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Three ways accelerated tax payments are likely to affect you

Archive for February, 2016

Three ways accelerated tax payments are likely to affect you

Wednesday, February 24th, 2016

George Osborne announced last year that the tax system as we currently know it will be phased out by 2020, after the Treasury described the system of tax returns as “complex, costly and time-consuming.” In its place, a new digital system will be rolled out by the government which purports to be easier to use and manage for both individuals and businesses. Whether or not that will be the case remains to be seen; what is undoubtedly true is that there will be some major changes in the way you calculate and pay tax every year. Read on to see what we reckon will be three of the biggest changes you’re likely to experience.

  1. Paperwork and forms will be replaced with online content and apps – the new system will sweep away the long-winded, repetitive and arguably antiquated method of filing your tax return with a contemporary approach, utilising the latest technology. HMRC’s website will be the hub for the new tax system, with individuals and businesses being able to use apps on smartphones and tablets. Whilst this marks a step into the 21st Century which many no doubt see as long overdue for a system which has remained grounded in old-fashioned methods for a long time, it’s inevitable that the government will have a task on their hands convincing some of the security and reliability of a completely digital system.
  2. Annual tax returns will become a thing of the past – with the digital tax system, an annual tax return will be phased out in favour of more regular returns on the money you’re earning. Predictions have varied from quarterly returns to monthly reporting or even “real-time” tax returns, but there’s no real way of know what the government will opt for until an announcement is made. The idea behind making more regular returns is that the system will become more accurate, saving the treasury time and money by becoming more efficient. The new system has also been presented as quicker and simpler for the taxpayer, although this again remains to be seen.
  3. You may see the changes sooner than you think – in its document ‘Making tax easier: the end of the tax return’ published in March last year, HMRC stated that, “by early 2016 five million small businesses and ten million individuals will have access to their own digital tax account.” Whilst no follow-up to this figure has been published, what is true is that the amount of people accessing their tax details and completing their return online is rising year on year. Whilst the new system may not be completely rolled out until 2020, it’s very possible that you or your employer may start using the digital tax process much sooner than that.

Four key things to do before the end of the tax year

Wednesday, February 24th, 2016

Whilst the cold weather and long nights might make the beginning of April seem a long way off, the final few months of the financial year always seem to fly by. It’s therefore a good idea to start thinking about the most important things to do before 5th April arrives and the tax year ends. To get you started, have a look through our top four tips for what to do to ensure you are making the most of your investment opportunities whilst you can.

  1. Use your ISA allowance – you can invest a maximum of £15,240 per year in your ISA. That amount resets at the start of each tax year, and there is no way of carrying over any allowance that you haven’t used. Simply put, if you don’t use it, you’ll lose it. Remember, if you have both a cash ISA and a stocks and shares ISA, the £15,240 is the total of the combined accounts. However, you can now choose how you divide the allowance between the two accounts, something you couldn’t do until a couple of years ago.
  2. Pension Contributions and Flexible Pension Preparation – it’s worth checking your pension contributions every year, especially towards the end of the tax year. Pension contributions can often be a sensible way to look after your tax liabilities, but don’t forget you should always do this whilst keeping in mind your full financial plan. You should also be mindful of the lifetime pension allowance, currently £1.25 million but set to be reduced to £1 million from April 2016. Any pensions totalling more than that amount can be subject to further tax, which may impact on your financial planning overall. Make sure you check the current size of your pension if you’re considering making additional payments, as you may inadvertently push yourself into a taxable amount if you’re not careful.
  3. Capital Gains Tax Allowance – a tax break seemingly destined to be overlooked by many every tax year, the Capital Gains Tax Allowance stands at £11,100 for the 2015/16 financial period. What that means is that all profits from investments, or the sale of property up to that amount, remain tax free. Don’t forget that this figure applies to each individual, so a couple can enjoy up to £22,200 joint Capital Gains Tax Allowance. Moreover, a legitimate gift from a spouse or partner does not count towards this total.
  4. Savings for your children – it’s remarkably easy to overlook the fact that your children can benefit from virtually all of the above. The allowance for Junior ISAs this year is £4,080, so make use of as much of that as you can before it resets. Capital Gains Tax Allowance is the same for children as it is for adults, and it’s also possible to set up pension contributions for them. All worthwhile ways to make the most of your tax allowances before the end of the financial year.

Could changes spell the end of the pension itself?

