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A guide to DIY investing

How to save money by giving yourself nancial advice
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or visit o u

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For more informati o contact u n please s on r website

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93%
Contents

FOREWORD

of money invested with Hargreaves Lansdown is by clients who choose to look after their own investments (year ending 30 June 2012).

Why not save money by giving yourself financial advice?

Chapter 1 - Build firm foundations for your financial security Chapter 2 - Simplify your investments and pensions, and make them easier to manage Chapter 3 - Reduce the amount of tax you pay Chapter 4 - Make better investment decisions - How to choose funds - How to choose shares Chapter 5 - Prepare for retirement Chapter 6 - Save for your children Chapter 7 - Plan for inheritance tax Chapter 8 - Know when you should take advice

Ian Gorham Chief Executive

I genuinely believe reading this guide could be one of the best things you ever do. When I discovered DIY investing it was life-changing. In reality, most people dont need to pay for financial advice unless they have complex affairs. I dont think most of us have complex financial affairs and as a result around 5.7 million people in the UK today choose to look after their own investments. Therefore whilst financial advice from a professional source can be appropriate in some circumstances, we always say if at all possible, it is far better and cheaper to advise yourself, and look after your own investments.

IMPORTANT NOTES
The information contained in this guide provides only general guidance and does not constitute personal financial advice. You should not rely on this information to make (or refrain from making) any decisions. All information contained within this guide is correct as at April 2013. Please note tax rules can change and any reliefs depend on your personal circumstances. Tax year 2013/14 applies unless otherwise stated. If you are in any doubt with your own particular situation, seek independent advice from a professional. Remember all investments can fall as well as rise in value so you could get back less than you invest.

5 GOOD REASONS TO MANAGE YOUR OWN INVESTMENTS: You can be guaranteed that you will have your own best interests at heart.Theres no need to weigh up whether you trust someone else.

REASON REASON REASON

The main objection we hear to going for the DIY approach is it could be too difficult or I dont know about financial matters. Actually, like many aspects in life, spend a little amount of time on your finances and you will find it is a lot easier than you think. Money is one of the most important things in your life it makes sense to learn a bit more about investing so you can maximise it. What many people dont realise is that most financial advisers arent geniuses. Most advisers follow a set process to give financial advice. It is a process that many people could follow themselves if they knew what it was. In this guide, our Head of Financial Planning, Danny Cox, reveals those secrets and sets out the simple, common sense steps to advising yourself on financial matters. Hopefully with Dannys help, and a Hargreaves Lansdown Vantage account, youll soon be on the path to looking after your own wealth. Youll never look back.

Youll always be around to keep your investments in fine form, there will be no risk of losing track of them.

Youre available to consult 24 hours a day, so you can act whenever you need to.

3 4

Find out more at www.hl.co.uk

A modern investment supermarket like Hargreaves Lansdown makes it very easy to invest for your future. There are a number of online tools and if you get stuck, our highly experienced helpdesk is there to help you - just call 0117 900 9000.

Youll save money, and...

...its much easier than most people think!

REASON

REASON

DIY INVESTING GUIDE HOW TO BE YOUR OWN FINANCIAL ADVISER (AND SAVE 000s IN FEES)

No one is as passionate about your financial future as you are

In the past it was almost impossible to invest in a financial product without seeing and paying for a financial adviser - whether you wanted advice or not. Today the situation is very different. The internet has been truly revolutionary. A wealth of free information is now at your fingertips, and investments can be bought and sold at the click of a mouse through an investment supermarket (of which Hargreaves Lansdown is the best known and most popular). Investment supermarkets save you money as you dont need to pay a financial adviser. Investment supermarkets have made managing and monitoring your investments easier than ever. I firmly believe that most people, with a little help along the way, can make the majority of financial decisions themselves, and potentially save 000s in advisory fees.

Danny Cox is an award winning Chartered Financial Planner at Hargreaves Lansdown, the UKs largest DIY investment supermarket. He has over 20 years experience advising investors and helping them make more of their money.

A wealth of free information is now at your fingertips

Are you a nancial adviser orphan?

