circumstances) to fully drop out of your estate.

Furthermore, the investment can be returned to you at the end of its period, and can pay you an income.

Of course, investing in any small company carries greater than average investment risks, and each individual scheme should be looked at very carefully. Some schemes, however, try to reduce this risk, by investing only in asset backed developments. Examples of this would include hotels, health clubs, care homes etc.

Such schemes are not for everybody. For example, they are typically more expensive than standard investments, and the fact that they invest in a relatively small range of particular opportunities, means that they will be higher risk than, say, a collective investment investing in a wide range of
UK shares.

Nevertheless, such an investment may be an appropriate part for a wider portfolio, and may particularly be of interest to those who are looking to reduce their inheritance tax liability in the event of their death, and yet still receive an income from, and access to, their money.

Please note that any investment in such a scheme should only be taken after very careful advice to ensure that you fully understand the risks and implications, and that the scheme is suitable for your personal circumstances. Please note that such schemes are outside the scope of the Financial Services Compensation Scheme.

The minimum retirement age at which one can draw benefits from a pension scheme will change on 6th April 2010. From that date, the age that a person will be able to take pension benefits will increase from 50 to 55.

If you are currently between the ages of 48 and 53, this change may therefore affect your retirement plans. If you had intended to retire before the age of 55, after 6th April 2010 you will no longer be able to do so.

Of particular relevance to this, in addition, is the fact that you do not need to purchase an annuity anymore, and therefore there is great flexibility
at retirement.

Of course, anyone outside of this age range will not be affected, and anyone not planning to take benefits in the next few years will also not be affected. However, if you, or you know anyone who would be affected by this change then do contact us for
more information.