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Budget 2014

Archive for March, 2014

Budget 2014

Thursday, March 20th, 2014

The 2014 budget offered a radical vision of the future of pensions and savings. Greater freedom and control than ever before could be possible. You can open our full report by clicking here.

The most eye-catching changes are those proposed for pensions. These include:

  • Increasing the maximum that can be withdrawn from drawdown pensions as income from March 27th and consultation will begin regarding removing the limits completely.
  • Reducing minimum required secured income for flexible drawdown to £12,000 from March 27th until full reform is implemented.
  • More flexibility for people with small pension pots.

And more news for savers:

  • ISAs are to become NISAs and the investment limit jumps to £15,000 from July 2014 with no separate limit for cash.

If you would like to discuss the implications for your own arrangements then please call us.

The most popular fund sectors of 2013

Wednesday, March 19th, 2014

At the end of January the Investment Management Association (IMA) published its summary of fund sales for 2013. This covers nearly 2,500 UK domiciled funds, with a total value at the end of 2013 of £770bn.

2013 was a much better year than 2012 for fund managers, and not just because most major equity markets delivered good returns. Individual investors were more confident, which the numbers highlighted in a variety of ways:

  • Net sales (purchases of new units/shares less redemptions) were up over 40% on the previous year.  
  • Equity funds net sales more than trebled to £11.4bn. 
  • Whereas the biggest equity fund sector, UK All Companies, was the least popular in 2012, by the final quarter of 2013 it was the most popular. 
  • In the opposite direction, the Sterling Corporate Bond sector, which was the most popular sector in the first half of 2012 was the worst selling sector in 2013, suffering a net outflow of £1.7bn.

Taking a broad view of assets classes rather than individual sectors, what was most notable was the move into equity funds and away from fixed income (bond funds), where net sales dropped to virtually zero. Some commentators have taken this as the beginning of “the great rotation” from bonds to equities. However, the biggest asset class sales growth (in percentage terms) was for the revitalised property sector, as the graph below shows.

Graphic1

Newsletter

Wednesday, March 12th, 2014

Our latest newsletter has been published.

Interest rates vs. yield

Wednesday, March 12th, 2014

Two recent events hinted at an end to near-zero short term interest rates.

First, the US central bank, the Federal Reserve, announced that it would begin to wind down (taper) its long-running programme of quantitative easing (QE); and secondly, the UK announced that unemployment had fallen to
7.4% from 7.6% in November. In August, the Bank of England had given ‘forward guidance’ that it would not consider any interest rate changes until unemployment fell to 7.0%.

A few weeks ago it briefly looked as if short term interest rates would rise before the year end. In both the UK and the US the unemployment rate fell to within 0.1% of the level at which the countries’ respective central banks had said rates would be reviewed. Neither the Federal Reserve nor the Bank of England had expected such a
resilient growth in employment. Both central banks subsequently made clear that they want to keep rates low for as long as possible. If you hold money on deposit with banks and/or building societies, the interest that you can currently earn on instant access accounts does not keep pace with inflation.

While short term rate have remained flat in the UK, the income yields from government bond (gilts) and other longer term fixed interest securities have risen from the low levels they reached last spring. Investment in fixed interest funds via ISAs can be a tax-efficient way of boosting your income – all of the interest is free of UK tax.

Many UK share-based funds also continue to offer attractive dividend yields, despite the solid performance of world stock markets during 2013. There is also a growing number of equity income funds focussed on overseas companies, although these are high risk and advice should be sought.

The value of tax reliefs depends on your individual circumstances. Tax laws can change. The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.

 

Year end tax planning: Pensions

Wednesday, March 12th, 2014

There are important year end deadlines for pensions looming into view  

On 6 April 2014, two major changes will take effect to pension allowances:

  1. 1.      The Annual Allowance (AA), which effectively sets the maximum tax efficient pension contribution from all sources during a tax year, will be cut from £50,000 to £40,000. This is the second cut to the AA, which was £255,000 in 2010/11. 
  1. 2.      The Lifetime Allowance (LTA), which effectively sets the maximum tax efficient total value of pension benefits, will be cut from £1.5m to £1.25m. This is also a second cut – the LTA was £1.8m in 2011/12.

The AA cut is a reminder of the importance now of taking full advantage of each year’s AA. When the allowance was £200,000+, regular contribution was a much less important factor. Fortunately, if you have not used the full AA in any of the three previous tax years, there is scope to do so using special “carry forward” provisions. 5 April (a Saturday) is the final day for carrying forward any unused AA from 2010/11.

As far as the LTA reduction is concerned, the government has announced two transitional protection options for those who are, or might in the future, be affected. One of these options, Fixed Protection 2014 (FP2014), will only be available to claim until 5 April 2014, while the other, which has more limited scope, will not be finalised until summer. Very broadly speaking, FP2014 will preserve your LTA at a minimum of £1.5m, provided that from 2014/15 onwards, no more contributions to your pensions are made and you accrue no further benefits.

If carry forward and/or the new transitional protection could be relevant to you, you should seek expert advice as soon as possible. Both are aspects of pensions which may involve considerable research before a decision can be taken.

Year end tax planning

Wednesday, March 12th, 2014

The tax year 2013/14 ends on Saturday 5 April. So don’t leave taking tax saving action until the last minute. 

Year end

 

Individual Savings Accounts (ISAs)  The 2013/14 ISA allowance is £11,520, of which you can invest up to half – £5,760 – in a cash ISA.

Capital gains tax (CGT)  Everyone, including minors, can realise tax-free capital gains of up to £10,900 this tax year as their annual exempt amount. Married couples and civil partners can benefit from two of them, totalling £21,800.

Inheritance tax (IHT)  There are several types of gift that you can make each year without having to wait seven years before they become exempt from IHT. The most useful exemption is regular gifts from income that do not reduce your standard of income. It is important to organize and document these carefully, so do get in touch with us for help.

Income tax  There are several income thresholds above which your tax rate can rise steeply. Some of these are not visible, like the 60% effective tax rate on the band of income between £100,000 and £118,880 where the tax man gradually takes away your personal allowance. We can advise on ways to mitigate with this.

Pensions  The government is aiming to reduce the cost to the Treasury of the very valuable pension tax reliefs. So the limit on tax-efficient contributions will be reduced from £50,000 to £40,000 for the next tax year. The total you can hold tax-efficiently in a pension will drop for 2014/15 from £1.5 million to £1.25 million. You can reduce the impact of these changes, but you should get help as soon as possible and we are here to help.

The value of tax reliefs to you depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice.