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Personal finance changes to look out for in 2016

Archive for December, 2015

Personal finance changes to look out for in 2016

Thursday, December 31st, 2015

The changes to personal finance legislation and policy in 2016 will keep on coming thick and fast throughout the year. For those of you eager to learn more about the changes already announced for the coming twelve months, we’ve highlighted some below which may impact you. Don’t forget: if you’re concerned about any of these changes, or others previously mentioned, you can always contact us through the usual methods.

Personal savings allowance

A new personal savings allowance will grant all of us a certain amount of tax-free income from our savings. Currently, interest made on products such as fixed-term bonds and current accounts is subject to tax, but the new allowance will give basic rate taxpayers £1,000 tax free and higher rate taxpayers £500 tax free. The allowance applies from the new tax year on 6th April 2016 and the government estimates that it will mean 95% of people will not pay tax on interest from these forms of saving.

Second home stamp duty is introduced

Announced during the Autumn Statement, the extra stamp duty on second home purchases is being rolled out quickly and will be in place and ‘live’ from April 1st 2016. Those purchasing a second home, or buy to let property will need to pay 3% above whatever their normal rate of stamp duty would have been, had the purchase been of a primary residence. Whilst this may seem like a relatively small increase, the difference between purchasing pre-April 1st and post-April 1st can be significant. Landlords who are planning further property investment in 2016 may particularly wish to check or to consult us on how their taxation will be affected.

New single state pension introduced

The single tier state pension will also come into force at the start of the new tax year, for anyone who retires on or after 6th April 2016. The new flat rate has been set at £155.65, but retirees need to be aware that, despite the slightly misleading name, not everyone will receive this amount. If you have ‘contracted out’ of the state pension, for example, then you may not be entitled to the full amount of weekly pension. The government themselves admit that ‘most people’ who reach state pension age during the first few years of the single tier state pension will have contracted out at some point in their working lives, so do check how much state pension you will be able to claim.

Dividend taxation changes

The new rates of dividend taxation come into force at the start of the new financial year on April 6th 2016. Company owners, who may pay themselves partially through dividends, may be particularly affected as the change introduces a new £5,000 tax free rate with new bands of 7.5%, 32.5% and 38.1% above this for basic rate, higher rate and additional rate taxpayers respectively. If you do currently receive a substantial amount of income from dividends then now is a good time to review your income plans with your financial planner or accountant.

Deposit protection reduced

During 2015 and some years prior to that the government protected all of the savings we had to the tune of £85,000 per account. In 2016, however, the limit falls to £75,000. This means that, should you currently hold individual accounts with a balance of £85,000, £10,000 of this is now no longer protected by the government guarantee. Again, if you are concerned, please speak to your adviser, but it may be a sensible course of action to move some of the money you currently hold in accounts with balances over £75,000.

 

HMRC reveal the worst ever tax return excuses

Thursday, December 31st, 2015

With the deadline for online tax returns fast approaching (31st January 2016 for the tax year April 2014 – April 2015), HMRC have again shared their top ten terrible tax excuses. Ranging from paperwork eating pets to people who were simply out of the country, the list is comprised completely of unsuccessful appeals against penalties imposed by HMRC.

Whilst the list might be a bit of an attempt by the taxman to show that he does have a sense of humour, there is a serious message behind the publication. HMRC take filing deadlines very seriously and if you miss the online cut off of January 31st (the offline cut off has already passed in October 2015) then it is likely that you will be issued with a penalty. You can appeal to HMRC against any penalties but, as the list shows, the taxman typically takes a dim view of all but the most compelling of excuses. The HMRC list in full is;

  • My pet dog ate my tax return…and all the reminders.
  • I was up a mountain in Wales and couldn’t find a postbox or get an internet signal.
  • I fell in with the wrong crowd.
  • I’ve been travelling the world, trying to escape from a foreign intelligence agency.
  • Barack Obama is in charge of my finances.
  • I’ve been busy looking after a flock of escaped parrots and some fox cubs.
  • A work colleague borrowed my tax return to photocopy it and didn’t give it back.
  • I live in a camper van in a supermarket car park.
  • My girlfriend’s pregnant.
  • I was in Australia.

As you can see from the list, HMRC have covered a lot of the potential excuses which might be used in appeals, including outside influence and being out of the country!

Speaking about the list when it was originally published in January 2015, HMRC Director General of Personal Tax, Ruth Owen, said:

‘People can have a genuine excuse for missing a tax deadline, but owning a pet with a taste for HMRC envelopes isn’t one of them.

You need to file your 2014/15 tax return online, and pay what you owe, by 31 January 2016. But it’s best to do it now, to allow plenty of time to sort out any issues with your return. That way, you’ll avoid the busy period for our phone lines as the deadline approaches.’

If you are uncertain about completing your tax return, or would like help with any aspect of tax planning which you think may affect your submission, then please do feel free to contact us. We’ll make sure we help you to avoid becoming an entrant on HMRC’s list of excuses next year!

The FCA does not regulate tax advice.

 

What does 2016 hold for you?

Wednesday, December 16th, 2015

With reports suggesting most of the UK economic indicators are moving in the right direction, it doesn’t mean we can suddenly afford to ignore our personal financial planning.

So in the best traditions of New Year here are ten financial planning resolutions that will hopefully help make 2016 a prosperous and secure year for you.

  • I will save some money on a regular basis. It might be your daughter getting married, it might be one or more of your children going to university – or it might be a more sombre reason. But at some stage in all our lives we are going to need savings to fall back on: so make a resolution to save on a regular basis in the New Year. Better to save first and spend what you have left than spend first and then save – because as we all know, there probably won’t be anything left!
  • I will admit I’m going to get old. We don’t just mean feeling old after one Xmas party too many – we mean you should make 2016 the year when you have a thorough review of your pension planning. Taking some action now could well save you a lot of heartache later on. The message from the Government (and any subsequent Government) will be simple: if you want a prosperous retirement it will be up to you to provide it.
  • I will check what I’m paying on my mortgage. Make sure you review your mortgage to make sure that it’s competitive and that you’re paying as little as possible.
  • I will review my life cover and protection policies. It’s always worth keeping these policies under review, both to make sure that you have adequate cover and to make sure that you are still paying a competitive rate for the cover you have in place. The cost of protection can and does fluctuate and as with your mortgage, it will cost you nothing to ask us to review the arrangements you have in place.
  • I won’t pay the taxman more than I need to. Couldn’t we all agree with this one? If you’re saving on a regular basis make sure you use your ISA allowances and look at the tax efficient ways in which a pension can be used. Far too many of us are inadvertently paying tax that we simply don’t need to.
  • I will use all my tax allowances. Even sophisticated investors often forget to make use of allowances such as the annual Capital Gains Tax allowance and Inheritance Tax is another area where a small amount of planning can pay significant dividends.
  • I won’t forget about my investments. How often do we see new clients with a portfolio of investments that hasn’t been looked at for years? If you do have investments, make sure you keep them under regular review.
  • I won’t obsess about my investments. The other side of the coin – the investor who is constantly tinkering with his investments, so that whatever gains he might have made are wiped out by dealing costs. Remember that investments are for the long term: they need to be regularly reviewed – as we do with all our clients’ portfolios – but as the old wealth warning reminds us, they can and do fluctuate in value.
  • I won’t get sentimental. We’re not talking about your personal relationships here, but about investments you might have held for a long time. One of the best things a regular review from your professional adviser does is highlight areas of your portfolio which are underperforming. And irrespective of how much money a particular holding might have made you ten years ago, if it is underperforming now it may well need to be changed.
  • I will keep in touch with my professional advisers on a regular basis. Everyone’s personal circumstances change, and their financial planning needs change accordingly. That’s why we’re so keen on regular reviews and regular meetings and, please note, we’re always available should you have any questions.

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.

State pension increases and non-increases

Saturday, December 12th, 2015

The basic state pension will rise by nearly 3% next April.

The Autumn Statement confirmed that the basic state pension will rise by £3.35 a week to £119.30 a week from next April. The increase of 2.9% is the result of the ‘triple lock’, which requires the basic state pension to increase each April by the greater of inflation (as measured by the Consumer Prices Index – CPI), earnings growth and 2.5%. However, other existing state pensions (such as the State Second Pension) will be unchanged next year because their increases are linked to the CPI, which fell by 0.1% in the year to September.

The Chancellor also announced the rate for the new single tier pension, which will apply if you reach state pension age after 5 April 2016. At £155.65 a week, it is slightly higher than had been expected and 2.9% above the notional figure for 2015/16. The new pension will also be subject to the ‘triple lock’, although how long that will continue is a moot point. In a recent hastily withdrawn report, the Government Actuary’s Department said that the triple lock has already added £6bn a year to the welfare bill, compared with the cost of a simple earnings link.

To put the newly increased single tier state pension into context, from next April it will represent less than two thirds of what somebody working a 35-hour week on the new National Living Wage will earn. No wonder the government remains anxious to encourage private pension provision.

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.

