Half-Time! for the tax year 2012/2013....Using Annual Allowances

The tax year starts on the 06th April each year and this is usually a busy time in UK retail financial services. The last minute pension and Individual Savings Account (ISA/Maximum £11,280 in 2012/2013) deposits are invested in time to use the annual allowance before the opportunity is lost. Many also look at any potential gains that have been made during the year to see if, where applicable, capital gains tax allowances (£10,600) can be used.

As we approach the halfway point of this tax year (2012/2013), we normally suggest that these annual allowances where unused, are visited to see if now is a good time to use them up? The gain for Chapters Financial is that we are spreading the years’ workload, but the gain for our clients to look for opportunities that may or may not be there when that annual tax year end rush occurs.

An example might be the recent rise in equity values/markets (past performance is not a guarantee of future performance and fund values can fall as well as rise and are not guaranteed) where gains on existing Unit Trust/Open Ended Investment Companies (OEICs) may be available and could efficiently be taken to use up the current capital gains tax allowance of £10,600. If you have capital losses available that could be bought forward, these may be used at the same time, however, we would recommend that you check this addition with your Accountant before proceeding. If you have not used your ISA allowance in this tax year and a gain is taken, you may choose to re-invest some of these proceeds into an ISA, up to the maximum of £11,280 in 2012/2013. If your spouse/partner has not used their allowance, this may provide an additional tax efficient opportunity.

Reviewing pension contributions is always worthwhile (standard limit £50,000 gross contribution pa/ total employer/employee) and it is not uncommon for Director/Managers to make single top-up contributions to pensions at this time of year. This timing may also be a reflection of their business year ends. 

As you can see from the notes above, a mid-year review may well be worthwhile in looking at the opportunities that may present themselves as we start the autumn 2012 season.

No individual advice has been provided during the content of this Blog and Chapters Financial Limited can help you with your tax year annual allowance planning both now and throughout the tax year(s).

We look forward to working with you. 

Keith Churchouse, FPFS, Chartered Financial Planner, ISO22222 Personal Financial Planner

Chapters Financial Limited is authorised and regulated by the Financial Services Authority, number 402899.

Have you prepared for your life-stages?

As we approach the end of what some called summer 2012 (weather excluded) we saw many sporting events with athletes and competitors striving to achieve 'Gold' in their many and varied disciplines. Closer to home, I attended a party to celebrate my parents 50th and Golden Wedding Anniversary. Many congratulations to them on such a great achievement.

In mingling with the fellow well-wishers, I was able to catch up with many faces that I had not seen for many years and to note a few who were no longer with us, along with some tales of wellbeing and, sadly, ill health. It was a diverse group, young and old, and it was interesting to witness the change and development in the lives of each I spoke to. One attendee commented on this very point, noting that he was now, possibly unwillingly, the head of the family and that time was passing so fast that he, like many at the party, have had to step up to the mark as your time comes. Many readers of this blog will already know this experience. However, it is still interesting to see such a 'snapshot' in one evening.

The needs and reliance of each member on each other within each unit was clear and the next morning, as the nights memories came back into view, in made me think about the importance and benefit that insurance protection, in all its forms, really can provide to ensure that financial security can be maintained when life throws a 'spanner in the works'.

For reference, I have listed below what should be considering ensuring both you and your loved ones are protected properly. 

Life Assurance

The first, most obvious protection that those with a dependent family to protect should think about having in place is Life Assurance. In the event of death, I am sure that you would want any mortgage/liabilities repaid, and leave a balance to provide capital/income to the family to see them through into the future after their loss. Don't forget to think about your spouse or partner and ensuring that they are adequately covered. 

Life cover can be provided as a lump sum or in the format of a set 'income' paid each year for a set term (Decreasing Term Assurance). This latter option can sometimes reduce monthly premiums paid. 

You might want to see what cover your employer (if you have one) offers as a Death-in-service benefit (DISB). Some also use this type of cover to protect against the effects of inheritance tax (IHT) on their estate in the event of their death. 

If you take on life cover, you can usually write this in trust to ensure that the proceeds fall outside your estate (for inheritance tax purposes (IHT)) and available without recourse to Probate. This should mean that the proceeds of the policy are available quickly. Most insurance companies will offer a Trust wording free of charge. If you have an existing policy, you can usually still add a Trust to the plan and this is usually worthwhile considering.

Income Protection/Replacement

If you were unable to work due to ill health, do you know how long you could survive financially? Have you thought about it? You may have emergency deposit savings (possibly 3-6 months’ income) to see you through this unexpected (and unwelcome) experience, but thereafter, what happens? Have you checked recently what, if you have one, your employer’s policy on protecting their staff is? It is possible to put in place an Income Protection plan, sometimes known as a PHI (Permanent Health Insurance) policy. This is arranged to pay an agreed level of income in the event of inability to work due to ill health until a fixed age (say 60-65 as examples) after a waiting period (benefit will only be paid after this time). The waiting period (selected at outset) is usually 8-13-26-52 weeks and the longer the waiting period the lower the premium paid per month. You can also build other options into this type of plan, such as protection against the effects of inflation, as one example.

Critical Illness Protection

The thought of contracting a critical illness can always be a concern and this type of cover should be seen as a compliment to Permanent Health Insurance rather than an alternative because they work in different ways. If you decide only to take one type of cover then speak to your Independent Financial Adviser (IFA) or Chapters Financial Limited about the differences and your requirements.

A Critical Illness policy (CIP) pays a lump sum (usually after a period of 28 days from diagnosis) on diagnosis of a critical illness. The 'devil can be in the detail' in this type of plan on the conditions that are covered. In our experience, the existing older plans see broader definitions and this can make these types of plan valuable. You will usually set an end date for the cover (again this maybe 60-65) and a sum assured, the lump sum you would like to receive, in the event of diagnosis of a critical illness.

Private Medical Insurance (PMI)

This type of cover, as the name suggests, provides financial protection for medical costs in the event that medical care is needed. Some employers offer this to their staff part of their benefits package and this is a taxable benefit in kind if received. The plans usually have an 'excess' level, an amount that you have to pay before the policy will, and this can vary. The higher the excess will usually see the lower initial premium paid.

Summary

You can see that there are various options (and combinations of cover) available to those who are at a life-stage where protection is needed, both for their own financial security and that of their family/loved ones. 

No individual advice has been provided during the course of this blog and when you are considering your needs or reviewing your existing arrangements then please seek professional independent financial advice (IFA) for your needs and requirements. Chapters Financial Limited would be pleased to help you assess your needs, the cover you need and make appropriate recommendations.

We look forward to working with you. 

Keith G Churchouse, Chartered Financial Planner
Director, Chapters Financial Limited
Chapters Financial Limited is Authorised and Regulated by the Financial Services Authority. Number 402899

The Financial Services Authority does not regulate Trust documentation.