After over a decade of sitting below 1%, UK interest rates are on the rise. In March 2009, the Bank of England base interest rate fell to 0.5%. It took until May 2022 to rise back to the dizzy heights of 1%.
At the time of writing, it now stands at 1.75%, the biggest rate increase since 1995. What’s more, there is every chance it may rise again as the Bank of England seeks to rein in inflation.
- For those of us with savings, this is good news. After years of hard-earned savings earning practically nothing, our money can now start to earn its keep a little more.
- For those of us with mortgages, loans or credit card debts, it’s not such good news. As Bloomberg’s site says:
“It’s a good time to review all your consumer debt and prioritize payments that have the highest interest.”
Double-figure rates: a generational divide
The younger generation now looking to buy their first home have never experienced interest rates in double figures in their adult life. For those of us who are retired or about to retire, the pain of the 12%+ rates of the 1980s still looms large in the memory.
So, what’s this got to do with your estate planning?
Quite a lot. Let’s start with the easy bit - ISAs.
Easy – ISAs
Many of us have cash ISAs sitting in accounts that earn literally pennies on thousands of pounds saved. Lured by the promise of tax-free savings, these accounts have been a bad deal for several years.
Now, however, it’s time to look at these again, and it’s all to do with your Personal Savings Allowance. Basic rate tax payers have a Personal Savings Allowance of £1000.
At the pitiful rate of interest most cash ISA accounts were paying, often well under 0.5%, you would need to have invested a substantial sum to reach the £1000 interest threshold each year.
However, with ISA interest rates rising fast, up to 3% on fixed deals, that position alters:
- £200,000 @ 0.5% earns £1000 in interest per year
- £200,000 @ 3.0% earns £6000 in interest per year
The point here is that major changes in the economy should prompt you to review your estate planning in terms of your financial provision. If you want to change things or get financial advice, you should consult a financial planner.
Another point to bear in mind is that ISAs may be tax free for growth, but they are not free from Inheritance Tax. This is because they are still part of your total estate.
So, ask yourself - which tax do you want to avoid more?
The harder stuff - long-term care planning
As discussed in a previous blog, it’s important to look after No1 in your estate planning. There is no point in putting aside a financial legacy for your children if they have to bail you out in your lifetime due to the rising costs of care.
Equally, there is little point in keeping yourself above the eligibility threshold for state help with care if you are simply saving for the next generation to inherit.
As the NHS website explains:
“You will not be entitled to help with the cost of care from your local council if:
- you have savings worth more than £23,250
- you own your own property (this only applies if you're moving into a care home)”
Trust in Trusts
Financial and estate planning can really help here by ring-fencing some of your money in Trusts, keeping those assets safe against risk from care fees assessments, divorce settlements, creditors’ claims or taxes. See our Trusts section for more details.
Claim what is yours to claim
Again, it’s important to know what you already have in place and what interest rates they may be earning, to keep you eligible for some benefits and allowances. The good news is that some benefits are not means tested such as the Attendance Allowance and Personal Independence Payment (PIP). If you have well-managed assets, you can pay for your own long-term care yourself privately, to get the level of care you want, not what the council can provide.
What to do next?
First, talk to your financial advisor, or call Paul to discuss further.
As a regulated financial advisor, Paul can help with advice and help with setting up new Trusts. Paul can also advise you on ways to maximise your wealth, assets and income to pay for your long-term care in the future - and continue to live the lifestyle you wish now.
As Paul always says: “The legacy you leave behind is just the wealth you have not had time to spend yet!”
How to contact Paul