May/June 2015 ● Lifestyle Protection ● Creating Wealth ● Tax Rules ● Cohabiting couples PENSIONS Don’t need to be confusing Do I really need INSURANCE? My £95,000 Tax free savings pot The 2015 BUDGET M oney M atters McHardy Financial – Independent Financial Advisers Aberdeen Edinburgh Kirkcaldy 13 Bon Accord Crescent, Aberdeen, AB11 6DE 10a Rutland Square, Edinburgh, EH1 2AS 3 East Fergus Place, Kirkcaldy, Fife, KY1 1XT Tel: 01224 578 250 Fax: 01224 573583 Email: [email protected] www.mchb.co.uk McHardy Financial is a trading style of McHardy Financial Ltd which is authorised and regulated by the Financial Conduct Authority. We are entered on the FCA Register Number 126147. www.fca.gov.uk Registered Office as above. Registered in Scotland No. SC105200
Tel: 01224 578 250 Fax: 01224 573583 Email: [email protected] www.mchb.co.uk McHardy Financial is a trading style of McHardy Financial Ltd which is authorised and regulated by the Financial Conduct Authority.
We are entered on the FCA Register Number 126147. www.fca.gov.uk Registered Office as above. Registered in Scotland No. SC105200
33
Annual paper taxforms to be
replaced withdigital accounts
The Chancellor George Osborneannounced the end of the paper annualtax form and he promises to bring indigital tax accounts for all individuals andsmall businesses.These new tax accounts unveiled in the
March Budget and will be accessible atany time from a computer, smartphone oriPad. They will be perform just like anonline bank account.The Treasury are selling the idea as a
concept that will make it much easier forthe 11m taxpayers and 12m companieswho currently fill in an annual tax form topay the right tax at the right time withoutfiling a return. It describes the currentsystem as complex, costly and time-consuming. Many believe the digitalprocess is more to do with transparencyfor the Government and Treasury.When people log on to their account,
they will be able to see how their tax iscalculated as HM Revenue & Customsautomatically updates it with informationfrom employers, the Department for Workand Pensions, pension providers andbanks. People will be able to pay theirtaxes when it is most convenient to themby linking to a bank account and
arranging payments by instalments or byDirect Debit. This change should help growing
companies who will no longer have to paya ‘one off’ big end of financial year taxdemand because HMRC has calculatedtheir payments on the previous year’sinformation. Instead, firms will be able toprovide details in ‘real time’, theGovernment will benefit from promptpayments from this up to dateinformation.According to the Treasury, the switch will
be completed by 2020. In early 2016, 5m small businesses and the some 10mindividuals will have access to their owndigital tax account. By 2017, the firstgroup of people with simple tax affairs willno longer have to complete an annualreturn. By 2020, businesses will be able tolink their accounting software to theirdigital tax account so they can feed ininformation as they choose. People whocurrently do their tax return on paper cancontinue to do so if they wish, but overtime this is thought to reduce in favour ofdigital returns.