Auto-enrolment: the first deferral

Saturday, December 12th, 2015

The Autumn Statement revealed more evidence that the government is counting the cost of tax relief on pension contributions. 

When auto-enrolment into workplace pensions started in October 2012, the legislative intention was that the level of contributions as a percentage of qualifying earnings (those between £5,824 and £42,385 in 2015/16) should rise from the current minimum total of 2% to 5% from October 2017 and then 8% from October 2018. In his Autumn Statement, the Chancellor pushed out both increase dates by six months “to help businesses with the administration of this important boost to (the) nation’s savings”.

There had been no clamour for an April alignment from business groups – the greater concern has been the impact of the huge increase in the number of employers registering in the next year. The real reason for Mr Osborne’s administrative simplification was to be found in the Autumn Statement ‘scorecard’ which showed the deferral would save the Exchequer nearly £850m in employer and employee tax relief over the two tax years involved.

Auto-enrolment has always been a double-edged sword for the Treasury: while it should mean less state support for the retired in the long term, the immediate impact is negative because of the rise in pension contributions and hence tax relief.  Already the process has brought over five million people into workplace pensions. As the government’s decision on the future of pension taxation has been deferred until the March 2016 Budget, this latest tweak could be seen as a pre-emptive grab of future benefits. Whether or not that proves to be the case, the argument for maximising your pension contributions before the Chancellor’s next set piece has been reinforced.

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 relief depends on your individual circumstances. Tax laws can change.

December Market Commentary

Wednesday, December 9th, 2015

November brought us the Chancellor’s Autumn Statement and Spending Review in the UK – and rather more tragic events abroad. Friday November 13th saw the massacre in Paris, which was followed by an escalation in the bombing of ISIS in Syria.

World stock markets inevitably fell in the wake of the Paris attacks, but overall it was a mixed month for the major world markets. For once in 2015 there were no dramatic movements, either up or down. Overall economic activity continues to be depressed, largely due to the continuing weaker demand from China. One indication of the weaker demand is the current record oil glut, which currently stands at some 3bn barrels: this seems likely to keep oil prices low well into next year.

UK

The Chancellor delivered his Autumn Statement on November 25th: this year it also included the Government’s Spending Review, setting out the plans for spending until 2020. As expected, George Osborne confirmed his determination to deliver a surplus by the end of this parliament – and several Government departments suffered significant cuts to their budgets. There were however, no cuts to tax credits. The Chancellor had been expected to ‘trim’ the plans which had been so heavily defeated in the House of Lords: instead he performed a complete U-turn in a speech some commentators saw as ‘the end of austerity’.

In the wider economy the month had started with good news for UK manufacturing, the figures for October suggesting the sector had enjoyed its best month for more than a year. The Purchasing Managers’ Index was up significantly (from 51.8 in September to 55.5) which indicates increased confidence. Output also rose by 0.8%.

There was also good news on jobs. UK unemployment fell to a seven year low of 5.3% in the three months to September, whilst the number of people in work rose to 31.21m – 177,000 more than the April to June quarter and an increase of 419,000 on the same period last year.

UK inflation remained negative at -0.1% in October, and the Bank of England pushed the long awaited increase in interest rates even further into the long grass. The Bank said that the outlook for global growth had weakened and this had ‘depressed the risk of inflation.’ Hence no rate rises until the second quarter of 2016 – and possibly even later.

The month ended with ‘Black Friday’ – the supposed retail bonanza which would set the tills ringing up and down the national high street. Police forces warned retailers to make sure they had enough staff – obviously including security staff – to handle the expected surge of rampant bargain hunters. In the event the burly men with walkie-talkies spent the day twiddling their thumbs as the shoppers staggered out of bed and straight to their laptops to shop online. “Shoppers not prepared to stand in line,” said the BBC, reporting the remarkably obvious.

Little wonder that M&S reported sales and profits down for the six months to September, whilst Tesco boss Dave Lewis warned retailers faced a “lethal cocktail” of falling demand and higher costs.

Rather more cheerful were the good people of Wolverhampton as Jaguar Land Rover announced plans to double the size of its site near the town and hire hundreds of new workers, as it invested £450m into its engine manufacturing centre.

How was all this reflected on the stock market? With barely a whimper is the answer. The FTSE-100 index of leading shares started November at 6,361 and ended the month precisely five points lower at 6,356 – still 3% lower than the level at which it started the year.

Europe

Obviously the events in Paris dominated the European news agenda in November, and it was no surprise when a survey conducted after the attacks suggested they would have a negative impact on the French economy.

