Spring Budget 2017

While the gist of Philip Hammond’s latest budget was widely anticipated (at least the major points), it still makes for interesting reading.

National Insurance rises for the self-employed

Those of a certain age may remember that in 1988 U.S. presidential candidate George H. W. Bush won headlines with a straightforward promise “Read my lips: no new taxes”. After election, in 1990, he proceeded to raise taxes. Rather more recently, David Cameron and George Osborne fought the 2015 election on a platform of no increases in personal taxation and explicitly included National Insurance in their campaign pledge. Now that the Conservative party is in government, however, this pledge has been shown to be open to negotiation as new Chancellor Philip Hammond used his April 2017 budget to announce an increase in National Insurance, albeit “only” for the self-employed. This increase will take effect in April 2018. He also reduced the tax-free dividend allowance available to directors and shareholders from £5KPA to £2KPA, again from April 2018. The chancellor did raise the personal tax-free allowance to £11.5KPA and reaffirmed his commitment to raising it to £12.5K by 2020.

Business get some relief from rate rises

Recently the business media has been full of stories of how the 7-yearly reassessment of business rates was great news for large internet retailers operating out-of-town warehouses but really hurting high-street retailers, particularly smaller ones. The chancellor has therefore announced £435M to assist businesses in dealing with this change, of which £300M will be used to create a hardship fund for those who are suffering the most. It should be noted, however, that this will be made available to local councils to use at their discretion, so it will be interesting to see how this works in reality. Additionally, pubs with a rateable value of under £100K will get a £1K discount on their rates and businesses which are losing rate relief will have the increase limited to £50 per month.

The cost of key purchases

As has become almost a budget tradition, fuel duty is frozen as is Vehicle Excise Duty rates for hauliers and the HGV Road User Levy. While some media sources had been anticipating a move to penalise owners of diesel cars or even to force diesel cars to be scrapped, nothing of this sort was mentioned in the budget, although there was a passing reference to the possibility of changes to the “tax treatment for diesel vehicles” at some point in the future. There were no extra increases to the duty on alcohol or tobacco, although there is a new minimum excise duty on cigarettes based on the assumption that cigarettes are priced at £7.35 per packet. Philip Hammond also announced that UK VAT would henceforth be payable by people roaming outside of the EU (which raises the question of whether this will be extended to within the EU after Brexit). To the surprise of some, the controversial “sugar tax” also remains as is for the time being and gambling is likewise left unchanged.

Funding for the regions

Scotland, Wales and Northern Ireland get £250M, £200 and £120M worth of funding respectively. Following on from his backing for a high-speed rail link between Leeds and Manchester in his last budget, Philip Hammond pledged £90M to the north of England and £23M to the Midlands, which is to be used specifically to address pinch points on roads. The chancellor also announced support for local projects over the coming year, for example work on the A483 corridor in Cheshire and the Outer Ring Road in Leicester. Also in keeping with his previous budget, the chancellor pledged £16M for 5G mobile technology and £200M for local broadband networks.

Care Changes

Dealing with an ageing population has been an increasing concern for a number of years now. “Pensions freedoms” have been one aspect of encouraging people to save for their later life. Not to put too fine a point on it, the changes made to paying for care in later life are another aspect of the same topic. In simple terms, it allows people to keep more of their money if they need care in their senior years. Presumably the government hopes that this will motivate people to save (more).

The Care Act and what it says

The Care Act actually contains a lot of changes to social care provision, but there are two which stand out.

At current time, people with capital and savings of less than £14,250 have the cost of care paid for them in its entirety, people with a net worth of between £14,250 and £23,250 receive some level of assistance and people who have more than £23,250 must fund the entire cost of care themselves. From April 2020, people with capital and savings of less than £17,000 will have their care costs paid in full and those with a net worth of between £17,001 and £118,000 will be eligible for some form of assistance and only those with a net value of more than £118,000 will need to meet the cost of their care in full – up to a maximum of £72,000.

The other stand out feature of the Care Act is that the amount an individual will have to pay towards eligible care will be capped at £72,000. Eligible care can include care at home as well as spending time in residential care. It is important to note that the actual cost of bed and board in a care home is excluded from the cap, but will itself be capped at £12,000 per year.