How long will my money last? We are allliving longer, on average a 65 year old ingood health is expected to live for 24 yearsafter retirement and it is thought that 25%of us will live to see our 95th birthday.Retirement savings will have to last for along time, possibly 30 years or more. Leavingyour money invested for longer could make abig difference to your lifestyle along yourretirement journey.How much State Pension will I get?The amount of state pension is not the samefor everyone and it depends on youremployment history and when you wereborn. Remember the State Pension isdesigned to cover only a very basic standardof living without any luxuries.What about savings I have? Bank savingaccounts, premium bonds or ISAs, may bebetter for you to take money from these firstbefore drawing from your pension plan. If you own your home you might think aboutdownsizing or renting it out to fund yourretirement.What are my future financial needs?Consider all of your living expenses, likehousehold bills and family costs, and how
these may change over the coming years.Remember to budget for holidays, transportand house repairs. Also factor in the fact thatyour financial needs are likely to reduce asyou get older and become less active, but keep in mind that in you later years costsof long term care may be required.How can I minimise my tax bill? Consideryour personal tax allowances and plan totake your retirement savings in a way whichmakes the most use of your personal taxallowance so you don’t have to pay taxunnecessarily.Should I buy an annuity? An annuity is apromise by an insurance company to pay youan income for the rest of your life. You shouldcheck the terms of the annuity before youcommit as they cannot usually be changedafterwards. It is worth shopping arounddifferent insurance companies before youbuy as prices can vary.Will I lose any my welfare benefits?If you are receiving state benefits or TaxCredits then taking your retirement savingscould impact on the level of those benefits.This is a complicated area and expected tochange in
the near future. Make sure you understandhow your state benefits, tax credits or longterm care needs would be affected beforedeciding to access your retirement benefits.What happens when I die? If you diebefore age 75, any money left in yourpension plan will be paid to your survivorsfree of any tax. If you die after 75, moneypaid to your survivors may be subject to taxdepending on their circumstances.Retirement savings which remain in pensionplans are not normally counted forinheritance tax purposes. If you havepurchased an annuity, benefits payable afteryour death will depend on the insurancecontract.Where do I get more help? Always seekprofessional financial advice, talk to yourpension plan provider for details about youroptions. After that, we would alwaysrecommend contacting your authorised,regulated, professional financial adviser, who will help you build a full and conciseretirement plan.
• You can choose how theytake your money fromyour pension.
• Take unlimited lump sumsas and when they like,you can even take thewhole amount if youwish.
• As previously, take up to25% of their pension pottax-free, and a taxableincome from the rest,which is added to otherincome for tax purposes
The value of pension and the income they produce can fall as well as rise. You may get back less than you invested.
Changing over to digital could make it much easierfor over 11m taxpayers and 12m companies
Questions about thenew pension freedoms
inside
2
Need more information?Simply complete and returnthe information request onpage 12
Annual paper tax forms to be replaced with digital accounts Page 2
Questions about the newpension freedoms Page 3
A guide to the language of pensions Page 4
Taking money from yourpension Page 5
Pension pot to buy-to-letPage 6
Cohabiting couples Page 7
Do I really need insurance?Page 8
The 2015 Budget Page 9
Is my pension pot my newbank account? Page 10
My £95,000 tax-free savingspot Page 11
Which Junior ISAs shouldparents choose? Page 12
Reader Reply… Personalisedreply section Page 12
Not all financial advisers will have regulatory permission to advise on every product mentioned in these articles. Certain products mentioned in this magazine may require advice from otherprofessional advisers as well as your financial adviser and this might involve you in extra costs. The articles featured in this publication are for your general information and use only and are notintended to address your particular requirements. They should not be relied upon in their entirety. Although endeavours have been made to provide accurate and timely information, there canbe no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such informationwithout receiving appropriate professional advice after a thorough examination of their particular situation. Will writing, buy-to-let mortgages, some forms of tax and estate planning are notregulated by the Financial Conduct Authority. Levels, bases of and reliefs from taxation are subject to change and their value depends on the individual circumstances of the investor.
