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By Balance team, May 18 2017 05:39PM

Most of us will never experience a big win on the lottery, but if you are lucky enough to see your ticket hit the jackpot, what do you do next? Even if you haven’t won the lottery, you could find yourself inheriting a small fortune. Acquiring unexpected wealth brings with it a range of different considerations, as well as emotions. We explore this subject further, giving you a guide on what to do next, if you do strike gold.

I’m rich!

Firstly, congratulations! Your initial reaction is likely to be a mix of shock and excitement. Take your time for the news to sink in. Once reality sets in, you might find that you have no idea what to do next. Winning, or acquiring, a large sum of money will have a direct effect on your personal relationships. Although your family and friends will initially congratulate you on your win, you may also encounter a degree of jealousy and resentment from people. If you have been living on a tight budget for many years, being able to spend frivolously can easily result in you quickly frittering away your win. There have been well-publicised cases where people have won millions on the lottery, only to find themselves bankrupt a few years down the line. You may also be surprised to learn that some lottery winners have ended up depressed. This is usually because having a lot of money tends to lead you into a new lifestyle, one of which your family and friends cannot relate to. This could put pressure on your partner or spouse, and there have been cases where relationships have broken down after a big lottery win. Being aware of these potential issues can help you avoid them if your numbers come in!

Do I go public?

You may decide to remain anonymous, which is an option offered by Camelot who manage the National Lottery. It is a common misconception that you win less if you stay anonymous – this simply isn’t true. However, people have found it very difficult to keep their news private, due to their new spending habits. If you do go public, one of the problems many winners experience is the increased level of risk. It is not uncommon for lottery winners to receive numerous begging letters, which can be incredibly difficult to handle. Plus, you may need to look at security, both personal and for your property, depending on the amount of money you have won. You may also find that your own family and friends start coming to you for financial support, which may or may not prove difficult to turn down. By remaining anonymous, you may find it easier to filter your news appropriately to the people you trust the most. However, to avoid unwanted attention, you will need to plan how to spend your money.

Make a plan

Before you buy that Ferrari or decide to move into 5-star accommodation, you need to have a realistic idea of how long your money will last before you start spending. The next step would be to create a robust financial plan covering how you intend to use your newly acquired wealth. This is a really exciting prospect, although also very daunting for most winners as all the fantasy lottery win scenarios start to become a possible reality. Despite your big win, a realistic budget will ensure you keep your money for as long as possible and make the most of it – ideally, for the rest of your life. Striking a sensible balance between really enjoying your newfound wealth and looking after it carefully, is absolutely essential.

Ask yourself the following questions:

Would you like to move to a new home? If so, how much will it cost year on year to maintain your new property?

Do you want to travel? If so, how much will it cost to visit your dream destinations? If you decide to travel for a number of months – or years – calculate the cost of flights, accommodation, meals and spending money over the period of time you plan to be away.

• Do I want to support family or special causes? If you have family members you would like to help – repaying mortgages for example, how much would you need? Do you want to give them money outright or give it with special provisions attached? Do you want to support particular charities or causes, or have you even received enough of a windfall to set up your own charitable trust?

Should I invest?

Sensible investing is a sound way to make the most of the money you don’t want to spend. Ultimately, you will need to look at the level of risk you are willing to take and we recommend diversifying as much as possible. Putting your wealth into investments with preferential tax treatment, such as ISAs, pensions and offshore bonds, can be a real consideration.

Should I worry about tax?

The short answer is ‘yes, absolutely’. You will usually be subject to tax on the income and growth of your new wealth and simple planning can keep that to a minimum, so you preserve your financial position as much as possible. What’s more, as the value of your estate will have grown significantly, you may wish to take measures to prevent inheritance tax liabilities in the future for your children or other dependants.

For more information on how to deal with a lottery win, please visit our Big Life Events – Lottery Win page.

If you are affected by any of the points raised in this article, or if you have acquired a large sum of money you would like to manage, please get in touch and speak to one of our financial planners for advice.

By Balance team, May 8 2017 07:34AM

From April 2018, many businesses and self-employed people (including landlords) will be required to start using digital software for tax records, submitting these to HMRC on a quarterly basis. This is part of a government measure to make tax administration simpler for tax payers, as well as more effective and efficient. By speeding up the collection of tax information, businesses will no longer have to wait until the end of the financial year to see how much tax they owe. Theoretically, this should help to improve cash flow management instead of facing a huge tax bill at year end. What’s more, the aim is to reduce the amount of errors and the £8bn of uncollected tax, which is a hefty burden on the UK economy.

The level of which this new tax system was due to be set has been subject to numerous consultations. Originally, the government planned to roll this out to all self-employed persons and businesses under the VAT threshold – however, this has been lobbied by various parties across the financial sector and beyond.

Who does this apply to?

