OpenMoney
Manage it. Save it. Invest it.

The 2019/20 tax year ends on April 5th 2020.

The end of the financial tax year is a great reason to review your finances and make sure that you’ve taken advantage of all of the tax efficiencies available to you. We’ve listed the top things to consider before the end of the tax year.

Top up your ISA

The 2019/20 personal ISA allowance is £20,000. Any returns made within an ISA are tax efficient and are free of UK income tax and capital gains tax.

If you do not use your allowance, you can’t carry it over to a new tax year. So, if you’ve got savings lying around in your current accounts, it may be worthwhile putting as much savings as you can in a tax efficient ISA.

Don’t have an ISA? Take our financial health check and get personalised Financial Advice from OpenMoney.

Contribute towards your retirement

As with your ISA, it may be worthwhile considering topping up your pension to increase your savings for retirement. When saving in a pension you receive income tax relief, depending on your personal circumstances.

The annual allowance for 2019/20 for pension contributions is £40,000. It’s also worth noting that you can bring forward unused allowances from previous three tax years, as long as you were a member of the pension scheme within those years.

Save for your children

If you have children, it may be a good idea to start saving for when the reach the age of 18. Children who are not yet 18 can open a Junior ISA (JISA) in their name and they can only access when they reach the age of 18.

As with an adult ISA, returns on money made within a Junior ISA are free of UK income tax and capital gains tax. The annual allowance for a JISA in 2019/20 is £4,368.

Use your capital gains tax allowance

Everybody has an annual capital gains tax allowance of £12,000 in the 2019/20 tax year. This means that if you dispose or sell any assets such as property and stocks are shares, you won’t be taxed on the profits if they're below £12,000.

You cannot carry over any unused capital gains tax allowance to the next tax year, so if you are planning to sell your assets, it may be worth considering staggering them over two tax years to take advantage of your allowance.

Reduce your inheritance tax

When gifting money to your family or loved ones after you pass, it’s important to remember that any estate (that includes your home) worth over £325,000 will be taxed at 40% for everything above that amount. So if your estate was worth £400,000, £75,000 of that would be taxed at 40% - that's a staggering £30,000.

One way to combat this is to use your annual exemption allowance of £3,000. This allows you to gift that amount without being liable for inheritance tax in the future.

You can carry over your gifting allowance from a previous tax year if unused, making the maximum amount £6,000. There are other exemptions too, such as no tax on wedding or civil partnership gifts up to £5,000 to your children and £2,500 to your grandchildren.

‍

That completes our list of things you need to consider before the tax year ends in order to benefit from the tax efficiencies available to you.

Read more about financial wellbeing and money management over on the OpenMoney blog.

‍

Many people are confident about researching and making decisions about their finances without professional help, but that’s not the case for everyone. We carried out research with YouGov in 2019 and found that 19.8 million people feel they would benefit from free financial advice.

Managing money can be daunting, especially dealing with more complex financial matters like mortgages, investments and pensions. It’s hardly surprising some of us would like a bit of help. But how do you decide when you need guidance and when you need financial advice? And what’s the difference anyway?

Free guidance

There are several organisations offering free financial guidance including the government’s own Money and Pensions Service. They provide free specialist financial information but are not allowed to give a personal recommendation of where to save or invest your money. You are solely responsible for making sure any products you buy based on their information are appropriate for your needs.

Regulated financial advice

Alternatively, a regulated financial adviser will give specific advice around whether investing is right for you now, how much you should invest, and which investments best match your goals. They will manage your investments, meaning you don’t have to worry about them. You also have greater protection as advisers should be authorised and regulated by the Financial Conduct Authority (FCA), however you usually have to pay for regulated advice.

Our research with YouGov found that less than one in ten people had paid for advice in the last two years. Of those who hadn’t, three quarters were unlikely to do so in the future and when asked what would encourage them to do so, the top five changes were “I would need to be convinced it would save me money”, “I would need to be sure I could trust the advice”, “I would need to earn more money”, “I would need to be sure how to pick the right adviser” and “it would need to cost less”.

