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Archive for February, 2015

Spring newsletter

Wednesday, February 18th, 2015

Our Spring 2015 newsletter has been published. You can find it here.

Tax year end planning: pensions      

Friday, February 13th, 2015

taxmanThe new tax rules are due from 6 April, but there is still plenty to consider before then.

 The current tax year has been a transitional one on the pension front. It has seen the annual allowance reduced by 20% to £40,000 and the lifetime allowance cut by a sixth to £1.25m. There has also been a raft of temporary transitional provisions introduced ahead of the new regime for 2015/16 onwards.

The key area to consider for both this and next tax year is whether to make some one-off contributions. There has been much political discussion about changing tax relief on contributions:

  • The Labour Party has said that it will reduce higher rate tax relief on contributions to fund job creation. More details should soon emerge in their manifesto.
  • The Liberal Democrats, and in particular the current Pensions Minister, Steve Webb, are considering a single flat rate of relief on pension contributions between 20% and 30%.
  • The Conservatives have made no announcements, but a leading think tank closely associated with the party has also proposed moving to a flat rate relief system.

Income tax relief on pensions cost £27.9bn in 2012/13, with another £15.2bn cost for national insurance contribution relief on employer’s contributions, according to HMRC. Given the current state of government finances, any post-election Chancellor could be tempted by such low hanging fruit.

 If you wish to make large pre-emptive pension contributions, please contact us as soon as possible. Maximising contributions can require a considerable amount of data to be collected, which takes time.

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

Tax year end planning: investments

Friday, February 13th, 2015

taxmanThis year’s Budget will take place within a fortnight of Parliament winding up ahead of the general election on 7 May. That means little time to pass legislation, so there may be another Budget (of some sort) after the election – as occurred in 2010. So when you’re undertaking year end planning for 2014/15, you also need to keep an eye on possible pre-election tactics, too.

Among the items to review on the investment front are:

  • Individual savings accounts (ISAs) The maximum ISA investment in 2014/15 is £15,000 and, following last year’s Budget changes, there are no restrictions on how much of this limit you can invest in cash (although currently available interest rates are something of a disincentive). Unused ISA allowances cannot be carried forward, so you should normally contribute as much as possible each tax year. A change of government might see some erosion of tax benefits of ISAs. In 2013 the Treasury examined the option of capping their value and the idea could be revisited by a new Chancellor. 
  • Capital gains tax (CGT) In the 2014/15 tax year you can realise gains of up to £11,000 with no capital gains tax liability. And once 2015/16 begins on 6 April you will have another £11,100 annual exemption to use.  If you have the gains, then using both years’ exemptions could be a wise precaution: both Labour and the Liberal Democrats have floated the idea of CGT reform.  You cannot simply sell and then immediately repurchase to crystallise a gain, but there are other options which have similar effect. For example you could sell your holding in an investment fund and then reinvest in the same fund via an ISA or a SIPP. 
  • Venture Capital Trusts (VCTs) These high risk investments can be an important element of year end planning because of the initial 30% income tax relief and other tax benefits they offer. This year two of the largest VCT managers have virtually withdrawn from the market for new monies, which could mean that if you leave investment until the last moment, your choice of VCTs may be limited. With an eye to the election, most VCTs will allow investments to be allocated between this and next tax year.

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

 

Inheriting your partner’s Individual savings account

Wednesday, February 11th, 2015

key-stages-imgMore details have emerged about how ISAs can be inherited.  

One of the rabbit-out-the-hat features of December’s Autumn Statement was the announcement that if you outlived your spouse or civil partner you could ‘inherit’ their ISA. It sounded an attractive option, but the idea was far from developed when Mr Osborne made it public at the end of last year.

The Treasury and HMRC have now issued further information and a set of draft regulations.  The effect of the regulations in their current form will be to:

  • Permit a surviving spouse/civil partner to make an additional ISA subscription equal to the value of the deceased spouse’s/partner’s ISA at the date of their death;
  • Allow non-cash holdings (e.g. unit trusts, OEICs and shares) in the deceased spouse’s/partner’s ISA to form part or all of the subscription; and
  • Set a time limit for the subscriptions, broadly 180 days after administration of the estate is complete or, in the case of cash assets, three years from the date of death, if later.

The opportunity to transfer existing ISA investments is helpful – the Autumn Statement had appeared to suggest that investments would have to be realised and subscriptions could only be in cash. However, the current regulations leave unchanged what happens between the date of death and the new subscription being made. That will mean the ISA assets will be taxable as part of the estate between the date of death and the making of the subscription. To complicate matters further, because the subscription value is fixed at the date of death, a transfer of non-cash holdings will be affected by changes in value before the subscription is made.

The Treasury says the cost of this reform will be negligible in revenue terms – £10m in 2019/20 – but if the two of you regularly take full advantage of your ISA limits, it could prove a valuable benefit for the survivor.

The value of tax reliefs depends on your individual circumstances. Tax laws can change. The value of investments 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.

Is the government wising up to pensions?

Monday, February 9th, 2015

pension-clock-red-text-31707942The Treasury has rebranded its ‘guidance guarantee’.

The ‘guidance guarantee’ was one feature of the new pension tax regime on which the Chancellor placed considerable emphasis when he made his surprise Budget announcement last March. The initial consultation paper said “…choice on its own is not enough. Consumers need to be able to make informed decisions. We will therefore guarantee that individuals approaching retirement will receive free and impartial face-to-face guidance to help them make the choices that best suit their needs.”

