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.

What’s new about the NISA?

All Individual Savings Accounts (ISAs) will become New ISAs (NISAs) from 1 July 2014. This applies to all existing ISAs and new accounts opened after 1 July. The new name reflects the significantly increased limits and flexibility that will be available to account holders following the Budget 2014. Some use this medium as a savings vehicle for retirement and have campaigned to see the limits available under this tax efficient savings vehicle extended.

New limits

The current limit for ISA investment is £11,880 for the new tax year 2014/2015. From July, the annual limit will increase to £15,000 – the biggest ever increase to ISA limits. It is planned that this investment limit will then rise by inflation every year going forward.

You won’t be able to invest the full £15,000 ISA allowance until July. Between 6 April and 30 June 2014, the total amount you can pay into a Cash ISA is £5,940. If you have a Stocks and Shares ISA, you can also pay into that account, but the combined amount you pay into your Cash and Stocks and Shares ISAs must not exceed £11,880.

New flexibility

When the new rules come into play, you will be able to split the amount you pay into an ISA between a Cash NISA and a Stocks and Shares NISA as you choose – up to the new overall annual ISA limit of £15,000. Previously, it was only possible to save up to half the overall ISA subscription into a Cash ISA. This should be a particularly valuable feature for those who are keen to protect their capital from exposure to movements in the stock market.

It will also be possible to transfer between cash and stocks and shares ISAs (either way) to meet your needs and attitude to investment risk. If you want to transfer funds from a Stocks and Shares NISA to a cash NISA after 1 July, different rules will apply depending on when you paid the relevant amounts into your Stocks & Shares ISA. If it was in the current tax year (i.e. after 6 April 2014), you must transfer these savings as a whole. Any savings related to earlier tax years can be transferred to a cash NISA in whole or in part (but you’ll need to check with your ISA provider that they allow part transfers).

New for juniors

If you are aged between 16 and 18, you can hold an adult Cash NISA but cannot open a Stocks and Shares NISA. From 1 July 2014, you will be pay up to £15,000 into your Cash NISA for the tax year 2014/15. This equates to an increase of £9,060 in the amount that a young person can save in an ISA account – a significant step forward in encouraging a savings habit in the younger generation.

For those up to the age of 18, the Junior ISA limit has increased to £3,840 in this tax year. One possible way of saving for university costs.   

Old ISA providers…

If you’ve already paid into a Cash ISA account in this tax year, you may find that the terms and conditions of your account don’t allow further amounts to be added when the new rules come into play. However, you can make additional payments by opening a Stocks & Shares ISA account, or by transferring your Cash ISA to another provider that will allow additional amounts to be added.

Nicer ISAs

This new flexibility will give you far greater freedom of choice in how you shelter your capital from tax. If you don’t want to brave the vagaries of the stock market, you will now have the opportunity to save a significant amount more cash in a tax-efficient manner. If you’re keen to take more of a risk, there’s a whole world of investments out there – and the Chapters Financial team would be pleased to advise you on those that will best meet your financial objectives and your attitude to risk. 

Don’t forget the additional opportunity (for those eligible) introduced in the Budget 2014 of the Pensioner Bonds due to be released in early January 2015 which will also offer attractive savings options for amounts up to a total of £20,000.

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 team in either Guildford or Woking.

Vicky Fulcher

Trainee Financial planner

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

New tax year, new investment allocations?

We have now moved into the new tax year 2014/2015 and many clients have already arranged to use up their full ISA allowance of £11,880 with the plan to increase this to the increased maximum of £15,000 from July 2014. Some refer to the investment opportunity presented by this increase in the ISA allowance, along with greater investment flexibility, as the New ISA (NISA). The changes are welcome and some prefer the flexibility of ISAs to save for their retirement, either by using stocks and shares options or cash ISAs or a combination of both, now being able to switch between the two options to suit their needs and attitude to investment risk.

Having recently met with a Bank of England representative, we anticipate the Bank of England base rate (currently 0.5%) to start to rise from around the beginning of 2015.