Adding value

Measuring how much value advice can add is difficult, but for complex products like investments and pensions, which can make a major impact on your future financial position, it can make sense to get help from a qualified adviser. A 2017 study by Royal London found that over the long-term, taking financial advice can add nearly £40,000 to the wealth of those on modest incomes.

While it’s true that some traditional financial advisers will not take on clients with small sums to invest, it’s not always the case. Some can also be pricey,charging an initial fee of anything from £75 to £350 an hour, or up to 5% of the value of the money being invested

At OpenMoney we provide personalised advice, no matter the size of your investment. You can start investing with us from as little as a £1 and our management fee is less than 0.53% of whatever you decide to invest.

We use the right mix of smart technology and qualified human advisers to give our customers personalised advice that’s always in their best interests.

Finding the right advice

Here’s our five-point checklist to choosing the right advice:

1.     Workout what you need: A free financial guidance organisation or comparison site could help you choose home insurance or a new current account and provide useful information about more complex financial products. But you may be better going to a regulated financial adviser for investment and pension planning or a mortgage as these are big decisions which can have a major impact on your future finances.

2.     Decide whether meeting face-to-face is important, or if an adviser who holds meetings by phone or online would work – the latter might be more cost effective and offer greater flexibility outside normal working hours.

3.     Check the adviser’s specialism and qualifications: not all advisers cover all products, so make sure they deal with everything you need, and have at least the minimum qualifications required for the products you want to discuss.

4.     Understand the costs: some advisers don’t display their fees on their website, but even if they do, it’s worth clarifying up front all the fees you’d pay for initial and ongoing advice.

5.     Ask for a free initial consultation: many firms offer meetings to help you decide if you trust their advice and whether they will add value to your finances.

All figures are sourced from The UK Advice Gap: Are consumer needs for advice and guidance being met?

‍

Millennials are generally classed as those born between the early 1980’s to the mid 1990’s.

Stereotyping any generation is misguided, and while all generations face their fair share of negative press, millennials seem to bear the brunt of the media’s negative headlines, especially around money matters.

They have been accused of wasting their money and spending too much on coffee and avocados[1], while simultaneously getting heat for not spending enough, and killing the napkin, cereal and golf industries to name a few![2] However, the topic of millennials investment habits is not talked about often.

Why should millennials be investing?

Almost half (47%) of those aged 18-24 prefer to put their money into a current account,with only 5% of this age group opting to invest.[3]

With interest rates at record lows for the past few years, current and savings accounts may not be the best option for millennials wanting to grow their cash over the medium to long term.

Investing is a great way to prepare for retirement as products like our Self-Invested Personal Pension offer tax relief (which you can find out more about here) as well as tax protection benefits. Many millennials are wanting to retire sooner, creating movements such as FIRE (financial independence retire early) which originated in the US. Millennials are also being expected to live longer than boomers or gen x-ers, so millennials should be investing at a younger age than previous generations.  ‍

When should millennials invest?

As with all investment the sooner you can invest the better. This is because your investments can generate interest and returns, reinvesting that means you start to make interest on your interest, this is called ‘compound interest’ and can make a huge difference to your investment pot over the long term.  

Where are millennials investing?

Millennials are conscious about where their invested money is going and what it will be supporting. Ethical investing is more popular among millennials than any other generation. If you want to find out more about ethical investments and OpenMoney’s stance on it, you can read this blog here.

For those investing in their property, Help to Buy ISAs are a government initiative investment product, available to first time buyers who are saving to get onto the property ladder. The Help to Buy Scheme has supported over 230,000 property completions since December 2015 and of those using the Help To Buy ISA, 29.9%were aged 19-24 while 69.4% were aged 25-34.[4]

How is millennial investing different?

Millennials grew up in a time where family members may have suffered as a result of the famous market crash in 2008. This means that millennials can be more cautious with their money, it is also clear that education about investment is lacking.

