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

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

Global Markets Update April 2009

Thursday, April 9th, 2009 | Market Updates | No Comments

Global equity markets staged a recovery during March. Share prices rallied from the middle of the month following the news that the US Federal Reserve (Fed) intends to buy back over US$1 trillion-worth of debt, fuelling hopes of an earlier-than-expected end to the global recession. Concerns about deflation rapidly evolved into worries about the possible return of inflation, leading to renewed interest in gold and other commodities as a means of protection against inflationary pressures.

Central banks are trying increasingly radical methods of stimulating their economies. The Bank of England announced a programme of quantitative easing intended to encourage commercial banks to revive lending activity. The measures involve the purchase of £75 billion-worth of commercial banks’ assets, which will be financed with newly created money. Meanwhile, the Fed announced plans to inject almost US$1.2 trillion of newly created money into the US economy in order to help kick-start bank lending, revive the housing market and lead to economic recovery. Nevertheless, export growth is still on the wane in the UK, US, China and Germany, reflecting the decline in worldwide demand, and the World Bank expects the global economy to decline for the first time since the Second World War during 2009.

After reaching a 12-year low during early March, share prices in the US rose in the latter part of the month, led higher by the financial sector. This rally followed the announcement of further measures to alleviate the effects of toxic assets upon American banks, and news of better-than-expected new home sales.

Equities advanced in the UK during March; however, their rise was relatively muted, dampened by a raft of disappointing corporate profits announcements and yet more negative economic news. Share prices in Europe posted relatively strong gains overall, although underlying country performance was mixed, reflecting the fortunes of individual companies and a welter of overwhelmingly negative economic data.

Most Asian markets posted strong gains during March, buoyed by hopes that the world might emerge from recession sooner than expected. In particular, financial stocks rallied on the news of the Fed’s quantitative easing measures. Japan announced further measures intended to stimulate flagging economic growth, although Japan’s substantial public debt is likely to hamper its scope to boost its economy. Meanwhile, Japanese exporters were heartened by a weakening in the yen ahead of the fiscal year end, amid mounting hopes that the global financial crisis might be on the wane.

Tags: Financial News, Interest Rates, Investments, 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

Surviving the Crunch

Monday, March 30th, 2009 | View from the Top | No Comments

Ten Point Checklist to help counter the Credit Crunch

Managing Partner Simon Harris writes:

It depends on where you subscribe, but the current economic difficulties are expected to end somewhere in the next 3 years.

The important point is that all sources report that it WILL end – the Federal Reserve Chairman recently suggested that it may be as soon as the end of 2009. In the light of all published performance indicators this appears optimistic, but if it were true that could lead to a very quick return to positive in the UK thereafter.

In the meantime the majority of people in the UK are waiting for the turnaround, some more concerned about survival than others. Is there anything we can do to improve our circumstances while we wait? This checklist might help to ensure you are in the best position:

1.  Review your savings return.

Most savers have lost out over the past 12 months, but there is no reason to simply accept the rate your current savings institution is offering. There are many ways to invest for a better return, for which seek expert advice from an independent financial adviser.

2.  Can you release equity from your house?

Whether for your own requirements or a family member, it is often possible to release money from your property despite the difficult lending environment. Even if you are not working or have retired there may be a plan to suit you. An independent broker can help further – please resist the temptation to do this on your own as it is now, more than ever before, a specialist field.

3.  Have you made best use of tax allowances?

It is surprising how few people fully utilise the tax allowances available, but then again the information is not always that easy to find or digest. An independent financial adviser can help to ensure that you have used your allowances effectively.

4.  Do you have employment insurance?

Unless you have been notified of redundancy it’s not too late to insure a percentage of your income, protect your mortgage payments or provide a fixed lump sum in the event of redundancy. An independent adviser will find the best policy for your circumstances.

5.  Have you checked your mortgage payments?

Despite the fall in house prices and sales volumes there has been some good news in the falling interest rates for borrowers. There are some excellent savings to be enjoyed, check first with your existing lender to ascertain their best offer and then use an independent broker to compare that to the whole mortgage market for you.

6.  Compare your life insurance.

Rates have fallen over recent years and you may well be able to switch life insurance providers achieving the same (or better) cover for a lower premium.

7.  Review your pension fund.

You may be surprised by the improvements available by changing providers. It is essential to use an independent financial adviser, as pensions can be quite complicated.

8.  Compare your other insurances.

Many people already compare buildings and contents, car, pet and holiday insurances using an Internet comparison website, which often does not present every available option. If you are not doing so, now is a good time to start, or better,  seek help from an independent broker.

9. Are you under notice of redundancy (or feel it’s imminent)?

I. Make sure you know the redundancy procedure at your firm and check that it meets the legal requirements. Try www.direct.gov.uk for more details.

II. Make full use of the £30,000 tax free band for redundancy payments.

III. Consider paying for transitional benefits to be included in your severance package – it may be a lot cheaper that way and buy you some time whilst you look for other work.

IV. Look closely at your pension if funded by your employer – this should also be included in your severance pay and is tax efficient for your employer.

10.  Are you struggling with mortgage or other loan repayments?

I. Never hand back the keys to your house – you will continue to be responsible for the debt and any shortfall after the bank has sold the property. The fees and charges will be significant and lenders will respond more positively to a borrower taking action to address the problem than one who is in denial.

