How do you deal investment funds that are showing a loss on original purchase price?

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We are pleased to provide a guest blog from Rabix Wealth who understand the importance of psychological  differences with a variety of investors.

Investments, particularly in equities are subject to capital fluctuation or variances (most investors regard this as profit or loss)  – ranging from 30% for generalist unit trusts to 50% or more if invested in specialist area, including resource stocks and or investment trusts. However a capital variance only becomes a profit or loss when one sells an investment.

How you cope with capital variances depends upon the type of investor  are:-

DIY – DO IT YOURSELF INVESTORS

Typically we find that investor’s who manage their own portfolios, will hang onto loss making investments in the hope that they will recover. Instead of selling the problematic investments they will sell investments that are in profit (to cover the losses). Investment professionals do the opposite, they tend to ditch loss making investments (unless there are sound reasons for recovery) and hold onto profitable investments  – the maxim of “running winners”.

B&H – Buy and Hold Investors

These investors tend to be elderly and appreciate that the markets has its ups and downs but prefer to hang onto their portfolio of blue chips regardless of financial events. They are fond of receiving dividends but often don’t like change, this reluctance about change often prevents them taking investment action – this is often referred to as Investment Paralysis.

Reactive investors

They will re-act to market events and  take action quickly by selling their investment funds as they believe by doing so they will either avoid further loss or fail to make a profit (often forgetting that typically equity movements up or down tend to make a two third reversal of a capital variance within a reasonably short period of time).

Pro-active Investors

They will be more interested in dealing strategically with an unexpected dip in an investment fund, they may consider a range of strategies, including :-

WAITING

They will allow the market movement time to reverse and then may decide  sell thereby minimizing their loss.

AVERAGING

When investments go down, it is sometimes useful to consider buying additional units at the new lower price, this will reduce the average price of all units bought. The theory being that when the investment is back in profit – the overall gain will be higher. However this is not adviseable when market is in freefall!

RISK REVERSAL

Investment Trusts are very useful investment tools, they often trade at discounts to net asset value. There may be a reason for a large discount but the discounts can be anomalous .  A good example of this is the private equity sector, several years ago values in private equity plummeted as they were affected by the debt crisis and the drop in financial markets (they often hold unquoted companies and need substantial bank finance to fund deals and also to develop companies). For that reason the market has viewed the private equity sector negatively. However research of the investment trusts that make up this sector could reveal hidden stores of value that will prove to be of immense benefit to discerning investors.

You see unlike unit trusts which are prohibited by their trust deeds from holding any more than 5% in any one company, investment trusts can hold any proportion of a single company they wish, in the private equity sector they often buy whole companies that are in distress at knock down prices. Change the management, pay off debt and invest for growth. The impact is often transformational and they often sell off the company years later at a massive profit.

In the meantime, however, the investments are often in the books at “book cost”.

So not only are you buying at a discount but the real discount to true (non stated) value may be a lot higher.

Another reason for a large discount could be bad performance – one such investment has had difficulty with a major investment in recent years and although the difficulties are now over, it’s rating and discount has been affected – however it’s problems are over – so what an opportunity to invest at a knock down price and get a nice yield.

So how can you use the discounts on investment trusts to compensate for losses on unit trusts?

Well, you could simply invest in selected investment trusts.

Or you could survey your investment portfolio you may hold some unit trusts that have fared badly and are showing a loss – we refer to this concept as risk reversal.

Example

You bought a resource unit trust for £10,000 but it is currently showing a loss of 35% so is now only worth £6500. You could of course wait for that investment to recover OR you could sell it and re-invest the £6500 into a 35% discounted investment trust.

You have therefore swopped your unit trust worth £6500 into an investment trust whose present price values the investment trust at £6500 but whose assets are worth £10,000.

As stated earlier if your investment trust has cautiously valued its internal investment holdings then you may actually have investments whose true market value exceed the £10,000.

You have effectively swopped your loss for a discount, so you are effectively gambling that the performance of the investment trust will exceed the performance of the loss making unit trust and that the investment trust discount will narrow. Quite clearly if you choose this type of strategy it is essential you take advice from an investment trust specialist.

If you personally own your trading premises and your trading company is paying you full market rent – Entrepreneurs Relief may be affected !

On 1 April 2011 you leave the partnership of which you have been a member for several years and transfer your 1/3 interest in the partnership’s assets to the remaining two partners. You make gains of £2,250,000 on your share of the business goodwill.