In past blogs, Chapters Financial has detailed its views on investment allocations and our current preferences. We regularly review our 'house' views on investment areas and classes, maintaining a quarterly Investment Committee to give continuity to our process and client recommendations. You may want to look at our Investment Risk Scale to consider your individual attitude to investment risk.

Current views are as follows:

Positive Allocations
UK Equity Income
UK Equity
US Equity Income
US Equity
Commercial Property  

Neutral Allocations 
In a change to previous blogs, we continue to watch Europe as an investment area, although are currently not actively recommending this area.*

Corporate Bonds  

Negative Allocations
BRICs ( Brazil, Russia, India, China)
* Europe ( see notes above)

Other investment areas are available and will be considered to meet our client requirements.

Past performance is not a guarantee of future performance and changing fund/ asset allocations does not guarantee an increase in performance.

No individual advice has been provided during the course of this blog. If you would like financial advice on the allocation of your funds/ 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.

Directors....are you ready?

I read an article through Reuters News Agency recently that confirmed the UK had overtaken Japan as the 2nd largest global pensions market. It is good to see that many of us clearly take saving for our retirement seriously. Hopefully with the continued introduction of the mandatory employer Auto-Enrolment/ Workplace Pension roll out for the next 2 years, we will see this pension’s savings market increase still further. Taking this further, having seen larger employers now enrolled, many SME's are seeing their Staging Dates coming in 2014 and Chapters Financial are certainly seeing a higher level of enquiries on this topic. We have certainly experienced the process and note that advice to reach implementation is vital to achieve the required objectives, from choosing a scheme, to setting up the paperwork to reporting the required notifications to The Pensions Regulator. Starting the process early is important, scheme implementation does take time to prepare, present and finalise (you have been warned!). 

The maximum contribution to pensions per individual in the tax year is falling from £50,000 in this tax year 2013/2014 to £40,000 from 06th April 2014 (from all sources/ Gross contributions). These dates and sums might well be of interest to directors and business managers who are looking to offset business profits as they approach their company’s trading year end. For many limited companies, this might be 31st March, which closely ties in with the end of the tax year. 

It is important to check the 'Pension Input Period' (PIP for short) of the pension you make your contribution to BEFORE making a large contribution. If the PIP period ends after the end of the tax year, you may find that your contribution is restricted to £40,000, rather than the current level of £50,000. 

If you would like guidance and advice on making pension contributions from your business, either by choice for directors, or through mandatory requirements for Auto-Enrolment, 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.

 

Larger Pension Contributions/ Pension Input Periods (PIPs)

Many clients and enquirers are aware that the tax year 2013/2014 has seen changes to the tax regime being applied to their income and allowances. A good example of this is the fall in the highest tax charge rate of 50% to a new lower level of 45%. More changes to the tax regime are due in the tax year 2014/2015 and one of these points, namely the Pension Input Period, or PIP for short may affect your pension planning in this tax year (2013/2014).

The Annual Allowance (the amount you can put into your pension without a penal tax charge being applied) is dropping to £40,000 in the 2014/2015 tax year from £50,000. It is important that you know the Pension Input Period (PIP) end dates for each of your pension plans to ensure that you do not exceed the limits, attracting a tax charge at your highest marginal income tax rate accordingly.

If the PIP end date for your pension falls in the new tax year 2014/2015, then any contributions will be tested against the reduced Annual Allowance of £40,000, rather than the current Annual Allowance of £50,000.

Remember that not all plans will have the same PIP dates and this should be checked on each plan that you hold.

It is also worth noting that Defined Benefit schemes (such as a Final Salary scheme) are valued using a factor of 16, plus lump sum where applicable, over the Consumer Prices Index (CPI). Therefore any increase in benefits increasing by approximately £2,500 for the year over CPI will breach the new reduced £40,000 Annual Allowance (2014/2015).  

If you would like to know more about this pension planning and your tax allowances 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 independent financial advice (IFA) in your own circumstances.

