Estates: Your Will online forever

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Estates: Your Will online forever

You may not be aware that the Government has now made it possible to search for Wills online. So once you are gone, your last Will and testament is available for anyone to see, should they wish to. Essentially it is nothing more than a searchable database which enables anyone to pay £10 to obtain an electronic copy of historic Wills, assuming the system works, you will receive your copy within about 10 days. It is free to search, but the Will itself costs £10.

It is estimated that there are over 41 million Wills and Grants of Probate on the database, which are compiled from 1858 onwards for England and Wales. I’m reminded of the film “Waking Ned Devine” which is a comedy about a man who wins the lottery but dies from shock, to collect his winnings, he has to be alive, leaving his community to concoct some creative solutions.

Implications

There will be some people who certainly won’t relish the prospect of their Will being published online – perhaps a few celebrities or even Royalty. Remember that for some people a Will reveals the state of family relationships at the point the Will was made.

HMRC better informed?

Perhaps the more important point about a Will or Grant of Probate is that assets are valued and those that are inherited ought to be more visible. This essentially provides a money trail for HMRC to follow. Remember evading tax is illegal, but with this approach it really ought to be the case that HMRC are able to now close in on those that don’t declare sufficient assets in their estate.

There are also implications for capital gains tax too – if you inherit an asset, then unless you sell it, or gift it, there is reasonable grounds to assume that you still own it. If it disappears from your asset inventory, surely questions would be asked which have a knock on effect for prospect of unpaid capital gains tax and perhaps even income tax (if the asset generated income). In short, anyone that isn’t being crystal clear about their assets is likely to come under greater scrutiny.

Other implications also revolve around more “joined up thinking” in that your DVLA licence and car insurance are connected and if you now try to rent or hire a car, you need to input your NI number so that a DVLA permission certificate can be generated. This could be used to link to your investments (pensions and ISAs in particular) but why not your household insurance policy, meant to insure your physical assets.

All in all, I think this will lead to deeper and better information about us all, which will to some extent be publicly available, but more importantly available to HMRC. So make sure you declare your assets and taxes properly. Above all make sure your Will is current and reflects your wishes.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

Estates: Your Will online foreverDominic2023-12-01T12:40:15+00:00

Pensions: Lifetime Allowance and Mad Max

You have probably heard of Mad Max – its latest incarnation is currently in UK cinemas. You may have heard about the Lifetime Allowance – which has been part of the pension vocabulary since 2006 or “A-Day”. Suffice to say that I believe that the Lifetime Allowance is rather mad.

In the event that you are a politician and reading this, may I ask why you think pensions are important? To my mind, pensions should be encouraged. The end result of a pension should be that people living in the UK are able to provide for themselves above the State Pension, so support their lifestyle. This has several obvious benefits – creating financially independent adults, not requiring State support. Having income means that income tax can be levied and collected to help pay for our society. Let’s also not forget that income is there for using (spending) which enables trade to occur and wealth to be created and so on.

A World of Plenty?

It would seem that politicians generally think not having a rising burden on the State is a good thing. Indeed encouraging pensions with tax relief is the “sweetener” or “bait”. Much like the film Mad Max, we probably don’t want to create a society reliant upon the occassional benevolence of the prevailing “Lord”. Surely we would like a society where all prosper? OK we know the UK has limited resources, so adjust the tax relief, but don’t make it hard or even pointless to save. Even the current regime isn’t tempting enough for millions of people that don’t or cannot save for their future.

Scarcity

At present pension contributions are restricted, which seems fair enough, but the amount that the pension pot grows to is also restricted by the Lifetime Allowance. This is currently £1.25million, which sounds like a reasonable sum, but in practice isn’t as much as you’d like to think, given that it has to last for the remainder of your life. The Lifetime Allowance has already reduced over the years from £1.8m and if the Chancellor does what he suggested he would in the last Budget, it is likely to shrink to £1.0m next April. In other words £250,000 of the Lifetime Allowance will be lost – or more accurately invoke a tax penalty of £137,500.

