Scottish Provident and Bright Grey are changing branding to Royal London

bright grey logo
Bright Grey has been a sub-brand of Royal London for some time, and is now being fully rebranded under the parent brand.

Opinion: Bright Grey has been a pretty good protection provider, historically with competitive rates for life insurance, Critical illness cover, and income protection. Also was an early provider of “relevant life”  life cover for small businesses and sole traders, as well as  mainstreambusiness protection.

 

 

scottish provident logo

Likewise, Scottish Provident has been part of the Royal London group for some years now, and that brand is also going with effect from today, December 1st 2015, and replaced by Royal London’s.

Opinion: Scot Prov was a popular provider of protection, and years ago even provided some personal pension contracts. It’s most famous product was probably its “Pegasus” Whole of Life cover, which sold well as its early premiums (always reviewable) were low. However, as many are now finding, the trouble with reviewable premium WOL policies is they start to go up at an alarming rate as you get older. I have seen many forced to ditch the policies in later life as the premiums become unaffordable. It pays to look at guaranteed rate WOL policies, if indeed WOL is what you really want (in my opinion its main use is within IHT and estate planning). A good talk with a good adviser often sorts out the best way to go when face with this situation.

royal london logo

NOVEMBER 2015 AUTUMN BUDGET STATEMENT

George Osborne’s Autumn Budget Statement did not contain any major shocks this time around ( a relief for us advisers for a change), but there is still plenty to take on board. The following summary is reproduced with kind permission of Scottish Widows:

*************************************************************************

SUMMARY IMPACT

Whilst only minor changes affecting the financial services industry were announced in the Autumn Statement the key changes for 2016/2017 set out by The Chancellor previously will still apply. The details and opportunities for financial planning advice are outlined below.

 

PENSIONS

Automatic enrolment

There will be a six month delay in the scheduled increases in the minimum contributions rates for automatic enrolment. This will bring the increases in line with the tax year. The first increase will apply from 6 April 2018. The second increase will apply from 6 April 2019.

Annual allowance

  • The standard annual allowance in 2016/2017 will be £40,000.
  • The money purchase annual allowance in 2016/2017 will be £10,000.
  • The annual allowance for high earners will be reduced to between £10,000 and £40,000 (see below)

Higher earners tapered annual allowance

  • The reduced annual allowance will affect those with both ‘adjusted income’ of more than £150,000 and ‘net income’ of more than £110,000.
  • ‘Adjusted income’ includes employer and employee pension contributions (except those made under the ‘relief at source’ basis). ‘Net income’ excludes pension contributions, unless paid under a salary sacrifice agreement, set up on or after 9 July 2015. This is to prevent tax avoidance. Where adjusted income and net income exceed the respective thresholds, the taxpayer’s annual allowance will be reduced by £1 for every £2 of adjusted income in excess of £150,000. The maximum reduction is £30,000, which would result in an annual allowance of £10,000. The level of adjusted income at which the maximum reduction in the annual allowance is reached, is £210,000.

Pension input periods

  • All pension input periods will be aligned with the tax year from 2016/2017, with no option to vary the period. All pension input periods closed on 8 July 2015 (the pre-alignment period). A further pension input period runs from 9 July 2015 to 5 April 2016 (the post alignment period). This change was to ensure no tax charges arise against those who had fully funded their pensions in advance of the change. The total annual allowance for the pre-alignment period is £80,000, up to £40,000 of which is available to carry forward into the post alignment period.
  • Carry forward from the 3 previous tax years will be available as normal. However when using carry forward from 2016/2017 onward it will be based on the tapered annual allowance rather than the standard annual allowance.
  • The money purchase annual allowance of £10,000 will still be available, however, taxpayers who are affected by both the money purchase annual allowance and the tapered annual allowance will retain the £10,000 money purchase annual allowance but will suffer a reduced annual allowance for funding non-money purchase schemes.

Lifetime allowance (LTA)

    • The LTA will reduce to £1 million for 2016/2017 and 2017/2018. There will be a new round of transitional protection; Fixed Protection 2016 and Individual Protection 2016. These will work in the same way as Fixed Protection 2014 and Individual Protection 2014. Those applying for Fixed Protection need to cease contributions/benefit accrual by 5 April 2016. The application process isn’t expected to be available until July 2016.
    • The LTA will then be index-linked in line with the consumer prices index (CPI) from 2018/2019.
    • As a reminder, those who want to apply for Individual Protection 2014 must do so online by 5 April 2017.

Tax relief

    • Other than for higher earners as noted above, there’s no change to the rate of tax relief for member contributions, which will continue to be based on the individual’s highest marginal rate.

Pension tax relief reform

    • The Government is considering the responses to the consultation of the reform of pensions tax relief. It will publish its response in the 2016 Budget.

Extension of Freedom and Choice agenda to existing annuitants

    • The ability to sell annuities in payment is being deferred for a year, from April 2016 to 2017. The Government will set out its plans for the secondary annuities market in December 2015.

Lump sum death benefits

    • Lump sum death benefits paid following the death of a member aged 75 or over will change from being taxed at the flat rate of 45% to the beneficiary’s marginal rate of income tax from 6 April 2016.

