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Personal Finance and Investing All-in-one for Dummies

Personal Finance and Investing All-in-one for Dummies

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By Melanie Bien, Julian Knight, and Tony Levene

Edited by Faith Glasgow

Contents at a Glance

Book I: Organising Your Finances and Dealing with Debt
Figuring Out Financial Goals, Financial Budgets, and Financial Advisers
Choosing the Best Current Account for You
Covering Yourself with Insurance
Tackling Your Overdraft and Other Credit Nasties
Choosing a Credit Card
Weighing Up Personal Loans
Book II: Paying Less Tax
Understanding Tax Basics
Dealing with Self Assessment
Taxing Family Situations
Understanding Tax When You Work for Someone Else
Working for Yourself Can Be Less Taxing
Taxing Your Savings and Investments
Book III: Building Up Savings and Investments
Squaring Risk and Return
Saving for a Rainy Day
Choosing a Mortgage
Making the Most of Tax-Free Savings and Investments
Delving Into Collective Investments
Scrutinising Shares and Bonds
Investing in Bricks and Mortar
Making Exotic Investments 
Book IV: Retiring Wealthy
Planning for a Wealthy Retirement
Making the Most of State and Workplace Pensions
Picking Through Personal Pensions
Taking Control with a Sipp 
Working with Your Pension
Using Property for Retirement
Book V: Protecting Your Wealth for the Next Generation
Working Out Why to Write a Will
Deciding Who Gets What
Choosing the Right People to Follow Your Wishes
Dealing with Inheritance Tax
Understanding Trusts
Grasping the Basics of the Probate Process

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Book Details
 Price
 3.00
 Pages
 611 p
 File Size 
 4,544 KB
 File Type
 PDF format
 ISBN
 978-0-470-51510-5 
 Copyright©   
 2007 John Wiley & Sons, Ltd 

About the Authors
Faith Glasgow has been writing on finance and property for longer than she
cares to remember, and has freelanced since 1998. She has contributed to a
wide range of publications during that time, including most of the broadsheets
and magazines from Vogue to Investors Chronicle. Faith lives in London with a
small family and a large mortgage, and occasionally muses on the fact that
she still has to work for a living, given the reams of advice on how to manage
one’s wealth that she has dispensed over the years. Sadly, hers is a classic
case of ‘Do as I say, not as I do’.

Melanie Bien is associate director (head of media relations) at Savills Private
Finance, the independent mortgage broker. She was personal finance editor
of the Independent on Sunday for five years and writes freelance property
features for national newspapers, magazines, and Web sites. She has written
several books and pamphlets to accompany television programmes on property
makeovers and design, and on buying, renovating, and selling property.
Her other books include Sorting Out Your Finances For Dummies, Buying a
Home On a Budget For Dummies, Buying and Selling Property For Dummies,
and Renting Out Your Property For Dummies.

Julian Knight was born in Chester in 1972, educated at the Chester Catholic
High School, and later at Hull University. He is the BBC News personal finance
reporter and writes for the BBC News Web site; Julian is the author of Wills,
Probate & Inheritance Tax For Dummies, and lives in London with a large
mortgage. Before joining the BBC, Julian worked at Moneywise magazine
and contributed to the Guardian as well as many other publications.

Tony Levene is a member of The Guardian Jobs & Money team, writing on
issues including investment and consumer rights as well as on taxation.
He has been a financial journalist for nearly thirty years after a brief foray
into teaching French to school children. Over his journalistic career, Tony
has worked for newspapers including The Sunday Times, Sunday Express,
The Sun, Daily Star, Sunday Mirror, and Daily Express. He has written seven
previous books on money matters including Investing For Dummies and
Paying Less Tax For Dummies. Tony lives in London with his wife Claudia,
‘virtually grown up’ children Zoe and Oliver, and cats Plato, Pandora, and Pascal.

Introduction
launch pad to understanding the basics of all the financial considerations
you face during your lifetime.

Best of all, this book highlights ways to get the most from your money, but
it also helps you decide where your priorities lie when it comes to your
finances, and gives you the facts up front and honestly. And as your priorities
develop and change, all the advice you need is in the same book so you can
make the journey from clearing your debts to building your wealth by investing,
to setting up a comfortable retirement and a potential nest-egg to pass on
to your nearest and dearest. Think of Personal Finance & Investing All-in-One
For Dummies as your first great investment!

About This Book
If you’re trying to figure out your financial future, cure a tax-related headache,
invest your money securely, or work out the most sensible way to refloat
your financial boat, this book provides an introduction to the most useful
areas of financial and investment advice.

