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Wealth Management

PROPERTY BONDS – AN INCREASINGLY POPULAR ALTERNATIVE INVESTMENT

Reece Mennie is the CEO of Hunter Jones, the UK’s fastest growing investment introducing firm.

 

Why the excitement about property bonds?

Buy-to-let has long been seen as a lucrative investment, but the market is no longer as viable as it once was despite mortgage rates being at rock bottom levels. Stalling house prices coupled with a tax crackdown, and extra stamp duty levied on landlords, is having a crippling effect on the whole market. But for many, bricks and mortar investment still appeals.

Consequently, more people are turning to property bonds as a convenient means to secure attractive returns on their hard-earned capital. Property bonds enable savvy investors to invest in the development of a property, without the hassle of owning it. Essentially, it is a loan to a property development company to partially fund a construction project.

Investors will be reassured that property bonds are a legally binding agreement to pay them a fixed rate of interest over a fixed period of time, as well as the return of their original investment. In short, they offer the best of both worlds: attractive fixed returns with the peace of mind that comes from the security of ‘bricks and mortar’.

 

Reece Mennie

Are property bonds for me?

One of the biggest benefits of investing in a property bond is that you do not have to deal with the hassle of managing a property portfolio. Neither do you have to concern yourself with day-to-day financial issues such as maintenance fees, insurance and tax. You can simply invest your money and receive your income returns, without worrying about the complexities of buying, selling and letting a property.

Unlike stocks and shares, property bonds offer investors a bit more piece of mind in that they are a more stable investment. They come with asset-backed security and are far less susceptible to the day-to-day fluctuations that can make the stock market so risky. Interest is paid as ‘income’ periodically or is compounded over the term of the loan and added to the maturity proceeds as ‘growth’.

It must be noted that, much like many other investments, once you have placed your money into a loan note, it cannot be redeemed before the agreed term. Also it is important that you invest your money with a reputable introducer, i.e. one that operates to FCA standards and requirements, as the industry itself is unregulated.

Whilst property bonds offer very attractive benefits, not all property developers – and therefore not all bonds – are the same. Finding the right investment opportunities requires expert knowledge, and can, therefore, be both difficult and time-consuming for those with little free time or expertise. This is where financial introducers are often of assistance. By evaluating, and conducting due diligence on, developer offered property bond opportunities, a range of high potential investments can be showcased to investors, with little effort on their part.

 

Investor eligibility is vital!

It is important to note that property bonds are not suitable for everyone. For example, Hunter Jones only markets to self-certified ‘High Net Worth Individuals’ and ‘Sophisticated Investors’.

  • High Net Worth Individual

Defined in regulations made pursuant to the UK Financial Services and Markets Act 2000. Essentially, it is someone with a net income that exceeds £100,000 and/or has net assets that exceed £250,000. This does not include any pension fund assets they may have or their private residence.

  • Sophisticated Investor

If an investor can satisfy one of the following criteria they can ‘self-certify’: they have been a member of a business angel organisation or had more than one investment in an unlisted company; they have worked in the private equity sector; they have been a director of a company with a turnover of £1 million or more.

 

So what next?

For eligible investors, property bonds are a great means to generate a passive income, given that they are secured against physical property assets and offer a regular high yield. That being said, you must always speak to a professional financial adviser before making a decision to invest in anything.

I always recommend one that is approved by the Financial Conduct Authority (FCA). If you have found an adviser you are thinking about using, check the FCA register to ensure your advisor is regulated and approved.

Remember, property bonds can generate some of the most impressive returns currently available, and at relatively low risk. However, it’s extremely important that investors take the time to source and research viable opportunities, which is where experienced, specialist Introducers can help.

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Wealth Management

WHAT TO DO WITH YOUR LIFE SAVINGS, RETIREMENT AND INSURANCE POLICIES WHEN EMIGRATING

Insurance

By Renier Hugo, Alexander Forbes Certified Financial Planner

 

With South Africans increasingly opting to live abroad, a hot topic is the issue of what to do with your life savings, retirement, and insurance policies when emigrating.

New legislation, coming into effect in March 2020, means that South African tax residents living and working abroad will be required to consider whether they should emigrate from South Africa in order to avoid having to potentially account for tax in two countries.

A new term known as “financial emigration” has crept into people’s vocabulary. This is no different from the term “emigration” and the rules which attach when a person takes the steps to emigrate.  One needs to understand the consequences of emigrating to another country on one’s financial products, such as long-term insurance policies, investments and pre-retirement money.

 

Insurance

Renier Hugo

Life cover – You have the option of cancelling your life cover. Depending on the policy of the particular insurer, you might have the right to continue with the cover depending on whether the risk has changed for the insurer. You should take advice on this aspect. If you can it might be worthwhile to keep the current cover especially if you were underwritten when much younger or healthier. Your premiums will still have to be paid from a South African bank account.  Some South African insurers currently sell life insurance that pays out in dollar or pounds; or life policies that pay out in any country abroad. These products may well be worth looking into before emigrating.