New rules introduced on 31 December 2012 have made wholesale changes to the way financial advice is delivered in the UK. The number of firms and advisers offering independent financial advice has fallen. According to Deloitte, 5.5 million people who previously received advice will lose touch with (or become orphaned from) their adviser. Others have been quoted vast fees for services which previously were not directly charged for. As a result, more people are predicted to manage their own financial affairs. While that may sound daunting its a lot easier than you might think. How to use this guide In this guide you will find out how a financial adviser would provide advice and help you to make the most of your money. It will help you to: Build firm foundations for your financial security (chapter 1) Simplify your investments and pensions, making them easier to manage (chapter 2) Reduce the amount of tax you pay (chapter 3) Make your own investment decisions (chapter 4) Prepare for retirement (chapter 5) Save for your children (chapter 6) Plan for inheritance tax (chapter 7) Know when you should take advice (chapter 8)

CHAPTER 1 BUILDING FIRM FOUNDATIONS FOR FINANCIAL SECURITY

Every financial plan should be built from these foundations.

Budgeting The key to good budgeting is simple: spend less than you earn and save the difference. Although sometimes this is easier said than done, keeping a spending diary will help. Put your monthly income (after tax) at the top of a piece of paper. Then keep a careful record over the month of what you spend. Deduct it from the income. If you are spending more than you earn, you need to cut back. If youve got some left over, try and save it. Manage debt Borrow within your means and only for necessities. Keep short-term debts such as personal loans, overdrafts and credit card balances to a minimum because these borrowings tend to be expensive. Repay them as soon as you can (and before you invest). Keep long-term borrowings such as mortgages under control and ensure you have a repayment plan in place. Cash reserve Build a minimum of three to six months expenses in an immediate access cash account to help cover unexpected bills. Cash ISAs can work well here since the interest is tax-free. You

Why Hargreaves Lansdown?

Financial strength - We look after 35.1 billion (as at 31 March 2013) for our clients. We are the biggest DIY investment supermarket in the UK. Quality of service - 95% of Hargreaves Lansdown clients rate our service as good, very good or excellent.* If you call our helpdesk you get through to a real person, with no automated messages. Wide choice of investments Low cost - we have saved investors over 1 billion in charges over the last 10 years. HL are good corporate citizens, we pay all our taxes in the UK. Find out more at www.hl.co.uk/about-us. *Source: HL survey, May 2012, with 10,477 respondents

CHAPTER 1
Continued

can find competitive Cash ISA rates using price comparison websites. Find out more about the Vantage Cash ISA at www.hl.co.uk/isa. Make a Will / Lasting Power of Attorney (LPA) If you have a spouse, partner or children and would like any say in what happens to your assets and possessions after you die, then you MUST have a Will. Otherwise, your estate will be distributed according to the somewhat unwieldy intestacy laws. Alongside your Will, those over 50 should consider a Lasting Power of Attorney (LPA) which appoints someone of your choice to manage your finances if you are mentally or physically unable to do so yourself. Wills and LPAs are best drafted by a solicitor. Protect your familys financial security Plan ahead to cope with unexpected setbacks. As a rough rule of thumb, you should have enough insurance to pay off any mortgage and provide for your family in the event of death, illness or unemployment. Think through the what would happen if questions, to understand the potential financial consequences. Review your current insurances and top up where necessary. Those employed may benefit from life insurance or sickness cover through their employer and these should be investigated - dont pay for insurance you dont need.

Top tip

People tend to fall into two camps: those without enough insurance (the majority) and those with too much. By reviewing your finances you can avoid both pitfalls.

FINANCIAL ADVISERS FIRM FOUNDATIONS CHECKLIST 3 Budget 3 Clear short-term debt ; keep longer-term borrowing e.g. mortgage under control 3 Cash reserve 3 Wills and LPA 3 Protect your family with insurance

CHAPTER 2 SIMPLIFY YOUR INVESTMENTS

You may already have a mixed portfolio of ISAs, funds and shares, and perhaps a filing cabinet of associated paperwork. One of the first things I recommend is to consider consolidating your investments into one place. Why? A key role of the financial adviser is to help you, the investor, understand what you already have and make your finances simpler to manage. A great place to consolidate investments is an investment supermarket. As the name suggests, an investment supermarket is a one stop shop for all your investment needs. It enables you to keep all your investments in one place and view them online, at any time. Furthermore you receive a single statement covering all your holdings, so you can cut down unnecessary paperwork. Consolidating and simplifying your existing investments in an investment supermarket is easy, but its crucial you choose the right provider. When it comes to the safety of your

investments, you dont want to compromise. I believe the financial strength of your provider is the single most important factor. Excellent customer service and administration are also very important things to consider when choosing an investment supermarket. Also consider whether it seems good value. Are the charges reasonable for the service and security you require?

Consolidate your investments into one place.

