AIRWAYS UPDATE

Investment Commentary Life Interest TrustsResidence Nil Rate BandAnnual Investment DayConcordeThe Aviation Team

AIRWAYS UPDATE is produced by Radcliffe & Co to provide information and helpful guidance on financial matters, issues and developments that will affect individuals and their families.

Radcliffe & Co Life & Pensions LimitedMeridians House, 7 Ocean Way, Ocean Village, Southampton, Hampshire SO14 3TJT: 02380 222 444 F: 02380 334 194www.radcliffe-ifa.co.ukRegistered in England & Wales No. 2114114

Radcliffe & Co Independent Financial Advisers is a trading style of Radcliffe & Co (Life & Pensions) Ltd which is Authorised and Regulated by the Financial Conduct Authority No. 125160

The Aviation Team at Radcliffe & CoAirways Update

ISSUE 4 – SEPTEMBER 2017

Darren joined Radcliffe & Co in 1988 as a financial adviser, having previously worked for Legal & General for many years as an inspector. He joined the main board of Radcliffe & Co directors in 1998 and was subsequently appointed as the finance director, company secretary and compliance officer. He has seen the company go through many changes in his career and has helped it to develop in many areas. Darren provides support and advice to the Aviation Team.

Darren Fulford Neil IgglesdenNeil has worked as a financial adviser since joining the company in 1993. He became a director in April 2003 before being appointed managing director in 2012. Prior to joining Radcliffe & Co in 1983 he became an inspector with Scottish Provident after qualifying as a navigating officer with Mobil Shipping between 1978 until 1983. Neil also holds the G60 qualification which allows the company to advise on Occupational Pension Schemes.

Chris SelfeChris has worked for Radcliffe & Co for 15 years and has practiced as a financial adviser since graduating from Stirling University in 1992. His focus is on helping high net worth clients with their financial planning and he advises a large number of British Airways clients. The vastmajority of his clients are introducedto him by personal recommendation, normally by existing clients, but also through several firms of solicitors. Chris’s hobbies include rally driving, skiing and mountain biking.

Katie SteelKatie has worked in the financial services industry for over 8 years, having previously worked for HBOS and Skandia. Katie spent 5 years at Skandia in various departments including: life protection, trusts and assignments, switches, disinvestments, complaints and sales support. Katie joined Radcliffe & Co in September 2012 and has since passed her level 4 diploma for financial advisers and is now a fully qualified financial adviser. Katie loves travel, arts and crafts.

Jimeel AngelJim, who is a chartered financial planner with nearly 20 years industry experience, joined Radcliffe & Co in 2012. He started his career in 1997 as a stockbroker locally, after which he moved to London as an international equity and foreign exchange trader.He moved in to financial services in 2002, where he worked for two of the industry’s largest companies. Jim enjoys cycling, mountain biking and snowboarding and holds black belts in 2 martial arts.

Jacqueline MooreJacqueline, who is a chartered financial planner with over 30 years’ experience in the financial services industry, joined Radcliffe & Co in 2010. She is a specialist in final salary pension schemes, retirement planning andinheritance tax planning although has a wealth of knowledge and experience over a wide range of topics. A specific focus of Jacqueline’s is annual allowance (AA) and lifetime allowance (LTA) tax planning; extremely topical issues for many. Jacqui is a keen skier and cyclist.

Jack IgglesdenJack joined Radcliffe and Co in May 2010 as a trainee financial adviser and part of his training was working in our administration, corporate and paraplanning departments over the years to gain experience across different areas of the company. He qualified in August 2014 and was promoted to independent financial adviser on the 1st of May 2015. Jack enjoys all sport but spends the majority of his time playing football, golf or cycling and during the winter months he is also an avid snowboarder.

James FulfordJames joined Radcliffe & Co in 2013 and has since gained experience and knowledge by working in different departments within the firm. Jim is currently studying to become a financialadvisor and was appointed to the Aviation Team in 2015. In his spare time Jim enjoys a wide variety of sports, in particular adrenaline driven activities, and he continuously strives to find new challenges. James recently took part in a charity skydive linked with Radcliffe & Co.

