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

HMRC Pensions Individual Protection application/ Now available

As an update from the last tax year (2013/2014), we note that the HMRC website has been updated today and now includes full details of the new Individual Protection for pensions, along with a facility to apply for this online.

This application can be found here: http://www.hmrc.gov.uk/pensionschemes/ip14online.htm

Chapters Financial is not responsible for the content of external webpages.
As a reminder, the HMRC website confirms:

Individual Protection 2014

The government announced that individual protection 2014 will be available when the lifetime allowance is reduced to £1.25 million for 2014-15. Individual protection 2014 will operate from 6 April 2014, for those with pension savings valued at over £1.25 million on 5 April 2014.

Individual protection 2014 will give a protected lifetime allowance equal to the value of your pension rights on 5 April 2014 - up to an overall maximum of £1.5 million. You will not lose individual protection 2014 by making further savings in to your pension scheme but any pension savings in excess of your protected lifetime allowance will be subject to a lifetime allowance charge.

You'll be able to apply for individual protection 2014 from 18 August 2014. Your application must be received by HMRC no later than 5 April 2017.

You can hold both fixed protection 2014 and individual protection 2014.You can also hold individual protection while holding either enhanced protection or fixed protection but you can't apply for individual protection if you already hold primary protection.

Summary

Pensions and HMRC protection can be a complicated subject, dependent on your individual circumstances. If you would like to consider the points noted above further then please do not hesitate to contact the team at Chapters Financial, who will be able to help you further with your pension enquiries. No individual advice is provided during the course of this blog. If you would like to receive further information regarding your own individual situation and circumstances, please contact the Chapters Financial team in either Guildford or 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.

The Reality of New Pensions’ Flexibility

The Reality of New Pensions’ Flexibility

The spring of 2014 heralded the Chancellor's budget which was significant in the changes it proposed for financial planning and particularly the way pension benefits can be accessed into the future. Some of these changes have already occurred, with the main changes due in the new tax year (2015/2016). 

As the summer of 2014 has warmed many with its glorious sunshine, some enquiries have turned to the thoughts of accessing their pension arrangements sooner rather than later. Sadly, this might be a reflection of some of the historical and negative baggage that surrounded pensions in the last decades. Ironically, this seems to be in conflict with the new thrust of promoting Workplace Pensions via Auto-Enrolment.

The new flexibility imported by the budget certainly creates new financial planning opportunities and the ability for investors to use their funds in ways to meet their needs. This greater flexibility has been welcomed by most, however, in our experience at this time, the consequences of some of this flexibility have not been publicised as well as they could have been. I hope that these potentially negative outcomes are detailed by the press before April next year, rather than waiting for the inevitable ‘sob story’ of those who have drawn their pension benefits to great financial detriment.

Taxable benefit after the tax free cash

The first point to consider is that the Chancellor is effectively offering the opportunity of avoiding annuity purchase, based on gilts (gilt-edged securities which are government bonds), with the proviso that any amount drawn from a personal pension plan, as an example, above the 25% tax-free cash limit would be subject to income tax at the individual’s highest marginal rate in the tax year that the benefits are drawn.

Example:

As an example, if an individual was earning £30,000 gross a year and they had a sole pension plan of £30,000 (and were above the minimum benefit age) they could draw 25% of the fund as tax free cash (£7,500 tax-free) and the balance of the fund drawn would then be subject to income tax. If the total remaining pension fund of £22,500 was drawn, this would be added to their overall taxable income, bringing their total income in the tax year, in this example, to £52,500 gross. In this example, they could suffer higher rate tax (at 40%) on an amount of approximately £10,600.

Final Salary pitfalls

In a different example, we have also seen enquiries from those who maintain valuable final salary pension schemes, who have received transfer values and are looking to transfer this value out (usually to a personal pension) to draw benefits early. The most recent example we have experienced was for a final salary pension scheme that was left many years ago where the client was not aware that the benefits accrued increase with inflation, offers spouse’s protection, and that a significant actuarial reduction would be applied to the transfer value should they draw pension benefits before the normal retirement age of 65.