FINANCIAL ADVISERS SIMPLIFY YOUR INVESTMENTS CHECKLIST 3 Consolidate your investments using an investment supermarket 3 Seek value not just price

CHAPTER 3 REDUCE THE AMOUNT OF TAX YOU PAY

In almost every case, I can help investors reduce the amount of tax they pay: in some cases I save clients thousands of pounds a year. Of course we should all pay our fair share of tax, and it should not override your investment decisions. However you should not pay more tax than you need. These are the three best tax saving tips: Tip 1. Make the most of tax bands and allowances. Tip 2. Save into an ISA every year. Tip 3. Save into a pension every year if you are able to and you can afford to lock your money away for your retirement. Make the most of tax bands and allowances If you are married (or in a registered civil partnership) and your spouse pays less tax than you, consider moving income-paying investments into their name to benefit from the lower tax rate. Save into an ISA every year I am a big fan of ISAs and so are 23.9 million UK adults. I always recommend clients use their ISA allowance where possible. Once in an ISA there is no further tax on income and any capital growth from your investments is tax free. You can invest up to 11,520 in a stocks and shares ISA in this tax year. For more about ISAs go to www.hl.co.uk/isa.

Save into a pension every year For most people a pension is the most tax-efficient way to save towards retirement. The tax relief on contributions is highly attractive up to 45% depending on your circumstances. For more on pensions and retirement see chapter 5. Spouses pension Even if you have no earnings or you dont pay tax, anyone under 75 can still invest up to 2,880 in a pension and the taxman will top-up their contribution up to 3,600. Building up income in both names can be one of the most tax-efficient ways of generating income in retirement. Other tax-efficient investments Premium Bonds and National Savings and Investments Index Linked Certificates both offer tax-free and safe returns. You can check their availability at www.nsandi.com. Unit trusts Unit trusts/OEICs offer a tax-efficient spread of stock market investments. They are subject to tax, however any tax paid on the rise in their value, the gains, are not normally paid until encashment and only then if the gain is above the capital gains tax allowance of 10,900 (2013/14). Income tax is due on the dividends or interest from a unit trust. There is more on unit trusts on page 13. More sophisticated investors might also consider

CHAPTER 4 MAKE YOUR OWN INVESTMENT DECISIONS

Venture Capital Trusts (VCTs). They offer income tax relief of up to 30% of your investment (up to 200,000) if you hold the VCT for five years and are highly tax-efficient. However, these are generally significantly higher risk, illiquid, longterm investments and are not suitable for everyone. Inheritance tax (IHT) planning Its important to set aside some time to review your inheritance tax plans. See chapter 7 for more details. Our Investors Guide To Saving Tax has more tax saving ideas. Download your copy at www.hl.co.uk or request one by calling 0117 900 9000. Please note tax rules can change and the value of any benefits depends on your circumstances.

5 Basic principles to choosing investments

1. Make investing easy - keep costs down 2. Consider investment risk 3. Consider how long you will invest for 4. Funds or shares? 5. Review your portfolio
1. Make investing easy - keep costs down If you are like me, the easier something is to do, the more likely I am to do it or take an interest. The same is true of your investments. Making your portfolio as simple and easy to deal with as possible will encourage you to return regularly and improve the enjoyment of managing your investments. The best way to keep things easy is to invest through an investment supermarket where you can access your entire portfolio, in one place, online at any time. An investment supermarket uses its purchasing power to drive down the cost of investing. In most cases you will save all of the initial charges and save on annual charges too. We estimate HL Vantage clients have saved 1,000,000,000 in investment charges over the last 10 years alone. Furthermore, buying without advice, DIY, also

FINANCIAL ADVISERS TAX SAVING CHECKLIST 3 Use your tax bands and allowances 3 Save into an ISA every year 3 Save into pensions and spouses pensions every year 3 Consider other tax-ecient investments 3 Consider inheritance tax planning

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CHAPTER 4
Continued

saves you paying any advice fees, typically 3% of the amount invested or 1,500 for every 50,000 invested. We estimate we have saved HL DIY investors 46 million in advice fees in the last year alone. 2. Investment risk There are two aspects to risk - the risk of your investment falling in value and the risk of your investments growing too slowly to meet your objectives. If the ups and downs of the stock market will keep you awake at night, investing in shares or

funds is not for you you are a saver and should stick to cash. Cash carries an inflation risk and is unlikely to grow fast enough to retain its spending power, but your capital is at least secure. If you are willing and able to accept that your investment will fall as well as rise in value you could consider investing in the stock market. This has the potential to deliver a much higher return, as shown in the chart below, but neither your capital or income are guaranteed. Since 1987 the UK stock market has delivered
+864%

Performance of UK shares since 1987

% 900 800 700 600
Percentage Growth

FTSE All-Share Total Return Cash: Moneyfacts Average Instant Access 25,000

500 400 300 200 100 0 -100

19 88 989 990 1991 1992 1993 1994 1995 996 1997 998 999 000 001 002 003 004 005 006 007 008 009 010 2011 2012 2013 1 2 1 1 1 1 2 2 2 2 2 2 2 2 2 2

+213%

Past performance is not a guide to future returns.