ANNUITYAn annuity is a guaranteed income boughtfrom an insurance provider. Generally, anannuity lasts for the rest of a person’s lifebut they can also be bought for a setnumber of years. Income can be fixed, orincrease each year in line with inflationENHANCED ANNUITYA higher rate of guaranteed income paidfor life to people in poor health or withcertain medical conditions. ANNUAL ALLOWANCEIs the maximum amount you can put intoyour pension each year, currently £40,000.Contributions above this will be charged atyour normal rate of tax.BENEFICIARY NOMINATION FORMA document held by the pension providerwith the name(s) of a person, or names ofpeople, who you would like to receive yourpension savings in the event of your death.CONTRIBUTIONSThe monthly sum you pay into a workplaceor personal pension.CLOSED PENSION SCHEMEThis is a pension scheme which is closed tonew members. If it is also closed toexisting members, you cannot make anyadditional payments into it.DEFERRALThis is the delaying date at which you takeyour state pension. If you reach statepension age before April 6 next year youcan increase your income by one per centfor every five weeks you defer. After April2016 the weeks move from 5 to 9 for the1% deferral
DEFINED BENEFITA pension which is a ‘final salary’ schemewill pay an income linked to your numberof years’ service with a company and thefinal salary you earned at the point of yourretirement.DEFINED CONTRIBUTIONIs the pension pot from which your futureincome will depend on its investmentgrowth and the growth from yourcontributions and those of an employer ifit is a workplace pension.DRAWDOWNIncome drawdown allows you to takesegments as an income from your pensionsavings whilst keeping the remainder ofthe pot invested.EXIT FEEIs a penalty charge which is charged to apersonal pension pot when a pension fundis transferred to a new scheme from anexisting scheme.FINANCIAL SERVICESCOMPENSATION SCHEMEThe UK’s independent compensation fund.Compensation may be paid out to pensionpolicy holders if an authorised insurer goesbust.JOINT LIFE ANNUITYA guaranteed income for life which is paidto a spouse after you die.LIFETIME ALLOWANCEThe maximum sum that can be paid intopension savings over a lifetime, currently£1.25million, but is moving down to£1million from April 2016.
PERSONAL PENSIONPension pots separate to the state pensionand any workplace pension you may have.PENSION PROTECTION FUNDThe organisation which pays compensationto members of defined benefit pensionschemes if an employer defaults and thepension fund doesn’t have enough fundsto meet its commitments.PENSION WISEThe new free and impartial Governmentservice to guide people through theirretirement options.SELF-INVESTED PERSONAL PENSIONAlso known as SERPs they are the do-it-yourself pension which you control whereto invest. It can be a useful way toconsolidate multiple pots in one place.STATE PENSIONA regular weekly payment from theGovernment of up to £113.10, whichstarts at 65 for men andbetween 62 and 65 forwomen.
A guide to the language of pensions
4 5
TAX-FREE LUMP SUMThe chunk of pension you can take tax-free when you retire, usually, but notalways 25 per cent.TRUSTEESPeople responsible for independentlyoverseeing the management of a pensionscheme.
LIBERATOR SCHEMESAlso known as ‘early pension release’, beaware of such schemes as they encourageyou to access pension savings before age55. Scheme operators take a hefty fee fortheir ‘service’ and the victim is left with a55 per cent tax bill to pay. Pleaseremember that it is illegal to take yourpension before age 55, unless throughserious ill health, and these liberationscheme are scams, and the individualusing these services is unlikely to receiveany money.
How to takemoney fromyour pensionA secure income for life - via anannuityMost people will require some form ofsecure income to meet essentialexpenditure such as household bills andto provide regular long-term income,regardless of how long they might live.State pensions and occupational pensionscan all count. The most common way todo this from a personal pension is toconvert the fund to an annuity - aguaranteed income for life. Usually up to25% can be taken as tax-free cash beforebuying an annuity.
A variable income taken straightfrom the fund - via drawdownSome people will also want flexibility andcontrol, keeping their pension invested toprovide a variable income which has thepotential to rise over time, but they mustalso be comfortable with this income notbeing guaranteed - it could fall or run outentirely. This can be done by drawingdirectly from the fund, known asdrawdown. There are no limits on howmuch can be withdrawn, and income canbe stopped, started or varied at will.Usually up to 25% of the fund movedinto drawdown can be taken as tax-freecash.
A new option to draw lump sums - anUncrystallised Funds Pension LumpSum (UFPLS)A new option is now available if investorshave not yet taken tax-free cash orincome from part of their fund, lumpsums can be withdrawn as required. Thisis known as taking an UncrystallisedFunds Pension Lump Sum (UFPLS).
Like drawdown, this allows you to takelump sums from your pension, whichremains invested. However, you don’ttake the tax-free lump sum up front.Instead, in most cases 25% of each lumpsum you take will be tax-free.
Pensions don’t need to be confusing
If you have concerns about your retirement andwant to find out how much you should be savingto help achieve your desired retirement income,please contact us for further information.
6 7
Pension pot to buy-to-let
THE FACTS:• Most buy-to-let lendersrequire buyers to putdown at least a 25 per centdeposit.