For more information go to http://www.ageuk.org.uk/home-and-care/the-care-act/

Calculating the Cost of Eligible Care

One of the most important points to note about the Care Act is that the amount of help you will receive will be based on two factors, which are assessed by your local authority:

  1. What care you need
  2. How much the relevant local authority estimates that it should cost

In other words, your local authority will only pay for care which they agree you need and at a rate they assess (rather than based on what you actually pay). Given that the implementation of these changes is still three years away, it is arguably far too early to say what effect, if any, these facts will have in practice, although it is probably fair to say that it is always a good idea to aim to have funds available so that you can afford to pay for care which meets your expectations, rather than being obliged to accept your local authority’s point of view. It is also too early to know the details of exactly how this new approach will be administered in a practical sense. The basic principle behind them will be that local authorities will create “Care Accounts” for older people, which will be used to keep track of who has paid for what. Presumably this will involve some degree of paperwork for older adults.

Planning ahead

In modern times, the concept of old age has become something of a contradiction. On one hand, older people can be some of the most active people around and on the other, it’s still very much the case that some older people can be vulnerable and need extensive care. Realistically as we age, our bodies become more vulnerable to illness and injury and we need longer recovery time, so a spell in care is a distinct possibility for many people. With this in mind, even younger people should look at the question of financing their later years as being a core part of their financial planning.

New Buy To Let Changes

Investment is, ultimately, all about looking at risk and reward and in the real world that means not only looking at the headline figures of how much return any investment could generate in and of itself, but also at how much it will cost to use the investment vehicle. It therefore makes sense to make a point of double-checking these costs on a regular basis to make sure that your investment numbers still stack up. In the case of buy-to-let property, Chancellor George Osborne has recently introduced a tax “triple whammy” of changes to the wear and tear allowance, stamp duty and mortgage tax relief. Let’s look at these individually.

Wear and tear allowance

As of April last year, landlords with furnished properties have only been able to claim the exact amount spent on furniture and fittings, whereas previously they were able to claim an allowance of 10% of the rental income (net of any services for which the tenant is responsible but which the landlord pays on their behalf, e.g. council tax) without producing receipts. If they needed to claim more than that, they had to support the claim with receipts. It’s an open question as to what effect, if any, this will have on landlords’ overall financial situation, give that landlords will still be able to claim for wear and tear, but what it does mean is that some landlords, particularly amateur ones, may have to up their bookkeeping standards and get a lot more diligent about keeping track of their purchases and taking into account the other changes as well, may want to start employing the services of a professional bookkeeper if not an accountant. 

Stamp duty

Again as of April 2016, most people who have purchased a second property priced at over £40K have paid an extra 3% stamp duty (except in Scotland). There are a few exemptions to this charge and it can be refunded in certain circumstances (basically people who find themselves in the position of temporarily owning two properties, such as during a house move, are likely to be eligible for a refund), but BTL landlords are likely to find themselves paying it. While this is only relevant to landlords who wish to enter the market or expand their portfolio, where margins are already tight, an extra 3% stamp duty may make the difference between a viable investment and one which is too risky to be worth the money.

Mortgage tax relief

From April 2017, landlords will only be able to claim mortgage tax relief at the basic rate of income tax (currently 20%) as opposed to their marginal rate of tax (40%+). How much impact this has will obviously depend on how much income they have from other sources. Those in the 20% tax band will be unaffected, those on higher incomes, however could find their revenue taking a hit. The financial press has already suggested that one way to get around this could be to operate through a “Special Purpose Vehicle”, which is basically a limited company for BTL landlords. There has been some debate about the pros and cons of this at the moment, what is known is that setting up an SPV entails some degree of cost and effort and there is always the risk that the government will simply apply new rules to SPVs, which will essentially put the owners therefore back to square one (or worse). While it is a separate issue, the Prudential Regulation Authority has introduced new affordability criteria for BTL landlords (in similar vein to the Mortgage Market Review in the residential mortgage market), which could lead to landlords struggling to get mortgages for new properties and/or to re-mortgage existing ones.


Changes To Interest Rates & Inflation

In principle, interest rates and inflation can be viewed as being the two opposite ends of a see-saw. If interest rates go up, the cost of finance rises and savers get more for their money, if people have less inclination to spend, then there is an incentive for sellers to lower prices and hence lower inflation. The reverse is also true. That is, of course, a very simplistic explanation in that, in the real world, there can be many other factors at play, for example if demand for an item is high and supply limited, then raising interest rates may actually cause prices to increase as supply-side costs go up and demand stays high.