Keith G. Churchouse FPFS

ISO22222 Certified Financial Planner

Director and Financial Planner

Personal Tax Allowance Trap

As you may be aware, one of the targets within the current coalition government was to raise the personal allowance to a limit of £10,000 within this parliamentary session. This process has been accelerated and will now come into force as from 06 April 2014. This sounds as though it is great news for everyone, as it appears as if no one will pay any tax on the first £10,000 of income in the tax year 2014/15. However, if an individual receives income in excess of £100,000 in the tax year then the personal allowance is reduced by £1 for each £2 of income in excess of £100,000.

60% Effective Income Tax Rate

So what does this mean for the people with income in excess of £100,000? It means that they have an effective income tax rate of 60% on any income between £100,000 and £120,000 in the tax year 2014/15 (between £100,000 and £118,880 in tax year 2013/2014). This is due to the 40% of higher rate income tax applied at this level, plus the loss of 20% of effective basic rate band allowance.

Penalty or Opportunity?

How can this be when the additional rate of income tax is meant to be 45% (as of 06 April 2013)? Surely a 60% effective rate of income tax is very punitive? Yes, I would have to agree that it is. So what can anyone do about this and try and mitigate this harsh effective tax band? The most immediate and effective option is to consider personal contributions into a pension scheme. If the spare capital and enough headroom within an individual’s maximum annual pension contribution allowance (£50,000 in 2013/2014) are available, then contributing an amount to effectively reduce one’s income to a level of £100,000 (or closer to it) for the tax year could be an extremely effective method of mitigating, and in fact capitalising on this effective tax rate band of 60%.

Summary

If this situation applies to you and you do have annual income in excess of £100,000, have you considered the benefits of engaging a professional Financial Planner to consider your options at these threshold points?

No individual advice has been provided during the course of this blog. The use of allowances and contributions into pensions 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 Conduct Authority, number 402899.
The Financial Conduct Authority does not regulate Tax advice.

Tax Year Allowances – The old & the new

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.

Saving across the generations/ Children's pensions

George Osborne's Autumn Statement at the beginning of December 2012 bought into sharp focus the way pension contributions have be made, the falling limits of future contribution levels and also the maximum levels of pension 'pots' that can be accrued before penal tax charges would be applied.

This last point noted refers to the pension 'Lifetime Allowance' (or LTA for short) currently standing at £1.5m of total pension value (already fallen from £1.8m), to a new proposed level of £1.25m in the tax year 2014/2015. As an example, benefits that are crystallised in this tax year at a greater value than £1.5m (without existing protection arrangements) could see the balance taxed at a level of up to 55%.

Based on recent economic times, many people in their middle years only dream of having a total pension pot value of £1.5 or £1.25m at retirement. And it is this point that I have received the most client comment, referring to their own situations of probably 'only' achieving a total pension value of 'say' half this LTA value, and then promptly referring to their children who they fear may not even get close to half their parents half.

This has prompted me to remind various clients that they can start pensions for their children at very young ages and put money away into this for their futures. The contribution would normally be limited to a maximum gross contribution of £3,600 in a tax year, with basic rate tax relief bringing this down to a net contribution of £2,880 for the year. Conveniently, this net amount could also fall outside the donor’s estate for inheritance tax purposes as a gift using the annual gift allowance of (currently) £3,000 per annum.

The pension contributions made for the child and the tax relief, which the insurer will reclaim from the Revenue, are invested in a fund which grows in a tax efficient manner.

It is important that you are aware that the value of the pension as well as any income which they generate can fall as well as rise and that past performance is not a guarantee of the future. If you surrender the contract, especially during the early years, you may get back less than you have invested.

In my opinion, the main factor is not the contribution level, but the duration of time for investment that may have the biggest impact. With the minimum age that pension benefits can be drawn now increased to age 55, a child aged 10 has at least 45 years (currently) before they could draw pension benefits. It is this accumulation time that is likely to see significant value being accrued for a child's future use and benefit.

No individual advice has been provided in the content of this blog, and if you would like to consider this opportunity, then please let us know at our office in Guildford. As you can see, saving in a tax efficient way across the generations is something many parents are considering, fuelled by their concerns for their offspring’s financial futures.

Keith Churchouse FPFS
Director
Chartered Financial Planner
ISO 22222 Certified Financial Planner
Chapters Financial Limited is authorised and regulated by the Financial Services Authority, number 402899.