Annual Investment Day Radcliffe & Co was delighted to host our Annual Investment Day exclusively for our aviation clients at the stunning Winchester Cathedral.

These events include an overview of the markets and other topical issues together with time to catch up with the team from Radcliffe & Co and many of your colleagues, past and present, over a relaxed lunch. Our guests also enjoyed a variety of cathedral tours, those with a head for heights clambering up 213 steps in the tower to admire the views of the city.

There were all sorts of fascinating revelations, including the fact that the cathedral was saved from collapse by the brave William Walker, an early deep sea diver who worked under water in the dark every day for six years to underpin the huge building. The cathedral is also the burial place of kings and queens and of

Check out our new @Radcliffe_ATwww.radcliffe-ifa.co.uk/airways

Katie TulkKatie joined Radcliffe and Co in 2015 after working for Old Mutual Wealth as a technician and workplace coach in their disinvestment and regular payments department. Katie is currently working towards a diploma in regulated financial planning and hopes to become a financial adviser in the future. Katie loves travelling, yoga and baking.

ConcordeBetween 1976 and 2003 Concorde flew the rich and famous around the planet at supersonic speeds and at an altitude of around 50,000 to 55,500 feet. Concorde recorded its fastest journey from New York to London on 1st January 1983, taking just 2 hours 56 minutes.

Concorde was one of only two commercial supersonic aircraft to have operated. The other one was the Soviet Union’s Tupolev Tu-144 which was much less successful, only operating passenger flights between November 1977 and June 1978.

Concorde was developed and built by British and French engineers. The arrangement was part of an international treaty between the two countries rather than a commercial agreement, if either country broke the treaty it would face heavy penalties.

Several of the world’s major airlines placed non-binding orders for Concorde aircraft, but most of these backed out of the agreements due to several factors, including the crash of one of the Soviet Union’s supersonic aircraft, worries about environmental and noise pollution and the cost of purchasing and operating the aircraft. The only two airlines that were left were Air France and British Airways, probably due to the fact that the two countries had built the aircraft. In total, 20 Concordes were built and 14 flew commercially, 7 for France and 7 for Britain.

As Concorde travelled at more than twice the speed of sound it created a sonic boom. This loud noise, and the complaints that inevitably came with it, resulted in Concorde being unable to fly certain routes, or having to fly sub-sonically (at the speed of normal airliners) to complete certain journeys.

Up until 2000, Concorde was the world’s safest aircraft with no crashes and no fatalities. On 25th July 2000 an Air France Concorde crashed after debris from a punctured tyre ruptured the fuel tank. Concorde lost its Certificate of Airworthiness and did not regain it until 5th September 2001. The final Concorde flight was on 24th October 2003. An offer by Richard Branson to purchase the remaining Concorde fleet and fly them for Virgin Atlantic was rejected. Sadly Concorde will never fly again.

the famous novelist Jane Austen. Perhaps the strangest fact of all though, is that Winchester was saved from German bombing campaigns in WW2 on Hitler’s order as he intended to be crowned in the city once victorious!

At Radcliffe & Co our business has always relied on word of mouth recommendation and it is thanks to many of you that literally hundreds of aviation clients have chosen to transfer their pensions through us. We are all extremely grateful for your continued support.

We are currently planning several future events, including an aviation cricket event at the exclusive AGEAS Bowl in September, as well as investment evenings with theatre trips in both Manchester and Glasgow for our more northerly aviation clients.

Our next annual Investment Day will be held in May 2018 and we look forward to welcoming you aboard our transport for the day!

