Due to the success of open banking, it’s likely that we will see the development of open finance in the near future.
Open Banking: A Success Story
Open banking involves granting a third party access to your bank account. With your consent, this third party can access your payment account data and ask your banking provider to make transactions on your behalf.
The October 2021 Open Banking Impact Report found that 55% of Open Banking consumers agreed these services had helped them reduce their fees and costs and that 83% were willing to expand their use of these kinds of services.
On the whole, open banking seems to have been largely successful, and this has now opened the door to expansion into open finance.
Open Banking to Open Finance
Both open banking and open finance operate on the idea that individuals should be in control over who can access and use their financial data.
Open finance is simply an extension of open banking; it would enable wider sharing of this consumer data to more financial products and services, rather than it being confined to banking. So, rather than this data sharing solely involving things like payments, under open finance, it would also be applied to things like investments, insurances and mortgages.
The FCA’s Definition of Open Finance
Encouraged by the success of open banking, the FCA, government, and financial services industry have been considering the potential benefits of open finance… but what exactly is it?
[Open finance] is based on the principle that financial services customers own and control both the data they supply and which is created on their behalf. Re-use of this data by other providers would take place in a safe and ethical environment with informed consumer consent. This would mean that a financial services customer who consents to a third party accessing their financial data, could be offered tailored products and services as a result. Access would be provided by that customer’s current financial services provider under a clear framework of consent
How Might this Work in Practice?
Open finance would work on the foundation already established by online banking. It would work in a similar way, through data sharing to third parties, but it would simply cover a wider breadth of circumstances by collaborating across various financial services. According to UK Finance, this could potentially, “reduce fraud, improve financial wellbeing, widen access to credit, deliver greater choice in payments and help enable reusable digital identities.”
So, let’s have a look at a few examples of how this may look in practice for its consumers…
With open banking, consumers can see all of their account balances on one singular dashboard. With open finance, more financial products could be incorporated, so that the consumer could see their ISA, pension, mortgage, investments, and so on, all in one place.
Open finance also allows for even more personalisation. One example of this is lenders being able to offer mortgages based on the customers’ exact needs. Their service to the consumer would be personally tailored to them as an individual through data analysis of their accounts and finances.
Whilst open banking allows its users to authorise third parties making payments on their behalf, open finance could go even further, allowing consumers to link automatic transfers between different financial products, such as establishing recurring payments to pay off their mortgage.
by Red Star Wealth
Before undertaking any investment or other financial decision, it’s important to be aware of all of the potential advantages and drawbacks. So, let’s have a look at the advantages and disadvantages of investing in AIM shares.
What are AIM Shares?
AIM stands for Alternative Market Investment. It is a submarket of the London Stock Exchange which deals with small and medium size growth companies which are seeking to raise capital through an Initial Public Offering.
The listed companies tend to be smaller and more speculative as regulations are rather relaxed compared to larger exchanges. This type of investment tends to be higher risk with the potential of higher rewards.
Advantage: Potential of High Rewards
One advantage of AIM shares is the potential of reaping high rewards from your investment. The companies listed on AIM are still relatively young and in their growth stage, meaning there is the potential to earn more money off them than the mature companies on the FTSE index.
A prime example of this is ASOS: listed on AIM in October 2001 at the price of 20p a share, these ASOS shares later reached £71 a share by October 2014. You can click here to see their current price per share.
Advantage: Tax Benefits
Tax benefits are one of the main draws of AIM share investment. Some of these tax benefits include:
No stamp duty land tax (SDLT) due on shares traded within AIM
Some AIM companies are inheritance tax (IHT) free if shares are held for longer than two years
Some AIM shareholders may qualify for income tax and capital gains tax (CGT) reliefs when held through an Enterprise Investment Scheme (EIS) or through CGT Entrepreneurs Relief.
You can click here for a more detailed guide to AIM tax benefits.
Disadvantage: High Risk
AIM share investment is best suited to those who are willing to take on a high degree of investment risk. This is because many listed companies on the AIM index are still in their growth stage and aren’t fully established, meaning you don’t know whether they will be as successful as expected.
As stated by Andrew Howe on Interactive Investor, “AIM is the world’s worst-performing major stock market index of 2022.” He continues, “The number of AIM companies worth more than £1 billion has nearly halved over the past year. All the companies that are still valued above that level have lower share prices, some up to three-quarters lower.” This said, he does also note that there is the potential for a rebound this year.
