ISA Changes for over 50s

Thursday, October 1st, 2009 | Financial Digest | No Comments

The increase in the ISA subscription allowance to £10,200 from April 6th 2010 is good news for all investors. This further reinforces the use of ISAs as a foundation in building a significant investment portfolio in a tax efficient way.

Investors aged over 50 on 6th October 2009 have an advance opportunity to invest up to £10,200 after that date and counting in  the current tax year.

With stock markets showing signs of recovery and some confidence returning now is a good time to consider investing and making the most of the increased allowance.

For more information and for a free no obligation conversation or meeting please call 0845 30 50 222

Tags: advice, Adviser, Capital Gains Tax, CGT, Financial News, Higher Rate, Interest Rates, Investments, ISA, isa allowance 2010, over 50, Pensions, retirement, save money, tax, Tax Relief

Pensions Act 2008 – What it means to you.

Wednesday, September 23rd, 2009 | Financial Digest | No Comments

Allow me to bore you for two minutes regarding Pensions.

We all know that there is a looming pension crisis in this country and all the major political parties agree that pension reform is essential. In the past decade we have had various initiatives to try and stimulate more pension contributions such as Stakeholder pensions and the 2006 Pension Tax Simplification reforms. There have also been reforms introduced to the State Pension schemes with more to follow.

However, perhaps the biggest and most important reform is just around the corner. The above mentioned initiatives have largely failed to encourage the Great British public to contribute to a pension scheme and so the Government are going to the next obvious step. From April 2012, pension contributions will be compulsory for all employees and employers. For employees who do not have an employer’s pension scheme available to them, a new scheme (largely based on the existing personal pension rules) called Personal Accounts will be introduced to accept their pension contributions. A new body has been formed, PADA (Personal Accounts Delivery Authority), and they will be responsible for delivering this new scheme. However, whilst the topic of Personal Accounts has been the source of most discussion over recent months, I believe that it will be Auto Enrolment that should and will focus most Employers minds.

Under Auto Enrolment rules, employees will be automatically enrolled into a pension plan – it will not matter whether that scheme is a Personal Account, a personal pension or a group personal pension. If the employee does not want to join a pension scheme they will have to elect to ‘opt out’ of pension contributions (this decision will be reviewed periodically with the objective to ultimately auto enrol all employees). If an employee does not elect to opt out the employer will also have to make a pension contribution. It will be the employers’ responsibility to deduct contributions from their employees and make sure the contributions go to the relevant pension scheme and it will also be Employers who are saddled with the task of ensuring that their employees are enrolled or opted out. Not only will they have to find extra revenue to make an employer pension contribution to their employees pension fund, they will also face the prospect of fines and even the threat of a prison sentence if they or their employees breach the rules.

Many employers and business owners will not be aware of any of this, and as these rules will be with us with in 3 years it will have a major impact on their business plans.

If there’s any moral to the tale of Auto Enrolment, it’s seek advice at the earliest opportunity.

Please call us on 0845 30 50 222

Tags: Adviser, Budget, Capital Gains Tax, CGT, emloyee, employer, Family, finish work, Higher Rate, Interest Rates, Investments, ISA, isa allowance 2010, legislation, over 50, pension, Pensions, Redundancy, retirement, retiring, save money, tax, Tax Relief

Chancellor Cuts Pension Tax Relief

Tuesday, April 28th, 2009 | Financial Digest | No Comments

The Chancellor has announced that, starting in 2011-12, tax relief on pension contributions will be restricted to basic rate for individuals with an annual income of £150,000 or higher.

In anticipation of this change, there will be special rules which will apply from Budget Day (22 April 2009) to prevent people from making large additional contributions to their pensions before then in order to benefit from higher rates of tax relief while it is still available.

These changes do not affect the vast majority of individuals. They affect only those who have a total annual income of £150,000 or higher in the current tax year or in either of the preceding two tax years. More information is in Budget Note 47 and in the guidance notes, so I’ll reproduce the essence of BN47 here:

Budget Note 47 – Overview

the Government intends from 6 April 2011 to restrict tax relief for individuals with an annual income of £150,000 or more. Relief will be tapered away so that for those earning over £180,000 relief will be worth 20 per cent, the same as to a basic rate taxpayer, and the Government is introducing new rules to apply from 22 April 2009 to restrict higher rate tax relief on pension contributions for individuals. The restrictions will apply to people

• whose income is £150,000 or higher
• who change their normal ongoing regular pension savings, and
• whose total pension savings exceed £20,000.