In the example concerned, the client had reached the age of 55. The combined actuarial reduction is likely to be around half the value of the pension scheme, in addition to any other reductions that may be applied. Therefore, the transfer value of, in this example, £42,000, offers the opportunity to withdraw £10,500 of cash with the balance being used to provide income or the ability to withdraw as additional taxable cash from April 2015 onwards. However, the real financial loss to the individual in doing so is likely to be somewhere in the region of £30,000-£50,000. Taking this latter point into account, the transfer value of £42,000 starts to look highly unattractive.

Guidance or Advice?

I am also concerned, and have written to the Financial Conduct Authority (FCA), with regards to their proposals to offer individuals ‘guidance’ (rather than advice) for the drawing of pension benefits. I have little conviction that ‘guidance’ will be able to go into such detail noted above and be able to confirm the potential for real financial loss to the client in drawing pension benefits early.

Full advice

The points noted above are only a taster of the complexities of pensions which offer significant value to clients both now and into the future, particularly from final salary pension benefits. We believe those who are considering drawing pension benefits early need to take full advice as to the ‘real’ consequences of their actions before being attracted by any tax-free cash sum or taxable cash that they could withdraw either now, under the newly increased HMRC  Triviality rules, or post-April 2015.

Summary

If you would like to consider the points noted above further then please do not hesitate to contact the team at Chapters Financial, who will be able to help you further with your pension enquiries. No individual advice is provided during the course of this blog. If you would like to receive further information regarding your own individual situation and circumstances, please contact the Chapters Financial team in either Guildford or 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.

More pension changes and updates/HMRC

More pension changes and updates / HMRC

 

In the mid 1990's the then Inland Revenue (now HMRC) introduced a new term that they found unacceptable. This was called 'Cascading'. Cascading was the process of drawing pension benefits and tax free cash and re-investing the tax free cash into another pension to claim further pension tax relief. In effect, using tax free money to claim tax relief through recycling. The authorities made it very clear that they would be looking out for such manoeuvres and now, when claiming benefits with most providers, there is a declaration to be signed to confirm that you will not undertake such related transactions.

 

1. Reduction in Pension Annual Allowance for those drawing tax free cash AND taxable income

Taking this a stage further, the Government has added to this by restricting the amount of Annual Allowance (the maximum gross amount you can put in a pension in a tax year from all sources and receive income tax relief) from £40,000 gross to £10,000 gross for those that draw pension tax free cash AND taxable income after age 55. Full details of this planned change (from April 2015) can be found here:

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/332714/pensions_response_online.pdf

Those drawing only tax free cash should not be affected.

This change as a headline does not look significant, but it will catch out some pension investors who are trying to be flexible with their pension benefits whilst still continuing to work.

2. Individual Protection (for those with pension benefits over £1.25M at 05 April 2014)

HMRC has confirmed that applications for Individual Protection 2014 can be made online from 18 August 2014. An HMRC tool for checking your pension Lifetime Allowance is available here: http://www.hmrc.gov.uk/tools/lifetimeallowance/index.htm

 Full details of Individual Protection for pensions can be found here:

 http://www.hmrc.gov.uk/pensionschemes/pension-savings-la.htm#6

 Those who have Fixed Protection from HMRC can also hold Individual Protection (up to a benefit of £1.5M maximum)at the same time in certain circumstances and individual advice should be sought accordingly.

3. State Pension uplift in deferment

The DWP has announced in a Ministerial Statement that the current uplift of 10.4% pa (1% for every 5 weeks deferred) for those not claiming the State Pension at their allowed date will reduce from the tax year 2016/2017 by almost half to 5.8%.

Full details can be viewed here: http://www.parliament.uk/documents/commons-vote-office/July-2014/22%20July%202014/29-DWP-PensionIncrements.pdf

This change will be disappointing for some, but is not a surprise, due to the demographic pressures being placed on the State Pension system. There are other opportunities to top up the State Pension and we will detail this further in an additional blog.