You also personally owned the premises from which the firm has traded for the 13 years you had owned it. Throughout that period the partnership paid you a full market rent for the use of these premises. When you left the firm you disposed of the premises to the remaining partners making a gain on the ‘associated disposal’ of £1,300,000.

All of your gains on the disposal of your interest in the partnership’s assets – £2,250,000 on the goodwill and £1,300,000 on the associated disposal of the premises – qualify for relief.

However, because you owned the premises personally while you were a partner, and a full market rent was paid to you for the business use of the property, a proportion of the gain relating to the premises will not attract relief.

Only the period for which rent was paid after 5 April 2008 is taken into account in restricting the amount of the £1,300,000 gain which qualifies for relief. This would be 3 of the 13 years the property was in use for the business.

A ‘just and reasonable’ figure in these circumstances would be.

Total gain on the sale of the premises £1,300,000
Gain accruing for 10 years of use from 6 April 1998 to 5 April 2008 £1,300,000 x 10/13 £1,000,000 £1,000,000.
Gain accruing for three years of use from 6 April 2008 to 5 April 2011 £1,300,000 x 3/13 £300,000.
Gain on premises attracting Entrepreneurs’ Relief £1,000,000 plus gains on disposal of interests in partnership assets £2,250,000.

 

Total gains attracting Entrepreneurs’ Relief £3,250,000
The gain not attracting relief will therefore be £300,000 (£3,550,000 minus £3,250,000).
If the rent paid by the partnership to you for the use of the premises was less than a full market rent then the adjustment to the gain accruing after 5 April 2008 must take this into account, allowing a higher proportion of the gain to qualify for relief.

It is important to take advice with regard to the timing of any disposals and in particular if you have what is regarded as an associated business.

Electing for fixed protection

Given the reduction in the Lifetime Allowance, those with pension funds which are likely to exceed £1.5m at retirement should consider whether to apply for fixed protection so that the old limit of £1.8m continues to apply.

As always, there are a number of factors to consider when making an election and advice should be sought. Some of the salient points are:

  • If further pension contributions or benefit accruals occur after 5 April 2012, the election is voided (although a contribution could be made prior to 6 April).
  • Those who previously made elections for primary protection cannot make an election for fixed protection. Those who made an election for enhanced protection can give this up before 6 April 2012 and opt for fixed protection instead.
  • New pension arrangements cannot be started unless the new arrangement only receives a transfer of pension rights from an old scheme. It will, therefore, be important that those auto-enrolled into the new style all employee pension arrangements opt out before any benefit accrual happens.

If an election is to be made, form APSS227 (available on www.hmrc.gov.uk/penionsschemes/apss227.pdf) should be received by HMRC by 5 April 2012. Applications received after that date will not be accepted.

“Tax Evasion and aggressive tax avoidance – morally repugnant” – George Osborne

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The recent budget announcement by the Chancellor included the “morally repugnant” comment above.

In the same announcement he reduced the 50% tax rate because those rich enough to be eligible for it, have been avoiding it.

Also compare the Chancellor’s actions and his warning about buying residential property through corporate entities, giving plenty of opportunity and time for those who have already benefited to take appropriate action to avoid being penalised.

Yet the government previously announced a public sector pay freeze without consultation and without notice and also cut subsidies for large-scale solar without any compensation for those small businesses who had already invested hard-earned funds in developing renewable energy this way.

The Government alludes to “austerity measures” but have failed to reduce public borrowing as our borrowing is increasing on a year by year basis. Failed to reduce the numbers of civil servants and has failed to tackle the quangos.

Talked about needing to invest in the economy because of the weakness of the private sector but failed to take strategic decisions to assist the economy.

This government also continues to deploy our troops in Afghanistan, putting our young men and women in serious danger. Yet the government is fully aware that our troops are having a negative impact on the people of Afghanistan . Fully aware that the limited numbers of troops that were sent there and the failure to provide them with proper resources (including proper protection) has caused deaths and injuries.

Yet the government is now talking of increasing aid to Pakistan, despite the undeniable proof that the Pakistan intelligence service is supporting the Taliban.

Many of our armed forces are having to put up with sub-standard accommodation and charity hand outs.

This government has also failed to exclude from our society known terrorists and criminals because of their “human rights”.

Surely all of the above are “morally repugnant” from a government that is long on talk and short on action.