In a piece of research conducted by Barclays[3], 40% of those surveyed claimed that not knowing enough about investing is one of the biggest barriers to investing. This is something we at OpenMoney are addressing, we want to close the advice gap and make financial advice accessible to all.  

1. twentytwowords.com
2. independent.co.uk
3. barclays.co.uk
4. HM Treasury

If you’ve ever considered saving your money for the future - whether that be for a house, wedding or a car - you’ve probably heard the term ‘ISA’. ISA stands for ‘Individual Savings Account’ and is exactly what it says on the tin – a financial product designed to help individuals save.

Before opening an ISA, it’s important to understand what they are and how they can affect your financial situation. Continue reading our blog to find out the answers to questions like; how many ISAs you can have, what are the benefits of an ISA are, and what types of ISA there are.

How do ISAs work?

 ISAs are like savings accounts but come with additional benefits like tax allowances and bonuses, depending on the type of ISA you open. For example, Lifetime ISAs (LISAs) give individuals a 25% bonus on contributions made up to the value of £1,000, but they can only be used towards a first house or retirement.

The main benefit of an ISA product is the annual tax allowance you receive when saving. Any interest or gains made in an ISA is not subject to taxation, meaning you get to keep any money you make as long as you stay within your allowance.

ISA Allowances

 Each individual has an ISA allowance of £20,000 in the 2019/20 tax year. This means between your ISAs, you can’t deposit more than £20,000 in a tax year. However, you are able to split your allowance between different types of ISA. This means you could deposit half in a Cash ISA and half in a Stocks & Shares ISA, but you couldn’t split the money between two Stocks & Shares ISAs.

For a Junior ISA (JISA), the allowance is lower at £4,368. This does not affect your personal ISA allowance of £20,000 as the product is held against a child’s name.

How many ISAs can you have?

You can open and contribute to more than one type of ISA in each tax year, but you’re not able to contribute to another ISA of the same type (confusing, we know). So, if you contributed to a cash ISA in 2019/20, you couldn’t contribute to another until 2020/21 tax year, but you could contribute to a stocks & shares ISA in 2019/20.

JISAs are held against a child’s name which means you can also contribute to that without affecting your allowance, but that money is only accessible by the child once they reach 18.

What are the different types of ISA?

Cash ISA

Cash ISAs are often offered by bank and building societies. They are similar to normal savings accounts and offer a fixed rate of return on your contributions.

Cash ISAs can be good for short-term savings as they come at no risk. However, be careful of which type of Cash ISA you choose as some may have charges for withdrawing. For Instant Access ISAs, there should be no penalty, however for Fixed Rate ISAs you may face some penalty if you withdraw before the set period.

Stocks & Shares ISA

With a Stocks & Shares ISA your money is invested in company shares, investment funds and sometimes cash. They are riskier than Cash ISAs as you could get back less than you invested, but they do have the potential to have higher returns.

Stocks & Shares ISA are more suited to long term goals as you’re able to balance out the ups and downs of the stock market over time.

If you invest with OpenMoney, you’d be investing in a Stocks & Shares ISA. Find out more here.

Lifetime ISA (LISA)

Lifetime ISAs were introduced in April 2017 so are relatively new in the world of ISAs. Lifetime ISAs are a little different to cash and stocks ISAs as they’re designed to help first time home buyers and those wishing to save for retirement.

A LISA can be either a cash or stocks and shares ISA and can be opened by people ages 18 to 40. The limit for a LISA is lower at £4,000 but the government add a 25% bonus to any contributions up to the value of £1,000.

The bonus must be used against your first home or can only be accessed when you’re 60. If you use the money for anything else, you will be charged and are likely to get less money back than you put in.

Junior ISA (JISA)

Junior ISAs are designed to let parents invest for a child below the age of 18. The limit is £4,368 per child for the current tax year.

As with a LISA, a JISA can be cash or stocks and shares, with any interest paid tax-free.