• Interest rates on theseloans tend to be higherthan for standardresidential mortgages.
• Most buy-to-let deals areset up on an interest-onlybasis. This means lowermonthly repayments asyou are repaying only theinterest on the loan, notthe capital you borrow.Borrowers will have torepay the outstandingbalance at the end of themortgage term. This isusually done throughselling the property,clearing the outstandingdebt and pocketing anycapital profits. Thosewishing to keep theproperty long term toprovide an income in oldage should consider arepayment mortgage,where the debt is paiddown gradually over years,removing the need to sell.
New ‘pension freedom’ rules will allowmany people to invest in buy-to-letproperties as a way of funding theirretirement, many in their mid fifties willjoin the growing ranks of landlords.
The attraction of buy-to-let is simple tosee as it offers the potential of long-termcapital growth with the opportunity toearn a regular income. Strong tenantdemand has seen rents rise over the pastfive years.
Money invested in a typical buy-to-let iseffectively providing a 5.1 per cent annualyield return.
This compares very favourably with thereturns seen from savings accounts andother investments. Those aged 55 or overcan now unlock their pension savings,effectively enabling them to fund aninvestment property.
Many people may not have a bigenough pension to buy a suitableinvestment property outright, but can usepart of their pension savings to put downa large deposit, then look to finance thebalance through a specialist buy-to-letmortgage deal.
Buy-to-let lenders impose few agerestrictions. Most buy-to-let lenders willprovide a mortgage until a borrower’s75th birthday. But some will want any debtrepaid by the time a borrower reaches 70.
Many buy-to-let lenders have differentways of assessing how ‘affordable’ theirloans are, they look at the rental incomethat a property is likely to generate ratherthan the applicants earnings.
Lenders usually insist that the rentalincome is at least 125 per cent of themortgage interest.
A problem could be that many lenderswant borrowers to have non-propertyearnings of at least £20,000 a year beforethey will offer a buy-to-let mortgage. This is because they want to knowcustomers have enough cash to coverrepayments if tenants default. What are the potential pitfalls of buy-to-let?Although the property will generateincome when there are tenants, investors need to plan for when therecould be a break in tenancy. A neverending stream of maintenance where billscan be high and tenants can bedemanding, so property investment iscertainly not for the faint-hearted oranyone who is busy.
Additionally, using your pension toinvest in a buy-to-let is not tax efficient.You can take a quarter of your pension potas a tax-free lump sum. But if you takemore, you’ll have to pay income tax onthese withdrawals. The good news is that when your buy-to-let is up and running, mortgage interestand some other costs can be deductedfrom your rent, paying only income tax onthe balance remaining. If you sell your property at a profit youmay end up paying capital gains tax,which is normally due on profits of morethan £11,000.
1. Make sure you both have a WillCohabitees do not automatically have any rights to their partner’sestate if they die without leaving a will. It’s important to draw up alegal document setting out what should happen if you dieunexpectedly.2. Make a cohabitation agreementA cohabitation agreement spells out exactly what each partner hascontributed to the relationship and how they should be divided inthe event of the relationship breaking down. This includes theproperty, its contents, personal belongings and savings. It can alsoset out how much someone has contributed to the mortgage andbills. It is very important from the outset to list out who owns whatand how these will be distributed on separation.This is particularly important when the property is owned by one
partner but where the other has helped pay the mortgage and bills.Unless these contributions are set out in the agreement, the partnerwho does not own the property could find they have no right to ashare of the home if they split up.As well as helping you plan for a time when you are no longer
living together, a cohabitation agreement can also be used to clarifyareas of potential conflict, such as joint credit cards and bankaccounts. 3. Which contract of ownership?When buying a home together, cohabiting couples should decidewhether to arrange the contact as joint tenants or tenants in
common. Under joint tenancy, both partners own the whole property,but if one dies, the property automatically goes to the other partner,but if you are tenants in common you each own a specified shareand can leave your share to whoever you want to in your Will.4. Check your pension planningUnmarried couples who live together are not entitled to receive thestate pension or bereavement allowance for deceased partners,unlike married couples.There could also be complications with some pension providers
not paying out to unmarried partners in the event of death,especially when it in occupational schemes. The best option is for each partner to complete an expression of
wish form to inform their pension provider as to where they wanttheir benefits to go on death that said this declaration is not legallybinding.5. Consider the tax implicationsMarried couples can transfer ownership of assets betweenthemselves with no tax liability, such as shares or a property; theseassets could be transferred in order to use both partners’ annualCGT allowance. Proper planning in the way could also reduce theInheritance Tax bill in future years. Cohabiting partners don’t carrythis luxury as they are seen as individuals and are taxed as such.