You can read further details in other For Dummies books or see a financial
adviser for personal or more specific advice. If you’ve read all there is to read
in this book but still want more, check out the extra information in these
For Dummies titles (all published by Wiley):

 Investing For Dummies (Tony Levene)
 Paying Less Tax 2006/2007 For Dummies (Tony Levene)
 Retiring Wealthy For Dummies (Julian Knight)
 Sorting Out Your Finances For Dummies (Melanie Bien)
 Wills, Probate & Inheritance Tax For Dummies (Julian Knight)

Table of Contents
Introduction..................................................................1
About This Book...............................................................................................1
Conventions Used in This Book .....................................................................2
What You’re Not to Read.................................................................................2
Foolish Assumptions .......................................................................................2
How This Book Is Organised...........................................................................3
Book I: Organising Your Finances and Dealing with Debt .................3
Book II: Paying Less Tax ........................................................................4
Book III: Building up Savings and Investments...................................4
Book IV: Retiring Wealthy......................................................................4
Book V: Protecting Your Wealth For the Next Generation ...............4
Icons Used in This Book..................................................................................5
Where to Go from Here....................................................................................5
Book I: Organising Your Finances
and Dealing with Debt...................................................7
Chapter 1: Figuring Out Financial Goals, Financial Budgets,
and Financial Advisers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Looking at the Benefits of Being on Top of Your Finances .......................10
Drawing Up a Budget .....................................................................................10
Studying How to Save Without Sacrificing..................................................12
Establishing Your Goals.................................................................................13
Setting Up a Rainy-Day Fund.........................................................................14
Looking After Your Life and Health..............................................................15
Paying into a Pension Plan............................................................................16
Taking Care of Property Before Profits........................................................16
Pay Off Home Loans Early.............................................................................17
Seeking Help: Financial Advisers..................................................................18
Considering Advisers.....................................................................................18
Benefiting from independent advice..................................................19
Avoiding the pitfalls .............................................................................19
Finding an IFA .................................................................................................20
Taking a More Limited Approach.................................................................21
Tied Agents .....................................................................................................21
Getting to Grips with Qualifications ............................................................22
Becoming advanced.............................................................................22
Looking beyond bits of paper.............................................................23
Paying for Advice ...........................................................................................23
Forking out a fee ...................................................................................24
Going with commission .......................................................................24
Combining fees and commission........................................................24
Look for negotiation.............................................................................25
Going It Alone .................................................................................................25
Chapter 2: Choosing the Best Current Account for You . . . . . . . . . . . . 27
Explaining How Current Accounts Work.....................................................27
Noting interest and taxes ....................................................................28
Considering safety first........................................................................28
Paying the charges ...............................................................................29
Maintaining the ideal balance.............................................................30
Finding the Best Current Account................................................................31
Gaining access ......................................................................................32
Weighing balances................................................................................34
Accruing interest ..................................................................................34
Terms and conditions ..........................................................................34
Switching Your Current Account..................................................................35
Completing the application form .......................................................35
Obtaining a list of direct debits ..........................................................36
Handling the changeover period........................................................36
Chapter 3: Covering Yourself with Insurance. . . . . . . . . . . . . . . . . . . . . 37
Arranging Cover .............................................................................................37
Deciding what insurance you need....................................................38
Disclosing information to the insurer................................................38
Shopping around for insurance..........................................................39
Reading the policy carefully................................................................39
Deciding on the excess ........................................................................39
Making a comeback if things go wrong .............................................40
Cutting costs – without skimping on cover ......................................40
Handling Health and Protection...................................................................40
Insuring Your Life ...........................................................................................41
Beginning term assurance...................................................................41
Getting whole of life insurance ...........................................................43
Protecting Your Income.................................................................................43
Covering Critical Illness ................................................................................44
Preparing for Accident, Sickness, and Unemployment .............................45
Purchasing Private Medical Insurance........................................................46
Accounting for the cost .......................................................................46
Declaring your medical history..........................................................46
Covering Your Home and Belongings ..........................................................47
Safeguarding your home......................................................................47
Taking care of contents insurance .....................................................48
Making Sure of Your Car................................................................................48
Travelling under Cover..................................................................................49
Chapter 4: Tackling Your Overdraft and Other Credit Nasties. . . . . . . 51
Understanding How Overdrafts Work .........................................................52
Requesting permission ........................................................................52
Calculating interest ..............................................................................52
Looking at fees......................................................................................54
Deciding whether an overdraft really is the answer........................55
Choosing a Current Account for Its Overdraft ...........................................56
Fee-free buffers .....................................................................................56
Introductory offers...............................................................................57
Switching Current Accounts When You Have an Overdraft .....................58
Reducing Your Overdraft ..............................................................................58