Salary exchange

    • Whilst there were no changes to salary exchange the Government remains concerned about the growth of these arrangements and so the cost to the taxpayer. The Government restated that it will actively monitor the growth of schemes and the impact on tax receipts.

IMPACT:

      • Those who had paid less than £80,000 in their pension input period ending on 8 July 2015 can make further contributions without exceeding the annual allowance. The maximum contribution that can be made without an annual allowance tax charge arising, is the amount of the unused £80,000 annual allowance for the pre-alignment period, up to a maximum of £40,000 plus carry forward from 2012/2013, 2013/2014 and 2014/2015.
      • Higher rate taxpayers still benefit from higher rate relief on contributions of at least £40,000 in 2015/2016. With further potential restrictions to tax relief being considered, those with sufficient funds could consider funding sooner rather than later while full tax relief is still available.
      • The reduction in the Lifetime Allowance to £1 million from 6 April 2016 will greatly widen the scope of those within the restrictions. While the introduction of index-linking from April 2018 is welcome, it’s far short of a return to the £1.8 million LTA in place in 2011/2012 which itself was originally intended to rise in line with inflation. The next round of pension protection will help mitigate the impact for some clients. Those clients with significant funds and no previous protection should consider applying for Fixed Protection 2016 and/or Individual Protection 2016 or Individual Protection 2014.
      • The delay in the implementation of the secondary annuity market to 2017 is welcome as it gives more time for providers and advisers to ensure they are fully prepared for any changes.

 

DIVIDENDS

    • From April 2016, the current 10% dividend tax credit will be abolished. It will be replaced with a new £5,000 a year dividend tax allowance.
    • The new rates of tax on dividend income above the allowance will be:
      • 7.5% for basic rate taxpayers
      • 32.5% for higher rate taxpayers
      • 38.1% for additional rate taxpayers.

IMPACT:

        • The Government’s stated intention is for these reforms to reduce the incentive to incorporate and remunerate through dividends. The tapered annual allowance for those with incomes including pension contributions of over £150,000 will also apply from April 2016. There will be considerably less scope to use dividends and employer pension contributions to maximise tax efficient director’s remuneration in future. Companies with undistributed profits should consider taking advantage of the last chance to make the most of these strategies before the end of the current tax year.
        • Higher rate and additional rate taxpayers with modest dividend income from share/OEIC portfolios will welcome the change, with a potential saving of up to £1,250 a year from 2016/2017 for a higher rate tax payer, compared to now.

 

INCOME TAX

Personal allowance and higher rate threshold

    • In 2016/2017 the income tax personal allowance will see another substantial increase of £400 to £11,000. A further increase to £11,200 was announced for 2017/2018.
    • The basic rate band increases to £32,000 for 2016/2017. Those entitled to the full standard personal allowance will pay 40% tax on income above £43,000. The threshold for higher rate income tax increases by £615 for 2016/2017.
    • The basic rate limit will increase to £32,400 for 2017/2018. Together with the planned increases in the personal allowance, this means the higher rate threshold will be £43,600 for 2017/2018. These are the next steps in the Chancellor’s stated aim of increasing the higher rate threshold to £50,000.

Property letting

    • From 1 April 2016 higher rates of stamp duty will be charged on further purchases of residential property i.e. second homes or buy to let properties. The additional rate will be 3% above the standard rate and will apply to properties worth more than £40,000. It is not expected to apply to corporates or funds making significant investments in residential property. The Government will consult on the policy detail,
    • The tax relief on mortgage interest will be restricted to basic rate for mortgages on ‘buy to let’ residential properties. The restriction will be phased in over 4 years from April 2017.
    • ‘Rent a room’ relief will be increased from £4,250 to £7,500 from April 2016. The relief had been frozen since 1997.
    • From April 2019, if capital gains tax (CGT) arises from a disposal of residential property the taxpayer must pay it within 30 days of completion. Under the current system tax is due between 10 and 22 months after disposal.

IMPACT:

      • Higher rate taxpayers will welcome the further increases in the higher rate threshold, however, the rates from 2016/2017 and 2017/2018 are still a long way off the Chancellor’s stated aim of a £50,000 higher rate threshold. In the meantime pension contributions benefiting from higher rate relief remain an attractive savings option.
      • A further substantial increase in the personal allowance means that higher earners can achieve even greater benefit by using pension contributions to reduce adjusted net income above £100,000. For someone with gross income of £122,000 a pension contribution of £22,000 will cost just £8,800 in 2016/2017, attracting tax relief of 60%.
      • A further blow to the buy to let market. The 3% increase in stamp duty coupled with the reduction in the tax relief on mortgage interest will significantly increase the costs, along with bringing forward the CGT payment date by up to 21 months. It may also prove difficult to work out the correct taxable gain and the amount payable within 30 days of completion, particularly where valuations and complex calculations are required.

