Posted on Feb.10, 2017 by in Latest News

Greg McClymont, the Pensions Minister in the coalition government, has produced an interesting report on an academic study of longevity. It was Mr McClymont who, when asked in an interview what it anything kept him awake at night, replied “Andy Murray’s second serve”.

The conclusion reached by the academics is that longevity is being significantly underestimated and that many people will need to review their financial provision for retirement.

History suggests that life expectancy has risen in a straight line since the year 1800, and current estimates of an average life span in developed countries range between the ages of 80 and 85. However, the academics concluded that a child born today is likely to live to the age of 100.

The assumption that lives will follow the sequence of education, work and retirement is being called into question, and a more fluid progression is envisaged, partly as a result of individuals demanding greater flexibility in the way they work. People no longer expect to have a job for life, but instead to change jobs several times.

Meanwhile, the increased use of technology is not only relieving workers of more mundane tasks, but is also assisting them to work for themselves. The legal profession is seeing a marked growth in the number of ‘virtual’ law firms, consisting of self-employed lawyers working under an administrative umbrella, at times to suit themselves. This is proving particularly attractive to women lawyers wishing to combine work and parental responsibilities.

Equally technology is equipping individuals to keep on working beyond traditional perceptions of retirement age. The stoic politician Gordon Brown once adapted the quotation “I have seen the future and it works” to say “I have seen the future and it is work”.

With ever-increasing longevity, financial planning will rightly come to be seen as more important than financial advice in maintaining savers’ standards of living.

To find out more, please contact one of our advisers.

Year-end tax planning

Posted on Feb.10, 2017 by in Latest News

The tax year end is approaching and calls for a review of personal finances:

Pension contributions
The maximum pension contribution on which tax relief can be claimed in any one year is £40,000, but if funds are being withdrawn under a flexible drawdown arrangement, then the limit reduces to £10,000 and is set to reduce again to £4,000 with effect from 6 April 2017. This is intended to stop people recycling funds by claiming tax relief twice on the same contribution.

In order to qualify for tax relief, the maximum personal contribution must not exceed 100% of pensionable earnings, though employer contributions would permit this limit to be exceeded.

Carry forward
Provided that the annual allowance for pension contributions has been used in full in any one year, it is permitted to carry forward any unused allowance from up to three previous years. The oldest unused relief must be carried forward first, and no allowance can be carried forward from years in which the scheme member was not a member of a registered pension scheme.

Pension lifetime allowance
The maximum sum which can be saved in a pension scheme over the course of a lifetime without incurring tax charges is currently £1 million, having been reduced from £1.25 million on 6 April 2016. However, in the same way as with previous reductions in the lifetime allowance, it is possible within strictly defined limits to preserve larger sums by applying to HM Revenue & Customs for ‘protection’ before the tax year end.

ISA allowance
The maximum amount which can be contributed to an ISA in 2016/17 is £15,240, but this will increase to £20,000 as from 6 April 2017. Both spouses are entitled to their own allowance, but unlike the situation with pensions, an unused ISA allowance cannot be carried forward. So it’s a case of ‘use it or lose it’!

Some providers now permit money to be withdrawn from an ISA and replaced in the same tax year without the payment being treated as a fresh contribution.

Capital gains tax
It is worth checking to ensure that the £11,100 exemption from capital gains tax is used each year by both members of a married couple to shield gains on investments which are not held within a tax-protected ‘wrapper’ such as an ISA.

Child benefit
The value of child benefit begins to reduce when recipients’ ‘adjusted net income’ exceeds £50,000 a year, and ceases to be available when it reaches £60,000. However, the value of adjusted net income will be reduced by the amount of any pension contribution, thus enabling child benefit to be reclaimed.

Personal allowance
A similar principle applies to the personal tax allowance, currently £11,000 p.a. and increasing to £11,500 p.a. as from 6 April 2017. When a taxpayer’s income exceeds £100,000 p.a., the personal allowance starts to be reduced, and it ceases to be available when income reaches £122,000. The effect is that income between these two levels is taxed at up to 60%. However, in the same way as with child benefit, the thresholds will be reduced by the amount of any pension contributions.