This will remove the advantage to those individuals of increasing their pension contributions in excess of their normal pattern.

The special annual allowance, which is set at £20,000, sets an upper limit on the amount of additional pension savings for which full tax relief at the higher rates of tax can be given. Tax relief on additional pension savings above the amount of this allowance will be at the basic rate of tax only. The special annual allowance tax charge which restricts relief on additional contributions to basic rate is a charge on the individual, collected via their Self Assessment tax return. The rate of charge is the difference between the highest rate of income tax and basic rate (20% for 2009-10).

Who do the changes affect?

The vast majority of people will not be affected by these changes.

The changes will not apply to anyone whose total annual income is less than £150,000 and was less than £150,000 in the previous two tax years.

The changes will not apply even if their total annual income was £150,000 or more if they continue as normal with their existing regular pension contributions and accrual of pension benefits (including any employer contributions) and do not increase these pension savings on or after 22 April 2009.

The changes will not apply if their total annual income was £150,000 or more and they increase their pension savings or accrual of pension benefits, provided their overall annual pension savings or benefit accruals are less than £20,000.

The following examples show how the income limit will apply:

A has income of £55,000 in 2007/08, £58,000 in 2008/09, £59,000 in 2009/10 and £60,000 in 2010/11. Since his income is less than £150,000 in all years, he is not affected by the new special annual allowance charge.

B has income of £158,000 in 2009/10 and has total individual and employer pension contributions to a money purchase scheme of £15,000 in the year. Although her income exceeds the £150,000 threshold, her total contributions are less than the £20,000 special annual allowance so she is not subject to the special annual allowance tax charge.

C has income of £158,000 in 2010/11 and makes contributions to her personal pension scheme of £24,000 during the year of £2,000 per month, something she has done for the previous 2 years. Her income exceeds the £150,000 income threshold. Although her pension contributions are more than the £20,000 special annual allowance, they will not be subject to the special annual allowance tax charge because they only reflect her normal regular contributions.

D has income of £170,000 in 2010/11 and makes total pension contributions of £50,000 to his personal pension scheme. The contributions reflect a regular monthly contribution of £2,000 (as for previous years) and a single payment of £26,000. D’s income exceeds the £150,000 income threshold and his pension contributions are more than the £20,000 special annual allowance. However, his normal regular contributions of £24,000 are not subject to the special annual allowance charge. The additional single contribution of £26,000 will be subject to the special annual allowance tax charge.

E has total income of £120,000 in 2009/10 and contributes a total of £30,000 to a personal pension scheme that year. Although his income is less than £150,000 for 2009/10, because his contributions are greater than £20,000 he needs to check his income for the previous 2 tax years. His income was £110,000 in 2007/08 and £125,000 in 2008/09. E will not be affected as his relevant income is less than £150,000 even though his contributions are greater than £20,000.

In 2010/11 E’s total income has risen to £170,000 and he contributes a total of £15,000 to his personal pension scheme in that year. E will not be affected as although his relevant income for 2010/11 is greater than £150,000, his contributions for that year are less than £20,000.

Income

The special annual allowance charge affects only people with ‘relevant’ income of £150,000 or more. Broadly, for the purposes of the special annual allowance this is

• your total income before pension contributions, personal allowances and other reliefs and deductions,
• less any normal deductions for reliefs (such as trading losses) including deductions for pensions contributions but up to a maximum of £20,000,
• less any gift aid deductions as per normal

But in calculating your ‘relevant’ income you must add in any amount of employment income foregone by salary sacrifice in return for pension contributions or additional pension benefits if the agreement was put in place on or after 22 April 2009.

Individuals will be affected only if their relevant income is £150,000 or more in the tax year, or in either of the previous two tax years.

If you, or clients of yours need any further explanation or clarification of the issues raised in this article, then call us on 0845 30 50 222

Tags: Add new tag, Budget, Higher Rate, Pensions, Tax Relief

2009 Budget Overview

Tuesday, April 28th, 2009 | Financial Digest | No Comments

2009’s Budget was never likely to provide much in the way of good cheer. As the Treasury struggles to cope with the cost of the recent bank bailouts and the rising cost of social security and falling tax revenue, public borrowing is set to soar to record levels. In an attempt to help the UK balance its books, Chancellor of the Exchequer Alistair Darling intends to cut growth in spending on public services by almost half from 2011 and, in a surprising move, he announced that that those earning more than £150,000 per year will be taxed at a new high rate of 50% from April 2010.

