Posts Tagged ‘Planning’
Financial planning for the end of the tax year
The nights are finally starting to get a little lighter – maybe we can start looking forward to Spring after all. In financial services, Spring means two things; the Budget (on March 20th this year) and the end of the tax year on Friday April 5th.
This article gives some suggestions on financial planning steps to take before the end of the tax year, so that you can make the most of your tax allowances and organise your affairs as tax efficiently as possible. However, the first point to make is a practical one.
Easter is early this year, with Good Friday on March 29th and Easter Monday on April 1st. With holidays bound to impact on administration at some financial institutions, our first suggestion is that if you’re going to act before the end of the financial year, don’t leave it until the last minute. If you want to make sure your transactions are processed in time, look on the week commencing March 25th as the last practical week.
Individual Savings Accounts
The overall personal limit for an Individual Savings Account (ISA) for the current tax year is £11,280 and this will increase to £11,520 for the new tax year commencing on April 6th. It’s important to note that if you are only contributing to a cash ISA then the maximum is exactly half the overall allowance – so £5,640 and £5,760 respectively. The other key point is that if you don’t use your ISA allowances for this tax year then they are lost – they can’t be ‘carried forward’ to the next tax year.
We’d always recommend making use of your ISA allowances if you can – you pay no tax on capital gains which you make within an ISA or income you take from it. For long term investment there is a huge range of funds available within an ISA ‘wrapper’ from the very cautious to the very adventurous: as always, we’d be happy to discuss all the options with you if you’d like some advice.
Capital Gains Tax
Accountants will tell you that CGT is the ‘forgotten’ tax relief – people who religiously use their full ISA allowance completely fail to utilise their CGT allowance. For the current tax year everyone has a CGT allowance of £10,600 – meaning that capital gains made on investments such as shares are free of tax if they are within this limit. Husbands and wives can gift assets to each other without incurring a CGT charge, effectively giving a married couple a limit of £21,200. Like the ISA allowance though, the CGT allowance is an annual one, and cannot be carried forward to a subsequent tax year.
Inheritance Tax
The current individual limit for Inheritance Tax is £325,000 and this will remain the same for the tax year 2013/2014. Remember though, that you can make gifts during a tax year and these will be exempt from IHT if they fall within the Revenue limits: the limit is £3,000 per person, so £6,000 for a married couple. Although these amounts are small they can still help to reduce the value of an estate.
There are, of course, far more complex and sophisticated Inheritance Tax planning measures such as the use of trusts; if you feel that you would like specialist advice in this area then we will be happy to help.
Pensions
Why have we left pensions to (almost) the end? For a simple reason – because whilst there is enormous scope to make tax efficient investments through your pension (especially for higher-rate taxpayers) the legislation and rules are complex and it is an area where specialist financial planning advice is almost always required.
The top rate of tax is shortly being reduced from 50% to 45%, so many very high earners will be motivated to make pension contributions now, and as usual there is the chance to make use of reliefs and allowances which haven’t been used from previous tax years.
Equally, those people who are self-employed or directors of companies may need to think about making sure their pensions are as tax efficient as possible, and set up to ensure that they receive the maximum benefits from the business they are running. It all adds up to an area where specialist advice is essential and we are always ready to sit down with clients and use our expertise and experience to make sure they have exactly the right pension planning.
Hopefully that’s a useful overview of the planning steps you should take before the year end.
The key message is simple: “talk to us.” We’re never more than a phone call or an e-mail away and we’re happy to explain any of the subjects above in much greater detail.
*The Financial Services Authority does not regulate taxation advice or trusts.
Pension Snakes & Ladders – are you protected?
You may remember, back in the days when we thought that Pension Simplification would be just that, the government introduced a limit on the amount of money you could build up in registered pension schemes. This is known as the lifetime allowance. It started off at £1.5m in 2006 and has gradually grown to £1.8m in this tax year.
If you were affected by this limit, or thought you might be in the future, you could apply for protection. Not the type of protection you get from guys with sharp suits, wide lapels and violin cases but protection from the nasty tax charges that bite when you exceed the lifetime allowance.