Dealing with Other Debts..............................................................................59
Handling Store Cards Smartly ......................................................................59
Signing up for store cards ...................................................................60
Paying extortionate rates of interest .................................................60
Making store cards work for you........................................................61
Clearing store card debt......................................................................62
Avoiding Debt Consolidation Firms .............................................................63
Consolidating debts into one loan .....................................................63
Looking at high rates and arrangement fees ....................................64
Steering Clear of Loan Sharks.......................................................................64
Escaping the Debt Trap.................................................................................65
Prioritising your debts.........................................................................65
Working out your budget.....................................................................66
Making savings work harder...............................................................66
Juggling your mortgage .......................................................................66
Replacing the plastic............................................................................67
Contacting your creditors ...................................................................67
Seeking free advice...............................................................................68
Going bankrupt.....................................................................................68
Chapter 5: Choosing a Credit Card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Understanding How Credit Cards Work ......................................................72
Calculating interest ..............................................................................72
Figuring out credit limits .....................................................................73
Making the minimum payment ...........................................................74
Finding Low Rates ..........................................................................................74
Sourcing good introductory rates......................................................75
Pursuing low lifetime balances...........................................................76
Enjoying the Perks of Clearing Your Balance Every Month......................76
Getting cashback ..................................................................................76
Earning loyalty points and Air Miles..................................................77
Going for the added extras..................................................................77
Buying for charity and affinity groups...............................................77
Avoiding Certain Credit Card Activities ......................................................78
Paying annual charges .........................................................................78
Withdrawing cash.................................................................................78
Buying credit card protection.............................................................78
Protecting Your Purchases............................................................................79
Considering Your Credit Rating....................................................................80
Working with credit scoring................................................................80
Correcting mistakes on your file ........................................................81
Failing credit scoring ...........................................................................82
Chapter 6: Weighing Up Personal Loans. . . . . . . . . . . . . . . . . . . . . . . . . 83
Figuring Out When a Loan Makes Perfect Sense........................................83
Deciding When a Loan Is Not a Good Idea .................................................84
Understanding How Loans Work..................................................................85
Taking out unsecured versus secured loans.....................................85
Deciding on the term ...........................................................................87
Working out the interest......................................................................87
Calculating the total cost ....................................................................88
Watching out for early redemption penalties ...................................88
Aiming for flexibility.............................................................................89
Finding the Best Personal Loan....................................................................89
Applying for a Loan........................................................................................90
Avoiding Payment Protection Insurance.....................................................91
Working out the cost............................................................................92
Checking the small print .....................................................................92
Deciding whether you need cover .....................................................92
Taking Action If You Are Struggling with Repayments ..............................93
Book II: Paying Less Tax..............................................95
Chapter 1: Understanding Tax Basics . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Laying Out the Basics of the Tax System ....................................................98
Considering Tax and Your Family ................................................................99
Running through the Tax Year....................................................................100
Keeping Good Personal Records................................................................103
Identifying who needs to keep records ...........................................103
Sorting out what to keep ...................................................................104
Deciding how long to keep tax records ...........................................107
Retaining Business Records........................................................................107
Asking for receipts .............................................................................108
Keeping business records for a long, long time .............................109
Ensuring a part-time business follows the rules ............................109
Managing Your Record-Keeping .................................................................110
Chapter 2: Dealing with Self Assessment. . . . . . . . . . . . . . . . . . . . . . . 111
Managing the Mechanics of the Form .......................................................111
Getting the forms................................................................................111
Discovering you don’t have to fill in a form....................................113
Keeping records..................................................................................114
Filling In the Return .....................................................................................114
Avoiding the most common self assessment errors......................114
Listing income and credits................................................................115
Going into savings and investments ................................................116
Making friends with the blank page .................................................117
Seeing about supplementary pages .................................................117
Counting the Ways of Doing the Sums.......................................................120
Filing early ...........................................................................................120
Using purpose-built software............................................................120
Filing Your Form ...........................................................................................121
Posting your form...............................................................................121
Submitting your form online.............................................................121
Paying on Account .......................................................................................122
Asking for a reduction in payments .................................................123
Adding up the potential penalties....................................................123
Chapter 3: Taxing Family Situations. . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
Getting Married ............................................................................................125
Seeing who can claim the MCA.........................................................126
Figuring out the allowance................................................................127
Connecting MCA and the age allowance .........................................127
Maximising the Tax Benefits of Marriage ..................................................128
Sorting out your tax allowance.........................................................128
