Easter 2015, a time for family……..and financial planning?

Many people turn to financial planning and family issues over the Easter break as for the majority it may well be the first time off they have achieved so far this year.


We are currently experiencing one of the busiest times that the UK retail financial services sector has seen over the last 10 years and we thought that a ‘ready reckoner’ of financial planning issues to consider over the next few weeks would be a helpful tool.


We also have to be mindful that the final Budget 2015 of this administration is due on 18 March and it will be interesting to see if the already significant changes are added to (or reduced) by the current Chancellor, George Osborne MP.


We do appreciate that some of the detail below is a repetition of earlier Chapters Financial blogs. Here is our list of points that many may want to consider whilst digesting your chocolate eggs and hot cross buns:

1. New ISA/JISA allowance: the ISA allowance for the new tax year 2015/2016 is £15,240 per individual. For those aged over 18, this can be split between cash and stocks & shares in whatever proportions are suitable for you. Individuals aged 16 – 18 can hold an adult cash ISA (not stocks & shares). For those up to the age of 18, the new Junior ISA (JISA) allowance from 06 April 2015 will be £4,080. It’s worth using these tax-efficient allowances early in the new tax year to ensure that they are not forgotten.  
2. Capital Gains Tax (CGT) allowance: the annual CGT allowance for the 2015/2016 tax year will be £11,100 per individual. For many people, this is sufficient to ensure that no CGT is paid on capital gains. However, those with larger capital gains will find themselves liable to CGT and the gain, potentially combined with a high income, could be taxed at the higher rate of 28% rather than 18%. If you are married, it would be prudent to consider gifts of assets between spouses to ensure that each CGT allowance of £11,100 is fully utilised. Transfers between spouses are free of CGT, although the transfer must be an outright and genuine gift.
3. Pension contributions: if you are not currently contributing into a pension, have you considered doing so? Many people in the UK are not saving enough for their retirement and the State Pension is unlikely to be sufficient to meet anything but your basic needs. Saving into a pension is also a highly tax efficient method of saving: you can get tax relief on private pension contributions worth up to 100% of your annual earnings, up to a current maximum of £40,000 per year. Your pension provider will claim basic rate tax relief for you at a rate of 20% and you can claim any higher or additional rate tax back from HMRC via your tax return.
4. HMRC Carry Forward facility: if you are already saving for your retirement, it would be wise to review your contributions and ensure that you are contributing enough to provide you with the income you want in retirement. If you are not using your entire £40,000 gross annual allowance (from all sources) every year, you can top up your allowance for the current tax year with any allowance you didn’t use from the previous tax years. If you are keen to use this carry forward facility, it is important to bear in mind that the annual allowance was reduced to £40,000 in the tax year 2014/2015. For the three tax years prior to this, the annual allowance was £50,000. It is also possible that the annual allowance will reduce again in the future, particularly if we have a change of Government. If you wish to make a sizeable pension contribution, achieving this in the tax year 2015/2016 will maximise the amount you will be able to contribute whilst still receiving tax relief. This is a complex area and we would urge you to seek independent financial advice before taking such steps.
5. New pensions /retirement rules (Pension Freedoms): the new flexibilities surrounding pensions have been widely publicised, with some sections of the media trumpeting that we can now withdraw our entire pension savings in one go if we so choose. Whilst the law might allow this, it will not be a prudent step for the majority of people. The fundamental rule that pension savings are there to provide you with retirement income for life has not changed. In addition, any withdrawal from your pension fund will attract income tax at your highest marginal rate – according to a recent survey, one fifth of those retiring over the next year are still unaware of this. Easter is a good time to consider your income requirements carefully and decide on your priorities for your pension savings.
6. Pension death benefit nominations: who would you like your pension savings to go to on your death, and have you let your pension provider know? Chapters Financial would always recommend that you ensure your wishes are clearly noted by completing an Expression of Wish / Nomination of Benefits form. This should also ensure that your pension benefits remain outside your estate for Inheritance Tax purposes.
7. Life, critical illness and health insurances: when was the last time you checked these? For example, many people take out life insurance when they buy their first house to cover the mortgage. It’s worth checking that the level of cover you took out is still appropriate (it may well not be) and whether the policy itself is suited to your current circumstances. It is usually very simple to obtain additional life cover if needed and a term assurance policy (for a period of years rather than the whole of your life) is often a cost-effective way to protect your family in the event of your death.