The ideal level of inflation

Inflation actually serves a useful purpose in that it acts as a call to action. Basically people know that if they put off making a purchase, there is a good chance that the price will increase. At the same time, however, if prices increase too quickly, then all kinds of problems can ensue. The Weimar Republic in 1920s Germany was characterised by high inflation, which meant that money became worthless almost as soon as it was printed. The opposite of inflation is deflation, which is when prices fall. Deflation has a similar effect to raising interest rates and was one factor in the Great Depression of the 1930s in the U.S.A. Basically although the headline cost of a purchase was reduced, the cost of paying for any finance needed to buy it effectively increased (by much more than the official rate of interest), making it significantly more expensive. At current time, the UK government aims for a continuous inflation rate of 2% and the Monetary Policy Committee of the Bank of England is tasked with managing this.

How does the Bank of England manage inflation?

The Monetary Policy Committee meets 8 times a year and decides what action to take, if any, to keep inflation at the government’s 2% target. They have two tools at their disposal, interest rates and quantitative easing. Interest rates can be used to influence inflation regardless of whether it is rising or falling. Quantitative easing only comes into play where low inflation/deflation is a concern. Essentially quantitative easing is when the BoE literally increases the supply of money and uses this “new money” to buy assets, typically government bonds. Increasing the supply of money reduces its value and therefore has a similar effect to lowering interest rates. Both the UK and US administrations have made use of QE in recent years, most notably after the financial collapse of 2008.

What is likely to come in the near future?

At this point, there is very little scope to lower interest rates any further (unless the BoE shows itself willing to go down the path of zero or negative interest rates). That being so, if inflation shows signs of dropping below the 2% target, the UK could see another round of QE. By contrast, if inflation increases, then the BoE, in theory, has plenty of scope to raise interest rates. The challenge to them is the fact that doing so would impact mortgage holders rather than simply reining in consumer spending. This could place the BoE between a rock and a hard place, but since its target is to keep inflation at 2%, it would have very little choice but to raise rates, unless the government agreed to waive the target. One factor which could suggest a rate rise might be on the cards sooner rather than later is that a weak pound increases the cost of importing goods and sellers may seek to pass this increase onto the customer (as the makers of Marmite tried to do). If they did, this would push inflation upwards and increase the likelihood of interest rates being raised.

How Are You Saving?

Saving money probably ranks right up there with joining a gym in people’s lists of New Year’s Resolutions, hopefully though now we’re in February, that determination hasn’t faded. The good news is that there are lots of ways to go about saving money which are much less effort than sweating it out in a gym. Here are 7 of them.

Write down your savings goals and put them somewhere very visible

Admittedly this isn’t a money-saving technique per se, but it can help to keep you on track. It can be a whole lot easier to take action to save money when you can see how it helps to move you towards a goal. You could even create tickboxes and/or a graph to track your progress.

Downsize your mobile

Think hard about how you really use your mobile and what you actually need before buying a new phone at all and if you do decide you need an upgrade, look carefully at how to get the best value for your purchase. You may very well find that buying a mobile yourself and going for a SIM-only deal, or even PAYG, works out cheaper (and more flexible) than taking out a new (2 year) contract.

Buy a water filter (and a SodaStream)

This one depends on where you live but if you’re one of the many people in the UK who lives in a hard-water area and you are currently buying bottled water because you find it more pleasant to drink, then ditching shop-bought water for home-filtered water will be good for both your wallet and the environment. Regardless of where you live, if you like bubbles in your water then a SodaStream will add them at home, saving you money and cutting down on plastic.

Rationalise your coffee

If you really want to save money then ditching coffee-shop coffee for home-brew is the best way to go. If, however, that’s one step too far for you, then at least ditch the takeaway cups (which, generally speaking, are neither recycled nor recyclable, in spite of what may people think) and take your own to a shop which offers a discount to customers who bring their own mug.