 

TAX EFFICIENT INVESTMENTS

ISAs

    • The ISA limits will remain unchanged for 2016/2017. The main ISA limit will remain at £15,240 and the limit for Junior ISAs and Child Trust Funds will be £4,080.
    • The ‘Help to Buy’ ISA will be available from 1 December 2015. This new product will enable first time buyers to save up to £200 per month towards a first home, with an initial one-off deposit of £1,000. The Government will boost savings by 25% up to a maximum of £3,000, which will be paid when a property is purchased.
    • New flexible ISA rules will be introduced from 6 April 2016. The rules will allow investors to pay withdrawals from a cash ISA back in to the account before the end of the tax year, without reducing their subscription limit further. The change will also cover cash held in stocks and shares ISAs.

Personal savings allowance

    • From 6 April 2016, a tax-free savings allowance of £1,000 will be available to those with taxable income of less than£43,000 i.e. basic-rate payers and below. Higher rate taxpayers benefit from a £500 tax-free allowance. Those earning over £150,000 are not entitled to an allowance.

IMPACT:

      • Some savers and investors will be disappointed in the freezing of the ISA allowance, however they have received substantial increases in recent years
      • The personal savings allowance provides more incentive for savers with even higher rate taxpayers benefiting from an allowance. However, it’s most generous for low earners who will potentially pay no tax on their savings where total taxable income is less than £17,000 in 2016/2017, after taking into account the £5,000 savings band.
      • New flexible ISA rules allowing cash withdrawals to be returned to an ISA by the end of the tax year will help to maximise the benefits by removing an effective penalty on those who are forced to access their savings temporarily.

 

INHERITANCE TAX (IHT) AND TRUSTS

    • The Government aims to reduce the number of estates paying IHT by introducing an additional nil-rate band from April 2017. This will apply where the main residence passes on death to direct descendants such as children and grandchildren. This will be worth up to £100,000 in 2017/2018, £125,000 in 2018/2019, £150,000 in 2019/2020 and £175,000 in 2020/2021 with CPI indexation applying thereafter. As with the existing nil-rate band, any unused nil-rate band will be able to be claimed on the death of their surviving spouse or civil partner. Those with net estates worth more than £2 million will see the additional nil-rate band scaled back by £1 for every £2 over this threshold. Further guidance on the downsizing provisions was published in October 2015 with legislation on this aspect in Finance Bill 2016.
    • The IHT nil-rate band is currently frozen at £325,000 until 5 April 2018 and this will continue to apply until April 2021.
    • Following the review of deeds of variation no changes will be made. The Government will continue to monitor their use.

Drawdown funds and IHT

    • The Government will introduce legislation to clarify that no IHT applies on unused drawdown funds remaining on death. The legislation will be backdated to April 2011.

IMPACT:

      • The changes to IHT remove the family home from the IHT net for all but the wealthiest homeowners although the maximum benefit of £1m won’t be available until tax year 2020/2021 due to phasing of the allowance.
      • Those with larger estates will still need advice on steps they can take to mitigate IHT.

 

NON-DOMICILES

    • From April 2017 foreign domiciles who have been long term resident in the UK – more than 15 of the past 20 tax years will be deemed to be UK domiciled for taxation purposes. This will mean they will no longer be able to utilise the remittance basis of taxation and will be subject to tax on a worldwide basis on their income and gains. They will also be deemed domicile for IHT purposes – bringing forward the point at which IHT applies to their worldwide assets from the current period of 17 out of the past 20 years ending in the year of transfer.
    • It will no longer be possible for individuals born in the UK to UK domiciled parents to leave the UK, claim non-domicile status then return to the UK and continue to claim non-domicile status for tax purposes.
    • The Government also intends to introduce new rules from April 2017 to ensure IHT is payable on all UK residential property owned by non-domiciles regardless of their residence status.

 

CORPORATION TAX

    • The corporation tax rate will be cut from 20% to 19% in 2017 and then to 18% in 2020.
    • For accounting periods starting on or after 1 April 2017, corporation tax payment dates will be brought forward for companies with annual taxable profits of £20 million or more. This threshold will be divided by the number of companies in a group. These companies will pay corporation tax in quarterly instalments in the third, sixth, ninth and twelfth months of their accounting period.
    • The permanent level of the Annual Investment Allowance (AIA) will increase from £25,000 to £200,000 for all qualifying investment in plant and machinery made on or after 1 January 2016.

IMPACT:

      • Companies may consider making employer pension contributions before the lower rates of corporation tax reduce the effective rate of tax relief available.

 

NATIONAL INSURANCE

    • The £2,000 National Insurance employment allowance, which reduces the overall cost of employer National Insurance Contributions (NICs) for employers will increase from £2,000 to £3,000 from April 2016. From the same date, companies where the sole employee is the director will no longer be able to claim this allowance.
    • The Government will actively monitor the growth in salary exchange (also known as salary sacrifice) schemes used to reduce the amount of employee and employer NICs.

IMPACT:

      • As automatic enrolment continues to roll out, employers and employees are looking for ways to reduce the net cost of pension contributions. Salary exchange arrangements, where an employee opts to give up salary in exchange for a higher employer pension contribution, still offer NICs savings for both employees and employers.

 

STATE BENEFITS, TAX CREDITS AND THE MINIMUM WAGE

State pension

    • The basic State Pension increases in line with the triple lock by £3.35 to £119.30 a week for 2016/2017.
    • The Pension Credit Standard Minimum Guarantee increases by £4.40 to £155.60 a week for a single person and by £6.70 to £237.55 a week for couples for 2016/2017. The Savings Credit threshold will increase to £133.82 for a single pensioner, reducing the single rate of the Savings Credit maximum to £13.07. It will increase to £212.97 for couples, reducing the couple rate of the Savings Credit maximum to £14.75.
    • The new single tier State Pension for people who reach state pension age from April 2016 will start at £155.65 a week for those entitled to the full rate.

Welfare reforms

    • The proposed cuts to tax credits have been withdrawn and the current system remains in place, although these ‘in work’ benefits will be gradually replaced as Universal Credit rolls out. The Universal Credit rollout schedule currently starts in 2016 with completion due by 2021.
    • From April 2016, payment of Housing Benefit and Pension Credit will stop for claimants who travel outside the UK for longer than 4 consecutive weeks.

Social care reforms

    • As previously announced, the ‘Dilnot’ reforms to social care funding in England are on hold until 2020. (Scotland, Wales and Northern Ireland all have their own social care funding arrangements.)

National minimum wage

    • The current rates shown below apply since 1 October 2015, with the previous rates shown in brackets:
    • £6.70 (£6.50) per hour – main rate for workers aged 21 and over.
    • £5.30 (£5.13) per hour – workers aged 18 to 20.
    • £3.87 (£3.79) per hour – workers aged under 18 and above school leaving age.
    • £3.30 (£2.73) per hour – apprentice rate for apprentices under 19 or 19+ and in their first year.
    • From April 2016, those aged 25 and over will benefit from an increased rate of £7.20 an hour, branded as the National Living Wage.

 

IMPACT:

  • Remember the minimum wage when planning with salary / dividend / pension profit extraction and salary exchange / sacrifice.

 

** Every care has been taken to ensure that this information is correct and in accordance with our understanding of the law and HM Revenue & Customs practice, which may change. However, independent confirmation should be obtained before acting or refraining from acting in reliance upon the information given. This information is based on announcements made in the July 2015 Budget and November 2015 Autumn Statement which may change before becoming law.

– Scottish Widows

First State to Stewart Investors – Funds – Change of Name

The First State funds listed below have changed their name by dropping the words “First State” and inserting “Stewart Investors”, (i.e. First State Asia Pacific Leaders becomes Stewart investors Asia Pacific Leaders, etc.):

  • First State Asia Pacific
  • First State Asia Pacific Leaders
  • First State Global Emerging Markets
  • First State Global Emerging Markets Leaders
  • First State Indian Subcontinent
  • First State Latin America
  • First State Worldwide Equity
  • First State Worldwide Leaders
  • First State Worldwide Sustainability

Earlier this year First State announced some changes to the structure of the First State Stewart (FSS) team which manages a number of their equity funds. These changes have seen the FSS team split to form two new teams; one primarily based in Hong Kong and the other primarily in Edinburgh. The Edinburgh team has become an investment division in its own right and rebranded Stewart Investors. Stewart Investors is a trading name of First State Investments (UK) Limited, which remains responsible for the funds

The changes apply across all investment platforms and personal pension contracts. The new fund names will appear on your valuations, statements and any other correspondence you receive. The fund objectives, risk profiles and Annual Management Charges have not changed.

The listed funds are very popular and are to be found on nearly all investment and SIPP platforms, and there are also insured pension fund versions.

Please call us for further information: 0345 013 6525.

Don’t Panic ! Volatility in the UK and worldwide stock markets is scary, but..

There has been a lot of noise in the press concerning the markets following a sudden dip in world markets on Monday, August 24th, and again today, Tuesday, September 1st. I thought I might weigh in with a few thoughts of my own since this is a matter of concern to people, and many investors are wondering what to do for the best.

world markets pic

One thing to remember is that it is impossible to “time” one’s investments into and out of the markets with any consistency. You will never buy at the bottom nor sell at the top. What an investor needs is a good plan and to stick to it.

Investors who are exposed to the markets should really be looking at 5 to 10 years, as the longer you are invested the more likely you are to make expected returns – i.e. time mitigates risk.

A person’s investment portfolio needs to be diversified across a number of different asset types, and across different geographical regions, in a sensible combination designed to reflect that investors ability to withstand loss, and their taste for risk. For those who follow this line of diversified investing, there is probably little to do at the present time except sit tight, or perhaps re-balance their holdings if necessary.

You might ask yourself whether your portfolio still reflects your long-term objectives and taste for risk, but try not to be negatively influenced by short-term fears in such an assessment. When in doubt, discuss with your investment adviser. If you don’t have an investment adviser, I suggest you get one since the long term improved returns can be expected to outweigh the fee charged.

When there are sudden market drops, investors are likely to focus on other perceived negatives – this is just human nature. But this just reinforces the negative view, leading to an escalation in negative sentiment all round. This can cause irrational selling. And remember, the automated trading programs plugged into the markets nowadays control literally £ billions (if not £ trillions) of assets, and if they trigger we can see huge sudden shifts in stock prices – in the USA massive blue chips like Microsoft lost up to 10% in a very short period before mostly recovering. When a sell-off is driven by adverse sentiment rather than by adverse fundamentals, it tends to be relatively short term, and savvy fund managers are likely to take advantage of buying opportunities.