Inheritance tax
Gifts can be made each tax year which will reduce the value of an estate for the purposes of inheritance tax. The annual exemption is £3,000, and if this is not fully used in one year the balance can be carried forward to the next. In addition, gifts up to £5,000 can be made by parents on the marriage of children, and £2,500 by grandparents. Furthermore, any number of gifts of £250 can be made without attracting tax.

The most valuable exemption applies to outright gifts of unlimited value which are made more than seven years before the death of the donor. Thereafter, these ‘potentially exempt transfers’ become wholly exempt from inheritance tax.

To find out more about any of the content in this article, please contact one of our advisers.

Bank of England loose cannon

Posted on Jan.16, 2017 by in Latest News

In the past the Bank of England has usually confined its public utterances to periodic pronouncements from the Governor,and has disdained to engage in populist discussion. However, its chief economist, Andy Haldane, has recently broken cover, with results which do little to enhance the Bank’s reputation.

Last Autumn, Mr Haldane admitted that he did not understand pensions, and he subsequently underlined his ignorance by suggesting that property represented a better method of providing for retirement than pensions.

In his latest comments, Mr Haldane has succeeded in antagonising members of his own profession (or is it an art or a science?) by effectively apologising for the Bank’s doom-mongering in advance of the Brexit vote and saying that economists’ predictions are often wrong.

HMRC’s ‘snooper computer’

Posted on Jan.16, 2017 by in Latest News

The ‘Connect’ computer system created by HM Revenue & Customs to assist in identifying people who are paying less tax than is due is being used for the first time in the current tax year.

Instead of relying purely on information provided by taxpayers through their tax returns, Connect draws from many government sources, banks and other financial institutions to produce a composite picture of taxpayers’ financial affairs.

Sources include credit card companies, telecoms companies, Airbnb, eBay and the Land Registry, through which property sales and purchases can be tracked and further links revealed to data on letting arrangements. Questions of affordability and the source of funds may then be raised.

Discrepancies between the resulting figures and what has been declared will be investigated, and 10,000 letters have already been sent to taxpayers in relation to the tax year 2014/15.

The so-called ‘snoopers’ charter’, which enables such surveillance, is not confined to the UK. HMRC can also access information from the authorities in 60 overseas countries.

For further information, please contact one of our advisers.

School fees planning

Posted on Jan.16, 2017 by in Latest News

Parents wishing to give their children the benefit of a private education face startling costs.  The average fee for a boarding school is over £30,000 a year for a single pupil, and for day pupils over £17,000. Then there are the costs of extras such as clothing and equipment.

After school, the costs of university education are considerable, and many parents are keen to assist their children to avoid the burden of student loans.

One way in which either or grandparents can provide for educational costs in a tax-efficient manner is to invest in an offshore investment bond. Because the insurance companies which provide these bonds are based outside the UK (though many are subsidiaries of UK companies) their products enjoy special tax treatment.

If £100,000 were invested in an offshore bond, this could be divided into 1,000 segments of £100 each so as to facilitate part-disposals. The bond would be transferred into a bare trust of which the parents would be the trustees and the child or grandchild the beneficiary.

Bare trusts are tantamount to gifts. The beneficiary has an absolute right to the assets held in the trust, but can only exercise this right when they reach the age of 18. Meanwhile the parents act as nominees for the child.

The funds held within the bond would be invested in a suitably diversified portfolio, and when the educational fees became payable the trustees would encash an appropriate number of segments. Tax on whatever investment growth had accrued would be assessed on the child, who would normally be a non-taxpayer.

The gain could be offset against the child’s personal tax allowance, which is currently £11,000 p.a.. The child would also have the benefit of both the £5,000 starting tax rate for savings income and the £1,000 personal savings allowance.

For optimum tax-efficiency the gift should be made by a grandparent, because income in excess of £100 p.a. received by minor children  which arises from gifts made by parents will be regarded as the parent’s income for tax purposes.