There were conflicting views of the wider European economy, as the EU suggested that the Eurozone was set for “a modest recovery” over the next two years, with growth of 1.9% this year, 2.0% in 2016 and 2.1% in 2017.

However, the left-leaning think tank The Institute for Public Policy Research suggested that high levels of unemployment and ‘under employment’ risked becoming entrenched unless there was an increase in productivity.

There was certainly no increase in productivity in Germany, as the economy slowed in the third quarter of the year. It grew by 0.3% in the July to September period, compared to 0.4% for the previous quarter. Again, the slowdown in China is largely to blame for this, as German imports grew by more than exports (although the country still recorded a €22.9bn trade surplus for September, up from €21.6bn a year previously).

The French economy also grew by 0.3% on the third quarter – although this marked an increase from the zero growth recorded in the second quarter.

In individual company news we saw the least surprising headline of the year, the BBC reporting that, ‘VW sales fall on emissions scandal’.

Despite the mixed news on the economy the German stock market enjoyed a good month in November, rising by 5% to close at 11,382. The French market was up just 1% to 4,958. Down among the economic also-rans Greece secured a deal to release the latest tranche of its bailout cash – €2bn in loans and up to €10bn of support for its banks – but still saw its stock market fall another 9% in the month to 635.

US

No country produces more conflicting and confusing economic data than the US. November was no exception as the world’s biggest economy (for now) continued to move away from its traditional industries.

In direct contrast to the UK, the US reported gloomy news for the manufacturing sector, which grew at its slowest pace for more than two years in October. The Institute for Supply Management recorded a fourth consecutive month of declining factory activity. Blame was laid firmly at the door of the strong US dollar, which had ‘hurt exports and caused a number of job losses across the country.’

No such gloom at Facebook, which reported a big jump in third quarter profits on the back of increased advertising sales, or for the owners of the ever-popular Candy Crush. The company which makes it, King Digital Entertainment, was bought by US game company Activision Blizzard (World of Warcraft, Call of Duty) in a deal worth $5.9bn. Welcome to the new economy, ladies and gentlemen.

There was, though, one significant piece of news from the old economy as pharmaceutical giant Pfizer bought botox-maker Allergan for $160bn in a major deal for the industry.

Despite the bad news from manufacturing, there was good news for US jobs as the economy added 271,000 jobs in October – well ahead of the 185,000 economists had forecast. This increased speculation that the Federal Reserve would finally raise interest rates in the near future.

The news on jobs didn’t, however, translate into a boom for US retail: the figures for October were disappointing, stoking fears that lower retail spending in the fourth quarter could hold back economic growth – and early indications are that US consumers also went online for their Black Friday shopping, forsaking the mall for their living rooms.

Wall Street reacted to all this news with a shrug. The Dow Jones Index had opened November at 17,664: it closed the month at 17,721 for a rise of just 57 points.

Far East

Let’s start with the obvious news: Chinese manufacturing contracted for the third month in a row, and there seems little sign of an upturn any time soon. There was better retail news as Chinese e-commerce giant Alibaba smashed all records for ‘Singles’ Day’ (held every year on 11th November) as sales increased 60% from last year to $14.3bn. In contrast the sales for ‘Cyber Monday’ in the US were just $1.35bn.

However, these good retail figures shouldn’t be taken as proof that the Chinese economy is recovering. The Japanese economy certainly isn’t, as figures confirmed that it had contracted for the second quarter in succession – thereby pushing the country officially into recession.

Despite this the Japanese stock market has continued to perform well, and shares reached a 3 month high in November. The market finally closed the month at 19,747 – up 3% in the month and 13% since the start of the year.

The Chinese market fared less well, with the Shanghai Composite rising just 2% to close at 3,445. Worryingly, the market dropped 5% in one day near the end of the month as several brokerage firms came under investigation for possibly breaking market rules. China’s biggest brokerage, Citic, apparently has an ‘error’ in its figures of $166bn. Many of us in business have known the frustration of adding up a column of figures and finding that you’re a few pence or a few pounds out. $166bn is a rather different matter…

The other two major markets in the Far East that we report on both fell in November. Hong Kong was down by 3% to 21,996 whilst the market in South Korea declined by 2%, to end the month at 1,992.

Emerging Markets

It was a mixed month for the major emerging markets. Both India and Brazil saw their markets fall by 2% during November, to 26,146 and to 45,120 respectively. Russia, by contrast, enjoyed a good month with the stock market there rising by 3% to close at 1,771.

In other news from emerging markets around the world, Argentina has a new government, with President Mauricio Macri committed to a conservative agenda of government cuts and welfare reform.