Of course, whether a dip in the market is indicative of further falls to come is extremely difficult to predict. But one thing most investment experts will agree upon is that you should never sell at a significant low point in the cycle. In other words, try not to give in to fear, but be prepared to ride out the storm, i.e. stay invested. The chart below shows how staying invested is likely to be better in the long term than trying to jump in and out of the market. Market rises can be just as sudden as market falls and the chart shows clearly the cost to an investor of being un-invested on certain “best” days over a ten-year period.

JPM

The chart above (courtesy JP Morgan) demonstrates the cost to an investor of being out of the market at the wrong time. It is impossible to time the market with any consistency, so why try?

Putting some of the recent market drops into perspective, by far the biggest has been the Chinese stock market. You will note from the chart below that the Shanghai Composite index at the time of writing this article was at 3166 following its high in mid June of 5166, a drop of nearly 40%.

SSE

But please also note that over the last 12 months, it is still over 38% higher than where it stood a year ago on September 3, 2014!

What is more, it has been falling quite rapidly since mid-June. In other words, weakness in China has been anticipated for quite some time leading up to the global dip on August 24th 2015. Clearly some of the recent volatility in the global economy was caused by uncertainty over China, including the relatively sudden Chinese devaluation of its currency in mid August. But this was not a significant devaluation, only a little over 3% against the US dollar. Again, this need not have a fundamental effect on the global economy. China has been a trigger to a more general correction.

I have been telling my clients to expect volatility during 2015-2016, whilst also anticipating overall positive returns, (though not of the scale of the preceding twelve months). I still hold this view. A serious long-term fall in world financial markets needs to be accompanied by a serious worldwide recession, and we simply do not have that situation at present.

Clearly, when the FTSE, the Dow Jones, the European markets and Asian markets all take a hit it is cause for concern. But I think what we have seen is a market correction, or re-pricing. It was a pretty big one, and has caused some pain, but I don’t think it precedes a major crash. Indeed many pundits felt it was due. Going forward, we may see a fairly rapid recovery in those markets where the fundamentals remain unchanged.

So, I still believe the sensibly diversified investor should see overall growth during the next 12 months. Lacklustre growth overall perhaps, but growth nevertheless. If you would like to discuss your investments portfolio feel free to call on 0345 013 6525. In the meantime, in the immortal words of Corporal Jones:

cpl jones don't panic

“DON’T PANIC!”

I smell a rat

money rat

Keep this guy away from your dosh!

Maybe it’s the cynic in me, or maybe my natural in-built auditor, but it seems to me that dodgy investments and tax schemes are on the increase.

One reason for this may be the fact that our authorities continue to be particularly lenient to companies which make promises, collect cash, fail to deliver and then are liquidated (or just disappear), only to reappear in a similar form and under a new name shortly afterwards, while the creditors receive nothing or only pennies in the pound.

Another reason is that there is just too much fraud around, and the country’s fraud squads are spread far too thinly.

Sometimes downright fraud is at the core of the issue, but there are varying degrees.  There seem to be quite a few who carry on in this manner who have a nose for what they can get away with, just about staying within the statutes or knowing how to work the areas that simply aren’t enforced. Either way these people are duplicitous and acting without any level of integrity.

Sometimes, as an independent financial adviser, I am feted by some pretty dodgy looking companies to act as an introducer of clients to them. This is usually by way of an email, and often  the company has a very impressive website. The promoters, who make much of the introducer commissions they offer,  may be pushing unregulated investments, such as property developments (particularly holiday property overseas), or maybe tax schemes  – particularly for persons contracting through their own limited companies, and so on.

Occasionally, the business and its product are bone fide, but nevertheless non-mainstream and requiring significant due diligence from anyone who might recommend or otherwise promote them. Frequently they are not.

So can I make a few basic recommendations here? (spot the over-used old sayings):

  • With only a very small number of exceptions (linked to the UK Treasury or National Savings and Investments), there is no such thing as a guaranteed return on an investment. 
  • If you are a UK contractor and are encouraged to join a scheme that involves any kind of offshore trust, loans back to you personally, gifting of income or invoicing an unrelated entity, it will almost certainly fail as and when it comes under HMRC’s spotlight. This is likely to have very serious implications, and additional costs to the contractor. Occasionally, you end up with a very large debt due to the offshore company involved too. Avoid these schemes. If you are a UK contractor and want to minimise your tax bill, come talk to me for sensible tax advice.
  • There are no free lunches!
  • If you are contacted by anyone who is promoting any kind of investment product which they profess to be either a hot stock, something with guaranteed returns, low risk and high returns, or whatever, agree to nothingAlways always run it past a trusted professional such as your independent financial adviser. But before you even do that, try asking some common sense questions of that person and write down the answers so that you can check their story. What is the full name of the individual calling and of the company which they are a part of,  where does it have its office address and what is its telephone number? You can easily check the existence of a UK company at companies house online, and it is even operating a free documents service at present allowing you to look up the directors and officers, and even look at the accounts of the company. By clicking on the directors names, you can see other companies with which they are connected. This is my first port of call in any basic due diligence.
  • And never never never agree to pay money over the telephone for anything. There are some very persuasive people out there with some very clever, well honed stories to tell. Assume it is dodgy. One may not be able to prove it is dodgy, indeed maybe no investors have been screwed (yet), but if it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck.  