Source: Lipper, 01/01/87 - 01/01/13.

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Since 1987 the UK stock market has grown by an impressive 864%.

growth of an impressive 864% with income reinvested. Put another way: 10,000 invested 25 years ago would now be worth 96,426. This serves to illustrate the enormous potential to significantly grow your wealth over time, although of course no one has a crystal ball to determine what performance will be like in the future. You can also reduce risk in several ways, the most common by diversifying your portfolio (see box). As another example, buying shares in large companies is considered less risky than

buying shares in smaller, less established companies. Similarly, investing in UK-based shares is less risky than investing in shares based in emerging countries such as China and India. 3. Timescale A recent study analysing the returns from shares and cash since 1899 over various time periods found that the longer you hold shares for, the more likely you are to outperform cash, as shown in the table below.
Holding period (years) Probability of shares beating return on cash 2 3 4 5 10 18

Diversication reducing risk

One of my favourite investment sayings is dont put all your eggs in one basket. Instead, you should look to build a balanced portfolio of different holdings across different markets. Your use of an investment supermarket will make building your portfolio much easier. There is no rule saying a portfolio has to be balanced and diversified. Many investors stick doggedly to equities, while others are convinced that property is the only place to be. Taking such a view is fine, as long as the risks are understood. Those who invest only in one type of investment will only be right some of the time. A spread of different funds can also provide access to different fund managers investment styles, which can outperform at different stages of the economic cycle.

67% 69% 72% 74% 90% 99%

Source: Barclays Equity Gilt Study 2013 Conventional wisdom suggests for terms of less than five years, cash is preferable, since over such short periods, stock market ups and downs mean there is a greater chance you might get back less than you put in. However there are no hard and fast rules you can make money from investments over much shorter periods; equally you could still lose money if you invest for more than five years. However, the longer your investment timeframe, the more you can stack the odds in your favour.

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CHAPTER 4
Continued

Building your portfolio As a rule of thumb, the more risk you take, the more potential your wealth has to grow over time. However investments can fall in value as well as rise so you need to be prepared to see your capital fall in the short term, in return for the potential to grow your money over the long term. 4. Funds or shares? When you choose to invest in the stock market, you can: Choose and buy shares in individual companies yourself Invest with a professional fund manager who buys a diversified portfolio of shares on behalf of a group of investors (which enables you to spread your investments - and your risk - across dozens of different companies) Simply track a particular stock-market index using a low-cost index tracker which could invest in hundreds of different firms.

professional management. In my experience, for most investors, a portfolio of funds is generally easier to manage than a portfolio of individual shares - its easier to monitor the shepherd than the sheep. 5. Review your portfolio (annually) You should review your portfolio of investments at least annually. As part of your review, weed out the poor performers and check your investment strategy still meets your goals.

Its easier to monitor the shepherd than the sheep.

Funds have always been my preferred choice due to the benefits of diversification and

FINANCIAL ADVISERS INVESTMENT CHECKLIST 3 Make it easy - keep costs down 3 Consider your approach to risk and how long you are investing for 3 Choose funds or shares 3 Diversify your portfolio 3 Review every year

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How to choose funds

There are more than 2,500 funds available so it can be difficult to know where to start. This is why we employ a dedicated investment research team who conduct thousands of fund manager interviews every year in search of the best funds.

emerging markets. Funds in this sector could be considered if youre looking to diversify your investments away from the UK. Global emerging markets funds in this sector invest in a range of emerging nations such as Brazil, Russia, India and China. There are also sectors specialising in a single country or region. Emerging markets are less mature than those in the developed world so an investment in this area is more risky and a long-term investment horizon is essential. Find out more at www.hl.co.uk/wealth150. 2. Master portfolios Those looking to narrow down their fund choices further could refer to our ready-made master portfolios. Simply select what type of strategy you are looking for and how much you would like to invest. This will bring up a small number of our research teams favourite funds which fit the criteria you are looking for, and work well together as a portfolio. For long-term investors there are five portfolios with different levels of risk and time horizons there are portfolios for income, long-term growth, defensive growth, medium risk, and investing for children. Found out more about the master portfolios at