Take advantages of libraries (going digital)

Again this will depend on your habits and where you live, but if you like reading then save space and money by only buying your favourite books to keep at home and picking up casual reading from your library. Some libraries are now also offering the opportunity to borrow ebooks and digital audiobooks (as opposed to the ones on CD). Many libraries also offer a selection of audiobooks on CD, music CDs and DVDs. Why buy them when you can borrow them for free?

Ditch the gym membership (and buy a bicycle and/or some workout DVDs)

If you really are going to the gym regularly and it’s the only practical way for you to practice your favourite form(s) of exercise and/or you really enjoy the social scene, then fair enough. If, however, you’re paying a monthly subscription for facilities you hardly ever use then it’s time to stop kidding yourself and ditch it. Instead of spending money on a gym subscription, you could buy yourself a bicycle, which could also provide some handy transport and/or some workout DVDs.

Do more cooking

Take a look at the price of a basic sandwich such as cheese or egg mayonnaise. Then think about how much the ingredients costs (even at retail prices, before volume discounts). Yes, there will have been a cost for labour, but making a standard sandwich is hardly a highly-skilled job and yes you’ll have to add on a bit for packaging and transport, but even so, it’s hard to avoid the impression that shop-bought sandwiches are usually extremely expensive for what they offer. Similar comments apply to ready-meals and other convenience foods.

Self Employment – Is It For You?

There’s a lot of plus points about being in paid employment and there’s a lot of plus points about self employment. It would be nice to say that which one you choose should be a matter of preference, but these days job-market forces mean that it can be a wise move to be at least prepared for the prospect of having to earn a living on a self-employed basis, even if it’s not something you would want to do over the long term. So what does this mean in practice?

Less debt equals more options

This is arguably very true in any and all areas of life, but is a crucial point for the self employed and, in particular, for those who have only recently become self employed. Not to put too fine a point on the matter, lenders prefer people who have reliable incomes over people who may or may not have any income at all from one month to the next, which is a risk of self-employment. Therefore, if you are currently in a job, paying down debt as quickly as possible, particularly high-interest debt such as credit-card debt, should probably be a priority in any case and all the more so if there is any possibility of you going self-employed.

The mortgage question

If you bought a home recently then you will probably already have experienced the stringent checks carried out by lenders, which are intended to ensure that you can make your repayments over the long term, regardless of lifestyle changes. Those with mortgages should think particularly seriously about making the jump to self-employment and should ideally have a substantial cash cushion. Those who’ve had their current mortgage for some time may wish to look and see if they can get a better deal now, while they are still in employment and potentially go for a fixed-rate deal so that they can budget consistently or look at options such as “offset mortgages” which allow for greater payment flexibility. Renters might want to think long and hard about buying a property at the same time as going self-employed, but if you are absolutely sure this is the right route for you, then it is usually best to secure your mortgage while still in employment.


As a self-employed individual, you will not get access to a workplace pension at all, let alone one into which your employer makes extra contributions. If you are transitioning into self-employment from work then you may want to make the most of your workplace pension scheme while you still can and also, potentially, start making some form of retirement provision outside of work. Once you are self-employed, there are various ways you could approach retirement planning, of which a private pension is just one. Because of this and because of the importance of making the right decision for you and your personal situation, it could be a very good idea to get some professional advice here.


There are basically two aspects to insurance for self-employed individuals. One is insuring yourself, so that you and your loved ones can manage in the event that your ability to work is impaired for any reason. The other is double-checking that your possessions are adequately insured given your new circumstances and the fact that, particularly in the early years, you are likely to find it more of a challenge to take out credit. The first point includes looking at options such as medical and dental insurance, income-protection insurance and critical-illness cover. The second includes points like double-checking that your current home insurer is fine with you working from home (if this is your plan) and considering taking out pet insurance (if you haven’t already) to ensure that a vet’s bill can be paid even if you’re in a lean period.
Dental and pet insurance are not part of the Openwork offering, reference to them is included in this blog for general information purposes only and Openwork Limited accept no responsibility for this.


3 Debt Excuses Busted

Debt is sometimes a pretty-much unavoidable fact of life. It would be nice, for example, if we could all afford to buy houses out of cash savings, but for many people mortgages are the only feasible way of owning a home. While “good” debt may have a purpose, it can still be an advantage to be rid of it and “bad” debt (such as credit card debt) is generally something which should be dealt with as quickly as possible. So why do people keep carrying debt? Here are 3 common debt excuses – busted.