Swapping your assets ........................................................................129
Inheriting each other’s assets...........................................................130
Taking a stake in a pension ...............................................................130
Cohabiting instead of Marrying..................................................................130
Breaking Up...................................................................................................131
Sorting out the tax bill .......................................................................131
Paying and receiving maintenance payments ................................132
Becoming a Taxpayer ..................................................................................132
Giving Money to Children ...........................................................................133
Giving money as a non-parent ..........................................................134
Taking advantage of the small amount exemption ........................134
Saving Tax by Giving Wisely .......................................................................135
Investing in single premium insurance bonds................................136
Setting up a trust ................................................................................136
Getting Money for Children ........................................................................137
Benefiting from child benefit ............................................................138
Claiming child tax credit....................................................................138
Gaining a trust from the government ..............................................142
Receiving help with childcare costs ................................................143
Chapter 4: Understanding Tax When You Work for Someone Else. . . 145
Delving into the Mysteries of PAYE and Its Codes ...................................146
Finding out what the numbers mean ...............................................146
Looking at the letters.........................................................................147
Checking Your Deductions..........................................................................148
Checking your pay packet.................................................................148
Meeting your national insurance obligations .................................149
Noticing when your employer gets it wrong...................................151
Losing or Leaving Your Job.........................................................................152
Taxing Those Little Extras ..........................................................................154
Travelling to and for Work ..........................................................................155
Counting the cost of a company car ................................................155
Cycling – two wheels are better .......................................................158
Getting Non-Transport Perks......................................................................159
Housing: from the vicarage to the lighthouse ................................159
Paying for childcare ..........................................................................160
Realising other tax-free perks ..........................................................160
Explaining Expenses: The Wholly, Exclusively, and Necessarily Rule....162
Examining expenses that qualify......................................................162
Eyeing expenses you pay tax on.......................................................163
Special deals for special jobs............................................................163
Offering Share Schemes – Who and How ..................................................164
Working out who offers what to whom ...........................................164
Treasuring the tax savings ................................................................165
Saving with a Save As You Earn Scheme ...................................................165
Discussing Share Incentive Plans...............................................................167
Getting something for nothing with free shares.............................167
Going into partnership with your employer...................................168
Going Beyond Approval ..............................................................................169
Getting a reward for enterprise ........................................................169
Picking out particular employees with a CSOP ..............................169
Chapter 5: Working for Yourself Can Be Less Taxing . . . . . . . . . . . . . 171
Defining the Terms.......................................................................................171
Meeting HMRC’s standards for self-employment ...........................172
Delving into the grey area: Sole trader or simple seller? ..............173
Testing your wings whilst staying employed..................................173
Formalising Your Status ..............................................................................174
Registering your new business.........................................................174
Choosing your tax year carefully .....................................................174
Signing on for and paying VAT ..........................................................176
Keeping Accounts to Keep Everyone Happy............................................178
Filling out Schedule D can pay dividends .......................................179
Counting your credits ........................................................................179
Accounting for big business items...................................................180
Claiming extra help as you start up .................................................181
Accounting for loss making...............................................................181
Scanning National Insurance ......................................................................182
Complicating the classes...................................................................182
Putting a cap on national insurance ................................................183
Hiring Helpers...............................................................................................184
Employing your family.......................................................................184
Establishing a partnership with your partner ................................185
Paying employees...............................................................................185
Giving Up Work.............................................................................................186
Chapter 6: Taxing Your Savings and Investments . . . . . . . . . . . . . . . . 187
Taxing Interest ..............................................................................................188
Paying tax without effort (or intent)................................................188
Shelling out at the special savings rate ...........................................189
Doing the sums yourself....................................................................189
Asking for a Tax Rebate...............................................................................193
Checking your rebate qualifications ................................................193
Recovering money with form R85 ....................................................194
Getting money back with R40 ...........................................................195
Getting money back up to five years later ......................................195
Considering a Trio of Taxes ........................................................................196
Doling out Stamp Duty.......................................................................196
Declaring your dividends ..................................................................198
Dealing with capital gains tax ...........................................................199
Looking at the Tax Implications of Investing............................................202
Saving hassle with unit and investment trusts...............................202
Buying bonds ......................................................................................203
Examining the benefits of ISAs .........................................................203
Rewarding risk takers ........................................................................204
Taking account of losses ...................................................................206
Looking at the Basics of Insurance ............................................................207
Evaluating Endowments..............................................................................208
Cutting Away the Complexity of Life Insurance Taxation Rules ............208
Checking out whether policies qualify or not ................................209
Jumping tax hurdles...........................................................................209
Looking at Lump Sum Insurance Bonds....................................................210
Taking a regular income ....................................................................211
Slicing from the top............................................................................212