If you are worried or concerned about how the budget will effect you then you should contact one of our Financial Planning Consultants, at Pareto Lawrence we offer both Financial and tax planning advice to corporate and private clients.

Director’s loan accounts can create various tax problems for both company and director

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• If the overdrawn (debit balance) on a director’s loan exceeds £5,000 and the loan is made interest-free then this will be regarded as an employment-related loan.

• A taxable benefit will arise if the employer does not charge interest at HMRC’s official rate.

• Take care when calculating the cash benefit of the interest free loan, you can use an averaging or daily basis. (HMRC will use the daily basis where a loan balance fluctuates throughout the year.)

• The taxable cash benefit is the difference between interest calculated at HMRC’s official rate and the interest paid (if any has been charged). • The taxable benefit is required to be reported on form P11D. • The director will be taxed on the benefit.

• If a company does not write up its transactions contemporaneously it may be difficult for it to accurately determine when this type of benefit occurred.

Creative tax planning often involves use of Director Loan facilities, like all planning, it is important to implement properly and correctly.

If you would like more information about Director’s Loan Accounts and the tax problems they can create contact one of our Financial Planning Consultants, at Pareto Lawrence we offer both Financial and tax planning advice to corporate and private clients.

One more fling of the dice for high rate tax payers?

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The forthcoming budget is unlikely to bring much comfort to high rate tax payers. It seems very likely that changes will be made in tax legislation that will put a stop to some generous reliefs on pensions.  The existing rules and reliefs when used creatively give rise to some very interesting outcomes.

High rate tax payers currently lose £1 of their personal allowance for every £2 of pay above £100,000.

So people earning £114,950 lose all of their personal allowance giving them a marginal tax rate of 60%.

However for high rate tax payers some very interesting results can be obtained when you use pension contributions to reduce your income.

So someone earning £114,950 could make a pension payment of say £11960 net into a personal pension.

This would have the benefits of:-

Grossing up, so the net payment of £11,960 would gross up to £14,950 (it normally takes two months for tax relief to be added.

However making this payment would reduce pay to £100,000 – thereby allowing full personal allowance and providing a tax saving of £2990.

The grossed up pension contribution can also be applied to reduce his personal tax payments by £2990.

So for a payment of £11,960 net the combined tax benefits are £8970 !

That’s not all if the taxpayer is age over 50 then it is possible to (at some point) withdraw the 25% tax free cash on the grossed up amount, enabling £3737.50 to be taken out of the pension. Meaning that the overall net cost of the exercise is only £8222.50.

However that would leave £11,212.50 remaining in your pension pot.

This type of creative tax and pension planning has a limited shelf life.

If you are a high rate tax payer and are worried about your existing tax planning strategy then please contact one of our Financial Planning Consultants, at Pareto Lawrence we offer both Financial and tax planning advice to corporate and private clients.

Enterprise Investment Schemes – Why 20% income tax relief may be preferable to 30%

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Rules permit Enterprise Investment Scheme (EIS) investors to take advantage of ‘carry back’ which enables the cost of shares to be treated as though they had been acquired in the previous tax year, enabling investors to benefit from income tax relief in the preceding year.

As EIS income tax relief has been increased to 30% for the 2011/12 tax year why would anyone want to carry back to the previous tax year (reducing the income tax relief to 20%)?

  • One off tax bill in previous year: People with a high income tax liability in 2010/11, can carry back to mitigate the previous year’s bill.
  • Access to tax relief cash earlier: Normally taxpayers must settle their outstanding tax bill by 31 January of the following year.  Investors carrying back current investments to 2010/11 tax year will benefit from a reduced tax bill in January 2012 rather than having to wait until January 2013.
  • Maximise total tax reliefs:  Failing to carry back loses out on a valuable tax relief that cannot be regained in the future.  Providing you have sufficient funds you can apply both to carry back for the 20% and apply further later to carry back the following tax year and claim the 30%.
  • Invest £1 million in EIS in 2011/12: Investors who have not used their EIS tax relief in 2010/11 can double their investment in 2011/12 from £500,000 to £1 million by carrying back half the investment to 2010/11.
  • Capital Gains Tax Deferral: EIS investors can defer taxation on capital gains incurred up to 36 months before the date the EIS shares were acquired.  Using carry back in 2011/12, investors with CGT liabilities can defer CGT gains right back to 2008/09 tax year.