3 ways we help you to choose funds

1. Choosing individual funds - Wealth 150 If you already have some ideas on where in the world you would like to invest, to help with your choices, our favourite funds from all of the major sectors make it onto our Wealth 150 list. Some of the main sectors (fund categories) covered by the Wealth 150 are: UK Equity Income - funds in this sector invest mainly in UK shares with above-average dividend yields, for example Vodafone, BP and GlaxoSmithKline, aiming to provide a rising income along with capital growth. GBP Corporate Bond sector - these funds invest mainly in corporate bonds (loans to UK companies) and pay a regular income to investors. Global funds invest in shares listed across the globe from the UK to America, Europe and

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CHAPTER 4
Continued

www.hl.co.uk/master. 3. HL Multi-Manager funds If you would prefer to leave the fund selection entirely our experts you could opt for one of our HL Multi-Manager funds. HL Multi-Manager funds offer a broad, managed portfolio of funds through a single investment. These could be considered by first-time investors in need of a simple way to invest in the stock market. They could also make a great core holding for more experienced investors, around which specialised holdings can be added. There are five to choose from, each providing access to what we believe are the best fund managers in their sectors. Active management - Once you've chosen the right Multi-Manager fund for you, your professional manager will monitor your holdings for you and make changes when the time's right. Diversification - The objectives of each MultiManager fund are different but they all aim to offer a well-diversified portfolio so you're not over-exposed to any one particular area. Ease and simplicity - Over time investments tend to be acquired piecemeal. In some cases switching them into a Multi-Manager fund

can bring balance to your portfolio, save you time and increase performance potential. Find out more at www.hl.co.uk/mm.

How to choose shares

When you buy shares in a company you (quite literally) own a share of that company and are entitled to a share of any profits the company chooses to distribute as dividends. You can also share in any growth in the value of the company through share price appreciation. Share price appreciation Shares are listed on a stock market such as the London Stock Exchange which is simply a trading platform that allows people to buy and sell shares. The price of the shares is determined by supply and demand; if there are more buyers than sellers the price will increase and vice versa. It is important to say share prices do fall and you may get back less than you invest. When and why might the share price rise? Shares rise and fall in value for various reasons. In general, if a company increases its profits over time the share price should rise, although it isnt always that simple. Much depends on what is

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expected of the company in the first place. Here are some other common examples of when shares might rise (or fall) in value: The economic cycle Over time the economy goes through periods of growth and periods of contraction. This economic cycle is natural and has recurred throughout history. This cycle can be very useful to investors. However, it should be noted that the economy and the stock market do not move in tandem. The economic cycle allows us to classify shares into two types: i). Cyclical shares are companies whose fortunes are intrinsically linked to the health of the economy, increasing their profits and dividends in the good times but suffering in the downturns. Traditional cyclical sectors include banking, retailers and mining. ii). Defensive shares are companies which can sell pretty much the same quantity of goods or services whatever the state of the economy. They do not enjoy the boom times as cyclical shares do but neither are they set back so badly in tougher times. Companies that supply utilities such as gas and electricity are good examples of defensive shares.

Big themes One of the major themes of the 21st Century is likely to be the continued development of the emerging economies and the huge expansion of the middle classes within those countries. This can lead to many investment ideas. For example, consumption of cars, fashion, wines and other items are likely to soar in the emerging economies leading to strong demand for companies active in these areas. Other themes include technology, the aging population and clean energy. Dividends Companies can choose to reinvest profits or they can distribute them to investors as dividends. Many companies have an excellent record of increasing the dividends they pay to their shareholders over time, though dividends are not guaranteed and a company is under no obligation to keep paying them. The best companies will be able to increase their dividends over time and have enough cash left over to invest in the growth of the business. This combination of rising dividends and profits should, in theory, result in a rise in the share price. For our free How to select shares guide visit our website.