Eyeing Guaranteed Bonds...........................................................................214
Going Offshore with Your Money...............................................................214
Looking at the legalities.....................................................................214
Weighing up costs versus savings....................................................215
Book III: Building Up Savings and Investments ...........217
Chapter 1: Squaring Risk and Return . . . . . . . . . . . . . . . . . . . . . . . . . . . 219
Examining Two Investing Principles You Should Never Forget..............220
Determining the Return You Want from Your Money ..............................221
The likely return from shares ...........................................................223
The likely return from bonds............................................................224
The likely return from property .......................................................225
The likely return from a cash account.............................................226
The likely return from other assets .................................................227
Increasing Your Chances of Successful Returns ......................................228
Plenty of factors affect your chances of success ...........................228
Diversification is your best friend....................................................229
Patience is your pal............................................................................231
Chapter 2: Saving for a Rainy Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233
Dealing with an Emergency.........................................................................233
Looking at Savings Strengths......................................................................234
Making sure your money is easily accessible.................................235
Minimising risk ...................................................................................235
Deciding How Much You Need to Save......................................................236
Finding the Best Savings Account..............................................................236
Saving with a monthly account ........................................................236
Opting for a mini cash individual savings account........................237
Watching out for notice periods.......................................................238
Considering the impact of bonuses .................................................238
Realising the advantage of tiered rates ...........................................239
Fixing the rate and the term..............................................................239
Offsetting your savings......................................................................239
Shopping Around for the Best Deal ...........................................................240
Logging on ...........................................................................................240
Telephoning and posting...................................................................241
Accessing savings via a branch........................................................241
Safeguarding Your Savings..........................................................................241
Chapter 3: Choosing a Mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243
Working Out How Much You Can Afford to Borrow.................................243
Multiplying your income ...................................................................244
Coping without a deposit ..................................................................244
Calculating How Much Cash You Need beyond the Price.......................245
Looking out for the lender’s fee........................................................245
Paying a mortgage broker .................................................................246
Commissioning a lender’s valuation and survey ...........................246
Settling legal fees and disbursements .............................................247
Sending in your stamp duty ..............................................................248
Eenie, Meenie, Miney, Mo: Choosing the Right Mortgage.......................248
Understanding repayment loans ......................................................249
Going interest-only .............................................................................249
Combining repayment with interest-only........................................252
Understanding Rates ...................................................................................252
Avoiding the standard variable rate ................................................252
Opting for a fix ....................................................................................253
Plumping for a discount ....................................................................253
Checking out capped rates ...............................................................253
Tracking the base rate .......................................................................254
Offsetting your mortgage ..................................................................255
Cashing in on a cashback mortgage ................................................256
Finding the Best Mortgage ..........................................................................257
Seeking advice ....................................................................................257
Going online ........................................................................................258
Avoiding Unnecessary Costs ......................................................................259
Watching out for MIG .........................................................................259
Escaping early redemption penalties ..............................................260
Sidestepping compulsory insurance ...............................................260
Chapter 4: Making the Most of Tax-Free
Savings and Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263
Opting for an Individual Savings Account.................................................263
Contributing to ISAs...........................................................................264
Understanding minis and maxis .......................................................265
Deciding on your ISA investments ...................................................266
Selecting your own ISA ......................................................................269
Transferring your ISA.........................................................................270
Choosing National Savings Certificates.....................................................271
Exploring Venture Capital Trusts ...............................................................271
Betting on Premium Bonds .........................................................................273
Chapter 5: Delving Into Collective Investments. . . . . . . . . . . . . . . . . . 275
Pooling Your Investments ...........................................................................276
Looking at the advantages of pooled investments ........................276
Losing out by pooling ........................................................................277
Jumping into Different Pools ......................................................................277
Understanding Unit Trusts .........................................................................278
Examining one big difference between unit trusts and OEICs......279
Selecting the best unit trust for you ................................................280
Working out charges ..........................................................................281
Comparing active versus passive fund managers..........................281
Going with a fund of funds ................................................................283
Checking out investment supermarkets..........................................284
Understanding What Investment Trusts Are............................................284
Examining the discount .....................................................................285
Knowing what gearing means ...........................................................286
Starting with the Global Growth sector...........................................287
Making Sense of With-Profits Investment Bonds .....................................287
Buying Corporate Bond Funds ...................................................................288
Choosing Exchange Traded Funds.............................................................289
The Worth of Performance Tables .............................................................290
Tables that show cumulative figures ...............................................291
Tables that use discrete figures........................................................292
Ways to Separate the Good Managers from the Bad ...............................292
Taking Ethics into Consideration ...............................................................293
Shades of green: Ethical unit trusts .................................................294
Balancing act: The pros and cons of ethical investing ..................295
The Worth of Fund Manager Fees ..............................................................295