Disadvantage: Illiquid
Listed companies usually have fewer outstanding shares available to be traded, meaning it can be difficult to buy and sell them at the price you want to.
It tends to be harder to sell AIM shares than those of larger companies, meaning you’re essentially more tied into your investment.
Overall, it is up to you to decide whether AIM share investment is right for you. However, before jumping in head-first, make sure you are fully aware of what you are investing in and how it all works.
by Red Star Wealth
Business Asset Disposal Relief (previously known as Entrepreneur Relief) is a form of tax relief from capital gains tax.
How does it Work?
Business Asset Disposal Relief is when you sell all or part of your business or its assets and pay only 10% capital gains tax (CGT) on profits up to £1 million (the new lifetime limit). Once you surpass the £1 million limit, you will be charged the usual rate of CGT on the remaining taxable gains.
Previously, the lifetime limit was £10 million but at Budget 2020, Rishi Sunak, as Chancellor of the Exchequer, announced that the lifetime limit would be brought down to £1 million for any qualifying disposals made on or after 11th March 2020.
How much can it Save You?
If you’re a basic rate taxpayer, you will pay CGT on the disposal of assets according to the size of profits, your taxable income, and whether the gain is from residential property or not. If your taxable income falls within the basic income tax band, you’ll pay 10% CGT on gains (18% if disposing of residential property).
However, as a higher or additional rate taxpayer, you would pay 20% CGT on taxable gains from any chargeable assets (except for disposal of residential property, on which you’d pay 28%).
Therefore, Business Asset Disposal Relief could save you up to £100,000, because if claiming the tax relief on up to £1 million worth of assets, you’d reduce your tax burden by 10% (£100,000).
How do I Qualify?
Business Asset Disposal Relief covers both shares and business assets. Sole traders and partnerships can claim this relief when selling assets used in the business. Company directors and shareholders can claim the relief when selling shares or assets.
To qualify for tax relief on sale of assets, you must fulfil the following criteria for at least 24 months:
You must be an employee of the company (includes being company director) or a sole trader
You must own at least 5% of company shares if claiming the tax relief on share sales
There are also some extra things to bear in mind:
You can claim relief on share sales if a company stops trading, providing this is done within 3 years
You cannot sell a ‘going concern’, i.e, you cannot claim tax relief on the sale of something that is loss making and not commercially viable
If trying to claim the tax relief on property sales, the property must exclusively be a business asset. It must be owned by the company and used rent free
The 5% Rule
As noted above, you must own at least 5% of company shares in order to qualify for Business Asset Disposal Relief on share sales. If your share in the company is only just above this 5% lower limit, you should keep an eye on it to ensure it doesn’t drop below the threshold if you’re considering selling your shares in the near future. This could happen if your shares became diluted from more shares being allocated or other employees activating share options, meaning more shares in circulation.
If you lent any assets to the business, to claim the tax relief you must have sold at least 5% of your part of the business partnership or shares in a personal company. You must have also owned these assets yourself but let the business use them for a minimum of a year before your sale of the shares or business partnership.
For information about how and when to claim Business Asset Disposal Relief, click here.
by Red Star Wealth
The last few years have witnessed a rise in direct cremations, wherein the body of the deceased is cremated without a service and the ashes are given to the family.
Sunlife’s Cost of Dying 2023 Report found that 1 in 4 people who organised a funeral were surprised by costs. Funerals can be distressing to think about, and we often avoid doing so until a point where we have to. However upsetting, it’s still an important topic, as it can be a significant cost for people to shoulder.
Sunlife stated, “More and more we’re seeing people report actively trying to cut back, to keep their funeral spend as low as possible- no surprise given the current economic situation. Unfortunately, we’re also seeing fewer people covering costs with savings and investments, and more having to borrow money.”
Here, we can see the issue… funerals are expensive, and many are either unwilling or unable to pay the cost. So, how are people responding to the cost of funerals?
Here, SunLife shows the changes in funeral patterns over 2018-2022. As we can see here, there has been a significant rise in the number of those turning to direct cremations. The leap upwards from 3% in 2019 to 14% and 18% in 2020 and 2021 respectively, is understandable, as much as this trend can be attributed to Covid-19 restrictions. However, even with Covid-19 under control, the popularity of direct cremations is still going strong.
Much of this popularity stems from its price. SunLife found that the average funeral cost in the UK for 2022 was £3,953, whereas the average cost of direct cremation was £1,511.
Even if they have the money to cover their funeral costs, many would rather leave this as an inheritance for their loved ones.