Further details to follow…

Airways Update

Investment CommentaryThe first half of 2017 was characterised by low volatility, notwithstanding minor spikes around the French election and amid fears that Donald Trump could be impeached. US growth and inflation expectations eased slightly, partly because the president is having trouble enacting some of the pro-growth reforms he has promised, which tempered investors’ US interest rate hike expectations. Meanwhile, European and Japanese growth expectations improved with deflation expectations receding. Nevertheless, both the European Central Bank (ECB) and Bank of Japan (BoJ) downgraded their inflation expectations and we expect them to keep monetary policy highly accommodative for an extended period. Ultimately, the actions of the world’s central banks are ensuring that global liquidity remains abundant.

Against this backdrop, most asset classes made gains, with equities generally outperforming bonds amid impressive nominal corporate earnings growth. The emerging markets were among the strongest performers, boosted by strengthening developed-market demand, ongoing stability in China’s economy and further weakening of the US dollar. The fact that commodity prices generally fell made the region’s equity market performance even more impressive. In particular, oil prices suffered amid renewed concerns over the effect of US shale oil production and despite the Organisation of Petroleum Exporting Countries (OPEC) cartel’s efforts to curb supply. We note that US shale oil producers’ average cost of production continues to fall and this has allowed them to increase their output, despite prices having failed to advance this year.

The UKThe major political news from the UK was Theresa May’s decision to call a snap general election and the Conservative Party’s subsequent failure to win a majority. The reduced working majority means that Conservative dissenters are likely to be able to block any substantial progress on divisive issues and the government will therefore have to make significant compromises to achieve its goals. Labour’s surprise success is likely to lead to greater debate surrounding the removal of some of the government’s austerity measures, potentially leading the domestic economic backdrop to become more inflationary Any cuts to austerity programmes could undermine the government’s fiscal credibility, potentially pushing UK government bond yields, which are likely to rise if inflation picks up, higher still.

Although the election result increased near-term political risk, it could also mean that the UK will ultimately face a ‘softer’ Brexit and this could cause political risk to fall over the medium term. Despite the government triggering Article 50 of the Lisbon Treaty during the period and beginning official secession negotiations on 19 June, significant uncertainty still surrounds the process. As such, we expect Brexit newsflow to continue to be the primary driver of sterling and other UK-asset performance. We would expect moves towards a softer Brexit to boost sterling, potentially leading domestically-focused companies to outperform UK-based multinationals, while moves towards a ‘harder’ Brexit to have the opposite effect.

Against this backdrop, sterling bounced from near its post-Brexit lows, although it remains well below its pre-Brexit level. The currency’s devaluation has caused UK inflation to accelerate and it is now well above the rate of wage inflation; this dynamic is expected to weigh on consumption, a major driver of UK growth, in the coming quarters. Despite this, there are areas of encouragement for the UK economy; the labour market remains strong and sterling’s weakness has boosted the international competitiveness of UK-based businesses, which should encourage investment. Nevertheless, it appears that the BoE is set to keep monetary policy highly accommodative, unless it becomes clear that the effect of weakening consumption on growth is offset by increased investment, or a firming up of the other components of demand.

The USIn recent months, a succession of weaker-than-expected economic data has raised some questions over the resilience of the US economy. A wide range of data has missed expectations, including business activity, consumption and inflation indicators. However, we believe these disappointments are largely representative of high expectations, rather than structural declines in the economic backdrop, as the absolute level of most US economic data remains encouraging. This view appears to be shared by the Fed, which raised US interest rates again by 0.25% during the second quarter of 2017 and announced its intention to begin reducing the size of its balance sheet.

Making the most of the new Residence Nil Rate Band (RNRB) to save Inheritance Tax