Wednesday, February 24th, 2016

There’s a lot that’s likely to change about your pension in the near future, which in turn will have an impact on all sorts of other factors regarding savings for your retirement. Depending on what changes the government imposes on how pensions are taxed and the amount of tax relief allowed on pension contributions, you may end up needing to pay considerably more each month towards your pension, or even end up working several years longer before you can retire.

One idea that the Chancellor was toying with in 2015 – and which many predict he may still impose this year – was a change to make pensions more like ISAs. Under the current system, contributions are tax-free when you pay them into your pension, but are then taxed whenever you make a withdrawal.

The suggested change would essentially reverse this process: any pension contributions would have been taxed before being paid in, but would then be subject to no further taxation when a withdrawal is made. As stated earlier, this proposed shift would make a pension very similar to an ISA, which could spell the end of pensions as we know them. It’s predicted that many earners may move away from a new and unfamiliar form of pension in favour of the well-established ISA system for their nest egg.

According to a survey carried out by a leading online investment site, one in three people said they would move their savings to an ISA should the proposed taxation changes be brought in. Only 20% of people said they would continue putting their savings into a pension at the same level. Another popular alternative that many suggested they would consider is investing in property rather than placing their money into any form of savings scheme.

As George Osborne has already stated that he’s open to “radical change” when it comes to the pension system, it’s possible that he may opt to scrap pensions altogether, forcing earners to save for their retirement in some other way. Only time will tell, as an announcement on the future of pensions is expected soon, possibly as part of March 2016’s Budget.

February snippets – you may have missed…

Tuesday, February 23rd, 2016

A selection of recent articles and updates which you may have missed….

Pension errors to affect over 2 million

Over 2 million people will be affected by errors in calculating their state pension, says the Mail. Their entitlements depend on the treatment of National Insurance contributions while they were enrolled in ‘contracted out’ occupational pension schemes. But there are many discrepancies between the NI records held by the pension schemes and those held by the Department of Work and Pensions, which has not helped matters by telling pension schemes in 2012 that they no longer needed to keep the data. A big data reconciliation programme is under way but it won’t complete until 2018 and in the meantime, says, the Mail, many people’s pensions could be out by £5 or more per week.

Wealthy to pay more for probate

Probate fees for the wealthy are set to rise sharply, says the Financial Times. The government has proposed major revisions to probate fees, which are currently £155 for people with assets over £5,000. Probate is required before inheritors can claim assets from an estate. The proposal is to raise the exempt limit to £50,000 and then charge fees starting at £300 up to estates of £300,000, but then rising sharply up to £20,000 at a level of £2 million.

Millions at risk of hefty pension penalties

Up to 2.2 million pension savers are at risk of having penalties applied to encashment of their personal pensions, says the Telegraph. Old policies issues in the 1960s and 1970s often applied penalties on encashment before age 65, and many people now want to access cash at 55 under the new pension freedom rules. The Telegraph cited the case of a 55-year-old business owner who wanted to cash in a £28,000 pension to finance her business, and was given varying figures by provider Aviva for the penalty that would apply, ranging from £6,000 to £10,000. Aviva eventually waived its penalty but many others in a similar position may not be so lucky.

The home of Mum and Dad

The proportion of young adults living at home with their parents has risen to its highest level for over 20 years, says the Mail. Back in 1996 55% of adults in the 20-34 year old age group owned their own property; today it is just 30%. That means one in four people in this age group today still live with their parents. Accumulating a deposit and qualifying for a large enough mortgage are the main factors keeping them at home.

Not many care about marriage allowance

Decried at the time as a typical Chancellor’s gimmick, the marriage allowance introduced by George Osborne has proved just that. Only 330,000 of the 4.2 million people eligible for the allowance have bothered to claim it, says the Sunday Times. In theory, if one of the couple have an income below the personal allowance  (£10,600 this year) they can transfer up to £1,060 of their allowance to their partner, who would then save just over £200 in tax. But the procedure and forms are complex, and the Sunday Times reported the case of a 77-year old who claimed HMRC did the transfer the wrong way round so he ended up paying more tax and it took him six months to sort it out.

Savers waste billions in unclaimed tax breaks

UK savers and investors waste £4.6 billion a year by not claiming obviously advantageous tax breaks, says the Financial Times. £1.9 billion relates to pension funds but another £1.8 billion comes from not making best use of ISAs. Transferring the maximum into ISA each year (£15,240 for 2015-16) reduces the amount of income tax payable on interest, dividends and capital gains.