The Budget also included a reduction in tax relief on pension contributions paid by high earners. Tax relief for those earning more than £150,000 per year will be tapered off, disappearing completely for those earning £180,000 or more. Meanwhile, those earning more than £100,000 per year will see the withdrawal of their personal allowances from April 2010.

Fuel duty will rise by 2p per litre in September, while duty on alcohol and tobacco rose by 2%. Darling announced £2 billion-worth of help for the unemployed, and measures intended to boost the housing market and the motor industry. The Budget included some help for businesses, although the Confederation of British Industry criticised the Budget, commenting that it did not set out a “credible and rigorous path for restoring the public finances to health.”

Pensioners will see the basic state pension increase by at least 2.5%, regardless of inflation, and current winter fuel allowances will be maintained for another year despite the recent fall in energy prices. The limit on savings that pensioners can possess before their Pension Credits are reduced will rise to £10,000 in order to help those negatively affected by low interest rates. Meanwhile, the annual limit for ISA contributions will rise this year to £10,200 per year for those aged over 50, and for everybody from next year.

Darling expects Britain’s economy to shrink by 3.5% during 2009, and return to growth the following year. However, the International Monetary Fund expects the UK to contract by a rather more drastic 4.1% in 2009, and does not expect Britain to return to growth during 2010. Darling appears to be gambling on a relatively swift economic recovery for the UK; only time will tell whether this gamble will pay off. Here’s some more detail:

INCOME

Income Tax Increase

From the 2010/2011 tax year earnings over £150,000 will be subject to a new income tax rate of 50%. Pension contributors currently enjoying higher rate relief and earning in excess of £150,000 will continue to enjoy higher rate relief providing

a). pension contributions do not exceed £20,000, or
b). contributions in excess of £20,000 have been “regular” for the past two tax years.

Further information can be found in BN47 on the HMRC website.

Income Tax (dividends)

From the 2010/2011 tax year the highest rate of tax on UK dividend income will rise from 32.5% to 42.5%. This will affect investors with income in excess of £150,000.

Personal Tax Allowance

This will be reduced by £1 for every £2 earned above £100,000 from April 2010. Consider increasing pension contributions or “salary sacrifice” to reduce or avoid this additional charge.

Trust Taxation

As from 2010/2011 tax year the income tax applicable to most trusts will rise to 50% and at the same time trustee dividends will be taxed at 42.5%. The careful use of trusts may avoid both of these tax charges.

PROPERTY

Stamp Duty

The Stamp Duty holiday has been extended to the year end. Homes up to £175,000 will remain free of Stamp Duty providing the purchase completes by 31 December 2009.

Shared Equity Scheme

The Chancellor has made a further £80m available to help first time buyers onto the property ladder with the Shared Equity Mortgage Scheme.

Energy Eficient Housing

An extra £100m has been made available to build energy efficient homes.

PENSIONS

State Pensions

The Chancellor has commited to increasing the State Pension in 2010/2011 by a minimum of 2.5% even if we remain in a period of deflation.

Pension Credit

Individuals will be able to hold savings up to £10,000 before being means tested for Pension Credit. This replaces the existing £6,000 limit.

INVESTMENT

ISA Limits Increased

The Chancellor has increased the ISA limit to £10,200 from October this year for over 50’s. This will be extended to everyone else in April 2010. Up to 50% of the ISA investment can be in cash.

Enterprise Investment Schemes

Under previous rules investors could carry back 50% of the investment made up to 5th October subject to an overriding limit of £50,000. This restriction has been removed, allowing the full EIS limit of £500,000 to be carried back.

OTHER CHANGES

Winter Fuel Allowance

Last tax year’s special allowance of £250 for the over 60’s and £400 for over 80’s has been continued for this tax year.

Tax Planning Schemes

HMRC is to publish details of ineffective tax planning arrangements to increase consumer protection.

Offshore Disclosure Arrangement

HMRC will introduce a third opportunity to disclose assets held offshore, giving another chance for those with undisclosed assets to settle with HMRC, thereby normalising their affairs.

Inheritance Tax

As expected the Inheritance Tax (IHT) Allowance has moved to £325,000, giving an effective tax limit on second death of £650,000, providing the couple concerned are either married or in a Registered Civil Partnership. The rate of tax applicable remains at 40%. 

For further information and help with your understanding of this budget and its implications, contact us on 0845 30 50 222.

Tags: Budget, Financial News, IHT, Inheritance Tax, Investments, Savings, stock markets

Worried About Redundancy?