Investment Clubs: Do-It-Yourself Fund Management...............................296
Chapter 6: Scrutinising Shares and Bonds . . . . . . . . . . . . . . . . . . . . . . 299
Investing Basics............................................................................................300
What to Consider When Buying Individual Shares..................................300
Know the psychological impact of the economy ...........................301
Know the power of interest rates.....................................................301
Selecting Your Shares ..................................................................................304
Deciding on growth or income .........................................................304
Spreading your risk ............................................................................305
Picking more exotic investments .....................................................305
Choosing a Broker........................................................................................306
Knowing you’re protected.................................................................306
Deciding what service you need ......................................................307
Considerations with discretionary and advisory services...........309
Considerations with execution-only services.................................309
Additional considerations.................................................................310
Buying and Selling Shares ...........................................................................311
Holding Your Shares ....................................................................................312
Looking Forward to Returns.......................................................................313
Generating dividends.........................................................................314
Understanding charges......................................................................315
Paying duty .........................................................................................315
Keeping Track of Your Shares.....................................................................317
Getting to Grips with Bonds .......................................................................317
Understanding how bonds work ......................................................318
‘Do I need bonds?’ ..............................................................................319
‘Tell me the big differences between bonds and shares’ ..............319
What Makes Bond Prices Go Up and Down ..............................................320
The interest rate gamble ...................................................................321
The credit rating conundrum ...........................................................323
Working Out Government Bonds ...............................................................326
Conventional gilts...............................................................................327
Double-dated conventional gilts.......................................................327
Index-linked gilts ................................................................................328
Undated gilts .......................................................................................328
Gilt strips .............................................................................................328
Chapter 7: Investing in Bricks and Mortar . . . . . . . . . . . . . . . . . . . . . . 329
The Pros and Cons of Buying Property to Rent .......................................329
The Affordability Issue ................................................................................331
The Buy to Let Mortgage.............................................................................331
How much can you borrow? .............................................................331
How much will you actually get?......................................................332
Items to consider about the mortgage ............................................333
The Property Yield: A Comparison Tool ...................................................334
Location, Location, Location ......................................................................334
Matching tenants to the property’s location ..................................335
Considering properties in poor condition ......................................336
How to Attract Tenants ...............................................................................336
Advertise for them .............................................................................337
Contact local employers....................................................................337
Use word of mouth.............................................................................337
Use the Internet ..................................................................................337
The Tax Issue ................................................................................................338
Commercial Property Investments ............................................................338
What’s good about commercial property?......................................339
What’s bad about commercial property?........................................339
How to invest in commercial property............................................339
Chapter 8: Making Exotic Investments . . . . . . . . . . . . . . . . . . . . . . . . . 343
Getting into Gear for a Faster Ride ............................................................344
Hedging Your Bets........................................................................................345
Trading Traded Options..............................................................................346
What is an option?..............................................................................346
What are call prices and put prices? ...............................................347
What is option volatility? ..................................................................348
Taking a Gamble with Spread Betting........................................................349
Getting Contracts for Difference – for a Different Kind of Deal..............350
How CFDs work...................................................................................351
The benefits and drawbacks of CFDs...............................................351
Understanding Warrants .............................................................................352
Book IV: Retiring Wealthy .........................................355
Chapter 1: Planning for a Wealthy Retirement. . . . . . . . . . . . . . . . . . . 357
Making Some Vital Decisions about Retirement ......................................357
Planning your retirement age ...........................................................358
Calculating how much income you need to live (and play) .........358
Working out your current position ..................................................360
Starting saving ....................................................................................361
Reviewing your plan...........................................................................361
Realising Retirement Can Be Sudden.........................................................361
Looking at What You’ve Got Going for You...............................................363
The younger you start the better the result can be ......................363
Your finances are turbo charged later in life ..................................363
You’re probably richer than you think ............................................364
Taking Your Loved Ones Along for the Retirement Ride.........................365
Protecting Your Retiring Wealthy Plan: Buying Insurance......................367
Chapter 2: Making the Most of State and Workplace Pensions. . . . 369
Realising the Importance of Your Pension................................................369
Understanding the great pensions tax break..................................370
Remembering the pension tax break has strings attached ..........371
Getting to Grips with the State Pension ....................................................372
Relying On the State Alone Is Not an Option............................................373
Working Out the Value of Your State Pension...........................................374
Getting into the Second State Pension ......................................................376
Getting Credit for Your Pension and Other Benefits ...............................378
Supplementing the State Scheme with a Private Pension.......................379
Taking advantage of the tax breaks..................................................379
Locking away your cash ....................................................................379
Guaranteeing an income....................................................................380
Being Smart by Joining the Company Scheme.........................................380
Benefiting from employer contributions.........................................380
Protecting your family with life cover .............................................382
Providing pensions for surviving partners .....................................383
Exploring the Types of Workplace Pensions ............................................383