Cohabiting couplesThere are more than six million cohabiting couples in the UK, twice the number of 20 years agowith half having little or no idea that they have no legal protections if they split up. Many couplesliving together have few legal rights if they split up, so how can they protect themselves
The value of pension and the income they produce can fall as well as rise. You may get back less than you invested.
8 9
Do I reallyneed insurance?
No giveaways, no gimmicks: That’s whatGeorge Osborne has promised from his2015 Budget, which is his last chance before the election to persuade voters thathe’s done a good job of balancing Britain’sbooks.
The Chancellor certainly threw a few taxcuts in to act as vote sweeteners but theyhave to be paid for by others.
Has he stuck to his word? Is heresponsible for a bounce in the UK’seconomy? You decide, here is what he hasannounced:Help To Buy ISA*A new ISA will be available for first-timebuyers. For every £200 a first-time buyersaves, the Government will top up withanother £50. It means that if you put in£12,000, the Government will put in£3,000 more. Flexible ISAs*Money can be taken in and out of ISAsfrom this Autumn without savers losingtheir tax-free allowance.Pension Changes*The Lifetime Allowance for pensionsavings has been reduced from £1.25million to £1million from April 2016 *The Chancellor has confirmed that theTreasury has published a consultation toallow pension freedoms to be extended to5million existing annuity policy holders in2016 .More Tax Free Savings*A new Personal Savings Allowance hasbeen announced, which will mean thatfrom April next year the first £1,000 of theinterest earned on all of your savings willbe completely tax-free - regardless ofwhether or not they are in an ISA.
Tax Changes*The Chancellor confirmed that thepersonal allowance (the amount that youcan earn before income tax kicks in) hasbeen increased from £10,800 this year to£11,000 next year.*The threshold at which people startpaying 40p tax to rise from £42,385 to£43,300.Death of the Annual Tax Return*The Chancellor has axed the annual tax-return, which will affect 12 millionpeople. Instead people will have theinformation the HMRC needs automaticallyuploaded into new digital tax accounts.*Those with the most complex tax affairswill be able to manage their accountonline. Cutting the cost of Beer, Cider and Spirits*The Chancellor announced a tax cut of 1pon a pint and 2% cut on the duty of spiritsand cider.Frozen Fuel Duty*Once again George Osborne confirmedthat fuel duty will remain frozen.Economy Updates*The UK economy is forecast to grow by2.5% this year (up from previous forecastof 2.4%), 2.3% in 2016 (up from 2.2%),2.3% in 2017 (down from previousforecast of 2.4%), according to the Officefor Budgetary Responsibility (OBR).*Unemployment set to fall by 0.1% from5.4% to 5.3% this year*nflation forecast to fall to 0.2%,according to the OBR*Announced sale of £13billion of NorthernRock and bank bailout mortgage assets.
The Government is to also sell a further£9billion of Lloyds shares this year. The cash will be used to pay down theUK’s national debt.*Debt as a share of GDP is set to fall fromthis year to 80.4% ending up at 71.6% in2019-20.*Borrowing is set to fall to £90.2 billionthis year and is forecast to fall to £75.3billion next year and £39.4 billion in 2017,according to the OBR.*It’s forecast there will be a budgetsurplus of £7billion in 2019/20.*A further £30billion in savings must befound this year.Crackdown on tax avoidance*Further measures to close schemes andloopholes that allow business andindividuals to wriggle out of tax have beenannounced, the changes are expected toraise £3.1billion.Review of Business Rates *In an effort to save high street shopsfrom the threat of internet companies, the Chancellor has announced a review ofbusiness rates Bank levy increased*Raised bank levy to 0.21%, which isexpected to raise an extra £900million ayear.Tax breaks For North Sea OilCompanies*The Chancellor announced £1.3billion ofsupport to North Sea oil companies,following a global drop in oil prices.*Petroleum revenue tax cut from 50% to35%.