Summary

If you would like advice on any of the above aspects of your financial planning, then please contact the team at Chapters Financial in either Guildford or Woking who will be able to help you further.

No individual advice is provided during the course of this blog.

Keith Churchouse BA Hons FPFS
Director, Chapters Financial Limited
Chartered Financial Planner
Certified Financial Planner
ISO22222 Personal Financial Planner

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

Budget 2015: Key Highlights

The Chancellor, George Osborne, delivered an upbeat Budget at 12.30pm on 18^th march 2015. This was his sixth Budget as Chancellor, and the last of the current Parliament. He announced ‘record employment’ in the UK, living standards at a higher level than in May 2010 and economic growth of 2.6% in 2014 – faster than any other advanced economy. Petrol duty is frozen too, and you can celebrate this with a very slightly cheaper pint of beer (1p off duty)….but not wine!

This positive message was continued in some of the Chancellor’s announcements, although not all (see pensions Lifetime Allowance…). We have listed below the main points that could affect your financial planning and your household income. These are as follows:

Pensions

• Pensions Lifetime Allowance to be reduced from £1.25 million to £1 million from April 2016…although the Chancellor did announce that the new Lifetime Allowance will be indexed to inflation from 2018.
• This will be the third reduction in the Lifetime Allowance since 2012, at which point it was brought down from £1.8 million to £1.5 million. It was then lowered again in 2013 to the current rate of £1.25 million. It may be cold comfort, but no change to the Annual Allowance for pension contributions, which remains at £40,000 gross (from all sources) for the tax year 2015/2016.
• Pensioners to be allowed to access their annuities (full details of how to be confirmed) – 55% tax charge to be abolished and tax applied at highest marginal rate.

Personal taxation

• Annual paper tax returns to be abolished. The current tax return system will be phased out and replaced with individual digital accounts which can be accessed online.
• Tax-free personal income tax allowance to rise from £10,600 in 2015/2016 to £10,800 in 2016/2017 and £11,000 in 2017/2018.
• Higher rate tax threshold to rise at a rate above inflation, from £41,865 in 2014/2015 to £42,385 from April and £43,300 in 2017/2018.
• The transferable tax allowance for married couples (also see new Marriage Allowance) will rise to £1,100.
• There will be a review of legal loopholes that help people to avoid Inheritance Tax (IHT). Of particular interest to the Government is the use of a Deed of Variation to avoid IHT. A Deed of Variation changes a will after the death of an individual and allows the beneficiaries of the estate to change how it is distributed.

Savings

• ISAs will become ‘fully flexible’ – savers will be allowed to withdraw and replace cash ISA money during a tax year without affecting the overall tax-free ISA limit.
• New ‘Help to Buy’ ISA: first time buyers will be able to save up to £200 a month towards their first home with a Help to Buy ISA. The Government will boost their savings by 25%, giving an extra £50 on savings of £200. Accounts will be available from autumn 2015 and savers can make an initial deposit of £1,000 when opening an account, in addition to their monthly savings.
• New personal savings allowance: the first £1,000 interest earned on savings income will be tax-free for basic rate taxpayers from April 2015. Higher rate taxpayers will have a £500 allowance.

Small businesses and charities

• Corporation tax to fall to 20%
• Abolition of Class 2 National Insurance Contributions for the self-employed
• Automatic gift aid limit for charities to be extended to £8,000 from £5,000
• Review of business rates – further details to be confirmed

As always, no individual advice is provided during the course of this blog. If you would like advice on the changes announced in the Budget then please contact the team at Chapters Financial Limited at our Woking or Guildford offices.

Keith Churchouse
Director of Chapters Financial Limited
Certified Financial Planner
ISO 22222 Personal Financial Planner
Chartered Financial Planner 

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