Thursday, April 9th, 2009 | Financial Digest | No Comments

Unemployment figures have been accelerating upwards as the economic environment deteriorates and are predicted to go higher for the remainder of the year, leaving the spectre of redundancy looming large for many people. However, for anybody worried about their job security, there are a few practical steps that can potentially cushion the blow.

Build an emergency fund

Holding three months’ income in readily available funds will provide some breathing space in the event of redundancy. This should be in an instant access savings account or ISA but do check the small print – banks frequently penalise savers for taking money out of a savings account through loss of interest. An emergency fund is particularly important for families where there is only one breadwinner.

Assess your outgoings

Keeping track of expenditure can highlight potential problem areas. You may find you have old direct debits for things you no longer need – insurance payments on long obsolete mobile phones, for example. See if you can switch to cheaper utility providers, better value car insurance or credit cards with lower interest rates. Set a budget and then make sure you stick to it.

Pay off debt where possible

Reducing debt can significantly cut your monthly outgoings. Start with the most expensive debt first, which is likely to be credit and store cards. Banks will also charge heavily for overdrafts, even when they are arranged, and personal loans can be cheaper. It is worth checking the rates for all debt and, if you can’t pay it off, switching to cheaper types of debt. Mortgages will usually be the cheapest debt – so although it is worth paying down mortgage debt, it should be a lower priority than unsecured debts.

Delay large purchases

This is not the time to start a kitchen refurbishment or loft conversion. Keep new purchases to a minimum and consider putting planned expenditure on hold. With house prices falling, refurbishment may not add value the way it did only a couple of years ago.

Check your insurance situation

Unemployment cover can be bought on its own or with policies such as income protection, and protects in the event of longer-term unemployment. The cost will vary depending on when the payments kick in and the level of income needed. Insurers have policies in place to ensure that people don’t take it out in the knowledge they may be made redundant imminently. There is usually a qualifying period and the insurer will not provide a policy if there is already a specific risk to the policyholder’s job.

WORRIED ABOUT REDUNDANCY?

If the worst happens and you do lose your job

Check your financial rights

Everyone is entitled to statutory redundancy, even if the company goes bust. For those who have been employed for more than two years, this is one week’s pay (subject to a statutory maximum – currently £350 per week) for every year of employment. For those over 41, this increases to 1.5 weeks pay for each year, subject to the same statutory maximum. Some companies will pay out more than statutory redundancy.

Check your employment rights

Companies need to follow the proper procedure when making someone redundant and, if they do not, you may have reason to claim for unfair dismissal.

Check what you are entitled to from the Government

Claiming benefits is not a long-term solution, but can offer a temporary respite.

Invest any lump sum wisely

While it is tempting to dip into capital for living expenses, it may be worth investing a lump sum to generate an income. While this may be less than you are used to, it will provide some breathing space to find alternative employment. Alternatively, use the sum to pay down debt and reduce your outgoings.

Maximise your tax benefits

Statutory redundancy payments are tax-free and a total of £30,000 paid on termination can be tax free. The remainder can also be free of tax if it is moved into a pension. This is a suitable option for those nearing retirement. A lump sum of 25% of a pension pot can be taken as a lump sum from 55, so it may only mean tying the money up for a few years.

Ensure you claim any insurance entitlement

It may sound obvious, but it is time to dust down the files and root out any insurance policies you may have forgotten about. Unemployment insurance and income protection will kick in after a certain number of months, depending on the policy. Payment protection insurance has proved poor value, but if you already have historic policies in place, you may also be able to claim.

Look at your mortgage repayments

You may have a number of options depending on the flexibility of your mortgage and it may be possible to take a payment holiday. This will either lengthen the term of your mortgage or increase your payments when they resume, but can give you up to a year with no mortgage repayments. You may also be able to reduce repayments by changing the length of the mortgage or switching to interest-only.

Consider alternative sources of income

Could you rent out a room in your house perhaps ? Under the rent-a-room scheme, you can earn £4,250 per year tax-free. Also, you may be able to take short-term, part-time jobs or raid the attic for things to auction.

Call us for help on 0845 30 50 333

Tags: Adviser, Financial News, Interest Rates, Investments, Redundancy, Savings

Quantitative Easing – What…?

Thursday, March 26th, 2009 | Financial Digest | No Comments

UK interest rates reached a new low in March as the Bank of England (BoE) cut rates from 1% to 0.5%. The cut, which was widely expected, brings interest rates even closer to zero, reducing the BoE’s scope to boost economic activity through monetary policy.