Any long-term financial plan you makedepends on your ability to earn moneyconsistently. So if you become too ill to workthen you may even have to abandon yourplans, unless you have insurance in place toreplace some of your income.
If you became critically ill, your familycould quickly face severe financial difficulties.And if you were to die young then, asidefrom the emotional fall-out, this woulddeprive your loved-ones of many years ofpotential income. Without insurance in place,you would probably only be able to pass ona fraction of the wealth that you intended toleave as a legacy.
So to decide whether you really needinsurance, it’s important to ask yourself afew key questions, in the order that lets youdeal with the highest priorities first.What would happen if you died?If your family would struggle to pay themortgage or meet other essential day-to-dayliving expenses then you should definitelyconsider life assurance. This is especiallyimportant if you’re currently the solebreadwinner for your family, or if thehousehold doesn’t have a lot of savings tofall back on. If your partner has their ownincome then you may feel they could copewithout you, but it’s important to factor inadditional burdens such as childcare costs.
Life cover will provide your family with aguaranteed lump sum or regular income
after your death. If your employmentcontract includes ‘death in service’ benefitthen your family may be eligible for a pay-out worth a multiple of your salary if you diewhile working, but this probably won’t beenough to compensate them for the loss of alifetime’s worth of income.
So think carefully about how much youwish to leave and consider the differentpolicy types that will enable you to get thebest possible outcome within your budget. What would happen if you becamecritically ill?A critical illness such as cancer, stroke or aheart attack could put a massive strain onyour family’s finances very quickly, especiallyif you don’t have an employment contractthat will provide you with an income in caseof long-term ill health.
If you have a partner and/or children whodepend on your income then you may wishto ensure that they benefit from a lump-sumpayment, once a critical illness is diagnosed,to help them cope with your care whilekeeping up with mortgage payments andhousehold expenses.
Critical illness cover is designed to do justthis. Policies vary considerably, but in the UKsome will cover over 60 of the major medicalconditions and some cover many more. Theymay also include cover for children.
What would happen if you becametoo ill to work?If you’re a full-time employee then yourcontract will allow for paid sick-leave. In theUK, you can take up to seven days offwithout a doctor’s note, or four weeks withone. But after four weeks you may beconsidered ‘long-term sick’ and any sick payfrom your employer could start to bereduced. It is important to understand whatthe arrangements would be with yourcompany. And if you are self-employed thenit is particularly important to think abouthow you and your family would cope with aperiod of prolonged illness.
If you’ve got savings and/or investmentsthen you could use these to cover yourexpenses for a while. But of course there’s noway of knowing in advance how long you’dneed to recover to the point where you couldstart earning again. And in any case: wouldyou really want to dip into savings that you’dotherwise be using to fund life goals such asretirement?
This is where income protection insurancecomes in. It’s designed to help cover yourexpenses if an illness or injury leaves youunable to work over the long term. Anincome protection policy will pay apercentage of your monthly income, with atypical maximum of 75%, potentially all theway to retirement.
THE 2015 BUDGET
If you’ve got a family who depend on your income then insuring yourself should be ano-brainer. But even if you haven’t, it’s worth considering a policy that will preventyour long-term plans from being altered by ill health.
10 11
My £95,000tax-free savings pot
In a move aimed at helping savers getbetter returns on their saving rates, from April 2016, a basic-rate taxpayer willbe able to put away more than £95,000 ayear in cash without paying income tax,compared with just £15,000 now. Higher earners who pay the 40% tax ratewill be able to shelter more than £55,000.