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CHAPTER 5 PREPARE FOR YOUR RETIREMENT

Set goals when will you retire? Think about when you are likely to retire and the lifestyle you aspire to. What level of income will you need to enjoy your perfect retirement? Most people aim to retire on between half and two thirds of their working income. This will give you a target to aim for. Assess your current plans Most people collect various pension plans over the years, especially when they change jobs. Review what level of pension your current plans will provide to see whether you are on track to meet your target - a pension calculator can help here www.hl.co.uk/pensions. Consolidating your pensions by transferring them all to one pension will make this process easier check there are no penalties or loss of benefits before doing so. Save more if there is a shortfall If you have a shortfall in your planning then you should address this as soon as you can. If you have the option to join a company pension scheme where your employer will contribute, in most cases you should do so. As a rule of thumb you should be saving an amount equal to 15% of your earnings for your retirement. The great attraction of pension saving is the tax relief added by the government. You could receive

tax relief of up to 45%, depending on your circumstances. Within a pension your investments also grow free of capital gains tax and further income tax. Note tax rules can change. Tax Net cost of a Relief* 1,000 Contribution Non-taxpayer 20% 800 Basic rate taxpayer 20% 800 Higher rate taxpayer 40% 600 Additional rate taxpayer 45% 550 *Please note you will only be able to reclaim as much higher or additional rate tax as you pay. The size of your pension fund is determined by these factors: How much you save How long you save for The investment returns on your chosen funds Costs the less you pay in fees the more you will have when you retire My favourite private pension is a low-cost SIPP (Self-Invested Personal Pension) due to the choice and flexibility they offer, but they do require you to take responsibility for your own decisions. These are available through investment supermarkets. Find out more about SIPPs www.hl.co.uk/SIPP or call 0117 980 9926. at

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Review your pension planning annually You should review your pension plans at least annually to ensure they will meet your goals at retirement. This will allow you to root out the poor performers and check your investment strategy is still going to deliver the income you need, or if you need to put more money in. Approaching retirement (5 years or less to go) As you approach retirement, youll need to think about how youd like to draw your pension income. You can take up to 25% of your pension fund as a tax-free lump sum from age 55. The remaining fund is then used to provide an income, which is taxable. You have two main choices, or you can mix: 1. An annuity provides a guaranteed income for life. With this popular option your income is guaranteed not to fall. Once set up, the type of annuity cannot be changed and you know

what you will get every year, regardless of how long you live. 2. Income drawdown allows you to keep your pension fund invested and draw a taxable income from it within certain limits. There is much more flexibility than an annuity and the death benefits potentially more generous. However, it is more risky than buying an annuity as your pension income could fall as well as rise. If you opt for an annuity you should start to shift your portfolio away from riskier investments such as shares towards less volatile investments such as cash as you approach retirement. This reduces the risk of a big fall in the stock market significantly depleting your pension fund just before you take retirement benefits. If you plan to use income drawdown you would normally stay invested. If you want to learn more download our free guide to Your Options at Retirement by visiting our website. Retiring soon Choose your pension carefully How you take your pension at retirement is one of the biggest financial decisions you will make. If you are buying an annuity, you do not have to

FINANCIAL ADVISERS SAVING FOR RETIREMENT CHECK LIST 3 Set goals 3 When will you retire? 3 How much income will you need? 3 Assess your current plans 3 Plan to meet the shortfall - save more! 3 Review your pension planning (annually)

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CHAPTER 5
Continued

CHAPTER 6 SAVE FOR YOUR CHILDREN OR GRANDCHILDREN

accept the quote offered by your pension company. You can shop around to obtain the best rate available and boost your income by up to 40% for life. Higher rates are available to those who have certain medical conditions so it is important to declare this during the process. You can compare rates easily and free of charge using the HL Annuity Supermarket www.hl.co.uk/annuities. If you are planning to use income drawdown, a low cost SIPP like the Vantage SIPP is my preferred solution as it provides the best combination of choice, functionality and low cost. However it is a complex subject so if you are at all unsure of its suitability for your circumstances I strongly suggest you seek advice. To find out more about income drawdown go to www.hl.co.uk/drawdown.

Its a great idea to teach your children the savings habit when theyre young. Consider student or branch-based savings accounts which pay a decent rate of interest. To ensure that your child doesnt pay tax on his/her savings interest, complete an HMRC R85 form which can you get from your bank. Junior ISAs - A Junior ISA is a new savings scheme for children which, over time, will replace the Child Trust Fund (CTF). The proceeds are available to the child on their 18th birthday. Just like adult ISAs, Junior ISAs are highly tax efficient with no capital gains tax, no income tax on savings and no further tax on dividend income. The annual allowance per child is 3,720 and this limit will rise by inflation every April. For more details on Junior ISAs go to www.hl.co.uk/jisa or call 0117 900 9000. Child Trust Funds (CTFs) - A Child Trust Fund is a tax efficient shelter for children into which parents, grandparents and other relatives and friends can contribute. If you have opened a CTF for a child before January 2011 it will remain in place and payments of up to 3,720 a year can still be paid in by friends and family. The Government has announced a consultation to consider the options to transfer CTFs to Junior

FINANCIAL ADVISERS APPROACHING RETIREMENT CHECK LIST 3 Start thinking about your retirement choices 3 At retirement choose your pension carefully 3 Always, always, always shop around for your annuity. It could boost your income by up to 40% for the rest of your life.

