Budget July 215: Key Highlights

The Chancellor, George Osborne, delivered his Emergency Budget at 12.30pm on 08 July 2015. This was his seventh Budget as Chancellor, and the first since November 1996 for a majority Conservative government. He announced growth in the UK economy of 3% in 2014, with 2.4% growth forecast for 2015 and one million additional jobs predicted to be created by 2020. Stiff cuts to a range of welfare measures were set out – it really could be an emergency budget for those worst affected – along with various new personal taxation and pay announcements aimed at working people.

We have listed below the main points that could affect your financial planning and your household income. These are as follows:

Pensions

• From April 2016, annual tax relief on pension contributions is to be limited to £10,000 gross per annum from all sources for those earning £210,000 gross per annum and above. Individuals earning over £150,000 gross will no longer qualify for the full annual allowance of £40,000. This allowance will be curbed gradually – for every £1 of earnings over £150,000, the annual allowance will reduce by 50p to a minimum annual allowance of £10,000.
• The government will consult on a plan to make “pensions more like ISAs”. The Chancellor suggested that earners in the future could pay taxed income into a pension, receive a top-up from the government and then draw money free of tax. Watch this space…  

Personal taxation

• Under current rules, inheritance tax is charged at 40% on estates over the nil rate band of £325,000 per person. From April 2017, couples will have their nil rate band extended by £175,000, allowing them to pass a £1m family home on to their children or grandchildren tax free on death. This will be phased in from 2017 to 2018 and it should be noted that the allowance will be gradually withdrawn for estates worth in excess of £2m.
• The tax-free personal allowance (the amount you can earn before you start paying income tax) will increase to £11,000 in the tax year 2016-2017 (currently £10,600). This is in line with the government’s ambition to increase the personal allowance to £12,500 by 2020.
• The point at which the higher rate tax band of 40% kicks in will rise from £42,385 to £43,000 from next tax year (April 2016).
• Dividend tax credits are to be scrapped, with a £5,000 tax-free allowance for dividend income instead from April 2016. The rates of dividend tax will be set at 7.5% for basic rate tax payers, 32.5% for higher rate taxpayers and 38.1% for additional rate payers, meaning that those who receive significant dividend income will pay more than they would under current rules. Dividends paid within pensions and ISAs remain tax free and unaffected.
• Permanent non-domicile status will be abolished from April 2017. Current rules allow some UK residents to pay lower levels of tax if their permanent residence is overseas. However, under the changes announced today, those individuals who have been resident in the UK for 15 of the last 20 years will pay full UK tax.

Public sector and minimum wage

• The 1% gross per annum public sector pay rise is to continue for the next four years.
• A new national living wage of £7.20 per hour for individuals aged over 25 will be introduced from April 2016. This will increase to £9 per hour by 2020.

Property owners

• Tax relief will be restricted for higher earning landlords. Under current rules, individuals who let out a property can deduct their costs (including mortgage interest) from their profits before tax is paid. This means that higher earning landlords receive tax relief at 40%, or 45% if their income is over £150,000 gross per annum. By April 2020, this tax relief will be restricted to 20% for all landlords, regardless of income level.  

Small businesses

• Corporation tax has already fallen from 28% in 2010 to 20% today, with the aim of increasing the UK’s global competitiveness. It was announced today that corporation tax will fall again, to 19% in 2017 and 18% in 2020.
• The National Insurance employment allowance for small firms will increase to £3,000 (currently £2,000) from April 2016, cutting the employer National Insurance bill by £1,000.

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.

Vicky Fulcher
Financial Planner
Chapters Financial Limited

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

Now for the real work!

The night of 07 May 2015 was a long one. Waiting for the results of a General Election can be a fascinating time, with a few high profile MPs and candidates falling at the declarations across the UK. As the morning of 08 May broke, the clear outcome of the General Election was a surprise to many, especially the various pre-Poll providers whose predictions were well wide of the final result.

With the press suggesting it was neck and neck to the wire, many, including me, were surprised by the initial exit poll which provided a clear outcome. As the investigations begin as to how the real result was not closely hinted at, many are questioning the motives behind the voting pattern, with thoughts of loyalty to a political party, desire for the economy to stay on track and, conversely fear of an alternative route. Fear, along with other basic emotions, such as love and greed are powerful motives.

With the dust settling and the new cabinet posts being allocated as I type this blog, the real work for the new Government begins. I wish them every success, as it is clear the majority of the UK does, in moving the country forward.