JISAs are a great way to save long-term for your children, but parents and adults should be aware that the account belongs to the child and can only be accessed by them at the age of 18.

OpenMoney ISA

It’s important that you understand the impact an ISA will have on your financial situation before you open one.

If you’re interested in opening a Stocks & Shares ISA, you can take the OpenMoney financial questionnaire to find out if you’re currently in a healthy position to invest.To take the quiz, click Get Started.

‍

You may have heard the media or popular social media influencers discussing terms such as ethical investments, ESG (Environment and Social Governance) portfolios or SRIs (Socially Responsible Investments). They differ very slightly in the areas that they cover, however a running theme throughout them is the premise of using your money to invest in industries that are not damaging to the environment or members of society. Naturally the growing popularity of this type of investment has brought questions to the surface regarding the products that we offer and the impact that these are having on the planet. Ethical portfolios are not currently something that we actively promote or provide for our customers, so let’s take a look at why.

On trend investing

The world of investing is slowly becoming more accessible and therefore possibly less daunting for the masses. Conversations about money are beginning to take place on platforms that were once reserved for aspirational lifestyle content as well as within mainstream press. Breaking down the barriers surrounding the topic of money and how we choose to manage it is a huge step forward, so we are glad that our customers are interested in progressing with their portfolios.

According to the 2018 Ethical Consumer Markets Report, the UK spends roughly 80 billion pounds on ethical goods (green energy, fashion, ethical food choices) every year[1]. This is no surprise given the spotlight that has been shone on our ethical conscience throughout traditional, digital and social media. With this move towards a more sustainable and responsible way of life, we are seeing an increase in customers wishing to invest in a more ethical manner.

Our stance on ethical investment portfolios

Hannah Cole, our Support Team Lead & Financial Adviser is often first on hand to look after queries such as this from our customers.

“We are often asked to look into ways that our customers can make their portfolios more ethical such as avoiding certain industries (American tobacco, Oil and Gas etc), or even how they can withdraw their money altogether to place it into an ethical portfolio...

... At OpenMoney and our investment site, evestor, we operate by offering model investment portfolios comprised of Mutual Index Funds as opposed to Exchange Traded Funds which is where you will mostly find ethical portfolios. The mutual funds that we use, aim to track specific market indexes such as the FTSE All Share and the S&P 500.”

This means that the only way our portfolios will exclude companies deemed to be unethical is if they are removed completely from the indices. As we don’t actively manage our own funds, we don’t pick the individual companies that they are made up of. Instead, we favour a passive investment approach, which you can read more about on our Jargon Buster page.

What are the ethical boundaries?

As well as being a functional decision, it is also worth taking a look at how far other providers go in terms of being ethical and are we really a lesser option because of our seemingly limited products? When looking to invest, it’s common to be averse to harsher industries that could have a negative reputation such as weaponry, alcohol, gambling etc and support a more sustainable, environmentally friendly portfolio.

However, Hannah raises a strong point in that we need to look at where the boundaries lie. “Where do we draw the line? There are respected companies that we know of, who boldly offer ethical investment opportunities despite having faced fines due to various misdemeanors.” Would investors be happy to invest in an ethical fund, but with a provider who has a somewhat tarnished track record?

Moving forwards

Our current opinion on how we operate within the realms of the ethics is not set in stone. We are constantly researching ways in which we can keep up with political and cultural climates at the same time as maintaining our extremely competitive costs and levels of service. However, if we are going to involve ourselves in the world of ethical investments, it needs to be for the right reasons rather than as a reaction to the media. If we cannot offer a justified rate of costs and returns, then we would be doing our valued customers a disservice which is not an option for us. As the market develops over time, ethical investment is of course something we would like to incorporate within our proposition, and our Investment Committee continue to assess the benefits and risks involved for those choosing to invest with us. As these conversations progress, we will keep our customers updated with developments.

[1] UK Ethical Consumer Markets Report

‍