Mad Max and Excess Tax

If the Lifetime Allowance is exceeded, there is a tax charge of 55% on the excess. OK there are some ways that you can protect your higher pre-legislation allowance, but these are designed by bureacrats and “problematic” to say the least. Essentially this excess tax charge punishes those that save or get good investment results…. let’s not forget that the income from pensions is subject to income tax anyway. So I fail to understand why we don’t simply abolish the Lifetime Allowance and all the protections that have surrounded it. Your pension fund should be just that – a pot that you can actually use with confidence.

Mad Max – Fury Road is currently in UK cinemas, starring Charlize Theron, Tom Hardy and Nicholas Hoult. The Chancellor, George Osborne has his next Budget on 8th July 2015…

Dominic Thomas

Pensions: Lifetime Allowance and Mad MaxDominic2023-12-01T12:40:10+00:00

The Budget 2015 – A New Mad Max

So, the Budget is already ancient history, the political hoo-hah has been left to fester, tweak and develop into an election manifesto campaign. So what, if anything grabbed my attention?

Jilted Bribe

Firstly, I have to admit that I was expecting there to be a little more of an electoral bribe. Whilst the Chancellor certainly made much of the fact that he wasn’t going to (and thus seek to be understood as prudent or sensible) the truth is that, well… he didn’t really offer a bribe (unless its one I missed). Frankly with the national purse in the shape its in, I was rather glad, (though I remain open to the possibility of solving the problems differently).

ISA with tax relief? – future implied?

That said, the first time buyer ISA does sound like a good idea. The detail needs further examination, but in essence there is 20% tax relief on the annual ISA allowance for people that are 18 or over and don’t (and have never) own a home. £3,000 of the £15,000 ISA allowance will be paid by the Government. Whilst everyone that qualifies will benefit, in practice, this will be a very good way of saving if you qualify… if not you, perhaps your children… opening up further options for more wealthy parents.

Pensions and Politicians… taking the …point?

As for pensions, I have to admit that the utter folly of politicians in relation to pensions has shifted gear over the last 10 years. Whilst knowing that we all need to save more so that there is less reliance on the State system… perhaps even the prospect of a means-tested State pension (who knows?) they are determined to punish successful investing and saving.

Here in the UK we are now restricted on how much can be paid into a pension and how much the pension fund can be worth. Utter madness. Yes £1m is a lot of money, but are we also going to cap how much can be held in a bank account or the value of property? what about the value of a business? These are measures to appear a poorly informed crowd by a poorly informed media. I would immediately abolish the Lifetime Allowance and simply restrict how much tax relief is provided on payments to pensions. It doesn’t have to be more complex than that. However we have a new maximum pot size for your pension. To say that this complicates life further for anyone in a Defined Benefit (DB) pension such as the NHS, would be a masterful understatement. Just so that we are clear… the Lifetime Allowance has reduced from £1.8m to £1.25m already and the Budget has reduced this to £1m in 12 months time. Ok, there will be some form of protection, but if recent experience is to go by, this is about as useful as pushing someone out of an aeroplane with an umbrella instead of a parachute. As for those that put a commercial property in their pension pot… good luck with that! The Annual allowance is now £40,000 a year as the maximum value of contributions to pensions, which may as well be written in algebra when attempting to calculate this for DB members.

Final note: our free APP is updated with all the changes announced for personal allowances, savings rates and so on.

Dominic Thomas

The Budget 2015 – A New Mad MaxDominic2023-12-01T12:40:00+00:00

Planning for the Tax Year End?

The tax year end is rapidly approaching and you don’t have long to use up various allowances that expire on 5th April 2015, so it really is time to take action now should you wish to do so. Despite the media and politicians doing their best to confuse everyone about tax, tax avoidance is actually perfectly legal and something that is encouraged. By way of example….