With this in mind, what does this change mean to you, if anything at all? Will it make a change to the way you work or manage your money and financial planning? Some issues are not affected by who governs the country, such as the population naturally living longer. More time to work, possibly, but also more time in retirement. Indeed, the new 'pensions freedoms' which were a legislative change, may help manage this issue. Longer working may give more time to save, but it might also mean that as a bread-winner, you may need to protect the family for longer.

Whatever your individual circumstances, and we are all individuals, now may well be a good time as we head towards the summer to take stock of your financial planning, to review this and to make changes to meet with your plans, whether they have been changed by the General Election results or not.

The team at Chapters Financial can help you with your financial planning and any review that may well now be due. Talk to us at our Guildford or Woking offices or contact us, via our link here

Because each person is an individual, no individual advice is provided during the course of this blog.

Keith Churchouse FPFS
Director
Chartered Financial Planner
Certified Financial Planner
ISO22222 Personal Financial Planner 

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

Ready to pay 45% income tax? …You might do if you take a large single withdrawal from your pension

You may well be very aware of the new ‘pensions freedoms’ that have become available on 06 April and we have detailed these on our website on a few occasions. Our latest retirement options schedule can be found here:
 http://www.chaptersfinancial.com/assets/downloads/RetirementOptions.pdf

It is interesting to note that, from 06 April 2015, a change has occurred in the way that income tax is applied to pension benefits that are withdrawn from a pension arrangement as a lump sum.

As it stands at this time, you should maintain a normal personal allowance via your tax code (the standard personal allowance for the 2015/2016 tax year is £10,600). Thereafter, you will pay income tax at a rate of 20% on income up to £42,385 and at a rate of 40% on income up to £150,000. For income over this level, the income tax rate applied is 45%.

HMRC has asked pension providers to divide the income tax band allowances by 12, dependent on the number of months that have elapsed during the tax year, and then apply income tax at the highest marginal rate accordingly for any single payment.

As an example, if someone was to withdraw £20,000 gross as a single lump sum in April 2015 from their pension plan, the following may occur (example only):

• The standard personal allowance of £10,600 would be divided by 12 (£883.00).
• The next level (20%) of £31,785 gross would be divided by 12 (£2,648.75).
• The 40% tax band would be divided by 12 up to £150,000 (£8,967.91).
• The balance would be taxed at 45% (£7,500 gross).

In this example, the initial income tax charge on the payment of £20,000 gross could be approximately £7,116.40. This is obviously a lot more than if just a basic rate tax charge of 20% had been applied (£4,000).  This ‘emergency taxation’ will be automatically refunded, although this may only be at the end of the tax year in the absence of a P45.

This effectively gives the government immediate cash flow at higher marginal rates with the opportunity to then reclaim the higher rate tax back, if the various limits noted above are not exceeded, by using an HMRC P55 form.

As these are new arrangements, it is unclear as to how long an income tax reclaim may take, although a 30 day turn around has been indicated if using the P55 form (not guaranteed). In the meantime, you should be aware that you may find that the tax take on any single lump sum pension contribution is higher than anticipated, effectively using ‘emergency taxation’  and also that it may take some time to receive the increased tax funds back.

You may wish to consult with your accountant/tax advisor before making any single large withdrawals from your pension savings, although these are important points for cash flow purposes.

A link to the new HMRC P55 claim form is noted here:

https://www.gov.uk/government/publications/flexibly-accessed-pension-payment-repayment-claim-tax-year-2015-2016-p55

Chapters Financial is not responsible for the content of external web pages

No individual advice is provided during the course of this blog and if you would like to know more about the way pension benefits can be made available to you, then please speak to the team at Chapters Financial in Guildford and Woking.

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.

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

How long will my money last?

I had the pleasure of presenting to a group of financial adviser colleagues in London at the Retirement Planner seminar in London recently.

The topic of discussion was the new pension freedoms which will be available in the new tax year 2015/2016.

One key point that was considered was the issue of longevity, and the purpose of this blog is to consider how long an existing pension pot could last, given various assumptions including the amount invested, the amount withdrawn on a regular basis and investment growth into the future.

Although the graph below is based on assumptions only and is not guaranteed, it clearly demonstrates that an individual retiring at age 65 could find that their money runs out before they reach their 80th birthday.