          Chapters Financial is not responsible for the content of external webpages

 

Summary

It is very clear that the authorities involved in pensions legislation are busy people at the moment. These updates have been provided to keep our clients and enquirers up to date with the latest changes planned and announced for pension and retirement planning. Some investors choose to use other alternative vehicles (usually in combination with pension benefits) for their retirement, such as ISAs, or New ISAs (NISAs) as they are now called. The contribution limit for these has increased to £15,000 from the beginning of July 2014 (from £11,880) and this tax efficient allowance is usually worthwhile using where possible.

No individual advice has been provided during the course of this blog. If you would like financial advice on the allocation of your funds or your investment strategy, then please contact the Chapters Financial team in Woking (01483 330800) or Guildford (01483 578800).

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.

 

Pensions Lifetime Allowance/ Don’t Delay

Many clients have enquired recently about planned HMRC changes to pension allowances at the beginning of the new tax year, starting 06 April 2014. We have detailed the points of these significant changes in our recent Newsletters and because they are so topical, have confirmed the outline of these again in this Blog. 

 

I have detailed below some generic notes on the subject of HMRC’s change to the pensions Lifetime Allowance due to occur at the end of this tax year, 05th April 2014. 

 

As you may know, the Lifetime Allowance (LTA) reduces from £1.5M to £1.25M on 06/04/14. Excess pension/benefits over the LTA is taxed at 55% if taken as a lump sum or 25% (plus normal income tax) if taken as income. Hence if you do have an excess – protection will only reduce the size of this excess.

 

Anyone effected by these limits should consider the HMRC changes in legislation carefully to see if you wish to continue to accrue pension benefits into the future (possibly accepting the future tax charges on the amounts you accumulate into the future) or leave the scheme (possibly losing employer contributions if they are being made and possibly Death-in-Service benefits). 

 

To provide some protection from this situation, HMRC currently offer: 

• Fixed Protection (before 05 April 2014)
• Individual Protection (for those who have accumulated benefits in excess of £1.25M on 05/04/2014) in the new tax year (2014/2015). 

I have detailed the headlines of both below.  

1. Fixed Protection 2014/ Important 

• Must be applied for before 5th April 2014 ( This can be achieved online at the HMRC website)
• Maintains your LTA at 1.5m
• Will be lost if accrue any pension after 6th April 2014 – for example continued accrual in a final salary pension scheme or making any future pension contributions (including being Auto-Enrolled unless you opt out within 1 month)
• You must inform HMRC if you accrue benefits and hence give up your protection, within 90 days of knowing that you continue to accumulate benefits. The fine is £300 as an initial charge and £60 per day afterwards if HMRC are not informed.   

If you are in any doubt that this Fixed Protection may be advantageous then we would normally suggest that you apply for it now directly to HMRC.

 

However, if you then decide to stay in your pension scheme/continue to accumulate benefits you must notify HMRC in writing within 90 days or face a fine (noted above).  

 

For Final Salary Pension Schemes:  

 

The LTA accrual rate is 20X pension accrual + Cash

 

2. Individual Protection 2014/ From the new tax year 

• Only available if you have benefits at above £1.25M at 05/04/2014
• Still only HMRC proposals and cannot be applied for before 6th April 2014 (needs to be achieved before April 2017). Forms likely to be available by Mid/Late summer.
• Maintains your LTA at the value of your pension at 5th April 2014 up to a maximum of £1.5M.
• You can continue to accrue pension benefits after 6th April 2014 without losing this protection.
• Benefits above the Individual Fixed Protection amount you secure will still be charged at an equivalent tax charge of 55% when paid.

3. Annual Allowance Limit Reduction 

In addition to these changes, you will be aware that the Annual Allowance (AA/ the maximum contribution/benefit accrual that is allowed to be made into a pension for you from all sources in a year) is falling from £50,000 Gross in this tax year to £40,000 from the new tax year.

Any amount paid into a pension for you in excess of the new limit of £40,000 gross in the new tax year will be charged to tax at your highest marginal income tax rate.