Of course, there can be exceptions to anything and occasionally a tax scheme or unregulated investment promoted direct that initially seemed dodgy can be a pretty decent proposition to certain people at certain times. But in all cases I would recommend you keep your chequebook in your pocket until you have spoken to a seasoned professional adviser. There are a host of excellent investment opportunities out there and a good investment adviser will be able to help you find the appropriate investments with which to populate your portfoli, which carry a suitable amount of risk in line with your requirements and achieve your objectives.

Now I really must get on. Apparently I’ve won the Nigerian lottery (!), and I need to sort out a rather complicated claims process……………….

 

 

Our New Website

Our new website is, apparently, responsive. Rather then meaning something to do with good handling, accelerates at the slightest touch of the throttle etc. it means it responds to whatever kind of viewer the user has – PC, tablet or smartphone, and displays itself accordingly.

So please let me know if you see any problems with it on your smartphone or tablet, or indeed if it refuses to render properly on IE, Firefox or Chrome on your pc, and I’ll try and get it sorted.

More to the point, please feel free to comment on this blog – the more comments the better. And please do share using the social media buttons at the foot of every blog.

Best regards

Tony

July 2015 Budget – what this means for you

There's only been another flamin' budget Ern...

There’s only been another flamin’ budget Ern…

The following is reproduced by kind permission of Standard Life’s technical consulting team. I’m holding a week of free consultations Monday July 27th-Friday July 31st, so if your finances need some analysis and guidance, give me a call on 0345 013 6525 to set up an appointment:

Two bites at AA as PIPs are aligned with tax years from 2016 As a small step towards re-simplification of the pension rules, from 6 April 2016 all pension input periods (PIPs) will be aligned to the tax year. And it won’t be possible to change them. But related transitional rules potentially create an extra £40k annual allowance (AA) for the 2015/16 tax year, giving some savers two bites at the AA cherry this year. As ever, the devil is in the detail. Look out for our article and case study for insight on how to help your clients make the most of this change.

AA cut for high earners from 2016 – get it while you can Those with ‘adjusted income’ over £150k will have their annual allowance (AA) cut from the 2016/17 tax year, creating a ‘get it while you can’ pension funding window this tax year. The standard £40k AA will be cut by £1 for every £2 of ‘adjusted income’ over £150k in a tax year. The maximum AA reduction is £30k, giving those with income of £210k or above a £10k AA. Carry forward of unused AA will still be available, but only the balance of the reduced AA can be carried forward from any year where a reduced AA applied. The ‘adjusted income’ the £150k test is based on is broadly the total of:

  • the individual’s income (without deducting their own pension contributions); plus
  • the value of any employer pension contributions made for them.

The reduced AA won’t however apply where an individual’s net income for the tax year plus the value of any income given up for an employer pension contribution via a salary sacrifice arrangement entered into after 8 July 2015, is £110k or less.

Pension tax framework under review The Government has kicked off a fundamental review of the pension tax framework to ensure it remains fit for purpose, and sustainable, for a changing society. In a consultation launched today, HM Treasury is seeking views on a range of very open questions around what changes (if any) would:

  • reduce complexity and increase transparency;
  • make best use of available tax reliefs;
  • increase engagement and aid retirement planning.

This welcome consultation raises the prospect of radical reform to restore the vision of a genuinely ‘simplified’ retirement saving framework. The consultation closes on 30 September. Jamie Jenkins, Head of Pensions Strategy, comments ‘Pensions tax relief was ripe for review. Despite some suggesting that the industry was resistant to any change in this area, quite the contrary, we have been calling for a more fundamental review rather than constant tinkering. This consultation provides us with a great opportunity to simplify the pensions tax system once and for all.

Other pension news

  • Lifetime allowance: The proposed reduction in the lifetime allowance from £1.25M to £1M will go ahead as planned from the 2016/17 tax year. It will be indexed in line with CPI from 2018/19. Details are awaited of a new transitional protection option for those with existing pension savings already over £1M who would otherwise face a retrospective tax hit.
  • Death tax: As promised as part of the ‘freedom and choice’ reforms, all pension lump sum death benefits paid after 5 April 2016 in relation to a death at age 75 or above will be taxed as the recipient’s income (removing the flat 45% tax that applies in the 2015/16 tax year).
  • Salary sacrifice: Despite wide pre-Budget rumours, there are no changes to salary sacrifice rules. The Government will, however, be monitoring the growth of such schemes and their impact on tax take.
  • Transfers: To improve consumer access to ‘freedom and choice’, the Government will consult about how to improve the pension transfer process and, potentially, cap charges for over 55s.
  • Annuities: The ability for pensioners to sell their annuities will be delayed until 2017. This allows more time to ensure the related consumer safeguards are in place. More details will be announced in the autumn.
  • State Pensions: The Chancellor has reaffirmed the Government’s commitment to retaining the ‘triple lock’ State pension increase promise, giving more security to older people.