Lifetime ISA penalties deferred

Posted on Jan.16, 2017 by in Latest News

The government has announced that the penalties resulting from the withdrawal of funds from LISAs before age 60 or for purposes other than the purchase of a first home will not apply until the tax year 2018/19. However, the Financial Conduct Authority has warned that these penalties would make LISAs unsuitable for anyone who might be likely to incur them.

The writing on the wall

Posted on Jan.16, 2017 by in Latest News

HM Treasury has issued a new factsheet titled “Ways to save in 2017”, which describes Premium Bonds and the various forms of ISA but omits any reference to pensions.

A similar factsheet issued in 2016 contained no such omission, and this has prompted suggestions that the government may be seeking to position ISAs – and in particular the new Lifetime ISA – as a more attractive medium than pensions for retirement savings.

Apart from riskier investments such as Venture Capital Trusts, pensions are the only form of saving which provide tax relief on contributions, and the cost to the Treasury is massive. They also offer relief from National Insurance contributions and permit employer contributions. ISAs, by contrast, simply offer exemption from tax on the proceeds, plus a potential 25% bonus on Lifetime ISAs (‘LISAs’) at the age of 60.

Since tax relief on pension contributions is available at savers’ highest personal rates of tax, the current system favours the higher paid, which is inconsistent with the government’s aim of encouraging the less well-off to save for retirement.

There have been suggestions that a standard rate of tax relief of say 30% should be introduced (which would benefit 20% taxpayers) and even that tax relief on contributions might be scrapped altogether.

We will discover in the Chancellor’s Budget statement on 8 March whether the Government proposes to grasp this nettle, but for the time being it clearly makes sense for higher-rate taxpayers to take full advantage of the current pension regime while it lasts.

If you would like to find out more, please contact one of our advisers.

Three minutes with…

Posted on Dec.12, 2016 by in Latest News

…Carl Mountain, Consultant.

Summarise what you do in one sentence:
I provide financial planning advice to individuals.

What does a typical work day look like for you?
I spend the day seeing clients or speaking with them on the phone or email.  My role is to help them reach their individual financial planning aspirations and goals.  I also liaise with my colleagues in the office to ensure that everything is running smoothly for my clients.

Describe Generation Financial Services in three words: 
Honest, fair and innovative

What is your motto for life?
Treat people as you would like to be treated yourself.

If you’re not working, where can you usually be found?
At home with my family.

What’s the best way of getting in touch with you?
Mobile or email.

You can find out more about Carl and read his biography by clicking here.

The Autumn Statement in brief

Posted on Dec.07, 2016 by in Latest News

The new Chancellor’s Autumn Statement was brief, and Philip Hammond made clear that this will be his last. He does not favour the idea of flagging up in advance changes which are likely to be formalised in the Spring Budget. Nevertheless, the Statement provided food for thought.

Only one change was announced in relation to pensions, and this relates to contribution limits. The current annual contribution allowance is £40,000, but this reduces to £10,000 in cases where the pension holder has begun drawing down income (as opposed to tax-free cash) from a ‘money purchase’ pension. This £10,000 limit is now to be reduced to £4,000, the aim being to reduce the impact on the Treasury of people re-cycling pension money and claiming tax relief on the same money twice.

In the words of ex-pensions Minister Steve Webb, “As soon as someone draws a pound of taxable cash using the ‘pension freedoms’, the amount they can save in a money purchase pension would be slashed from £40,000 to £4,000”.

It has been suggested that this may be a half-way house to a complete bar on recycling, by reducing the limit to nil.

Looking further ahead, more significant pension changes seem likely. Mr Hammond commented that pension tax relief is one of the most expensive of all reliefs, and that two-thirds of the benefit goes to higher and additional-rate taxpayers. This is at variance with the Government’s aim to focus resources where there is most need.

A reduction in the availability of higher-rate tax relief may therefore be on the cards in the longer term and, as ever, best advice must be to take advantage of current levels of tax relief while they are available.