Figuring Out Final Salary Schemes ............................................................385
Making the most of a money purchase scheme .............................387
Going with a group personal pension or stakeholder scheme.....389
Looking at Limits on Your Pension ............................................................390
Bumping into the contribution ceiling ............................................390
Getting tax relief ................................................................................391
Increasing your contributions ..........................................................391
Contracting In or Out of the State Second Pension .................................392
Changing Jobs – and Your Pension ............................................................393
Chapter 3: Picking Through Personal Pensions . . . . . . . . . . . . . . . . . 395
Understanding What Personal Pensions Have to Offer...........................395
The Personal Pension Tax Break................................................................396
Figuring Out Personal Pension Performance............................................397
Weighing Up Personal and Workplace Pensions......................................398
Having Your Pension Cake and Eating It ...................................................399
Choosing the Best Scheme for You............................................................400
Searching for sources ........................................................................401
Seeking advice ....................................................................................402
Deciding where to invest...................................................................402
Making Contributions ..................................................................................404
Stopping contributions......................................................................405
Transferring to another fund ............................................................405
Understanding the Effects of Charges .......................................................406
Staking Your Future on a Stakeholder Pension ........................................407
Chapter 4: Taking Control with a Sipp . . . . . . . . . . . . . . . . . . . . . . . . . . 409
Introducing Self Invested Personal Pensions (Sipps)..............................409
Looking at Sipp Investments.......................................................................412
Keeping Your Sipp in the Family ................................................................414
Choosing the Right Sipp Provider..............................................................414
Provider services ...............................................................................415
Sipp charges........................................................................................415
Range of investments.........................................................................415
Building a Balanced Sipp Portfolio ............................................................416
To Sipp or Not to Sipp .................................................................................417
Chapter 5: Working with Your Pension . . . . . . . . . . . . . . . . . . . . . . . . . 419
Deciding When to Retire .............................................................................419
Taking early retirement......................................................................421
Retiring at the usual age....................................................................421
Working past retirement age.............................................................421
Delaying Your State Pension.......................................................................422
Doing the state pension deferral sums............................................422
Asking the key question: Can you afford to defer? ........................423
Investing a Lump Sum at Retirement.........................................................424
Getting It Right: Buying an Annuity ...........................................................425
Understanding annuity calculations................................................426
Choosing a level or rising annuity....................................................427
Figuring out when to buy an annuity...............................................428
Retiring gradually ...............................................................................429
Making sure your annuity survives you ..........................................430
Checking out income drawdown......................................................431
Opting for an Alternatively Secured Pension ...........................................432
Making the Most of Lots of Little Pensions...............................................433
Taking the pension transfer option..................................................433
Cashing in your pensions ..................................................................433
Leaving your pensions alone ............................................................433
Executing a pension transfer ............................................................434
Dangers of Unlocking Your Pension...........................................................435
Assessing Pension Alternatives..................................................................437
Chapter 6: Using Property for Retirement . . . . . . . . . . . . . . . . . . . . . . . 439
Cashing In Your Property ............................................................................439
Downsizing....................................................................................................441
Understanding Equity Release ...................................................................442
Different types of equity release explained ....................................442
Qualifying for equity release.............................................................445
Treading carefully with equity release ............................................446
Pushing Down on Your Mortgage...............................................................447
Swapping Lenders to Save a Packet...........................................................447
Book V: Protecting Your Wealth
for the Next Generation..............................................449
Chapter 1: Working Out Why to Write a Will . . . . . . . . . . . . . . . . . . . . 451
Recognising the Advantages of Putting Your Estate in Order ................451
The Circle of Life: Events to Prompt You into Will-Writing.....................452
Making a Will with Your Spouse .................................................................454
Considering Who Can’t Make a Will...........................................................455
Checking the grey matter: Being of sound mind ............................455
Unusual circumstances where the will is still valid .......................456
Minor inconvenience: Being too young to make a will..................457
Understanding the Consequences of Dying without a Will ....................458
The spouse gets it all (well, nearly!) ................................................458
Letting the kids in on the act ............................................................460
Living it up with life interest .............................................................460
No spouse, no children – if, if, and more ifs....................................461
Modern Life: Intestacy Isn’t Geared Up for It!...........................................462
Looking at the Different Rules in Scotland................................................464
The spouse does get it all!.................................................................464
Letting the kids get a look in.............................................................465
Other nights on intestacy..................................................................465
Chapter 2: Deciding Who Gets What . . . . . . . . . . . . . . . . . . . . . . . . . . . 467
Who You Have to Include in Your Will.......................................................467
Disputing your will in England and Wales .......................................468
Disputing your will in Scotland.........................................................468
Assessing What Everyone Should Have....................................................469
Taking care of your spouse ...............................................................469
Providing for your children...............................................................470
Gifting to your grandchildren ...........................................................471
Seeing your parents right ..................................................................472
Including everyone: The catch-all approach ..................................473
Gift Failure and How to Prevent It..............................................................474
Playing the Philanthropist ..........................................................................476
Gifting to Cut the Tax Bill ............................................................................476
Understanding How Ownership Affects Your Bequest ...........................478
Sole tenancy........................................................................................478