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ISA. Any change is unlikely to happen before April 2014. Bare Trusts - Once Junior ISA or CTF contributions have been made, a Bare Trust arrangement may be suitable. Individual shares and unit trusts cannot normally be bought directly by a child and are usually held in a designated account using a bare trust. Trusts are useful for saving for children, because they allow you to pass on money before children are old enough to be given the money directly. The child becomes automatically entitled to the investments at 18. However, as a trustee, you may be able to distribute money earlier if you need to, for example to meet school fees. As with shares there might be an income and/or capital gains tax liability, but as children are rarely taxpayers this is unlikely to be an issue. Children have the same personal income tax allowance (9,440 in 2013/14) and capital gains tax allowance (10,900 for 2013/14) as adults. This means investments such as unit trusts and shares under a designated account bare trust are taxable, although the sums involved usually fall within their allowances and no tax is due. Parents - Children can only benefit from tax-free income of up to 100 a year from capital given to

them by their parents (or 200 if both parents have contributed). If they receive more, the parents must pay tax on all interest or dividends at their highest rate. This rule often leads parents to choose non dividend paying shares or growth funds for their offspring, as there will be no income to tax, only (hopefully) capital gains, which should fall within the childs annual allowance. This is not a problem if the contributing parent is a non-

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CHAPTER 6
Continued

CHAPTER 7 PLAN FOR INHERITANCE TAX

taxpayer or if a grandparent, other relative or family friend has contributed the capital. Please note tax rules and rates change. More details can be found in our Investors Guide to Investing For Children, download a copy at www.hl.co.uk. Junior SIPP - Another option open to parents, grandparents, godparents and so on is to set up a pension on behalf of a child. Any UK resident from birth to 75 - is currently entitled to contribute up to 2,880 per tax year to a childs pension and earn 20% tax relief on those payments, increasing the total contribution to up to 3,600. Find out more about www.hl.co.uk/pensions. Junior SIPPs at

Inheritance tax (IHT) is normally charged at 40% of the value of your estate above a certain amount, known as the inheritance tax threshold or nil rate band. The IHT threshold is 325,000 for 2013/14. Married couples can combine their inheritance tax thresholds meaning up to the first 650,000 of the estate is inheritance tax free as any unused threshold is normally automatically passed onto the surviving spouse. Inheritance tax planning is normally considered at or after retirement and the first step is to calculate how much inheritance tax might be paid.
How much inheritance tax might you pay? Value of your estate 325,000 500,000 650,000 1m 1.5m 2m Inheritance tax liability Single Person Married Couple Nil Nil 70,000 Nil 130,000 Nil 270,000 140,000 470,000 340,000 670,000 540,000

FINANCIAL ADVISERS SAVING FOR CHILDREN CHECKLIST 3 Cash on deposit for short-term savings 3 Child Trust Fund or Junior ISA for nest eggs at age 18 3 Consider Bare Trusts 3 Junior SIPP for retirement planning

Reducing your inheritance tax liability usually involves reducing the value of your taxable estate: either by giving away capital or income or investing in assets which are free of IHT. There are rules which limit the amounts which can be gifted. Exempt gifts include gifts to registered charities, the annual exemption of

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CHAPTER 8 WHEN YOU SHOULD TAKE FINANCIAL ADVICE (AND PAY FOR IT)

Financial advice has a specific legal and regulatory meaning. It is a personal recommendation from a qualified individual taking into consideration your personal circumstances and investment objectives. An adviser will take time to analyse your objectives, needs and attitude to risk, ensuring the advice given is suitable. They will be proactive with opinions and suggestions to make sure you understand the implications of the proposed action. The advice will then be presented in writing and will clarify the associated risks and costs. 3,000 a year and gifts made regularly from surplus income. Gifts beyond this are normally IHT-free providing you survive 7 years. IHT planning is covered in more detail in our Investors Guide to Saving Inheritance Tax www.hl.co.uk to request your copy. Most DIY investors can make the majority of investment decisions without advice, saving fees along the way. For example, most people can make their annual ISA and SIPP contributions, consolidate their investments, and build a portfolio without advice. However there may be times where advice would add considerably to your circumstances. Knowing when is important. Generally, advice is worth paying for when matters