Millionaires pay more tax

The top 6,000 taxpayers in the UK have been successfully targeted by a special unit within HMRC, says the Financial Times. Since it was set up in 2009 it has collected an extra £1.3 billion, and last year’s haul of £414 million was up 54% on the previous year. The top 6,000 UK taxpayers collectively pay between £3 billion and £4 billion a year in tax.

February Market Commentary

Wednesday, February 10th, 2016

February Market Commentary

 Twelve green bottles, standing on the wall

Twelve green bottles, standing on the wall

And if one green bottle, should accidentally fall…

Yes, yes, we know the song is really ‘ten green bottles,’ but in January 2016 the world’s leading stock markets resembled nothing more than the row of proverbial bottles. As one market fell, so they all fell – with one defiant exception among the twelve that we cover in this Monthly Commentary.

Inevitably, some markets fell more than others, and January was a month when it would have been easy to panic – but after some analysis, we’re pleased to report we have found some good news among the headlines.

The month got off to a jittery start, with the World Bank warning of ‘slow global growth’ and North Korea claiming a successful hydrogen bomb test. But it was the continuing slump in commodity prices – especially the price of oil – which really set nerves jangling around the world’s stock markets. Add in the continuing slowdown in China, and its likely impact on world trade, and markets could only move in one direction. China led the way, with the always-volatile Shanghai Composite index down by 23% in January.

Oil prices continued to fall – first to $33 a barrel and then to below $30 – and there were no comforting words from the great and the good gathered at the World Economic Forum in Davos. It was left to Bob Greifeld, the head of the US Nasdaq exchange, to find the light at the end of the tunnel. ‘Once the emotion has left the market,’ he said. ‘You’re left with businesses doing reasonably well. Better to have it [the oil price] at $26 a barrel than $126. And China’s 6.9% growth may be disappointing, but it’s still growing.’


Let’s start with the positive news in the UK: 2015 was a record year for new car sales, with 2.63m vehicles being registered, an increase of 6% on 2014 and the fourth consecutive year of growth.

Sadly, it appears that most of the new vehicles may have been bought on credit, with consumer debt rising sharply in the run up to Christmas. The latest Bank of England figures show that UK consumers now owe a total of £180bn on credit cards and loans.

Chancellor of the Exchequer, George Osborne, started the month by warning of a “cocktail of risks” facing the UK economy – tension in the Middle East, slow global growth and the possibility of an interest rate rise. Unfortunately, there was an even more potent cocktail for Mr Osborne himself in January, as he was battered from all sides for the Google tax deal, admitted that the Department for Business, Innovation and Skills is to close its only office outside London (in Sheffield: so much for the ‘Northern Powerhouse’) and was forced to postpone the sale of the remaining shares in Lloyds Bank.

Figures released in January showed that UK manufacturing had slowed again in December – and then the bad news really started to gather pace. BP announced plans to cut 4,000 jobs as the oil price continued to slide, and Tata Steel closed its Port Talbot steelworks with the loss of another 1,000 jobs. Shoe retailer Brantano went into receivership with the potential loss of 2,000 jobs, so it was scant consolation when BT announced 1,000 new jobs in UK call centres.

In a further blow to the UK High Street, Amazon announced that it would create 2,500 jobs in its warehouses – sorry, ‘fulfilment centres’ as we must learn to call them.

Tesco hailed a ‘strong Christmas’ with sales up 1.3% in the period, but the retailer was soon back in trouble as it admitted ‘deliberately delaying payments to suppliers to improve its own financial position.’ It was joined on the naughty step by RBS, who were forced to set aside another £2bn to cover PPI mis-selling and bad loans in the USA.

Bank of England Governor, Mark Carney, surveyed the wreckage of the month – and the news that the UK economy had grown by 0.5% in the final quarter of 2015 – and announced that there was ‘no need for rate rises for now.’

In the circumstances, the FT-SE 100 index of leading shares had a reasonable month: yes, it was down, but only by 3%. Having started the year at 6,242, it closed January at 6,084.


Good news for the UK car industry to start the month, but in Germany the problems were mounting for Volkswagen as the US Justice Department decided to sue the car manufacturer over the emissions scandal and – unsurprisingly – sales fell for the first time in 11 years. Sales dropped by 4.8% in 2015 to 5.82m cars, down from 6.12m in the previous year. In contrast, overall car sales in Europe were up by 9.2% in the year.