The high level of increase comescourtesy of the new personal savingsallowance, announced by the chancellor inhis final budget before the generalelection. Osborne said it will mean 95% oftaxpayers pay no tax on their savings.
This step change could signal a hugerevamp in savings habits, and for cashISAs, the tax-free savings vehicles thatcurrently hold about £250bn. This isbecause many non-ISA accounts now paybetter interest rates.
With savings being tax-free for the vastmajority of individuals, there will no longerbe a need to use an ISA to avoid payingincome tax. Recently current accounts,previously never seen as good places tokeep cash, could become more attractive.
The personal savings allowance will enablea taxpayer on the 20% basic rate to earn£1,000 from cash savings each yearwithout paying income tax. Those on the40% higher rate will be able to bank £500tax-free. The top-rate payers are excludedfrom the allowance.
The Chancellor announced that as ofApril 2016, banks will no longerautomatically deduct 20% tax fromincome generated by savings held outsidean ISA and the higher earners will, in mostcases, no longer be required to declaresavings income on tax returns, provided itis no higher than £500.
Such a move by the Chancellor was longoverdue; the average return on a one-yearfixed-rate account is down from 2.27%when the coalition came to power in 2010to 1.25% last month, according to theBank of England.
In order to earn £1,000 at a rate of1.25%, you would need to deposit at least£80,000, then by adding this to the£15,000 ISA allowance, which rose to£15,240 in April 2015, gives a total of justover £95,000 that can be sheltered fromtax.
Winners or Losers The best-paying non-ISA accounts payhigher interest than the top cash ISAs,according to some financial professionals.
With some best rates offering 3.53%over five years, under the new regime, a 40% taxpayer could save £14,155 andstay just below the £500 tax threshold.
If you preferred to save £14,155 in abetter paying cash ISA, at a rate of 2.3%over five years, your annual return wouldbe £325. ISA flexibility These accounts are now very likely tobecome more like savings accounts as theChancellor announced it will be possible towithdraw money from a cash ISA withoutaffecting your tax-free pot.
Under the new rules, expected to start inthe autumn, you will be able to repay anywithdrawals from your ISA in the sameyear without any loss of tax-free status.
Many believe this could be the end ofcash ISAs, but this new flexibility could bequite the opposite. The flexible ISA will bea real incentive to save, for example,where someone needs to pay for a depositfor a house and know they have a bonuscoming before the end of the tax year, they can withdraw the ISA cash knowingthey can pay it back into their ISA withoutlosing the tax-free benefit.
Is my pensionmy new bank account?
Is this really true?As of April 2015 most investors shouldbe able to withdraw as much or as littleas they like from their private pensionsonce they reach 55 (rising to age 57 in2028).
They could take regular withdrawals orone-off payments. They could evenwithdraw the whole lot if they wish. The restrictions which currently governhow much most people can take out willbe scrapped. 25% is normally tax freeand the balance will be subject toincome tax.
It’s important to remember that apersonal pension is designed to pay outincome throughout your retirement,which could last decades. Many of usdon’t want to end up reliant on the Statepension in old age. So, in theory at least,pensioners will be able to take as muchas they like, whenever they like fromtheir personal pension pots, but willneed to take careful steps when doingso.
Investors can already use an optionknown as income drawdown to take tax-free cash and some taxablewithdrawals. Before April most peoplewere restricted on the amounts whichcould be withdrawn, but as of April thoselimits have been removed.Why should pensioners becautious?There are the tax implications toconsider when making pension fundwithdrawals 25% is usually tax free. The remainder is added to other incomein that tax year and subject to incometax. This could move your annual incomeinto a higher tax bracket. Someone couldeasily become a top rate taxpayer,paying 45% very quickly.
The pension provider will need todeduct the tax before the money is paidout. Unless HMRC has already suppliedthe pension provider with a tax code forthat particular individual, the providerneeds to use an emergency tax code. So a £100 payment could not only be
reduced to £80 after basic rate tax, or £55 after top rate tax is taken intoaccount, but could also have emergencytax deducted which you would need toreclaim from HM Revenue & Customs.