If your business profits are liable to income tax (currently over £11,500), you pay class 4 National Insurance contributions (NICs) and your turnover is above the VAT threshold (currently £83,000), you will be expected to update HMRC quarterly using digital tax software, which links directly to HMRC via your individual Personal Tax Account. As well as being the portal for submitting your self-assessment tax return, your Personal Tax Account shows your Income Tax estimate, your tax code and any refunds, credits or allowances. HMRC are looking to improve the Personal Tax Account (possibly developing an app) as we move closer to next April, when Making Tax Digital comes into force.

Making Tax Digital – Timeline

April 2018 for income tax and National Insurance contribution (NICs) purposes if your turnover is over the VAT threshold

April 2019 for income tax and NICs purposes if your turnover is below the VAT threshold

April 2019 for VAT purposes for everyone who is VAT registered

April 2020 for Corporation Tax (CT) purposes for everyone who pays CT


How does digital tax software work?

Say goodbye to those spreadsheets! Although the principle of digital tax software is very similar to Excel, the idea is to keep all of your accounting in one single place on a live, real-time system. The software connects to your bank account and to HMRC. As your customers pay you and you pay your suppliers from your account, there is no need for a separate record of your transactions because the software synchronises with your bank account. Many digital tax systems also include mobile apps so you can scan your receipts in using your phone, which are then uploaded onto an online, usually cloud-based platform. Most digital tax systems have invoicing and customer receipt tools, so this software can add real value to your accounting processes. From a resource perspective, the benefits include greatly reduced manual data entry, which means less time is needed on your bookkeeping. Plus, these systems are fully compliant, which reduces the risk of errors from manual data entry.

If you are going to be affected by Making Tax Digital, speak to your accountant. If it is likely to affect your personal planning please get in touch and speak to one of our financial planners.

By Balance team, Apr 27 2017 12:12PM

How recently has your property been valued? Do you know how your home will affect your inheritance tax liabilities? There’s been a lot of talk recently in the news in relation to trusts, care home fees and of course probate fees. A huge increase to probate fees was controversially introduced and then swiftly withdrawn, but has the idea been forgotten or will we see it in another guise after the General Election? These factors are very important when it comes to planning the future of your estate and your legacy. Estate planning is one of those areas people often fall behind on, simply because life moves very fast. Reviewing an estate plan regularly gives you the opportunity to make vital changes, which could reduce future tax liabilities for your loved ones.

Here are our top tips for you to consider when it comes to effective estate planning:

1. Lasting Power of Attorney allows control of your estate

Many professionals consider this to be more important than a Will, and this is why we have made this point number one. Regardless of the value of your estate, if something were to happen to you or your spouse and they lost the ability to make decisions for themselves, a Lasting Power of Attorney gives you the ability to make decisions on their behalf – to manage them and their affairs. There are two types of Lasting Power of Attorney: Property and Financial Affairs, and Health and Welfare. There’s little point putting plans in place without the certainty you can act, should your loved one no longer have the capacity to make important decisions.

2. Wills help to avoid probate fees and family disputes

If you have children, you need a Will, especially if you have children from a previous marriage. Even if you don’t have children, having a Will makes life a lot easier for your loved ones when you pass away. The grieving process is terrible enough, so why add estate worries to their stress? Without a Will, family disputes are very likely and, if the estate goes to probate, sometimes years can go by without any resolution. Plus, probate costs can run into thousands, eroding your hard-earned wealth. Avoid future family crises - make sure your Will is up-to-date and reflects all of your assets, property and possessions. Talk to one of our financial planners for more details.

3. Trusts and inheritance Tax (IHT) – reduce the effect of your legacy

Now you have secured your property and assets with a Will and a Lasting Power of Attorney, it’s time to check how your estate will be taxed. This April 2017, a ‘main residence’ allowance of £100,000 was added to the 'nil-rate’ band for inheritance tax (where the family home passes to a direct descendant on death). This means that tax won’t apply on estates under £425,000 where a direct descendent has inherited the main home of the deceased. Over this threshold, there is a 40% tax charge.

Taking steps to reduce your exposure to inheritance tax ranges from simple to sometimes very complex solutions and it really depends on your situation and what you are trying to achieve as to what will work best for you. Gifting to your family, using trusts, and using special exemptions, all of these could help you preserve a greater legacy for your loved ones. Speak to one of our financial planners for advice on this.

If you would like advice on estate planning or inheritance tax, please get in touch and speak to one of our financial planners.

By Balance team, Apr 20 2017 06:35PM

On Tuesday 18th April, Prime Minister Theresa May announced there will be a snap general election on 8 June 2017. The reasons behind this decision include wanting stability, strong leadership and a sense of certainty, as the UK leaves the EU. The PM’s controversial announcement has been met with great debate and some opposition, but how will the forthcoming general election affect you and your investments?