A Life Interest trust is often used in Estate Planning. With a trust there are the Trustees who are the legal custodians of what is in the trust – the cash, investments and other assets. The “Life Tenant” is the beneficiary entitled to the income produced by those assets, for the rest of their life or such shorter period as the person who set up the trust (‘the Settlor’) decides.Think of an orchard. The Life Tenant is entitled to the fruit but does not own the orchard. The trustees usually also have the right to give the Life Tenant some or all of the trust assets, but the Life Tenant cannot demand them, nor can they leave them to anyone under their Will.This is the main point of a Life Interest trust. The Life Tenant is looked after by receiving an income but the Settlor gets to determine what happens to the trust assets after the Life Tenant dies, so they can ensure their assets pass to their other chosen beneficiaries in due course. A Life Tenant’s entitlement can also be stated to cease on their remarriage or cohabitation or sometimes just after a term of years. A place to start is the Settlor’s Will. Let us say he is married and he has children from a previous marriage, whom he wishes to have his assets eventually, but he also wants to look after his present wife.His Will therefore says that his wife gets a Life Interest. There is usually a Letter of Wishes explaining clearly to the Trustees what the Settlor had in mind as to the use of the funds in the trust. It is also possible to include in this Will the right for the Trustees to take part of the assets and give them to his children, so that they get part of their inheritance without having to wait until the Life Tenant dies. It may be the children and the Life Tenant are not far apart in age.This flexibility described is very Inheritance Tax efficient. This is because if the assets remain in the trust for the Life Tenant they are added to the Life Tenant’s own assets, as if she owned them, when calculating the Inheritance Tax payable on her death. All the Life Tenant needs to do is to survive thereafter for 7 years and those assets are inherited by the children without a penny of Inheritance Tax being paid.Another reason to have a Life Interest trust in a Will is to do with means tested care fees funding. This will probably not affect you, but it might apply to elderly relations. Generally couples leave their share of the family wealth to the other of them. If one then goes into a care home, all the family funds can disappear in care fees. If though their Wills contain a Life Interest trust for their spouse, the capital value of the deceased partners assets cannot be included in a means test. When the Life Tenant has spent all of their money on care fees, the Social Services “DSS” will contribute the bare minimum towards the fees and the trust assets can be used to “top up” the sum the DSS will pay, so the survivor does not have to move to a cheaper care home. The DSS cannot demand that the trust assets are used.A Life Interest trust can also be set up during the Settlor’s lifetime if they want to make a gift, but retain control of the funds. A popular choice for those with wayward or spendthrift children!Elizabeth Webbe, Trethowans LLP

Despite the economy’s performance, lower-than-expected inflation has led some members of the Federal Open Market Committee to begin to question whether further rate hikes are warranted in the near term. However, others expect continued improvement in the labour market to eventually push wage growth higher over the medium term. Uncertainty over the strength of US inflation has helped temper the market’s expectations of the path of US interest rates, undermining the strength of the US dollar. This has been particularly pronounced as central banks elsewhere in the world have acknowledged economic improvements in their own regions.

EuropeLike the UK, the major news emanating from Europe was political, with Emmanuel Macron becoming France’s new president and his party subsequently winning a large parliamentary majority in the country’s legislative elections. His victory has dramatically improved the prospect of much needed labour-market reform in France and increased the chance of French and German fiscal integration.

Encouragingly, positive political developments are occurring at a time when Europe’s economic recovery has gained momentum. The progress being made by the region’s various underlying economies continues to vary, but the dispersion between their rates of progress has diminished as the recovery has broadened. Indicators such as European purchasing managers’ indices (PMIs) have improve, showing strengthening activity in both the service and manufacturing sectors of the economy. At the same time, unemployment is falling across the region.

JapanJapanese economic data continued to show some positive signs over the quarter, with business conditions surveys indicating expanding activity and industrial production growth at encouraging levels. Meanwhile, high levels of job availability helped unemployment reach new multi-decade lows. Despite this, wage growth remains weak as many of Japan’s large corporations are reticent to raise pay levels due to concerns over rising costs and the prospect of increased trade protectionism. In turn, weak earnings growth is weighing on consumer sentiment and holding back domestic demand, with consumers continuing to show greater propensity to save than spend.

Despite some ongoing economic concerns the threat of deflation has diminished, with core inflation having slowly accelerated after moving into positive territory in January. Nevertheless, inflation remains well below the BoJ’s target rate of 2%, at 0.4%,

Action to consider if ....