Individual tax allowances Both the personal allowance and higher rate income tax thresholds will increase over the next two years as follows: 2016/17:

  • Personal Allowance increases to £11,000;
  • Higher rate threshold increases to £43,000.

A basic rate taxpayer will be better off by £80. Higher rate taxpayers will be better off by £203.

2017/18:

  • Personal Allowance increases to £11,200;
  • Higher rate threshold increases to £43,600.

A basic rate taxpayer will be better off by a further £40, and higher rate taxpayers by £160. These increases are on the way to meeting government pledges to raise the personal allowance to £12,500 and the higher rate threshold to £50,000 during this Parliament.

New dividend allowance The system of dividend tax credits will be abolished from April 2016. It will be replaced by a new tax free dividend allowance of £5,000. Dividends in excess of this allowance will be taxed at the following rates, depending on which tax band they fall in:

  • Basic rate – 7.5%;
  • Higher rate – 32.5%;
  • Additional rate – 38.1%.

This means that from April 2016, a basic rate taxpayer could have tax free income of up to £17,000 pa when added to the personal allowance of £11,000 and the new ‘personal savings allowance’ announced in the Spring Budget of £1,000. Higher rate taxpayers could have up to £16,500 (as the personal savings allowance is restricted to £500 for these individuals). Certain individuals may also have savings income falling into the £5,000 savings rate ‘band’, currently taxed at 0%. There is no mention of any change to this band, in which case certain individuals may have tax free income of up to £22,000, depending on the sources of their income. Making full use of these new allowances can make savings last longer in retirement and potentially leave a larger legacy for loved ones. And strengthens the case for holistic multiple wrapper retirement income planning.

Inheritance Tax: family home nil rate band – but not yet The Government will introduce a new IHT nil rate band of up to £175,000 where the family home is passed to children or grandchildren. This is in addition to the current nil rate band of £325,000 which has been frozen since 2009 and will remain frozen for the next 5 tax years, until the end of 2020/21.

Who will benefit The extra nil rate band will be fully available to anyone who:

  • passes the family home to their children or grandchildren on death; or
  • or had a family home, then downsized (passing on assets of equivalent value to children/grandchildren); and
  • has an estate below £2M.

However, the full £175,000 won’t be available until 2020/21. The allowance will first become available in 2017/18 at £100,000 and increase to £125,000 in 2018/19, £150,000 in 2019/20 and £175,000 in 2020/21. It will then increase in line with the Consumer Price Index (CPI). Like the existing nil rate band the new property nil rate band can be transferred between spouses or civil partners. This means a married couple could pass £1M in 2020/21 to their children tax free on death provided the family home is worth at least £350,000, saving £140,000 in IHT.

Who may miss out But not everyone will benefit from the additional IHT free allowance. Anyone with a net estate over £2M will begin to see their property nil rate band reduced until it is completely lost once the estate is over £2.2m (2017/18) £2.25m (2018/19), £2.3m (2019/20) or £2.35m (2020/21). It will only apply to transfers to children and grandchildren. Meaning those without children will miss out. And it is not possible to use the exemption for lifetime transfers which may discourage some clients from passing on their wealth during their lifetime. Clients who could benefit from the property nil rate band may need to revisit their existing wills to ensure they continue to reflect their wishes and remain as tax efficient as possible.

ISA changes Replacing withdrawals The proposed changes to ISA, allowing savers to dip into the savings and replace them without it affecting their annual subscription limits, will go ahead from 6 April 2016. The new contributions would have to be paid within the same tax year as the withdrawal for it not to be counted. These new flexible funding rules will only apply to cash ISAs and any cash element within a stocks and shares ISA. However, it is now possible to move ISA holdings between cash and stocks and shares without restriction, so clients in stocks and shares will be able to benefit provided they move into cash first.

Help to Buy ISA First time home buyers will get help from the Government when saving to get their foot on the property ladder. The Help to Buy ISA will be available from 1 December 2015. The scheme will provide 25% tax relief on savings up to £12,000. So someone saving the full £12,000 would see the government add a further £3,000 to their savings, giving them £15,000 towards the purchase of their first home. This tax relief isn’t given at the point of saving in the same way as a pension contribution, but is instead added when the saver buys the home. The new scheme will be a form of Cash ISA and, in line with current rules, it won’t be possible to subscribe to two separate Cash ISAs (Cash & Help to Buy) in the same tax year. Savings will be limited to a maximum single initial premium of £1,000 and regular savings of £200 each month. And to get the Government bonus, property values can be no more than £250,000 (£450,000 for properties in London).

Non Doms – deemed domicile after 15 tax years, applies to all taxes ‘Non-doms’ are individuals who, although resident in the UK, can legally claim that another country is their home (‘domicile’). This means that they can access some tax benefits not available to those who are resident and domiciled in the UK. New rules apply from April 2017 to restrict this. Individuals will become ‘deemed domicile’ (taxed in the usual way that UK domiciled residents are taxed) more quickly – after 15 tax years spent in the UK instead of 17. And ‘deemed domicile’ will apply to more taxes – income tax, CGT and IHT, instead of just IHT. Excluded Property Trusts used with offshore bonds can continue to benefit from an advantageous IHT treatment. But individuals with their affairs set up to take advantage of the remittance basis may wish to review their investments to ensure this will still be tax efficient under the new regime.