Market volatility

On announcement of the general election, the FTSE 100 slumped by 2.5%, which is the biggest drop since last June. In terms of stocks, it is estimated that £46bn was wiped off some of the largest companies in the UK – the “worst day since Brexit”. This was largely caused by the pound, which spiked on Tuesday to a record six-month high against the US dollar ($1.29, an increase of 2.37%), placing great pressure on the UK stock market. The pound also soared against the Euro, hitting a four-month high. In reaction to the soaring pound, Deutsche Bank advised that it will be raising its sterling forecast. The rising pound is due to confidence in the market; the perception that the Government is likely to win the majority leading to a period of political stability. Forex traders are not particularly worried about the June election, but equity investors are wary, mainly due to general geopolitical stress across global stock markets.

Investment opportunities?

Possibly. However, the right approach to the churning political tide in the UK is to ensure you have a robust, long-term financial plan in place when it comes to your investments. Yes, in the short-term, there may be opportunities, but investors are urged to look beyond the political noise and focus on their savings strategies. Short-term trading will incur transaction fees, which may result in losses to the investor if there is a sudden reaction in the market. Of course, all investments have a degree of risk, so it is important that your investment strategy meets your needs and you have a solid financial buffer in place.

Wise investing

Due to the volatility in the market, it is more sensible than ever to diversify. This is a great way to manage risk, so we suggest diversification across different types of investments, by sector and geography. We also recommend new investments are drip-fed into investment markets, to manage your risks of investing when the markets are at a peak. Ultimately, wise investing relies on good risk management.

To conclude, we suggest investors take care and manage risk. Market volatility is set to continue until the UK political landscape becomes clearer after the June election results.

If you are worried about how the snap General Election in June may affect your investment strategy, then please get in touch and speak to one of our financial planners.

By Balance team, Apr 9 2017 06:00PM

There’s a lot of talk these days around ‘goal setting’, but what does this really mean from a personal perspective? Setting achievable goals doesn’t just apply to business – having clear objectives on what you would like to get out of life and how to plan your future are just as relevant as commercial goals. Otherwise, what are you working towards? From a lifestyle viewpoint, we have listed a few important questions for you to answer when you come to set your own personal goals.

1. Where are you right now?

This is the first step towards setting your goals. Are you enjoying your current lifestyle? Would you like greater comfort in terms of a better home, car, or more frequent holidays? Do you currently enjoy buying luxury food, household items and clothing? Are there things that you worry about? Assessing your current lifestyle and concerns will help you plan for the future and set relevant goals. Some people choose less in one area to gain more in another, e.g. a smaller house and more luxury holidays. This is purely an individual choice - but if you have a husband or wife, children or other dependants, then a compromise must be found. If you are currently paying an expensive mortgage, or for your children’s education, these are considerable outgoings in your present day-to-day life. What are you paying out for now that may possibly change in the future? To reflect further on this, see our Big Life Events page.

“The trouble with not having a goal is that you can spend your life running up and down the field and never score”

Bill Copeland

2. Where do you want to be in the future?

What do you want to achieve in your life? Is it a Ferrari and 5-star holidays, or more security and a few simple comforts? Think about what you would like to have in the future. This could be material in terms of possessions, or it might be more of a lifestyle change, e.g. you might decide you want to retire and write a novel. If you have young children, you could be planning to spend an amount on their future education. You might want to set a goal to pay off your mortgage quicker and become debt-free. You might have a burning desire to eat at the world’s top listed restaurants! Again, this is a purely personal choice that will only apply to your individual set of circumstances - your ‘needs’ and ‘wants’. Write a list of everything you would like to achieve in terms of personal gain, and the way you would like to live your life - these are your goals.

“By recording your dreams and goals on paper, you set in motion the process of becoming the person you most want to be. Put your future in good hands—your own.”

Mark Victor Hansen

3. Do you have any worries?

Now you have started to write an outline of where you are and where you would like to be, is there anything holding you back? This might be financial restraints, e.g. a high mortgage or the cost of educating a child. Or, you may have very sensitive, personal commitments, such as having a child with a disability or an aging parent with care needs. If you do have children, dependants or relatives with specific needs, then it is likely there will be a cost implication in terms of making sure they have access to a decent standard of care. Unfortunately, costs for care and care homes, as well as schools for special education will tend to increase if a child or adult has increasing needs. It is important to factor this into future plans, as well as how you will cope personally with such changes.

“Our goals can only be reached through a vehicle of a plan, in which we must fervently believe, and upon which we must vigorously act. There is no other route to success.”

Pablo Picasso

By painting a clear picture of your desired future, as well as identifying any constraints, will help you create an achievable list of goals. You are far more likely to reach lifestyle targets, once you have created a realistic vision to work towards. Once you have confirmed what you want to achieve in life, you can then apply a suitable financial strategy to help you get there.

If you would like any help with personal goal setting, or you would like to discuss any aspect of this article, then please get in touch and speak to one of our financial planners.

Regular news and views from the Balance team. You'll find our thoughts about pensions, investments, ways to save tax, facts about finances and plenty more.


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