For Final Salary Pension Schemes:

The AA accrual rate is 16X pension accrual (+ cash if your scheme gives you a separate lump sum in addition to your pension)

4. Summary

If you would like guidance and advice on these pension legislation changes, then please contact the team at Chapters Financial at either our Guildford (01483 578800) or Woking (01483 330800) offices.

 

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

 

Keith Churchouse FPFS

Director

Chartered Financial Planner

ISO 22222 Personal Financial Planner

 

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

Pension Lifetime Allowance /Fixed Protection and Individual Protection / HMRC Update

New guidance (and application forms) has become available from HMRC, on the morning of 12 August 2013, both for Fixed Protection from 2014 (must be applied for before 05 April 2014, if required) and for the plans for Individual Protection 2014, which can only be applied for after the start of the new tax year 2014/2015.

A link to this is available here: http://www.hmrc.gov.uk/pensionschemes/pension-savings-la.htm#5

The Member Guidance here is also useful: http://www.hmrc.gov.uk/pensionschemes/fp2014guidance.pdf

I wanted to get this information to you promptly for consideration and action, if required or needed.

In addition, the new HMRC entry on their website notes the expected (to be confirmed) outcomes of its plans for Individual Protection 2014 as follows:

As well as fixed protection 2014, the Government has announced that individual protection 2014 will be available when the lifetime allowance is reduced to £1.25 million for 2014-15. The details of individual protection 2014 will be confirmed later but it is expected that:

• it will give you a lifetime allowance equal to the value of your pension rights on 5 April 2014 - up to an overall maximum of £1.5 million.
• you will not lose individual protection 2014 by making further savings in to your pension scheme
• any pension savings in excess of your lifetime allowance will be subject to a lifetime allowance charge

You'll be able to apply for this from 6 April 2014.

You can hold both fixed protection 2014 and individual protection 2014 but you can't apply for them at the same time.

I hope the above information and the links are of interest to those that are affected by these issues.

If you would like to know more about this pension planning and your tax allowances/limits then please contact the team at Chapters Financial Limited on 01483 578800.

No individual advice has been provided in the text of this blog. You should seek bespoke financial advice in your own circumstances.

Keith G. Churchouse FPFS
ISO22222 Certified Financial Planner
Director and Financial Planner

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

Chapters Financial is not responsible for the content of external webpages.

The Autumn Statement 2012

It was a busy day at Westminster on Wednesday 05th December with the numerous announcements and changes to the many rules and regulations that maintain the UK Governments fiscal policy. As the saying goes 'the devil is in the detail' of these Budget changes, with additional tax and allowances being taken on one hand and given back or withdrawn (such as the planned 3p (approximate) fuel tax rise in January 2013) on the other.

From a financial planning perspective, there are some headlines that will be of interest (with some benefits and concerns) to our clients and enquirers and I have listed some of these changes below. This is not an exhaustive list, but provides many relevant points that you may want to consider:

Capital Gains Tax (CGT) Increase

The current allowance of £10,600 (2012/2013) will increase by 1% the tax year start 2014, rising to £11,100 by tax year 2015/2016.

ISA Allowance Increase

The current allowance of £11,280 will increase by 1% to £11,520 from the tax year start 2013.

Pension Annual Allowance Reduction

The maximum annual pension contribution in a pension input period (PIP) will fall from £50,000 (from all sources) to £40,000 from tax year start 2014/2015.

This is likely to have significant effect on higher earners and those with members of final salary pension schemes with higher annual incomes.

Pension Lifetime Allowance Limit Reduction

The current Lifetime Allowance Limit (LTA) is falling from its current limit of £1.50m to £1.25m from the start of the tax year 2014/2015.

This is likely to haves significant effect on higher earners who have long service within a final salary arrangement or large private pension arrangements. A point of note is that a transitional 'fixed protection' regime will be introduced for those who understand that they may be affected by the reduction in the lifetime allowance (LTA).