It is easy to focus purely on taxation issues, particularly when a lot of potential tax may be mitigated. It is important to take into account that any investment in an EIS involves a degree of risk , therefore do take professional advice.

If you would like to talk to us about EIP’s or any other tax planning issues please contact one of our Financial Planning Consultants, at Pareto Lawrence we offer both Financial and tax planning advice to corporate and private clients.

Inheritance tax Relief for Furnished Holiday Letting?

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A recent Tribunal has decided that the activity of Furnished Holiday Letting, even when carried on in a modest scale, can amount to a business property for the purposes of Inheritance Tax Business Property Relief (BPR). The decision, although not binding, challenges HMRC’s published guidance.

In order for a furnished holiday letting to qualify as relevant business property:

  • There must be a business carried on.
  • It must be carried on for a gain.

It must not be a business consisting wholly or mainly of “holding investments” (paraphrasing parts of section 105 IHTA 1984).

HMRC v George & Loochin (Stedman’s Executors)[2004] STC147.

Nicolette Vivian Pawson (Deceased) v HMRC [2012] UKFTT TC01748

The appeal was allowed as the Tribunal had “no doubt that an intelligent business man would not regard the ownership of a holiday letting property as an investment as such and would regard it as involving far too active an operation for it to come under that heading.”

HMRC changed their guidance on the availability of BPR for furnished holiday lets only fairly recently. It will be of great interest to see whether it will appeal this case.

If you own a furnished holiday let and are worried about getting into trouble with the HMRC then you should contact one of our Financial Planning Consultants, at Pareto Lawrence we offer both Financial and tax planning advice to corporate and private clients.


An own goal or a result by HMRC ?

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Rednapp not guilty: HMRC ‘no regrets’

Harry Redknapp has been cleared of charges of tax evasion, but HMRC has “no regrets” over bringing the case to trial. Redknapp was accused of receiving bonuses of $295,000 and hiding them in a Monaco bank account. The amounts were received when he was managing Portsmouth back in 2002-2004 and paid by Milan Mandaric, who later became chairman of the club.

One payment was a bonus on the sale of Peter Crouch. HMRC argued that the payments were taxable bonuses. Redknapp and Mandaric claimed that the cash was not connected with Redknapp’s employment at Portsmouth. However, Redknapp was recorded in conversation with the News of the World as saying that one payment related to Crouch’s transfer.

The jury gave a unanimous verdict, having been told by the judge that that they could not find Redknapp guilty and at the same time acquit Mr Mandaric.

Our comment

This was a case of two halves!

On one hand the case may have been expensive for the taxpayer to lose.

On the other hand the very widespread publicity may encourage a large number of people who have been engaged in dubious tax planning to be more transparent in their dealings with HMRC.

The Liechtenstein Disclosure Facility has recently been extended and so there is plenty of time left to disclose offshore accounts.

Please be ware that HMRC have considerable investigation powers at their disposal, including using their Civil Investigation of Fraud procedures as opposed to taking criminal proceedings to investigate and take further action.

For more details of tax planning strategies contact one of our Financial Planning Consultants, at Pareto Lawrence we offer both Financial and tax planning advice to corporate and private clients.

Finance For Business

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The current squeeze by banks on lending is having an impact on the economy. However it is not only small trading companies that are facing difficulties with their bankers but also larger well known companies and professional practices, such as accountants and solicitors.

Accepting finance from a bank by any business is essentially agreeing to a loss of both valuable cash resources (in terms of fees and interest charged) and financial control of both the business (and unfortunately far too often – personal assets).

Most businesses and professional practices would benefit from a silent partner in the business.

Would it surprise you to know that many businesses could benefit from such silent partner arrangements by accessing a variety of schemes that can legally unlock funds from their own pension.

These schemes are available via specialist pension products and can unlock much needed finance NOW and allow firms to benefit from improved cash flow and their pension funds to benefit from being paid interest.

For more details of sensible tax planning strategies contact one of our Financial Planning Consultants, at Pareto Lawrence we offer both Financial and tax planning advice to corporate and private clients.

Top civil servants in tax avoidance scam

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It was revealed on BBC Newsnight last night that Ed Lester chief executive of the Student Loans Company has been receiving his civil service salary via a service company in order to avoid PAYE. We do not believe that he is alone in receiving favourable tax treatment:-

We have some questions for the government and HMRC.