The cost of State pensions is another concern to the Government, and the Chancellor hinted that the current ‘triple lock’, whereby State pensions are guaranteed to increase each year by whichever is the highest of average earnings, the rate of inflation, and 2.5% may not be affordable after 2020.

The Government continues to introduce new variants of ISAs (Individual Savings Accounts). Last year saw the Innovative Finance ISA, which permits investment in peer-to-peer lending schemes. These by definition are higher risk than either cash ISAs or stocks and shares ISAs but may provide a higher return than cash ISAs.

Next, in July 2015, came the ‘Help to Buy’ ISA, through which first time buyers who save up to £200 a month towards their first home can receive a £50 bonus from the Treasury for every £200 they save, up to a maximum of £3,000.

Now, the Chancellor has confirmed that, despite widespread misgivings, the Government is to press ahead with the introduction in April 2017 of what has been described as a ‘souped-up Help to Buy ISA’, the Lifetime ISA, or ‘LISA’.

This was conceived by George Osborne with the main objective of encouraging non-pension savings for retirement and at the same time assisting young people with the financing of home purchase.

Savers between the ages of 18 and 40 stand to receive a 25% bonus from the Government on contributions up to £4,000 p.a. and can use some or all of the money to buy their first home, or withdraw the money for other purposes (such as retirement provision) as from the age of 60. The major caveat is that if money is withdrawn before the age of 60 other than for financing the purchase of a home, not only will the 25% bonus be forfeit but a 5% penalty will be incurred.

Criticism has centred not only on the potential confusion between LISAs and Help to Buy ISAs, but also on the fact that for many people LISAs will be less attractive than pension savings, because they will miss out on both employer contributions and tax and National Insurance relief. Unusually, the financial watchdog, the Financial Conduct Authority, has gone so far as to issue a warning that LISAs will be an unsuitable investment for most savers.

It is to be hoped that the adverse publicity attaching to LISAs will not discourage people from investing in standard ISAs, which remain one of the principal planks for personal financial planning.

The main news on the tax front is the crackdown on employees’ perks through ‘salary sacrifice’. This enables salary to be paid in a form which legitimately avoids incurring employers’ and employees’ National Insurance contributions. For a higher rate taxpayer, this could mean an increase of 18% in the value of the remuneration.

Salary sacrifice allows employees to boost their pension pots by arranging with their employers that part of their salary should be paid as additional contributions to their pension plans.

The Chancellor announced that salary sacrifice will continue to be permitted in relation to pension contributions and pension advice, childcare, cycle to work schemes and ultra-low emission cars.

However, with effect from April 2017, other employee benefits, such as car purchase, parking, school fees, gym membership, travel insurance and smart phones, will cease to benefit and employees will in the same position as if they had paid out of taxed income.

Existing arrangements will be protected until April 2018, or 2021 in the case of cars, accommodation and school fees.

Transferring pension benefits
Based on low interest rates, current transfer values make it attractive for members of company ‘defined benefit’ (‘DB’) pension schemes to transfer into some form of personal pension and thus become able to exercise the ‘pension freedoms’, enjoying greater flexibility in accessing funds and potential savings in inheritance tax. But there are complex issues involved on which specialist technical advice is needed.

Two main factors may favour staying in the occupational scheme. First, the level of pension provided will be predictable, whereas the value of a personal pension fund will fluctuate according to the value of the underlying investments.

Secondly, death benefits, whose value may be unaffected by the withdrawal of lump sum cash, but whose importance will vary according to the personal family circumstances of each scheme member.

To discuss any of the points raised in this article, please contact one of our advisers.

Statutory Sick Pay (SSP)

Posted on Nov.24, 2016 by in Latest News

Statutory Sick Pay (SSP) is £88.45 a week for up to 28 weeks.

You need to qualify for SSP and have been off work sick for four or more days in a row (including non-working days). You can’t get less than the statutory amount.  You can get more if your company has a sick pay scheme (or ‘occupational scheme’)  so check your employment contract.

If you are unsure about what you are entitled to, contact us to speak with one of our independent financial advisers.

Generation FS

Generation FS