Pension Income Drawdown Maximum Withdrawal Limit

Originally the maximum ‘drawdown’ limit was 120% of the Government Actuarial Departments (GAD) limit that could be approximately achieved through averaged single life annuity rates. This fell to 100% about 18 months ago, sadly at a time when annuity rates were continuing to fall.

As soon as legislation will allow, the original limit of 120% is being restored, which will be of interest to those who have seen their maximum withdrawals fall significantly in recent times.

Income Tax Personal Allowance Increase

The Personal Allowance for the tax year 2013-14 will increase to £9,440 and the basic rate limit will be set at £32,010.

The increase in the higher rate threshold will be capped at 1% for tax years 2014-15 and 2015-16.

Inheritance Tax Nil Rate Band Allowance Increase

The current Inheritance Tax nil rate band allowance for an individual of £325,000 will increase to £329,000 from tax year start 2015/2016.

Summary

These are only examples of some of the changes that may be of interest to you when considering your financial planning for the future. Because of the scope of the changes and because each client is advised individually, no individual advice is provided in the content of this Blog.

More details of the Autumn Statement changes can be found at the HMRC website here:
http://www.hmrc.gov.uk/budget-updates/march2012/autumn-statement-dec2012.htm

Chapters Financial Limited is not responsible for the content of external webpages.

If you would like to consider your own financial planning further then please contact Chapters Financial Limited through our website or on 01483 578800.

Keith G Churchouse FPFS

Director
ISO22222 Certified Financial Planner, Chartered Financial Planner Chapters Financial Limited

Chapters Financial Limited is Authorised and Regulated by the Financial Services Authority, number 402899.

Greater tax take on Estates in 2010/11 / Inheritance Tax Planning

Here's an interesting statistic for you. I was hoping that I could explain why it has happened and what it means. I might be able to make a suggestion on the latter of these points, but possibly not the former.

HMRC released the details of the levels of Inheritance Tax (IHT) receipts received on estates across the UK in the tax year 2010/2011 (in it’s Inheritance Tax Statistics 2008-2009 document/page 4). This notes that Inheritance tax receipts have risen by 14% in this tax year. Admittedly, the amount collected is still below the past peak year of 2007/2008 by some margin (29%), but still interesting to see the amount rising at a time of austerity.

A full link to detail can be found here: http://www.hmrc.gov.uk/stats/inheritance_tax/commentary.pdf

At a time of economic woe, with savings being used to subsidise falling incomes, market volatility and the costs of Long Term Care increasing, some would have that quite the reverse would be the case. Indeed, with pressure on capital seeming to mount, you would have thought that the tax take on estate values would also be in decline.

I am not sure that the statistic can be explained away, however, making a will (a cornerstone of any good financial planning) is a good way of starting your inheritance tax planning.

Some would argue that you can gather whatever information you want from statistics.

Each individual will normally enjoy a nil rate inheritance tax band of (currently) £325,000 in this tax year, 2012/2013. On death an individual can pass this nil rate band to their spouse/ civil partner, allowing the total amount of the nil rate charge inheritance tax band to double to £650,000. Without any additional planning, the balance of any estate above this level will be subject to a tax charge of 40%.

There are ways of mitigating an Inheritance Tax liability, such as using the annual gift allowance or using surplus income as a means of making efficient gifts away from your estate, documenting these where appropriate. We would recommend that you take individual advice on this subject if it affects you and would certainly recommend that you seek independent legal advice when drawing up a will for your circumstances. Speak to our own legal adviser/ Solicitor or, if you have not sought advice before, we can refer you to a local professional to help you with your needs. 

The team at Chapters Financial can help you with your Inheritance Tax Planning and we look forward to looking at your circumstances and the outcomes that you would want to achieve. No individual advice has been provided in the content of this Blog. 

Keith Churchouse, Chartered Financial Planner, Certified Financial Planner
Director, Chapters Financial Limited, Guildford, Surrey.
Chapters Financial Limited s authorised and regulated by the Financial Services Authority.
Chapters Financial Limited is not responsible for the content of external web pages.