I don’t have any spare money

In fairness, this may seem to be true, in some cases it may actually be true, but ironically the tighter your budget is now, the more important it is to deal with debt. Here’s why, debt often becomes cheaper the less of it you have. Take credit card debt, say you maxed out a credit card and now you’re making the minimum payment each month to pay it off. Chances are most of your payment is actually going on the interest on the debt rather than paying off the debt itself. If you pay extra, more of your repayment will go on reducing the debt – and that means less interest the following month. So if you don’t seem to have any spare money, start by taking a long, hard look at your finances and accounting for, literally, every penny you spend to see if there’s any way at all you can eke out a little money to put towards your debts. If there really isn’t, then you need to look at ways of making extra money. The good news is that starting in April, you can earn up to £1K of extra income (over and above what you make in paid employment) without paying tax on it. This means that by becoming a micropreneur, you can potentially have another 1K a year to pay down your debts. It may not seem a lot, but it can make a huge difference.

I don’t want my kids to think they’re different from their friends

They are different from their friends. They’re your children and, clichéd as this may sound, quality time is the best gift you can ever give them. The memories you make will be with them for a whole lot longer than the latest must-have toy all their friends have. If you still need convincing, remember that children learn from their parents and they take those lessons with them into adulthood. Sensible money-management is one of the most important skills anyone can have in the modern world and parents need to set the example they want their children to follow. If you teach your children how to tell the difference between essentials and desirables and how to resist the temptation to pay for the latter on credit, you’ll be setting them on the best financial path for adult life. You may also be sparing them the burden of having to work out how to look after you financially in later years when they are working adults and you would like (or need) to retire.

When X happens then…

This one comes up all the time in all kinds of contexts. When Christmas is over then I’ll take out a gym membership. When the children are at school then I’ll start studying again. When I get a pay rise, then I’ll start paying off my debts. In fairness, in some cases, waiting does make sense, but in many others it’s just a way to put off dealing with a problem you’d rather ignore. In the case of debt the golden rule is “take action now”. The longer you leave debt, the more interest will be added to it.

House Market Predictions for 2017

Predictions are a tricky business, but at this time of year, they’re pretty much obligatory. So with that in mind, let’s take a look at what could be in store for the housing market over the year ahead.

London switches to rentals?

At this point in time, Article 50 has yet to be triggered. When (if) it is triggered, then the UK should have up to two years to negotiate an exit deal, although in principle this period could be extended if all parties are in agreement. Only once this is agreed can the UK begin the actual practicalities of exiting the EU and discovering what life is like outside it. In other words, it’s probably safe to say that there is going to be a lot of uncertainty in the UK over the next few years and in spite of the phrase “safe as houses”, uncertainty and the commitment of a mortgage could be an uncomfortable combination. While this applies throughout the UK, the high prices in London (and its commuter belt) combined with the possible impact to the financial-services sector could feasibly motivate people to postpone plans to buy or even to move from a property they own into rental property to become mortgage-free and to give themselves maximum flexibility in a post-Brexit situation.

Buy-to-let becomes consolidated?

After the Mortgage Market Review of 2014, the Prudential Regulation Authority has now brought in a stress-test for landlords which mandates that lenders must ensure that Buy To Let (BTL) landlords must be able to afford their mortgages if interest rates reach 5.5% unless they have a fixed-rate which lasts for at least 5 years. Lenders must have this on place by 1st January 2017. This comes on top of recent changes to stamp duty and mortgage tax relief. It’s still early days, but one potential result of these changes is that small-scale BTL landlords exit the BTL market, possibly to invest in property through some other vehicle, such as commercial property or investing in property developers. This could then create a buying opportunity for larger investors, particularly those operating through limited companies.

Investors with cash go bargain hunting?

