Top Planning Tips Heading into 2023

Whilst investment markets have to react to policy maker decisions, and to unforeseen events such as pandemics and war, the planning side of what we do is often subject to significant change as well. Overall we thought it was worth a start of the year walk through, to cover off what might be new in 2023.

To fix or not to fix?

Around 300,000 households per quarter will roll off their current fixed rates in 2023. Most of those would have been previously locked in at rates between 1% and 2.5%, so there will be some hefty cost increases likely to come due to the rise in interest rates. Don’t expect them to start falling much until early 2024.

Starting with fixed rates, depending on the loan to value ratio, most currently sit between 4.5% and 5% for 2 years, and 4.2% and 4.8% for 5 years. It is marginally cheaper to fix for longer, suggesting there is some expectation for the Bank of England to be cutting interest rates over the coming years – aligned to our thoughts.

Variable rates are around 1% cheaper again, which can make a measurable difference to your mortgage payments. The downside here is that you aren’t guaranteeing your mortgage cost, and interest rates are likely to go up a bit further before they come down. Our recommendation would be to hunt for a two-year discounted variable rate, where payable rates are currently around 2.7% allowing some upward movement before the 5-year deal gets more attractive.

The decision that’s right for you is very much situation dependent, and of course we have access to the best rates in the market so drop us a line and we can point you in the right direction.

Buy that State Pension…

A worthwhile reminder for those who are slightly short of their 35 years of service, that from April you will no longer be able to purchase any years back from pre-2016.

It currently costs just £842 to buy a year of service back, with a payback period of just 3 years to make that decision worthwhile. If your closing in on your State Pension age and remain in good health, this is close to a no-brainer.

While we are on pensions…

Don’t forget you’ve now got around 3 months to make use of your annual pension allowances before the tax-year resets again. You could also have the option to carry forward any unused allowances from the previous 3 years as well, with 2019/20 falling off the map after April 5^th. Even if you are retired or simply not earning (though under age 75), you can add £2880 to a pension plan and the government will top you up by a further £720. Free money!

Gifting Options

Gifting to loved ones can be a great way of sharing your wealth. It can be immensely rewarding and if used correctly, a tax-efficient tool in passing wealth down the generations. Although gifting may seem like a simple concept, there can be high tax implications if gifts are made without due consideration to the rules. If you are considering gifting above £3000 per annum, it is very important to be aware of the rules, with some annual exemptions outlined below:

You can give away a total of £3,000 worth of gifts each tax year without them being added to the value of your estate. This is known as your ‘annual exemption’.
You can give as many gifts of up to £250 per person as you want each tax year (as long as you have not used another allowance for the same person).
Each tax year, you can give a tax-free gift to someone who is getting married or starting a civil partnership. You can give up to:
- £5,000 to a child
- £2,500 to a grandchild or great-grandchild
- £1,000 to any other person
If you’re making gifts to the same person, you can combine a wedding gift allowance with any other allowance, except for the small gift allowance.
You can make regular payments to help with another person’s living costs. There’s no limit to how much you can give tax-free, if:
you can afford the payments after meeting your usual living costs
you pay from your regular monthly income

These are known as ‘normal expenditure out of income’. They could include:

paying rent for your child
paying into a savings account for a child under 18 (for example Junior ISAs)
giving financial support to an elderly relative
paying for children’s care fees
gifting bond segments

A key point to take away from this is to always record what you gift and when. DB Wood keep a gift register, which takes out the stress and assists our clients with keeping track of their gifts so they can be managed effectively. We are also highly qualified in offering Trust advice, if you would like to make larger gifts outside of your standard allowances.

Junior ISAs – make savings whilst saving for the future

From funding university fees to a house deposit, saving regularly for your child from an early age can make a huge difference. If investing in a Junior ISA from birth, those early contributions will be invested close to 2 decades, providing lots of time for them to accumulate growth (tax-free of course, as sit within an ISA).

Positively, our partner platform abrdn have recently launched Junior ISAs. We have a 0% platform charge available all the way to the child’s 18^th birthday. This makes it an even more efficient way to save for their future.

Driving costs lower – we continue the drive to push investment costs down for clients. We have just secured reduced costs for 3 funds currently within our portfolios….

AXA Global Strat Bond which is now 0.1% pa. If you were to buy this direct (retail) it would cost 0.7%pa
M&G Global Listed Infrastructure at 0.5% (retail 0.7%)
Natixis Loomis US Long/Short at 0.5%, no perf fee (retail 1% + 20%)

Platform Maintenance

Finally, just a note to say the abrdn platform will be undergoing upgrades, so will be closed for access between 5pm on 26^th January and 9am 1^st February.

If you can’t log on over that period, don’t worry – everything will remain in its usual place and we will be at hand to answer any questions. The system will be back up to speed from 1^st February with improved functionality.

Next blog up…. January investment Performance released Friday 3^rd February.

Have a great weekend everyone.