As we approach the end of tax year (05 April 2013), and approach the new tax year of 2013/2014, you will probably see much in the press, on our website and in our newsletters about how tax allowances and tax rates will change from the start of the next tax year (06 April).
As the old saying goes “there are only 2 things in life which are certain, death and taxes”. With careful financial planning and implementation, you may be able to mitigate the tax you pay on your assets and investments in the future.
I have highlighted below some of the areas where careful use of individual allowances can help with your financial planning, provided they are implemented before the end of the tax year.
Of course, some allowances, such as the ISA are usually renewed each year, so you can use your allowance again early in the forthcoming tax year 2013/2014.
Individual Savings Account (ISA) £11,280 2012/2013 and £11,520 2013/2014
This is the most obvious allowance to most investors, allowing either tax-free savings, via a Cash ISA, or tax efficient investment, via a Stocks & Shares ISA. The only tax which applies to the Stocks & Shares ISA is the 10% dividend tax credit which applies to any dividend income which the investment produces and this is non-re-claimable.
The annual allowances must be used within the tax year or there are lost forever, i.e. “Use-it or Lose-it” basis. In the current tax year (2012/13) an individual (not a minor) has a total allowance of £11,280 of which up to a maximum of 50% can be placed into a Cash ISA with any balance remaining is available for investment into a Stocks & Shares ISA. The total annual allowance for tax year 2013/14 (starting 06th April) rises to £11,520.
Junior Individual Savings Account (JISA)
Being very similar to the adult ISA, the Junior ISA allows a child under the age of 18, who was not entitled to a Child Trust Fund (CTF), to have either a Cash Junior ISA or Stocks & Shares Junior ISA or both but the total annual amount is £3,600. The child owns the Junior ISA and will take control of it after their 16th birthday, however cannot access the funds until after their 18th birthday. This allowance is due to increase in the new tax year 2013/2014 to £3,720.
When the child reaches the age of 18 the Junior ISA will automatically switch to an ISA. Some suggest that this can be a very useful method of saving / investing for future further education/ university fees.
Capital Gains Tax (CGT)
On most assets, whenever an individual buys an asset and realises a gain on the asset then Capital Gains Tax could potentially be applicable. Currently this is set at flat rates of 18% for nil and basic rate income tax payers and 28% for higher and additional rate income tax payers.
However, every individual has the use of an annual capital gains tax allowance, currently £10,600 in tax year 2012/13. This allowance increases in the new tax year 2013/2014 to £10,900.
For reference, Trusts also have the use of a CGT allowance at half the standard individual amount.
Pensions
Relatively recently (06 April 2011), the annual allowance for investments, from all sources, into pensions was severely reduced from £255,000 gross (tax year 2010/11) to £50,000 gross in a year. This annual allowance continues until the beginning of the tax year 2014/15, when it is due to reduce to £40,000 gross.
However, unlike the ISA and the CGT allowance already noted, previous unused years allowance can potentially be carried forward into the current tax year (where available and legislation continues).
Therefore, this option can be attractive to a higher, or additional, rate income tax payer receiving relief at either 40%, or 50%. Advice should be sought from an Accountant to ensure that an individual has the capacity to contribute tax efficiently within the allowances.
Inheritance Tax
Many people are aware of the Inheritance Tax (IHT) threshold, known as the nil-rate band (NRB), per individual is currently £325,000 (2012/13). Above this value, the remaining estate is liable to IHT at a flat rate of 40%.* Many of these people are also aware that the unused portion of IHT NRB is passed to the surviving spouse, or civil partner, to use on their death for their estate.
Making sure a valid and robust Will is in place is a cornerstone of financial planning and you may want to re-visit this issue with your solicitor.
However, what many people are not aware of is the annual gift allowance of £3,000 per donor, which falls outside of their estate immediately. Again, if the previous year’s annual gift allowance has not been utilised then you can effectively gift a total of £6,000.
* You may be able to reduce this tax rate by making a gift from your will to Charity. Please read our webpage ‘Charitable Giving’ for further details.
Summary
The time is of the essence whenever the tax year end is concerned, both to use up available allowance where prudent and possible in this tax year and to look at the new allowances early in the forthcoming tax year 2013/2014.