  • How many other Full time civil service employees are paid via service company?
  • Why did HMRC agreed no PAYE to be deducted?
  • Why did Treasury agree (but unaware of tax deal) ?
  • Why did HMRC made similar agreement with its IT officer ?
  • Why are these cases apparently exempt from IR35


The discovery of the details of Mr Lester’s pay deal was made following a freedom of information request by Newsnight.

The payment arrangement for his £182,000 civil service salary to be paid to a third party intermediary (his personal service company) had also been approved by HMRC – twice. HMRC appears to have agreed this when he was engaged on a temporary contract, and then again when he was taken on full-time. He also receives £550 per week in travel expenses for his commute to work, also apparently tax-free.

Danny Alexander, the chief secretary to the Treasury signed off the pay deal, but seems unaware of what he agreed. It is reported that he has informed Newsnight he is now investigating further!

Government swoops on latest tax avoidance scheme

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The Government has come down hard on the latest tax avoidance scheme, with an immediate change in legislation.

This blocks a tax avoidance scheme involving post-cessation trade relief, an avoidance scheme that seeks to generate post-cessation trade relief claimed by users of the scheme against their other income or capital gains.

The relief was designed to allow a person to claim a deduction in their income tax calculation for certain payments and bad debts arising after a trade, profession or vocation has ceased. But according to reports, artificial trading companies were being set up in tax havens to take advantage of the relief.

The law changed with immediate effect on 12 January 2012, and the legislation will be in the Finance Bill 2012.

It was stated that “Tackling tax avoidance is a priority for the Government. It is unacceptable, at a time when we are trying to bring down the deficit, that there are those who try to avoid paying the tax they owe. We have acted quickly to prevent the use of this particular scheme and we will not hesitate to close down other avoidance schemes as we become aware of them.”

Our opinion is that it is often unnecessary to use high risk tax schemes such as this.

For more details of sensible tax planning strategies contact one of our Financial Planning Consultants, at Pareto Lawrence we offer both Financial and tax planning advice to corporate and private clients.

HAPPY NEW YEAR – the Year of the Dragon

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The Chinese community will be busy celebrating their New Year today, January 23rd.

Although the first day of 2012 Chinese Astrology Year is on February 4, 2012.

Those people interested in astrology will be keen to discover if they are likely to have better luck in the coming year than previous years.

According to Chinese Five Element Astrology Calendar, 2012 is the Year of Water Dragon . The colour of Water in Five Elements system is related to Black.

Therefore this year 2012 will be referred to by the Chinese as a Black Dragon year.

Chinese Astrology is a Balance Theory of Five Elements. Each animal can be converted into Five Elements. Dragon contains Earth, Water and Wood. It’s a source of Water and is also called the Water Dam in Chinese astrology.

Dragon is a legendary animal and it is symbol of emperor in China. Since the Dragon is coated with mysterious color, Chinese consider that the dragon is unpredictable, untouchable and people cannot see its head and tail at the same time. This is auspicious and therefore something unexpected may have significant impact in 2012. Also a person with too many dragons in the Chinese astrology birth chart will become smarter, sly and unpredictable in the coming year.

2010 was the Year of White Tiger and is the beginning year of the Wood cycle. 2011 was the Year of White Rabbit and is the middle year of the Wood cycle. The Dragon of 2012 is the last year of the Wood cycle. Dragon is the transition year to the Fire Cycle. The energy of Wood is in the East side. The energy of Fire is in the South side. We never know what will happen when turning from East to South. That’s another sign of unpredictable Dragon year.

Fire is the opposite element of Water. People whose lucky element is Fire will have more impact in 2012.

Whatever your creed or culture, we wish you and all the very best for the year of the Dragon.

If you are not into astrology, and prefer to plan ahead for your future contact one of our Financial Planning Consultants, at Pareto Lawrence we offer Total Planning advice for both corporate and private clients.

Failing to see the Wood for the Trees ?

Almost all business owners are aware of the need for proper financial planning and therefore are keen to examine in minor detail the various products that they have been sold over the years. In addition they are often concerned at “the bottom line” of the product valuation (in other words have their pensions or investments gone up or down) without relating this to how the market has performed generally.

We wonder if this type of “financial awareness” is helpful?

It is worthwhile to meet an adviser who can assist you to discover :-

Where you are now financially

Ideally,  where you would like to be positioned financially in the future?

What are the most cost effective strategies to assist you to reach your ideal?