Meanwhile Morocco announced a giant solar power project to bring electricity to 1m people. The solar thermal plant at Ouarzazate will ultimately supply power for 20 hours a day, as part of Morocco’s pledge to get 42% of its electricity generation from renewables by 2020. The UK, in contrast, is committed to just 30% by the same date. Then again, there is rather more sunshine in Morocco than in the UK…

And finally…

November was a great month for the ‘and finally’ section of this Bulletin. Chinese billionaire Liu Yiqian bought Modigliani’s ‘Reclining Nude’ painting for the small matter of $170m and popped the purchase on his Amex card, thereby earning enough air miles to secure free first class travel for the rest of his life.

Even more exciting though was the news that the US Government finally looks ready to relax its decades-old ban on the import of haggis. The delicacy could be back on the menu in the US by 2017, food containing sheep lungs – a key ingredient in haggis – having been banned since 1971.

We always try and end the Bulletin on a cheerful note – so for those of you who like nothing better than a tasty sheep’s lung, Burns’ Night will be on Monday January 25th.

…By which time we hope you will have had an enjoyable Christmas and New Year. Our very best wishes for the festive season, and our next bulletin will be with you in the first week of January.

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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.

New Digital Tax Accounts are coming…

Wednesday, December 9th, 2015

Information in the Autumn Statement indicates that by 2020 individual taxpayers may be expected to report and pay their liabilities every quarter via their new digital tax accounts. The Chancellor promised an injection of £1.3bn to deliver, “the most digitally advanced tax administration in the world” by 2020.

The new Digital Tax Accounts (DTAs) will require most businesses, self-employed people and landlords to keep track of their tax affairs digitally and update HMRC “at least” quarterly. But there was also a sting in the paperwork tail. The government stated it will consult on “whether to align payment dates and bring them closer to the point when profits arise, so that taxpayers make a single regular payment that covers all their tax affairs.”

The Chancellor did not offer much tangible detail on the digital tax account, but Xero UK Managing Director, Gary Turner, anticipated that a full plan would be announced early in the New Year.

“The ambition is to have 10m DTAs live by next year, which is pretty ambitious given that the UK’s working population is just over 30m.”

The investment in HMRC’s digital strategy runs somewhat counter to an 18% cutback in departmental spending and other economies. But the two processes are interlinked according to Steve Cox, IRIS’s director of product management.

“The HMRC closures last week wouldn’t have come as a surprise to those who have been keeping an eye on what’s happening. The digital tax strategy is expensive. It’s a large part of why they’re doing the closures. They need cost savings. They’re looking to save £100m by 2025 with these office closures. It just shows how cost inefficient HMRC has been. They’re playing catch up in many respects.”

The Chancellor also said during his speech that capital gains tax on property will have to be paid within 30 days of disposal by 2019 via the online account. This may suggest that other tax payments will also be sped up once the system is live and bedded in.

 

How long does your pension have to last?

Friday, December 4th, 2015

Pension flexibility means not having to buy an annuity, but how long will your pension fund have to last?

The Office for National Statistics (ONS) website has a calculator that estimates how long your pension will need to last (http://visual.ons.gov.uk/how-long-will-my-pension-need-to-last/).

For example, the calculator says that for someone who is 50 years-old now, life expectancy is 86 years for a man and 89 years for a woman, but there is a 25% chance of the man living until age 95, the woman to age 98, and 12.3% chance of the man living to 100, 18.9 % for the woman.

Viewed another way, there is a one in four chance that a 50 year-old man’s  pension fund will have to last for at least 28 years rather than his life expectancy-based 19 years. It is at this stage you may be wondering why nobody has invented a simple investment that is designed to last as long as you do, however long that is. In fact, the product does exist – an annuity.

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.

HMRC continues its winning streak

Wednesday, December 2nd, 2015

Last year HM Revenue & Customs (HMRC) gained new powers to demand that users of many tax avoidance schemes pay tax up front. This was a complete reversal of what previously happened, where scheme users would withhold any disputed tax payment until the protracted legal process had run its course.

In August 2014 HMRC started to issue notices to scheme users seeking “accelerated payment” of disputed tax. Thirteen months later HMRC announced they had sent out over 25,000 notices and collected £1bn. By March 2020 HMRC is expecting to have issued 64,000 notices and brought forward £5.5bn of tax payments.

Not surprisingly there have been legal challenges. Two film scheme users went to the High Court seeking a Judicial Review, but their case was rejected in late July. As the end of the tax year nears, HMRC’s success is a reminder that when it comes to tax planning, there is much to be said for using tried-and-tested plans rather than the more ‘exciting’, aggressive schemes.

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