1 Your home is worth less than £350,000 but you have significant other assets. RNRB starts at £100K for an individual, or 200K for a couple (which can include a late

spouse’s share if widowed), in the tax year 2017/18. By 2020/21 this will have increased to £175K - or £350K for a married couple.

If you have a main home worth less than these figures, it is sensible to be aware of the figures in case there are ways of developing the values that may benefit from relief.

2 You share your home with an unmarried partner: If you or your partner have children. there are

important elements of the new rules that concern “stepchildren”, the definition of which may not include your partner’s children. So if your Wills make provision for both your partner and any children you need to review your Wills to see if new provisions are needed.

3 You have grand-children under 18 who benefit from your Will, or would do if one of your children died before you: The wording of the Will ought to

be reviewed to check that it will work well. This is not to say what was done before was wrong, just that the new rules mean many Wills could need changing to maximise the benefits of the new law and tax relief.

4 Your estate will be split in some way between your children and other beneficiaries who are not your descendants. The benefits of the new regime, designed for direct descendants,

do not extend to sisters, brothers, nephews etc. So if, for example, you were helping out a sister or aunt, it would be sensible to consider how that works for RNRB and whether your will could be changed for the better.

5 You own your home with a trust: Real tax planning or asset protection benefits purposes can be aided by trusts owning all or part of a property. Trusts can still work well with the

new RNRB but the ownership and terms of the trust need review, to ensure the new relief is used effectively. So do take legal advice, and note that some forms of trust may need to be reviewed during the lifetime of a beneficiary.

6 Your Will includes a Discretionary Trust: Trusts which give a wide discretion as to who benefits have great value and are

often included in Wills, or deeds of variation after someone dies, in two main ways: a. Nil Rate Band Discretionary Trusts can be of great benefit in maximising the tax saving between the estates of married couples. Any will with such an arrangement should now be reviewed, alongside consideration of the value of your assets, as some changes may be appropriate - though many will not need changing.b. Discretionary Trusts of the residue of your estate are often designed for flexibility, rather than tax planning, to allow the trustees to see how everyone is placed when the person dies. Changes can then be made to reflect circumstances, for example if one fo the family is getting divorced or having serious money problems. A review now may help identity how this might work, with the new regime, but a new letter of wishes would help, and perhaps a change to the Will.

7 You have two properties that are, or were, a residence for you; whether owned by you or a trust. You might have more than two but having more than one raises a few different

issues, including for some people the potential to secure greater benefits. So it is worth reviewing the values, and the ownership of each, with a lawyer who understands the tax issues.benefit from relief.

8 You have a mortgage on your home, the net value is less than £350K, but you have other assets. RNRB looks at the net value of

properties and in some cases it may be worth using any spare cash or investments to repay part of the mortgage to secure maximum relief.

9 You have sold your home since 7 July 2015, to move to a less valuable home. New “downsizing” provisions may apply, if your new home has a value below the tax exempt amount,

so it’s worth checking the figures with an adviser and then if needed to keep relevant documents about the property you sold.

10 You sold your last home, since July 2015, to live in rented accommodation or a care home. To secure the downsizing addition, do take advice on what

documents you need to keep, to ensure you can prove your claim when the time comes.

11 You are married and the value of your combined assets is over £2 million. It’s worth taking advice about your Will and the use of your assets in your lifetime. There may be

steps to take, including the arrangement between the two of you when one dies, to get the best out of RNRB. The marginal rate of Inheritance Tax on assets over £2m will be 60 % - a tax charge worth avoiding!

12 You have been widowed and have remarried: You may have the potential to secure additional tax free allowances. A widowed person can have two RNRBs, amounting to

£200K at first (£350K in 2020/21) and if a married couple have both been widowed before they remarried, they may be able to get 4 RNRBs!

There are many hurdles to overcome, traps to avoid. These require advice from lawyers who understand the complex new rules. We would be pleased to help you, explore the advice you might need, and the potential cost of the advice. It would be wrong to assume that relief will be given in any event. Kelly Greig, Partner

Life Interest Trusts