Although Mr Osborne used the word ‘advice’ in his Budget speech, it became clear very soon that free advice was not being offered. Similarly the ‘face-to-face’ aspect was quickly watered down to less expensive forms of communication, such as a telephone based service. Initially the government said that the Pensions Advisory Service (TPAS) and the Money Advice Service (MAS) would be the two main bodies to supply the guidance. However, in October, less than six months before the new rules begin, the MAS was replaced by the Citizens Advice Bureau.

In January the Treasury “unveiled the name and logo of the new pensions guidance service”: Pension wise. In theory this service could have to deal with “over 300,000 individuals a year” and “will be a first port of call for consumers” approaching retirement with defined contribution pension plans. In practice many pension people are sceptical about what Pension wise can deliver. Not only are there question marks over finding and training appropriate personnel in such a short timeframe, but there are also concerns that what many near retirees want is advice, not a guidance shopping list from which they have to choose. Any complaints about the guidance will go to the Parliamentary and Health Service Ombudsman, rather than a financial services regulator/ombudsman.

If you are nearing the point at which you want to start using your retirement fund, then we believe your starting point should be to take professional advice. Pension wise will not deliver ongoing advice based on a full knowledge of your personal circumstances. Although it will be free, it will be generic information and, more importantly, a one-off exercise. Next year, when your 12 months old pension arrangements need review, you may need more detailed information.

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.

Explaining the singe-tier State pension

Saturday, February 7th, 2015

pension-clock-red-text-31707942The Department for Work and Pensions has launched a new campaign to explain the new single-tier state pension.

The new single-tier state pension, which will replace both the basic state pension and the state second pension (S2P) is now only 16 months away. While the focus of late has been on increased flexibility for private pensions, the state pension reform is in some respects more significant, if only because it will affect many more people.

The Department for Work & Pensions (DWP) has launched what it describes as a “new multi-channel advertising campaign” which it hopes will “ensure everyone knows what the State Pension changes mean for them.” That may be a tall order to judge from some research results which the DWP published alongside the press release announcing its new campaign. That research showed:

  • 42% of people yet to retire admitted that they needed to find out more about saving for retirement;
  • 38% conceded they “try to avoid thinking about” what will happen when they stop working;
  • Only 60% of those surveyed realised it is possible to take action to increase their State Pension; and
  • 37% of those aged 65 or over thought (wrongly) that the amount of their state pension will change as a result of the reforms. Although the DWP did not ask the obvious question, the chances are very few in that group were expecting a cut in payments after April 2016…

The DWP’s ministers “are urging everyone – and the over-55s in particular – to look at what the changes will mean for them and to secure a detailed State Pension statement so that everyone can plan accurately for retirement.” It is a recommendation we thoroughly agree with. However, be warned that if you have ever been a member of a contracted pension scheme you could well find that your projected state pension is less than “around £150 a week”, which is commonly quoted – even by the DWP in its press release.

A mixed year for equity markets

Friday, February 6th, 2015

There were mixed results from the world’s main share markets in 2014, with the US coming up trumps.

Index 2014 Change
FTSE 100 – 2.7%
FTSE All-Share –  2.1%
Dow Jones Industrial +  7.5%
Standard & Poor’s 500 +11.3%
Nikkei 225 + 7.3%
Euro Stoxx 50 + 1.2%
Hang Seng +  1.3%
MSCI Emerging Markets (£) + 1.3%

As ever, the raw numbers do not tell the whole story:

  • Once dividends are taken into account, the UK market achieved a small positive overall return.
  • In a change from 2013, there was little difference between the performance of the large company dominated FTSE 100, the FTSE 250 containing medium-sized companies and the FTSE Small Cap, which covers the smallest companies.
  • Sterling had a good year, which reduced the returns for UK investors in many foreign markets. The pound was up 7.4% against the Japanese Yen and 7.2% against the Euro. However the dollar was even stronger than the pound: the greenback rose by 6.2% against sterling.
  • Emerging markets had a better year than might have been expected, given the problems with plummeting commodity prices and the R in BRICs.

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.

A few dates for your calendar

Thursday, February 5th, 2015

CalenderThe first half of 2015 promises to be an interesting and potentially volatile time for investors.

Have you completed that chore of updating the new calendar that hangs in the kitchen listing dental appointments, hairdresser visits and the other trivia of life? If not, you might like to add the following to the menu for the first half of 2015:

January  Lithuania became the 19th member of the Eurozone at the start of the month. On 22 January Mario Draghi, the head of the European Central Bank, could finally announce the start of quantitative easing (QE) in the Eurozone. Then, three days later, Greece could take its first step towards leaving the Eurozone as a snap election due on the 25th may well see Syriza, a far left anti-austerity party, top the polls. By the end of the year a similar situation could occur in Spain, where a new left wing political party, Podemos, is leading the polls.

March  The Budget will be on 18 March, but much of what Mr Osborne says will be election-contingent because Parliament will dissolve 12 days later. The first Finance Act of 2015 will is therefore likely to be an uncontroversial affair.

May  The UK general election will be on 7 May. To judge by the Scottish referendum process, investment markets are due a last minute bout of volatility that could last beyond polling day if, as seems likely at present, no one party gains an overall majority.

June/July  There will almost certainly be a second Budget in 2015, the precise timing of which will depend upon how long it takes to establish a new government. If Labour take the lead, Mr Balls has promised a mansion tax will be top priority. However, the likelihood is that whatever the colour(s) of the new government, the post-election Budget will contain the type of measures that do not get covered in the pre-election rhetoric. For example, there have been suggestions that if Mr Osborne remains in post, he may do as he did in 2010 and increase VAT.

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.