If you are not currently aware of the answers to these questions, you need to seek out an alternative Financial planner, contact one of our Financial Planning Consultants, at Pareto Lawrence we offer both Financial and tax planning advice to corporate and private clients.

Late with your tax return?

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The deadline to file tax returns for the previous tax year that ended 5th April 2011 is 31 January 2012. These returns can only be made online now. It is of greater importance this year to make returns on time as new penalties are in place. You will be charged £100 even if late by 1 day and £1300 if delayed by over six months, in addition you may be charged a percentage of the tax due.

If you are late with completion of your tax return, there are steps you can take to improve your chances of meeting the tax deadline.

Check you have all the information that you require to complete the tax return. Ensure you have requested interest details from your bank or building society and that you have a copy of your P60 and or P11D form.

If your tax return is complex, ensure you take advice. If not then read the notes provided by HMRC, they are very clear and helpful.

Register for online filing. HMRC will need to post you your log in and this could take at least one week to arrive.

Double check that all the figures you have entered are accurate.

Make sure you claim any allowances – these could be due on pension contributions if you are a high rate tax payer, gift aid and if you have contributed or invested in VCT’s or EIS’s. Please note that VCT, EIS and pension companies provide certificates which you should enclose with your tax return.

Lastly if your tax bill is too high, then you should contact one of our Financial Planning Consultants, at Pareto Lawrence we offer both Financial and tax planning advice to corporate and private clients.

Are you disappointed with the financial advice that you have received to date?

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If you are a business owner or a private individual with over £250,000 of investment capital then the chances are that you may be dissatisfied with the level of service or standard of advice that you have received in the past.

Many conventional financial advisers have a reasonable level of knowledge but often the advice that they provide is related to financial products as this type of transactional advice generates commission.

But what difference does this type of advice bring to your life or your future?

Why would you need to make a difference?

Regardless of your current financial position, the future is full of uncertainty as governments worldwide are diminishing the value of their fiat currencies in order to clear massive debts. In addition the value of cash (once regarded as a safe haven) will be eroded by inflation.

Investment markets will be volatile for some time to come, and the worst of the falls in investment markets may be ahead.

So conventional advice, providing products based in these areas (and all too often – little other real advice other than information on products) may not provide you with the financial security you need.

Remember given the improvements in health and medical treatment we are all living longer. The cost of providing your current lifestyle will leap ahead in future years. This will provide a very real problem for many people as they are likely to outlive their capital.

Many of us are living our lives, as if nothing has changed, but a very real change has taken place, the transfer of wealth from the west to the east.

Compounding the significant reduction in wealth, our politicians have let us down badly and created massive debts which will impoverish this country for years to come.

Of course it is very easy to pretend that no real political or financial changes have taken place and it may be pleasant to pretend that our government is capable of dealing with the massive problems and significant debts that they are faced with.

If that is your position then you may want to carry on receiving conventional financial advice even in these unconventional times.

After all you will not have to cope with reductions in your pension income or standard of living now, nor will you have to cope with higher taxes. However all of these events are inevitable.

To provide a brighter financial future you may wish to seek out a different style of adviser, an Alternative Financial Adviser.

Alternative Financial Advisers can provide advice on products if required but they are more concerned with providing you with a realistic view of your current and likely future financial position.

They will work with you in creating a financial model, this will enable you to make the very necessary decisions now to influence your future later. Alternative Financial Advisers will normally agree to coach you to an improved financial future. In order to do so they may have to spell out some financial truths that may be uncomfortable for you to listen to.

In addition to personal (alternative) financial planning for individuals – Alternative Financial Advisers can often assist business owners, that is particularly true if your Alternative Financial Adviser is also an Alternative Corporate Financial  Adviser.

Their knowledge and bespoke planning fills a void left by accountants and conventional financial advisers.  Business owners have a massive opportunity to leverage their business and both increase their personal wealth and the value of their business.

Such an Alternative Financial Corporate Adviser needs not only to possess a considerable knowledge of accounts and financial planning strategies but also considerable knowledge of tax and sensible tax strategies.

Business owners who have applied financial strategies advised by such advisers report a marked increase in their personal wealth and the values of their business over as little as 2/3 years.

Alternative Financial Advisers make a significant commitment of time and support to each client they agree to work with, quite clearly this service can only be provided by fee and retainer.