Source: Standard Life Technical Consulting – “Our team of technical experts has more than 300 years experience in the financial services industry. This experience, along with relevant qualifications, ensures we have the skills and knowledge to deliver this invaluable service to you.” 

How Financial Advisers add value to their clients’ portfolios

I have just received a communication from Fidelity which invites me to (yet another) seminar). It contained a rather nice assertion from Peter Westaway, Chief Economist at Vanguard Asset Management, and I quote:

“Vanguard’s research shows that financial advisers typically add around 3%* a year to their clients’ investment returns.

They call this added value Adviser’s Alpha, and define it as the difference between the return that investors might achieve with an adviser, and the return that they are likely to achieve on their own.

Building on deep experience in the US, Canada and Australia, their Investment Strategy Group has identified seven key areas where UK advisers can make a critical difference, and estimated values for each area. Among the most important from an investment perspective are:

  • Asset allocation – Often the most important driver of long-term performance.
  • Rebalancing – Keeping the portfolio balanced over time adds real value.
  • Cost-effective implementation – Every pound paid in charges is a pound off your clients’ potential returns.
  • Behavioural coaching – Helping your clients avoid common behavioural pitfalls can substantially increase their chances of investment success.

*Source: Putting a value on your value: quantifying Vanguard’s Adviser’s Alpha in the UK. “

It’s nice to see some objective evidence of the added value a good investment adviser creates for his clients.  With a typical ongoing fee of only 0.5% p.a. of funds under administration (that’s my standard fee), most people see the economic sense after they begin a relationship with an independent financial adviser or other wealth manager, and begin to relax a little over their investments as they let a professional take the strain. So if you have pensions and/or investments of at least £100,000, and would like to see how you might benefit, please give me a call on 0345 013 6525  for a free initial assessment and see how I can help you.

Tax Year-End: VCTs and tax mitigation

Where an investor is more adventurous and interested in the significant tax rebates available from HMRC, I favour Venture Capital Trusts (VCTs) over Enterprise Investment Schemes (EIS).

They are both higher risk than typical equity -based funds as they invest in smaller, relatively new companies. Simply put, a VCT is an investment trust comprising a number of different investments, and an EIS is typically just a single investment. It’s an eggs and baskets thing for me – an EIS requires a greater leap of faith.

The tax breaks on VCTs are significant. Provided they are held for the qualifying term (5 years) they offer 30% tax rebate based on the amount you invest (invest £100k, get £30k reduction on your current year’s tax bill – but you must have incurred that much income tax in that tax year in order to benefit) – and all income streams – dividends and capital gains, are tax free.

Innovative providers of VCTs have designed “lower risk” limited life offerings which are designed to liquidate after the qualifying period is up (in practice this is around a 6 year cycle). They invest mainly in asset-backed businesses (e.g. those with significant real estate) and/or those with predictable income streams. Staying within the rules, they  offer fairly modest gross returns whilst mitigating risk as far as they can. When added to the 30% initial tax saving, the IRR on such investments might for example be 7% to 9% for a higher rate taxpayer. After liquidation, the funds can be re-invested again and obtain a further tax rebates. Limited Life VCTs also avoid the criticism levied against traditional VCTs – where encashment is nearly always at a discount price compared to net asset value. A limited life VCT liquidates, so the investor receives full NAV.

But for those who like to buy and hold, then “Evergreen” VCTs can offer more risky but often more rewarding returns, with no tax on the income streams from year to year.

There is a VCT “season which commences in December each year and carries on past the tax year-end, offering investment in one or both tax years for a particular offering. Up to £200,000 per tax year means a maximum of £400k can be invested across the tax year-end. Minimum investments are usually £5,000 to £10,000.

If you would like to hear more about VCTs, please contact me.

Tax Year-End: Capital Gains considerations

Just a quick note to remind those of you with non-ISA investments that just because you haven’t earned crystallised  capital gains in excess of your annual CGT allowance (£11,000 in 2014-15) doesn’t mean you can ignore the planning. The markets have been pretty good over the past few years and many non-ISA investors will have holdings “pregnant” with potentially taxable gains.

And this applies to trustees too – your CGT allowance is 50% of the personal allowance at £5,500.

Unless your investments are modest, my advice is to try and crystallise gains up to just under your annual allowance, so that your portfolio is no longer carrying those gains into a later year, when future sales may cause aggregate gains over the allowance and tax becomes payable.

Even where you do not wish to make any wholesale changes to your investments, it is possible to swap one share (or fund) for another which is very similar. For example, swapping one UK tracker fund for another. This crystallises the gain into the current tax year.

Or maybe you have brought forward capital losses from earlier tax years. Can you utilise them against current gains in an efficient manner?

No reporting of capital gains under the annual allowance is required on a self-assessment tax return to HMRC.

Just sensible housekeeping really 🙂