II. Talk to your lender first – whether it’s a secured or unsecured loan you should always contact your lender first to discuss the options that they are prepared to make available to you.

III. Talk to your financial adviser – review your overall financial position with an independent financial adviser, who will introduce you to a debt specialist if appropriate. There may be savings that you have not considered, or different ways to release money from your existing position.

So, in all there are a number of moves you can make to try to keep ahead of things. Many of these points form the basis for an ongoing regime, which your adviser will guide you through as part of your annual review process.

Please telephone 0845 30 50 222 to arrange a free initial appointment.

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

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

Global Markets Summary

Friday, February 27th, 2009 | Market Updates | No Comments

‘Stop the world, I want to get off…’

The true cost of the sub-prime mortgage meltdown

2007 was the year in which the US sub-prime mortgage sector collapsed, triggering worldwide problems within the financial system. However, 2008 was the year in which governments, businesses and individuals became fully aware of the consequences of the sub-prime debacle amid the development of a worldwide credit crunch.

As the year progressed, investors and governments realised that the problems faced by financial institutions were even more extensive and serious than had previously been thought. Moreover, it became clear that these problems would not remain confined to the financial sector, but would affect almost every business and household. During 2008, confidence in the financial system has collapsed, share prices have plummeted and governments and central banks have striven to boost confidence in the financial system and kick-start lending activity.

A banking sector in disarray

The collapse of sub-prime and the subsequent credit crisis led to massive changes in the structure of the global financial sector, not to mention wholesale redundancies. JP Morgan bought troubled investment bank Bear Stearns in a deal underwritten by the US Federal Reserve (Fed), while American International Group (AIG) was bailed out in order to avoid the risk of meltdown in the global financial sector. However, 158-year-old Lehman Brothers was allowed to collapse in a move that shook the sector. Merrill Lynch was taken over unexpectedly by Bank of America, and venerable investment banks such as Goldman Sachs decided to transform themselves into ordinary bank holding companies in order to allow themselves the chance to benefit from Treasury funding if necessary. Meanwhile, in the UK, mortgage banks Northern Rock and Bradford & Bingley were nationalised by the British government and Lloyds TSB launched a takeover bid for HBOS.

Iceland hit the headlines in the autumn following a raft of bank failures that strained relationships between London and Reykjavik amid concerns that Iceland was refusing to guarantee the deposits of UK-based savers. This controversy, combined with Northern Rock’s collapse in 2007 and subsequent concerns about toxic debt within the banking system, triggered new debate about compensation schemes for savers.

Global stock markets experienced heavy losses

Financial markets experienced wild swings during 2008, and movements of four per cent in a single day were not uncommon towards the end of the year. The MSCI World Index fell by over 40% during 2008, and every major market experienced heavy losses, with the American stock market plumbing depths not seen for over five years. Corporate profits are under pressure; companies are cutting or cancelling dividends, and high levels of redundancies are swelling unemployment statistics as firms do whatever they can to cut costs, shore up their profits and stay afloat. Higher unemployment is likely to compound pressure on economic growth as consumers tighten their belts and stop unnecessary spending.

Propping up the financial system

Amid the financial and economic turmoil, governments and central banks have worked hard to prop up the financial system. After some political wrangling, the US agreed a rescue package worth US$700 billion intended to help bring back confidence in the financial system and encourage banks to restart lending activity. A subsequent package worth a further US$800 billion was agreed in November. The European Commission announced a spending plan to boost the eurozone economy worth €200 billion, while the UK government announced measures to help shore up the UK economy in its annual pre-budget report.

Interest rates tumbled

Interest rates provided some of the most dramatic headlines during 2008. UK interest rates began the year at 5%, and ended the year at 2% – their lowest level for over 50 years – amid growing fears about the risk of deflation and concerns about the worse-than-expected economic downturn. Meanwhile, American interest rates reached an all-time low of 0.25% as the Fed attempted to kick-start economic growth and control price stability. The Fed’s actions have increased speculation that the Bank of Japan might cut Japanese interest rates from their current level of 0.3%. Elsewhere, interest rates in the eurozone ended the year at 2.5%, but have been tipped to fall as low as 1.75% during 2009.*

So what will 2009 bring?

The International Monetary Fund (IMF) expects world economic growth to slow from 5% in 2007 to 3.75% during 2008 and to just over 2% in 2009, and this decline is likely to be led by the major economies. The IMF expects the UK economy to experience a particularly significant decline of 1.3% during 2009, while, the all-important US economy is forecast to contract by 0.7% next year. **

Although analysts still await official confirmation, the UK and US economies are widely considered to have fallen into recession some months ago, and this has already been discounted in share prices. Nevertheless, businesses, investors and analysts remain preoccupied by the possible length and severity of the recession, and are likely to keep a sharp lookout for evidence that the economy is either improving or deteriorating. As we say goodbye to 2008 and head into 2009, this uncertainty is likely to keep investors’ nerves on edge, and ensure that share-price performance remains volatile.

Sources:

* Bloomberg, 15 Dec 2008
http://www.bloomberg.com/apps/news?pid=20601087&sid=azuNjokrEk88&refer=home

** International Monetary Fund, 6 Nov 2008
http://www.imf.org/external/pubs/ft/weo/2008/update/03/index.htm#table1

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

On your best behaviour

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

Tags: Financial News, Investments, stock markets

The burden of IHT

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

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