Unsurprisingly, there was confirmation that countries affected by terrorism were seeing a drop in tourism, and French President Francois Hollande declared that France was in a state of ‘economic emergency.’ He launched a €2bn job creation plan to try and combat France’s high unemployment rate – 10.6% against a European average of 9.8% and a German rate of 4.2%.

There was some good news, however, as Airbus signed a $25bn deal with Iran – one of the biggest since Western sanction against the country were lifted – and Eurozone inflation inched up to 0.4%, slightly allaying fears of a continuing slowdown. European Central Bank chief, Mario Draghi, backed this up by hinting at further stimulus moves, saying there would be ‘no limits’ to action to reflate the European economy.

Sadly, good news was in short supply on the main European stock markets, as the German DAX index fell 9% in the month to close at 9,798: the French stock market was down by 6% to 4,417.


January saw the perennial mixture of good and bad news from the United States. Jobs growth remained solid in December as 292,000 were added, which was ahead of expectations. Whether this will continue is open to doubt though, as figures released for the fourth quarter of 2015 suggested that the pace of US growth was slowing sharply. It was 0.7% in Q4, compared to 2% in the previous quarter.

This worry was emphasised when Walmart announced that it was to close 269 stores, stating that it was struggling to compete with online retailers such as Amazon. Those fulfilment centres must have been busy as sales at Amazon rose 21.8% in Q4, allowing the company to post record profits. Despite this, the figures were below analysts’ expectations and the shares fell sharply when the figures were announced.

No such worries for Facebook as Q4 profits more than doubled to $1.56bn – but Apple warned that sales of the iPhone were likely to fall this year for the first time since the product was launched in 2007. Presumably on the grounds that everyone in the world has got one…

There was no joy on Wall Street for Goldman Sachs as they agreed to a $5.1bn ‘settlement’ for the mis-selling of bonds, and no joy for the Dow Jones index either, as it fell 6% in the month, starting the year at 17,425 and closing January at 16,466.

Far East

And so to China, the source of all the stock market woe this month. The simple fact is that the world continues to worry about the slowdown in the Chinese economy, where manufacturing fell in January for the sixth month in a row. The economy continues to expand – and at a rate the West can only dream of – but the rate is much slower than in previous years, which has meant a consequent drop in demand for oil and natural resources.

At the moment there seems little sense of perspective: as we commented in the introduction, the Chinese market is always volatile and that was especially true in January. Share price movements were erratic, trading was suspended on several occasions and at the end of the month the Shanghai Composite index had fallen 23% to 2,738 from an opening level of 3,539.

However, it’s important to keep in mind that China is remorselessly producing a trade surplus every month. In December this was just over $60bn – ahead of market expectations and well up on the $49bn of a year earlier. This surplus is increasingly being invested overseas, with January seeing major purchases in Germany (a machinery supplier) and in the US (a Hollywood studio and a major stake in Grindr, the online dating app).

So yes, Chinese growth at 6.9% may be the slowest in 25 years but – as we reported in our introduction – it is still significant growth and it is being used to gradually acquire significant stakes in economies around the world.

Fortunately, the dramatic falls on the Chinese stock market weren’t repeated on the other major Far Eastern markets. The Japanese Nikkei Dow index was down 8% to 17,518 as the Bank of Japan tried to boost the economy by moving to a negative interest rate, whilst Hong Kong was down 10% to 19,683. The South Korean stock market never seems to get excited about anything, and contented itself with a modest drop of 2% to 1,912.

Emerging Economies

Finally, we come to the one major world market to move ahead during January. In what was no doubt claimed as another triumph for Vladimir Putin, the Russian market gained 1% in January, to close the month at 1,785. This was despite some fairly catastrophic figures released by the official statistics service, showing that the Russian economy had contracted by 3.7% in 2015, with sales down by 10% and capital investment down by 8.4% in the worst performance since 2009.

The other two emerging economies which we cover fared less well, with the Indian stock market down 5% to 24,871 and the Brazilian index continuing its slide of last year, falling another 7% to 40,406.

There was more bad news in South America as the Venezuelan government declared a state of economic emergency, with figures suggesting that the economy had contracted by 4.5% in the first nine months of 2015.

And finally…

As you can imagine, it’s been hard to find something amusing to end with this month, but let’s return to the World Economic Forum in Davos, where ‘the crummiest hotel room’ is £400 a night, a ski chalet for the week is £100,000 and guests discuss the plight of the world’s poor whilst drinking £290 bottles of Cheval Blanc. Tickets for the event – if you can get one – cost $27,000 and according to CNBC’s website a hot dog is over $40! This must make your local sandwich shop, or ‘fulfilment centre’ seem a veritable bargain!