No individual advice has been provided during the course of this blog. The use of allowances should be planned for carefully and if you would like to receive individual advice on the topics above, then please contact the team at Chapters Financial Limited on 01483 578800.
Simon Hewitt BSc (Hons) Dip PFS
Financial Planner
Chapters Financial Limited is authorised and regulated by the Financial Services Authority, number 402899.
The Financial Services Authority does not regulate Tax advice.
Wednesday 27 March 2013
Wednesday 13 March 2013
Employee Benefits – Are they worth it?
The new world experience of having to reduce costs and tighten our belts is no different for employers, as it is for household economies.
One area which we have experienced employers aiming to reduce costs is to look at the existing employee benefits package they have. Employers are now sensibly ‘shopping around’ for the most competitive terms, whilst still providing their staff with benefits to ensure that they remain a content and productive workforce, importantly feeling (and being) cared for by their employer.
Annual Review
I wholeheartedly agree with this review process (usually annually), aiming to ensure that the benefits (and providers) are reviewed regularly to ensure that costs are kept to a minimum, whilst still providing valuable terms. I have commented further on this at the end of this blog.
Legislative change
I believe that one of the key reasons why employers are starting to investigate the range, and providers, of their employee benefits is due to the legislative changes taking place around workplace pensions. We have noted these changes, known as Auto-Enrolment, many times in previous blogs / articles. These changes mean every eligible jobholder will be automatically enrolled into a workplace pension over the next few years. Unless the individual “opts-out”, the employee, the employer and the government (in the form of tax relief) will all contribute into the individuals’ retirement fund once enrolled.
Often legislation changes around taxation can have both a positive and a negative impact on benefits packages.
Taxation
Depending on the structure and type of employee benefit, the cost could be treated as a legitimate business expense and therefore tax deductible for corporation tax. Alternatively, the benefit provided could be classified as a benefit-in-kind (such as Private Medical Insurance/PMI) and taxable the hands of the employee.
These are important points and you may want to check these with your company Accountant before proceeding.
Cost Benefit of Employee Retainer
This change in pension legislation has prompted many employers to revisit the scope of the employee benefits they offer. Examples might be life cover, private medical insurance, travel insurance, income protection, dental or eye care and obviously pensions. This is only a small range of benefits which are at the disposal of an employer to offer their workforce. Staff attrition and high turnover rates can be a large business cost and significant time burden. If an employer can retain a satisfied and productive workforce through the offering of the appropriate employee benefits, then, in our communications with the businesses we work with, cost benefits usually follow.
Professional Advice
Whenever employee benefits are considered for introduction, or amendment, careful consideration should be taken for many reasons.
The most obvious, and easily calculable, is cost both on the employer and the employee. A more difficult issue to contemplate could be the political impact within the workforce if an unfair action is taken, e.g. the removal / reduction of a particular benefit. There are many instances where a contractual right to a particular benefit is included in an Employment contract.
I believe that a carefully designed, planned and implemented employee benefits package can be a useful method in attracting and retaining a quality workforce, whilst allowing a business to grow. I recommend professional independent financial advice should be used to assist the employer through the structure and agreed implementation of an appropriate employee benefits package to meet their individual requirements and budget.
No individual advice has been provided during the course of this blog. Employee Benefits should be planned for carefully and if you would like to receive individual advice on this subject, then please contact the team at Chapters Financial Limited on 01483 578800.
We look forward to working with businesses and partnerships across the South East & London.
Simon Hewitt BSc (Hons) Dip PFS
Financial Planner
Chapters Financial Limited is authorised and regulated by the Financial Services Authority, number 402899. The Financial Services Authority does not regulate Tax advice.
One area which we have experienced employers aiming to reduce costs is to look at the existing employee benefits package they have. Employers are now sensibly ‘shopping around’ for the most competitive terms, whilst still providing their staff with benefits to ensure that they remain a content and productive workforce, importantly feeling (and being) cared for by their employer.
Annual Review
I wholeheartedly agree with this review process (usually annually), aiming to ensure that the benefits (and providers) are reviewed regularly to ensure that costs are kept to a minimum, whilst still providing valuable terms. I have commented further on this at the end of this blog.