This said, a funeral tends to be for the benefit of the living, for those who are left behind when we die. It can be beneficial to the grieving process and coming to terms with the death of a loved one.
Paying for your Funeral
Many choose to pay up front for their funeral or ensure they leave enough money behind to cover the costs. You can do this by:
Taking out a prepaid funeral plan
Taking out life insurance. Your beneficiaries can then use some of the lump sum paid to them when you die to pay for your funeral
Paying for it with your savings or estate
If you are struggling to pay for a funeral, Money Helper has a guide which you may find helpful.
by Red Star Wealth
A recent Quilter survey found that most adults in the UK take their financial advice from people via media outlets like television, radio and online. 35% said they used this source to help manage their finances followed by 30% saying they used comparison sites and 29% using advice from family members.
The Lewises
Paul Lewis presents BBC Radio 4’s Money Box. Martin Lewis is the founder of MoneySavingExpert.com (MSE) and is a financial journalist and broadcaster.
Paul Lewis has faced backlash for claiming that consumers should use large, national mortgage brokers in order to access the “best possible deal.” As you can probably imagine, independent mortgage brokers were not happy to see their names besmirched by someone who is not even qualified to give advice in their field.
Click here to read more about what brokers’ had to say in response to Lewis’ comments.
“as I say always find an independent chartered financial adviser and admit that excludes some good, restricted advisers and some good IFAs who are not chartered, finding them amongst the rest is impossible. Hence my general advice. Which inevitably excludes some good guys”
Martin Lewis also faced criticism from advisers in October 2022 for telling viewers to stick with standard variable rate mortgages.
A recent article from Mortgage Solutions has highlighted these criticisms and discussed the issue that arises from the general public trusting the word of the Lewises over the advice of qualified financial experts.
What’s the Issue?
Financial journalists can be incredibly helpful in educating the public on financial matters, simplifying complex financial topics to make them more accessible and understandable. Martin Lewis in particular has made huge positive impacts by triggering major initiatives to combat scam ads, urging regulation of Buy Now Pay Later firms, and helping break down difficult financial topics via MSE.
However, education and advice are not to be conflated.
Paul Lewis himself has referred to his advice as “general,” and here lies the issue. The advice being given is often broad, general and unregulated. It is not tailored towards what is specifically best for you and your financial situation. Everyone’s finances are different and so a blanket statement of what is “best” won’t necessarily reflect what is best for all.
Many individuals advising you about your finances through various media outlets are unqualified to give this type of advice. Some advisers are now questioning whether these shows and media forums need to come with a disclaimer that these ‘experts’ are not in fact qualified to give financial advice.
by Red Star Wealth
Smart meters are becoming increasingly popular, with 54% of all meters in Great Britain recorded as smart or advanced meters at the end of September 2022. Let’s have a look at the pros and cons of smart meters so that you can decide what’s best for your household.
What are Smart Meters?
Smart meters record your consumption of gas and electricity so that it’s easier to monitor your energy usage. It shows you how much energy you are using and what this is costing you on an in-home display. It also sends meter readings to your energy supplier automatically.
Pros of Smart Meters
It’s easy to track your energy usage so that you can make changes to save yourself money on your utility bills. You can clearly see how different appliances affect the cost of your bill, which can help you make informed decisions about what to cut down on
If you do choose to reduce your consumption of gas and electricity due to your smart meter, this also has a positive environmental impact. Smart meters encourage sustainability, both in terms of your finances and the environment
Your meter reading is automatically sent to your energy provider, meaning you don’t have to do it manually. Not only does this save time and effort, but it also gets rid of the need for estimated bills so that you are only charged what you actually use
The in-home display is easy to understand because it translates your energy usage in terms of the money it’s costing you
Many suppliers are now offering discounts and cheaper tariffs for those with smart meters, so it’s likely that you can get a good deal
Cons of Smart Meters
First generation smart meters use a mobile network signal to send data back to your energy supplier. This means that if you have any issues with the signal in your area, it affects your smart meter’s ability to send this information to the supplier
Smart meters don’t automatically equate to saving money. They simply help you monitor you energy use and choose whether you want to cut back on certain things based on the information you have. The meter in isolation does not reduce the cost of your monthly bill
You might find it stressful seeing the meter constantly go up every time you switch on the oven or boil the kettle
If you have a first generation smart meter and switch providers, it may lose its smart functionality, meaning it keeps recording your usage but can no longer automatically send the readings to your new provider
Check out our previous blog where we discuss the forced installation of prepayment meters to people’s homes in the UK.