Click here to view sources.


Will we get a fairer State pension deal for women?

Wednesday, February 10th, 2016

A recent Saga article claims that the battle to give women a fairer deal over their state pensions scored a significant victory early in January, when it was the subject of a House of Commons debate. Although the debate had no power to directly alter government policy, it represented yet another important step in bringing the campaign into the public eye and gathering support from politicians.

A campaign group known as WASPI (Women Against State Pension Inequality) has been fighting to bring justice to hundreds of thousands of women who are facing delays in receiving their pensions from the government, saying that women born in the 1950s – specifically those born on or after 6 April 1951 – have faced two increases to their state pension age, which until 2010 had remained at 60 for several decades. WASPI states that many of the women affected by the 1995 and 2011 pension law changes face an unfair double delay in becoming eligible for their pensions.

WASPI’s campaign is based on the contention that successive governments have not done enough to inform those affected of these delays, and that the 2011 reforms are being implemented too quickly. This has resulted in many women being given too little time to plan their retirement finances, the group says.

In the debate, members of the House of Commons voiced concern that the acceleration of state pension age equalisation directly discriminated against women, adversely affected retirement plans and caused “undue hardship” in some cases, with many women facing difficulty as a result of lower pay and careers interrupted by bringing up children. From the Government benches it was stated that there are currently “no plans to alter state pension age arrangements” for the women affected by the equalisation of eligibility ages and without change, our current state pension arrangements will simply not be financially sustainable. It was also suggested that hardship was avoidable as people were given notice of the change, allowing them to plan.

The debate is likely to put pressure on the government to respond in more detail to WASPI’s requests for fairer transitional arrangements. Financial journalist Paul Lewis, who was quoted during the debate, commented:

“It was gratifying that so many MPs from all parties broadly supported the campaign and that the information which the WASPI women and I have extracted from the DWP was widely quoted. Sadly, even a 158:0 vote for the motion to give some transitional help is not binding on the Government and no hint of change was given by the Minister. But the pressure is certainly on the Government and we can only hope that it is at least looking again at what, if anything, it might do.”

The value of your investment can go down as well as up and you may not get back the full amount you invested. The value of tax reliefs depends on your individual circumstances. Tax laws can change.

Pension tax changes: Should you pay more now?

Wednesday, February 10th, 2016

Given recent comment from George Osborne, and mentions of the same during the Autumn Statement, it appears as though pension tax is set for a shake-up in 2016. With that in mind, there appears to be a potential opportunity for higher-rate taxpayers to make the most of their savings while the good times last.

Though not confirmed at this current time, it appears that the writing may be on the wall for up to five million pension savers enjoying the higher-rate tax relief. There is a suggestion that the generous reduction is about to be heavily curtailed – and could be scrapped altogether, with the Chancellor already indicating that major reforms to pension taxation will be announced in the March budget. The changes could see higher-rate taxpayers lose the 40% relief currently offered on pension contributions.

Instead all savers, no matter what rate of income tax they pay, may be offered tax relief at a flat rate of more than 20% but less than 40%. The Government may also create a less generous tax system for savers with valuable final salary pensions. The Government could also choose to eliminate tax relief on pension contributions, making pensions more like ISAs. This could apply to all savers, or just to those who pay higher rates of tax.

The Government spends £35bn of its £50bn annual pension tax relief bill on higher earners. This has grown substantially from £17.6bn in 2001-2002. Many feel the wealthy should not be able to reclaim large amounts of income tax while in work and pay reduced rates in old age. However, commentators believe the Government has to walk a very fine line here. Take away too much of the incentive to save and millions of people could end up woefully underprepared for retirement. The cost of supporting struggling pensioners would inevitably fall on the state – and working taxpayers.

We already know the annual allowance – the amount you can save into your pension every year and receive tax relief on – will fall for higher earners from April. Anyone whose income exceeds £150,000 will see their annual allowance fall, via a sliding scale, from £40,000 to as little as £10,000. The lifetime allowance, the maximum value your pension is allowed to reach at any stage, is also falling, from £1.25m to £1m in April. So higher-rate taxpayers should potentially consider pouring as much money into their pensions as they can soon before the days of generous tax breaks are gone for good.

The value of your investment can go down as well as up and you may not get back the full amount you invested. The value of tax reliefs depends on your individual circumstances. Tax laws can change.