The question still remains as towhether providers will offer the newflexibilities to their customers. Not allpension firms will be ready to move atthe time you may require your pension.
There is no legal obligation for pensionproviders to follow these new flexiblerules. When pension rules have changedin the past, some pension providers havetaken months if not years to implementthe new changes.
Last year the National Association ofPension Funds warned savers could befaced with a delay of possibly 12 monthsto use their pension pots like bankaccounts.
The value of pension and the income they produce can fall as well as rise. You may get back less than you invested.
With the new pension rule changesas of April 2015, some peoplebelieve these new rules meanpeople will be able to treat theirpension “as a bank account”.
The value of pension and the income they produce can fall as well as rise. You may get backless than you invested. The value of your investment and the income from it can go down aswell as up and you may not get back the original amount invested. Past performance is not areliable indicator for future results. Levels, bases and reliefs from taxation are subject to changeand their value depends on the individual circumstances of the investor. Please contact us forfurther information or if you are in any doubt as to the suitability of an investment.
This magazine is for general guidance only and represents our understanding of the current law and HM Revenue and Customs practice.We cannot assume legal responsibility for any errors or omissions it might contain. Level and bases of, and reliefs from taxation are thosecurrently applying but are subject to change and their value depends on the individual circumstances of the investor. The value ofinvestments can go down as well as up, as can the income derived from them. You should remember that past performance does notguarantee future growth or income and you may not get back the full amount invested.
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ISAs
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Just like standard ISAs, there are two types ofJunior ISAs available, Junior Cash ISAs andJunior Stocks & Shares ISAs. With the launchof Junior ISAs more than three years ago,they have proved very popular with parentslooking to save tax-efficiently for theirchildren. The latest HMRC figures show over400,000 Junior ISA accounts were subscribedto in the 2013/14 tax year, with an averagesubscription of £1,340.The majority of Junior ISAs opened have
been Junior Cash ISAs. With parentsbelieving cash is a good home for short-termsavings, most are investing for children long-term. Parents are also becoming aware thatStocks & Shares Junior ISAs offer thepotential for higher returns, albeit with risksattached.
No recommendationWith the advent of the rising stock marketover the last three years, many parentsinvesting their child’s Junior ISAs in stocksand shares have benefited. A parentinvesting the full £3,600 Junior ISAallowance in November 2011, when JuniorISAs began, into a stock market tracker fundcould now have an investment worth morethan £5,000, contrasting this with the sameamount saved in a Junior Cash ISA paying3% annually would be worth around £4,000. The good news for those wishing to start
investing in a Junior ISA is the allowance hasnow risen to £4,000 for this tax year.Starting with as little as £100You can begin saving into a Junior Stocks
& Shares ISA with as little as £100. Unlikeadult ISAs you are not allowed to open aseries of Junior ISAs with different providerseach year. Instead investors use each year’sannual allowance with the current provider
or transfer to a new provider first beforemaking use of the allowance.What’s happened to Child TrustFunds?Child Trust Fund holders are now eligible toopen a Junior ISA Child Trust Child TrustFunds were the forerunners to Junior ISAs.Children born between 1 September 2002and 2 January 2011 received a £250 voucherfrom the Government to open a Child TrustFund (CTF). Since April 2015, parents have been able
to transfer their child’s Child Trust Funds(CTFs) to a Junior ISA. This change willbenefit more than six million children tobenefit by offering a wider choice ofinvestment at lower costs and withpotentially greater returns.
The value of your investment and the income from it can go down as well as up and you may not get back the original amount invested. Pastperformance is not a reliable indicator for future results. Levels, bases and reliefs from taxation are subject to change and their value depends onthe individual circumstances of the investor. Please contact us for further information or if you are in any doubt as to the suitability of an investment.
Which Juniorshould parentschoose?
� Mortgages� Financial wealth check� Tax efficient investments� Pensions� Tax planning� Critical Illness cover� Protection� Off-shore investments� Healthcare� Director and employee benefit schemes� Business or Personal Insurance