FINANCIAL ADVISERS SAVING INHERITANCE TAX CHECKLIST 3 Calculate your inheritance tax liability 3 Make the most of exempt gifts to save IHT 3 Consider investing in IHT-free assets 3 Consider taking advice for more advanced planning

Examples of when you should take advice

l l

Final salary pension scheme transfers Inheritance tax planning e.g. larger gifts into trust l Long-term care planning l Wills or Lasting Powers of Attorney l Personal or business tax advice

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CHAPTER 8
Continued

become more complex or in areas where you may lack the confidence to make decisions yourself (see box below for examples). Naturally, the longer you are a DIY investor, the less often you should require advice. How to choose an adviser There are two types of adviser: independent and restricted. An independent financial adviser is required to research the whole of the market to find investments which best suit your needs. Restricted advisers only consider options within a limited range of products or investment providers. Hargreaves Lansdown Financial Practitioners are Independent Financial Advisers. Advice, DIY or a combination of the two? Most independent financial advisers offer a free consultation to review your approach to

investments and pensions and discuss your financial objectives. Hargreaves Lansdown offers both DIY investing services and independent financial advice so you can choose which is right for you and only pay for advice you need, when you need it. During the consultation we will establish the level of involvement you'd like in your investment decisions. We can help you to take full control of your investments, provide one-off advice and recommendations, or offer a complete ongoing portfolio management service. Your consultation will help you decide how much advice you need. The service is so flexible you can have part of your portfolio managed while retaining DIY control over the remainder. Find out more about our advisory service at DIY INVESTORS ADVICE CHECK LIST www.hl.co.uk/advice or call 0117 317 1690.

3 Aim to make decisions such as ISA and

If you're using an adviser, always, always, always ensure it is an Independent Financial Adviser (IFA). MoneySavingExpert.com

SIPP contributions and consolidating your investments yourself 3 Good advice at the right times is worth paying for e.g. when it gets more complex 3 Independent advice is best 3 Combine DIY and advice for the best of both worlds

DIY FINANCIAL ADVISER CHECKLIST

Build firm foundations for your financial security Approaching retirement

Budget Manage debt Cash reserve Will and LPA Protect your family with insurance
Simplify your investments and pensions

Start thinking about your retirement choices Choose how you will draw your pension carefully Always shop around when buying an annuity
Save for your children

Consolidate to an investment supermarket to make them easier to manage Seek value not just price
Reduce the amount of tax you pay

Cash on deposit for short-term saving Child Trust Fund or Junior ISA Consider Bare Trusts Consider a Junior SIPP
Plan for inheritance tax

Make full use of tax bands and allowance Save into an ISA every year Save into pensions every year Consider other tax-ecient investments Consider inheritance tax planning
Make your own investment decisions

Calculate your inheritance tax liability Make the most of gifting allowances Consider IHT-free investments Consider taking advice for advanced planning
Know when you should take advice

Make it easy - keep costs down Consider your approach to risk Consider how long you are investing for Choose funds or shares Diversify your portfolio Review every year
Prepare for retirement

Make simple decisions such as annual ISA or pension contributions yourself Good advice at the right times is worth paying for e.g. when issues become more complex Independent advice is best Combine DIY and advice for the best of both worlds

Set goals - When will you retire? How much income will you need? Assess your current plans Plan to meet the shortfall (save more!) Review your pensions annually Hargreaves Lansdown is authorised and regulated by the Financial Conduct Authority

Investors Guide to DIY

Why not save money by giving yourself financial advice?
USEFUL TELEPHONE NUMBERS
For queries about: Junior ISAs, ISAs, Unit Trusts, OEICs, Index Trackers, Investment Bonds, Investment Trusts & VCTs Please call our Help Desk on 0117 900 9000 For queries about: Shares, Share Dealing, Stockbroking & CFDs Please call our Help Desk on 0117 900 9000 For queries about: Self-Invested Personal Pensions (SIPPs), Company Pensions, Annuities Please call our Pensions Help Desk on 0117 980 9926 For queries about: Personal Financial Advice or Discretionary Portfolio Management Please call our Financial Practitioners on 0117 317 1690

www.hl.co.uk

Apr 13