In th
is new era of financial austerity high earners are bearing their share of the financial pain. The Finance Bill 2011 will introduce a new lifetime allowance of £1.5m from 2012. It’s the Treasury’s version of pension snakes and ladders.
So basically we are back where we started? No, not quite. The government have said that a new type of protection will be introduced. They’ve called it Fixed Protection. It will allow individuals to take advantage of the current £1.8 million lifetime allowance so long as they build up any further benefits. If you’ve claimed protection under the 2006 rules you can still have up to the £1.8m limit.
If you employ high earners with substantial pension benefits it’s worth looking at those whose pension values are between £1.5m and £1.8m
If you are an employee and you think that you may be affected you really should get some specialist advice.
Well there you have it. Pensions Simplification? As if!
Baby Boom or Bust – the financial tsunami
As the first wave of baby boomers turn 65, the number of people in the UK approaching retirement is growing at a pace never seen in our history. 
However, the problem is, for many of them, their bank accounts aren’t.
The crush of the economic downturn – which saw many people lose some of their life savings – has forced some people to work several more years than they originally hoped for when they were looking at their retirement plans.
Others simply haven’t saved enough of a nest egg over the decades to live comfortably in what should be the best years of their lives.
Just under half (45%) of employees in the UK don’t have a pension plan. The Office for National Statistics latest Pension Trends publication states that in 2007 about 9 million people were members of a company pension scheme and about 7 million were paying into a personal pension plan. The UK working population hovers around the 29 million mark. So that means only 55% are using a pension plan to save for their retirement.
A Financial Tsunami?
Baby boomers may be reaching their retirement in waves, but a financial tsunami could be in their wake.
New research by the Oddfellows Friendly Society and the Centre for Retirement Reform (CRR) into understanding of retirement income has highlighted a worrying knowledge gap among those approaching retirement.
The survey – which was conducted among 1,200 Oddfellows members aged between 55 and 65 – found that on average, £25,000 per year was considered enough to provide for a reasonable standard of living.
Nearly 20 per cent of those yet to retire either didn’t know or didn’t answer when asked how much they would need to save to enjoy the post-retirement lifestyle they want.
More worrying was the fact that most of those who said they did know actually underestimated the figure. The average answer was £380,000 when it’s closer to £500,000. According to the Pensions Policy Institute the average size of pension fund used to buy an annuity was £24,330. Unless you have a company pension to bridge the gap, or have accumulated 20 of these “”average “pension plans, it’s likely you’ll miss the target.
Clearly if these baby boomers want to maintain the same standard of living, it’s going to be difficult. It’s not an immediate problem, but it’s a problem that’s going to creep up on us in the future.
One of the effects of the prolonged economic slump is that many workers aren’t retiring at 65 and are now working for several years more than originally planned just to comfortably exist. With the removal of the Default Retirement Age making it more difficult for employers to justify retiring an employee some people who are currently working may never retire.
So what’s the answer? 
Is there one? In my previous post I wrote about my concern that we were sleepwalking towards a very poor old age.
The government is taking some action by forcing us to save for retirement with automatic enrolment into workplace pensions. However, you’re going to have to go some to build up £500,000 of a pot by the time you retire.
Many people have grown up over the last few decades with no real saving mentality or habit. Some are even largely excluded from financial products – sometimes voluntarily. Brian Pomeroy – who is the Chairman of the Financial Inclusion Taskforce – said recently:
“The single thing which is most likely to make someone who is really distrustful of the banks open a bank account is wanting a Sky TV contract.”
At the other end of the scale the boom in house prices over the last twenty years has lulled people into seeing the equity in their house as a means of financing their retirement. However, in words of one campaigner for pensioner rights “You can’t eat the front doorstep”.
Realistically there is no magic bullet. As a nation I believe that we have to:
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Educate our children about the need to save from an early age.
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Get finance into the school curriculum.
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Realise that the government isn’t going to support us when we retire.
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Make financial products simpler and more straightforward.
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Make our pension system easier to understand for the man in the street.
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Plan ahead. Having a financial roadmap helps us navigate life’s ups and downs.
Most of all it’s really simple – we’ve all got to save long and save hard for our future.