Beneficial joint tenancy .....................................................................479
Tenants in common............................................................................480
Putting Your Faith in Trusts........................................................................482
Chapter 3: Choosing the Right People to Follow Your Wishes . . . . . 485
Considering the People Who Make Your Will Work.................................486
The Big Cheese: The Executor....................................................................486
Choosing an executor ........................................................................487
Homing in on the detail .....................................................................488
A Matter of Faith: Trustees .........................................................................489
Protecting Your Children: Guardians.........................................................490
Divorce and guardians.......................................................................491
No-guardian situations.......................................................................492
Money, money, money isn’t child’s play..........................................493
The Eyes Have It: Witnesses .......................................................................493
Considering Getting Expert Help ...............................................................495
Solicitors..............................................................................................495
Accountants ........................................................................................496
Preparing to meet the experts..........................................................497
Going Solo: Using a Will Kit.........................................................................499
Keeping Your Will Safe.................................................................................499
Chapter 4: Dealing with Inheritance Tax . . . . . . . . . . . . . . . . . . . . . . . 501
Making Sense of Inheritance Tax................................................................502
Doing the Inheritance Tax Sums.................................................................502
Working Out Your Tax Liability ..................................................................504
Recognising the ‘Must Plan’ Scenarios......................................................505
The Cruellest Cut of All: Tax and the Family Home .................................505
Facing Up to an Inheritance Tax Bill ..........................................................506
Build up a handsome estate residue................................................506
Squeeze the life out of life insurance ...............................................506
A Taxing Question: Avoidance or Evasion? ..............................................507
Simple Steps to Reduce Inheritance Tax...................................................508
Exploiting Your Spouse’s Nil-Rate Band ....................................................508
Doing it the wrong way......................................................................509
Doing it the right way ........................................................................510
Doing even better ...............................................................................510
Using Exempt Gifts to Save Tax..................................................................511
Two gifts for the price of one............................................................512
Carrying an exempt gift forwards ....................................................513
Gifting from Everyday Income....................................................................514
Revving Up Potentially Exempt Transfers ................................................515
The pros and cons of keeping a PET................................................516
Avoiding the triple-tax rap ................................................................517
Using a trust to ease the triple-tax rap ............................................517
Don’t Let the GROB Get You! ......................................................................518
Strategies for Singletons..............................................................................519
The Generation Game: Reducing Tax by Generation Skipping...............520
Protecting the Family Home . . . By Moving Out!......................................522
Fleeing the Country to Avoid IHT...............................................................524
Dropping the Temperature: Estate Freezing.............................................525
Chapter 5: Understanding Trusts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 527
Starting at the Beginning: A Quick Tour of Trusts ...................................527
Protecting the Family Fortune....................................................................528
Protecting the Family...................................................................................529
Deciding Which Assets to Put Into Trust ..................................................530
Matching the Asset to the Trust Beneficiary............................................531
Activating a Trust Before You Die ..............................................................531
Putting Your Trust in Solicitors..................................................................533
Adding the Magic Ingredient: Trustees .....................................................534
Show Me the Money: Trustees and Assets ...............................................534
Saving Tax Through a Trust........................................................................535
Checking Out Different Types of Trust......................................................537
Bare trust.............................................................................................537
Discretionary trust.............................................................................537
Accumulation and maintenance trust .............................................539
Interest in possession trust ..............................................................540
Protective trusts.................................................................................541
A Potent Combination: Trusts and Insurance ..........................................542
Loan trust ............................................................................................542
Split trust.............................................................................................543
Using Trusts to Help Your Family ..............................................................543
Saving Tax with Trusts for Your Family.....................................................544
Working a discretionary trust to the tax max.................................544
The naked truth of a bare trust .......................................................545
Helping a Needy Beneficiary.......................................................................545
Calling on a discretionary trust........................................................545
Using a disabled person’s trust ........................................................546
Using the interest in possession option ..........................................546
Using Trusts for Your Little Rascals ..........................................................546
Trusting to Look After Your Spouse ..........................................................547
Home Free: Putting the Family Home into Trust......................................548
Ringing in Changes to Your Trust ..............................................................549
Altering a trust in a will .....................................................................549
Changing a non-will trust...................................................................550
Considering the Downsides of Trusts .......................................................550
Picking Easier Options: Alternatives to Trusts ........................................551
Chapter 6: Grasping the Basics of the Probate Process . . . . . . . . . . 553
Starting at the Beginning: What Is Probate? .............................................553
Understanding Grant of Probate and Letters of Administration ...........555
Knowing When You Don’t Need a Grant of Probate.................................556
Team Executor: Working Together.............................................................557
Following the Duties of an Executor and Administrator.........................558
Dealing with the deceased ................................................................558
Obtaining the legal power to act ......................................................559
Valuing the estate of the deceased...................................................559
Taking care of the tax collector ........................................................559
Distributing the estate .......................................................................560
Using a Solicitor ...........................................................................................561
Index........................................................................563


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