Pension Fund Assumptions/ Illustration Only:

• Person age 65
• Income of £1,500 a month taken gross
• Growth illustrated post plan charges
• Income indexed in line with CPI
• CPI assumed at 2.5% pa
• Income taken monthly
• Growth rates are assumptions only
• £200,000 pension fund value after tax free cash has been taken
• NOT GUARANTEED

Taking into account the issue of long-term care and the pressures of inflation (both the headline rates and the amount you pay in the supermarkets) it is easy to see that, without careful planning, the scenario of individuals having to return to work in their mid to late 70s may become a reality if they draw too much from their pension pots.

On this website we have updated our Retirement Options Schedule to detail the new freedoms and you may wish to look at this here.

Careful planning in the way that you draw pension benefits is vital and if you would like advice in this area then please do not hesitate to contact Chapters Financial at the Guildford or Woking office.

No individual advice is provided during the course of this blog and as noted above the assumptions made in the illustration are not guaranteed.

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.

Drawing Pension Benefits. What happens if I want to continue to save into a pension?

The new pensions ‘freedoms’ planned for 06 April this year are, in our experience, having a significant impact on retirement decisions being made now. It is refreshing to see renewed interest in pensions, both in terms of saving for them as you will see in the paragraphs below and the way they are drawn.

This blog, we freely admit, is a bit technical, but has some important points for those considering changes to their pension arrangements shortly.

If you are 55 or over and thinking about taking an income from your money purchase (defined contribution or personal pension) pension plan, and you are considering making further pension contributions in the future, it is important to be aware of the implications of going into income drawdown before the end of this tax year, as opposed to post-06 April 2015.

Pension Contributions / Money Purchase Annual Allowance/ £40,000 Limit?

The annual allowance is an HMRC limit on the total gross amount that can be contributed into your pension savings each year from all sources, whilst still receiving tax relief. It is based on your earnings for the tax year and is currently capped at £40,000 gross (2014/15 and 2015/16 tax year).

If a new capped income drawdown plan is started before 06 April 2015, regardless of whether income is taken from the plan before or after 06 April, the £40,000 HMRC annual allowance will still apply providing that, when income is taken, it is within your capped drawdown limit. This limit is set with reference to the Government Actuary Department (GAD) limits for the tax year.

If income above the capped drawdown limit is taken from an existing capped drawdown scheme after 06 April, this will trigger the Money Purchase Annual Allowance (MPAA). The plan will automatically convert to a flexible access drawdown plan and the annual allowance for pension contributions will be reduced to £10,000 gross in the tax year from all sources.

For those who are currently in flexible drawdown plans, and who wish to continue making pension contributions, it may be prudent to consider moving into capped drawdown before 06 April to preserve your entitlement to the £40,000 annual allowance. This is a complex area and we would recommend that you seek independent financial advice from the team at Chapters Financial Limited before proceeding.

Income drawdown plans established after 06 April 2015

If a new income drawdown plan is established after 06 April 2015, this will automatically be deemed a flexible access drawdown plan. The option of capped drawdown will no longer exist. If any income is taken, the MPAA will be triggered and your annual allowance reduced to £10,000.

Once the MPAA is triggered, unused annual allowance brought forward from earlier tax years will not be available to increase the £10,000 annual allowance for money purchase pension savings.

It is important to note that the drawing of tax free cash alone (no income) will not trigger the MPAA.

Can I make pension contributions whilst drawing pension income?

Normally this is possible, although you should seek advice on whether this is an appropriate course of action in your circumstances. You may want to check this with your accountant as an example. If you are in a capped drawdown scheme before 06 April and the level of income you draw remains below your capped drawdown limit, you will retain the £40,000 annual allowance after 06 April. If you are drawing income from a flexible access plan, your annual allowance for pension contributions will reduce to £10,000.

You are allowed to recycle pension income payments back into pension savings, should this be appropriate. However, it is important to ensure that you are only paying income back into a pension plan, and not tax free cash, as this would be treated as an unauthorised payment and taxed accordingly, normally at 40%-55% (and a tax sanction charge to the pension scheme).

Summary

Please note that the Chancellor, George Osborne’s budget is on 18^th March 2015 and could still make changes to pensions legislation going forward. The above is our understanding at this time, based on current planning and proposed legislation.

If you would like advice on your pension planning, whether this be saving for retirement, or drawing benefits of income and tax free cash, 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.

Vicky Fulcher Msc Dip PFS
Financial planner

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