The news that UK interest rates had fallen yet again triggered renewed concerns about the outlook for savers, who have been badly hit by the dwindling rates on their deposit accounts. The Building Societies Association went so far as to describe March’s rate cut as “a kick in the teeth for savers”, while the Confederation of British Industry criticised the BoE’s ongoing series of rate reductions, describing them as “becoming less and less effective as a means of stimulating the economy”. Lower rates are also likely to renew pressure on sterling, which has already weakened substantially.

In a radical and unprecedented move, the BoE announced that it intends to pump £75 billion into the financial system by buying securities from banks in return for additional credit. Although this measure – known as “quantitative easing” – is sometimes described as “printing money”, no new banknotes are actually produced; nevertheless, because the BoE’s asset purchases are not funded by debt, they should increase the circulation of money in the financial system. Many experts believe that a lack of available credit is a far bigger problem than the cost of borrowing and the BoE is likely to hope that its programme of quantitative easing will help to alleviate this problem.

Tags: Financial News, Interest Rates, Savings, stock markets

How much is your wife worth..?

Thursday, March 12th, 2009 | Financial Digest | No Comments

The value of a Mum in 2009 is £32,812 a year!

One of the major Insurance companies  recently conducted some “Value of a Parent” research to highlight the risk families may face it they don’t have adequate protection in place.

The Value of a Mum is sometimes overlooked when families try to work out their protection needs. Did you know it would cost £631 a week to replace the work the average mum does each week on household chores and childcare! With the protection gap at £2.3 trillion there is an essential need for underinsured families to at least examine the new Value of Parent research and have the facts available to help idenrtify whether there is a problem.

Use our Contact Form to get in touch.

If you’d just like some literature, then we’ll send some. If you’d rather speak to someone on the telephone or face-to-face, then leave us your number and someone will get back to you quickly. Whichever way you want to do things is fine – just make sure you’re not one of those who is under-prepared should the worse happen…

Tags: Family, Insurance, Protection, Value

ISA Matters 2009/2010

Thursday, March 5th, 2009 | Financial Digest | No Comments

After a tough 2008, effective financial planning is more important than ever.

Why not start 2009 by taking full advantage of the tax breaks available to you? Whether your priority is capital preservation, or taking advantage of uncertainty in the markets, now is a good time to think about Individual Savings Accounts (ISAs). You can use your ISA to save cash or invest in stocks and shares. Save cash in an ISA and the interest will be tax freeInvest in shares or funds in an ISA – any capital growth will be tax free and there is no further tax to pay on any dividends you receive. Whatever your views on the market, we will be able to assist you in making the right investment decisions and ensure you make the most of the tax breaks open to you. ISAs are an important part of this as any income or capital gains are completely tax free.

Use it or lose it

The end of the tax year is fast approaching, which means there’s limited time left to use your ISA allowance for 2008/09. You can invest the whole ISA allowance of £7,200 in a Stocks and Shares ISA, or you can split it between a Cash ISA and a Stocks and Shares ISA – for example: £3,600 in a cash ISA and £3,600 in a Stocks and shares ISA. You can’t carry your allowance forward, so if you haven’t made the most of it now is the time to do so.

For the remainder of this tax year Lansdown Place are recommending a number of ISA options which are available to Investors via the Lansdown Place WRAP. This is a new facility that Lansdown Place are delighted to be able to offer to our clients, at its most simple it is a system for enabling you to hold all of your investments in one place, but yet diversifying your holdings between over 1600 collective investment funds. All the funds are available with discounted charges and the WRAP system has the added benefit of requiring minimal paperwork from you to establish your ISA account.

In order to assist you in making a decision of where to place this years ISA allowance I have highlighted some funds and options below, which I hope you will find of interest. We hope that this summary is of interest to you, if you would like to discuss making an ISA contribution in the current tax year then all we ask you to do is to get in touch with us, in order we can organise the investment for you and forward our essential paperwork for your signature and return.

Please note that the stated funds and ISA options below are not recommendations to you; all ISA contracts placed in the current tax year will be done after full consultation with our clients and one of our independent financial advisers

Tags: Investments, ISA, isa allowance 2010, Savings, stock markets

Capital Gains Tax

Friday, February 27th, 2009 | Financial Digest | No Comments

Tags: Capital Gains Tax, CGT, Financial News, stock markets

On your best behaviour

Friday, February 27th, 2009 | Financial Digest | No Comments

Tags: Financial News, Investments, stock markets