 

Disability and Income Protection – Care must be taken here. Assuming the policy can be continued, there may be certain exclusions within the terms and conditions when moving abroad.

 

Retirement Annuities  The usual restrictions of not being allowed to withdraw before age 55, as well as the one third maximum cash lump sum withdrawal, with the rest to buy a pension, does not apply. When officially emigrating, a member of an RA may withdraw the full capital amount.

 

Preservation Funds –  The same applies to members of pension and provident preservation funds – a full withdrawal is allowed upon emigration.

 

Employer pension or provident funds – there is no restriction on withdrawal out of an employer pension or provident fund if a person decides to emigrate before normal retirement age.

 

Unit trusts and shares – regardless of whether you make the financial decision to sell these, there will be a tax consequence on emigrationso it is important to take advice.

 

Living Annuities –  With regards to living annuities, you are unable to withdraw the capital even if you have formally emigrated. The income will continue to be paid out into a South African bank account, and from there the annuitant can choose to transfer it offshore.

Before making the big move abroad it is always wise to consult your financial adviser, as well as a South African emigration specialist who can analyse and give advice on your unique and personal circumstances. One should also obtain tax advice to understand the tax treatment of financial products following emigration.

 

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Wealth Management

THE END OF YEAR TAX CHECKS THAT COULD SAVE YOU THOUSANDS

Tax

Charlie Reading, Founder and MD of Efficient Portfolio

After HMRC’s tax return deadline at the end of January, it can be tempting to drop your guard, believing that your new tax bill is a long way away.

It’s true, you’ve got a whole year until the next bill is due. What most don’t consider, however, is that there is a range of checks that you can do reduce that bill significantly.

Astute investors make use of their tax-free allowances every year and save thousands of pounds in the process. With such massive savings on the line, it’s a strategy to certainly consider.

With that, here are some easy checks and tips from Charlie Reading, Founder and Managing Director of Efficient Portfolio chartered financial planners, that could start you on your way to a much leaner tax bill:

 

Tax

Charlie Reading

1. Maximise Your ISA Allowances

Good returns, flexibility, diversity and tax efficiency should be key components in your financial strategy, and the ISA helps to deliver all of these. Historically, ISAs have been at the cornerstone of tax-efficient saving and are often referred to as one of the essential steps in your strategy, as they can help your wealth grow without you being penalised by heavy tax charges. They are an incredibly useful way of saving, and, as such, it is generally encouraged that people take advantage of their benefits. However, the ISA allowance is offered on a ‘use it or lose it’ basis, so if you fail to maximise it, you can’t make up the funds later on.

Up until 5th April 2020, you can contribute up to £20,000 into an ISA, and a further £20,000 from 6th April 2020, thereby sheltering up to £40,000 per person, as long as you’re over 18.

 

2. Top Up Your Pension While You Still Can

At the time of writing, the highest level of State Pension you can receive is £129.20 a week, which is frankly a paltry sum to live on. That’s why saving for the future is so important. It might seem wise to enjoy life now and worry about retirement later, but you’d only be damaging your future quality of life.

Pensions are a highly tax-efficient way of saving and now offer a great deal of flexibility in retirement, as when you retire you can gain access to 25% of your pension pot as a tax-free lump sum, with the remainder taxed at your marginal rate.

The current pension annual allowance is set at £40,000, so if saving for your future is a priority, it is worth investigating which pension is right for you, sooner rather than later.

 

3. Protect Your Estate from Tax

Inheritance Tax (IHT) is a concern for people from all walks of life. If you are hoping to leave a legacy to your loved ones, the last thing you would want is for that legacy to be taxed at 40% and lost to the Government.

One simple way of combatting this is to consider using your annual IHT allowance. During your life, you are allowed to give away £3,000 per year without incurring any IHT charges upon your death. There are of course downsides to this, in that you lose all access and control over the money, but it may be a tax-efficient strategy to consider.

 

4. Don’t Overpay Your Capital Gains Tax

The final tax consideration at this time of year is Capital Gains Tax, which is also given on a ‘use it or lose it’ basis and is currently set at £12,000. The issue of Capital Gains Tax is most acute if you hold investments which have grown above your tax-free allowance.

To ensure you make the most of your Capital Gains Allowance, it is generally recommended to sell down a portion of your portfolio to realise the growth made, but only enough to maximise your allowance, is the most prudent strategy.

These funds can then be used to fund any outstanding allowance on your ISA, for example. The advantage of doing so is that by placing your money from a taxable to non-taxable environment you have the potential for further growth, and you benefit in the longer term by potentially reducing a future bill.

There’s plenty of time left before the taxman comes knocking once again, but there’s no better time than the present to start looking into how you can save you and your business thousands of pounds simply through tax allowances you might not have previously been aware of.

 

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