However most advisers of this type provide a “discovery meeting” at no charge. This will enable you to investigate what if any difference they can assist you to bring to your future, using financial strategies not simply products.

They will also provide clear financial statements each year so that you can establish what progress you are making.

The Discovery meeting itself may be a pleasant surprise (or shock), as instead of being persuaded to purchase of this or that product, the Alternative Adviser will almost certainly focus the financial position you wish to place yourself in the near future and what value they can add to your financial situation to turn your expectations into reality.

If you have any queries about the advice you are receiving, then please do not hesitate in contacting one of our Financial Planning Consultants, at Pareto Lawrence we offer both Financial and tax planning advice to corporate and private clients.

Protecting Personal Guarantees

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If you have negotiated lending from a bank, the chances are you may have had to provide a personal guarantee (normally secured against your house).

There are a number of matters to consider if you have placed your family at financial risk by agreeing to a personal guarantee.

The first is that you may not have needed to involve the bank or incurred additional lending at all as with Total Planning you may have been able to raise the capital yourself.

The second point is that if you are stuck with a personal guarantee, then you need to take action to protect your family by ensuring that you take a first or second charge on your company assets.

Let us say that your company borrowed £300,000 from the bank by way of a personal guarantee secured against your prime residence.

Your company becomes insolvent and the company assets bring in £450,000 but the creditors total £1.2 M. The bank will be paid 33p in the £ (together with other creditors) and claim the balance (£200,000) from you.

Your action in placing a charge upon the assets will mean that you are able to pay the bank off in full, so there is no claim against your assets.

Do not rush into signing Personal Guarantees ensure you take proper advice.

Contact one of our Financial Planning Consultants, at Pareto Lawrence we offer Total Planning advice for both corporate and private clients.

Your Single Most Important Business Decision ?

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For business owners the most important decision when marketing their products or services is price.

Two companies A & B compared

Two identical companies selling the same product or service. One company prospered the other failed and became insolvent.

Both companies offered their product or service at the same price, but the salesmen from B company were allowed to discount by up to 25% if needed.

Company A did not discount and therefore had to offer a superior quality of customer service, (company B could not afford to do so).

In fact there is a rationale for increasing price by 25% (even though you may lose 23% of your customers) as there is less work and more profit.

Experiment with your cash flow planning and you will be surprised at how much your profitability will be improved!

If you have any queries about your companies cash flow planning, then please do not hesitate in contacting one of our Financial Planning Consultants, at Pareto Lawrence we offer both Financial and tax planning advice to corporate and private clients.

TAX – Tip

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You may be in a fortunate position as an employee, that is, if you are employed by a specially listed firm, one that is allowed to run a SAYE scheme. SAYE is a win-win situation for employees. Your only commitment is to save between £5 and £250 per month for 3 or 5 years. Once the term is completed you can decide whether to use your cash pool to buy shares in your employer’s firm at a discount of up to 20% of the price of the shares (when the SAYE scheme started).

This makes SAYE the only real risk free route to the stock market (and it’s promoted by the government to encourage wider share ownership and employee participation).

SAYE was introduced 31 years ago to encourage staff to own a stake in their own firm. Today approximately 1.7 M people are members.

Of course there are other forms of share schemes for employees but these tend to be for key personnel, these need to be carefully drawn up to ensure they are within HMRC legislation. The cost of setting up bespoke share schemes for key individuals is between £5-12,500 per scheme.

However for the majority of all other employees the SAYE is cost effective and popular.

Do you have any queries about the SAYE scheme, or share ownership and employee participation? Then contact one of our Financial Planning Consultants, at Pareto Lawrence we offer both Financial and tax planning advice to corporate and private clients.

Pension Roll Up – Roll Up – Roll Up

Ithica Publishing Services

The 3 year carry forward rule means that it is possible if you have not contributed to your pension in the three previous years, that you can roll forward up to £50,000 worth of relief and therefore pay a maximum of £200,000 in any pension input year.

So far so good, what would happen if you paid a whopping big contribution of say £150,000 two years previously?

It was thought that the monies paid over £50,000 would be reduced from the amount of roll up available, but under new interpretation of the rules, the overpayment can be ignored and so long as you made a smaller contribution in the other two years then you can still carry any balance forward.

Do you have any queries about pension contributions or the 3 year carry forward rule? Then contact one of our Financial Planning Consultants, at Pareto Lawrence we offer both Financial and tax planning advice to corporate and private clients.