Legislative change
I believe that one of the key reasons why employers are starting to investigate the range, and providers, of their employee benefits is due to the legislative changes taking place around workplace pensions. We have noted these changes, known as Auto-Enrolment, many times in previous blogs / articles. These changes mean every eligible jobholder will be automatically enrolled into a workplace pension over the next few years. Unless the individual “opts-out”, the employee, the employer and the government (in the form of tax relief) will all contribute into the individuals’ retirement fund once enrolled.
Often legislation changes around taxation can have both a positive and a negative impact on benefits packages.
Taxation
Depending on the structure and type of employee benefit, the cost could be treated as a legitimate business expense and therefore tax deductible for corporation tax. Alternatively, the benefit provided could be classified as a benefit-in-kind (such as Private Medical Insurance/PMI) and taxable the hands of the employee.
These are important points and you may want to check these with your company Accountant before proceeding.
Cost Benefit of Employee Retainer
This change in pension legislation has prompted many employers to revisit the scope of the employee benefits they offer. Examples might be life cover, private medical insurance, travel insurance, income protection, dental or eye care and obviously pensions. This is only a small range of benefits which are at the disposal of an employer to offer their workforce. Staff attrition and high turnover rates can be a large business cost and significant time burden. If an employer can retain a satisfied and productive workforce through the offering of the appropriate employee benefits, then, in our communications with the businesses we work with, cost benefits usually follow.
Professional Advice
Whenever employee benefits are considered for introduction, or amendment, careful consideration should be taken for many reasons.
The most obvious, and easily calculable, is cost both on the employer and the employee. A more difficult issue to contemplate could be the political impact within the workforce if an unfair action is taken, e.g. the removal / reduction of a particular benefit. There are many instances where a contractual right to a particular benefit is included in an Employment contract.
I believe that a carefully designed, planned and implemented employee benefits package can be a useful method in attracting and retaining a quality workforce, whilst allowing a business to grow. I recommend professional independent financial advice should be used to assist the employer through the structure and agreed implementation of an appropriate employee benefits package to meet their individual requirements and budget.
No individual advice has been provided during the course of this blog. Employee Benefits should be planned for carefully and if you would like to receive individual advice on this subject, then please contact the team at Chapters Financial Limited on 01483 578800.
We look forward to working with businesses and partnerships across the South East & London.
Simon Hewitt BSc (Hons) Dip PFS
Financial Planner
Chapters Financial Limited is authorised and regulated by the Financial Services Authority, number 402899. The Financial Services Authority does not regulate Tax advice.
Friday 1 March 2013
Why we add value
The new world of UK retail
Financial Services commenced on 31st December 2012. If you haven’t
heard of these new initiatives and changes, they are called the Retail
Distribution Review (or RDR for short) introduced by the professions regulator,
the Financial Services Authority (FSA). We have posted other informative blogs
on this website relating to RDR changes that will affect clients and advisers
alike.
Change always brings challenges
and the RDR is no exception.
From a client’s perspective, what
should they now be looking for when seeking financial advice and help?
From Chapters Financial Limited’s
point of view, how we help you add value to your personal financial planning?
Transparency
Chapters Financial has continued
to operate a transparent Client Agreed Remuneration (CAR) model for the past 6
years. This is the model which the FSA has closely adopted for its new advice
regime. We are proud to continue to offer independent advice based on enquirers
needs and requirements.
Professional Service
The team provides an open,
friendly and professional service based on integrity, values and commitment to
the financial planning process. The initial meeting is usually provided at our
cost. If during this meeting we do not believe we can add real value, then we
tell the clients or enquirer accordingly.
Delivery
At the end of our initial
meeting, if agreed, we will produce documents which detail our clients’
objectives, how we aim to achieve those objectives and the fee/charges which
the client will incur for engaging our service. This relaxed and professional approach
means that we meet with the client’s requirements in a timeframe to suit them.
Chapters Financial Limited continues
to offer financial planning, advice and service as Chartered Financial Planners.
If you would like to discuss your Financial Planning with
one of professional advisers then please contact us on 01483-578800.
We look forward to working with you.
Chapters Financial Limited is authorised and regulated by the Financial
Services Authority, number 402899
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