The Bank of England (BoE) is tasked with keeping inflation at precisely 2%. If inflation drops below target then, in theory at least, the BoE could drop interest rates even further (it is possible to have negative interest rates) or they could use quantitative easing to try to encourage growth. If, however, inflation rises, then the BoE only has the tool of interest rates to try to bring it back under control. This means that either the government would have to raise the inflation target to allow interest rates to be kept low or the BoE would be forced to raise interest rates to put a brake on inflation, even though this could lead to disruption in the housing market. Higher interest rates make mortgages more expensive. This means that even if home prices remain static, property overall becomes less affordable to buyers who need a mortgage. It also means that home owners with an outstanding mortgage need to allocate more of their total income to servicing their mortgage, leaving them with less money for other purchases. People who are already stretched may therefore look to sell their current home and look for somewhere cheaper, such as a smaller property or a property in a more affordable location. This could create a buying opportunity for investors with cash to spare. International investors could be in an even stronger position if the pound is weak in the currency markets, since this would make property even cheaper relative to their home currency.

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


Financial Planning For The New Year

As another January rolls around, it’s time for the New Year’s resolutions list. This is therefore generally the time when there are articles full of helpful suggestions for resolutions you could make. In the real world, however, we generally know what resolutions we should make. In fact we often make them. The problem, however, tends to relate to keeping them. So, let’s look at ways you can give yourself the best chance of sticking with your resolutions throughout the year.

Make resolutions meaningful in the real world

Let’s take a fairly common financial resolution – save money. The first question is: “Why do you want to save money?”. There are lots of potential answers to this from retirement, to a home deposit, to the holiday of a lifetime. Once you have stated your savings goal, you can get a realistic idea of the amount you need to save, which then leads into creating a feasible savings plan over a realistic time frame. This turns an abstract idea into a way to finance something you really want and that has meaning.

Pay yourself first (and automatically)

If you’ve set a realistic budget then treat savings and investments in the same way as you probably treat paying your bills. Prioritise them and automate them. Set up direct debits so that the income you’ve allocated to saving and investing goes straight where it is supposed to go. Make sure that you have an instant-access savings account so that if you do make a mistake, or if a genuine emergency arises, you can bump up the level of your current account.

Set yourself milestones

Another advantage of connecting your resolutions to your goals is that it gives you the opportunity to recognise and celebrate progress. This could be when you make a purchase using money you’ve saved rather than taking on debt, or when you’ve achieved a percentage of your savings target. Recognise your achievement in some way, even if it’s just ticking off a box on a savings chart.

Make your resolutions public

Making your nearest and dearest aware of your resolutions has two advantages. Firstly it helps to keep you on track. You’ve published your goals and there’s a good chance your family and friends are going to take an interest in them and ask you about them, which will help to keep you on track. Secondly, it will help them to understand any changes in your habits. For example, if one of your resolutions is to save money, then you may well need to make changes to your current lifestyle. Making those close to you aware of this can help to smooth that process.

Keep tracking your progress and be prepared to make changes

Financial advice during a divorce

At Christmas, strangely, divorce matters come to a head.

Going through a divorce, dissolution or separation is one of life’s most stressful events, so it’s important to have people around you to help with the practicalities. This is particularly true when it comes to financial matters, which can be complex and emotionally straining in these situations.

Achieving a fair financial settlement

As well as identifying any potential problem areas, a financial adviser can advise on how best to split any assets between you and your partner without attracting an unnecessary tax bill, and help value your pension benefits. An adviser will also assist you and your partner to complete the paperwork – such as the financial review known as a form E. This can speed up the process of your divorce or separation, keeping stress levels down as low as possible and helping to reduce any legal fees.

Extra protection

As well as splitting the finances, there are also new arrangements that come into play when people with children divorce. You may need to review your life insurance, critical illness protection and income protection insurance so you don’t leave yourself exposed.

Mistakes you can avoid by getting advice

Who keeps the family home? It’s easy for couples to fight for the home without considering the costs of maintaining the upkeep (mortgage, utilities and council tax bills etc). If you decide to take on the family home, make sure you have the financial capabilities to keep it running.

Sharing the pension pot – When deciding on how to split the funds within a pension, you need to consider the level of income you will receive in retirement compared to your partner. This will depend on age, health and lifestyle.

Asset valuations – It is a legal requirement to declare the true value of your assets (this can be a business, pension or any belongings etc), but it’s difficult to value an asset like a pension.

Identifying all debts – Any debts in your partner’s name means you’re also accountable. Make sure you know the full extent of any debts and try to close off any joint accounts and split the money evenly.

HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.

If you’re going through a divorce or separation, let the experts take the strain. Talk to us for professional financial advice.