NS&I Premium Bonds & Children’s Bonds
ISAs – Annual Allowance
Pensions – Annual Allowance, Lifetime Allowance, Carry Forward Allowance
Capital Gains Tax Allowance
Personal Allowance
Nil Rate Band Allowance (inheritance tax planning)
Giving Allowance (£3,000 per person)
Enterprise Investment Schemes, Venture Capital Trusts, Small Enterprise Investment Schemes
Business Property Relief

There are lots of ways to reduce tax, married couples have even more options. Tax evasion is illegal not tax avoidance. It is certainly true that some schemes are deliberately aimed to test the law on this, but nothing that any of our clients use or would even want to use. Hopefully by now you will have received the lates copy of Talking Money, let me know if you haven’t – we have run out of stock, but you can see an online copy here.

Dominic Thomas

Planning for the Tax Year End?Dominic2023-12-01T12:39:58+00:00

Cash for ISA Questions

Let me be very clear – I LIKE CLIENTS TO HAVE CASH… its VITAL. The real question is “what is a sensible amount of cash to hold?” This will be different for everyone. Cash should really be available for planned expenses within the next 0 to 3 or 4 years, that way you know its there ready for your use. Thereafter, cash is vital to run any business and any personal finances. Whilst budget calculators and spreadsheets suggest nice neat twelfths, many costs are not monthly. As thoughts turn to Christmas – this is something we all know happens annually, once the presents have been unwrapped and you start looking forward to the potential of the new year, thoughts turn to summer holidays… and so on. So having cash on deposit is a very good and wise thing and don’t forget that some expenses are unplanned – such as repairs or replacements due to loss or damage.

Interest rates are so low is it worth bothering with a Cash ISA?

The short answer is “maybe” – it rather depends on your circumstances and when you need the money. Sadly, despite ISA allowances never being higher, interest rates haven’t been lower in living memory. Many if not most, deposit accounts are paying less interest than the rate of inflation (1.3% according to ONS). So your pound is declining, slowly, in purchasing power. This is an unfortunate reality that we currently live with. I would also take issue with official figures about inflation which bears little resemblance to the spending patterns of various people (think of the price increases in gas, electricity and rail).

Just to be clear… what is a Cash ISA?

A Cash ISA is simply a deposit account where interest is tax-free. Interest is taxable normally and should be reported on your HMRC self-assessment tax return. The amount you can put into a Cash ISA is linked to tax year allowances and the ISA rules (all of which are within our free APP or you can look them up). These changed in July 2014, lets stay brief and current, the new allowance is £15,000 each for the current tax year. You can now hold all of the allowance as cash or as investments, or any combination between the two within an ISA (previously you could only contribute 50% of the ISA allowance towards cash). As a result of the new rules, you can have a more suitable balance between cash and investments within your ISA to suit your requirements.

Should I just pick the best rate?

A word or warning, picking a cash ISA (or any deposit account) based entirely upon the headline rate, may not be wise. Perhaps you will remember the Icelandic banking crisis in 2008, which ought to provide some cautionary tales.

It is worth the effort?

It depends on your current rate of interest within your ISA and what the alternatives are. Remember that an interest rate of 1% will be worth 0.8% to a basic rate taxpayer and 0.6% to a higher rate taxpayer. Within an ISA you get the full untaxed amount. However if the sums are small or modest, say £10,000 then shopping around for an extra 0.5% is only going to provide £50 over a year, which given that if the better new rate is with a different Bank (or Building Society) you have to go through the ususal opening an account procedures – demonstrating your identity and UK residency and so on.

If this cash is just a part of my portfolio, should it now be mixed within my investment ISA?

Maybe. If you have a modern investment ISA on a “platform” which holds lots of funds, shares etc, then the platform may well have cash deposit options too. However be warned that platforms generally charge for their adminstration based on the balance on it, so you may well (probably) get charges for cash holdings too. If its ok at your Bank/Building Society then as long as your adviser knows that you have it and therefore not “too much” in cash, that should be OK. However for long-term wealth I would encourage people to use an ISA as an investment vehicle, rather than a place to dump cash as savings. Context is everything and needs thoughtful assessment with an adviser.

So where can I find current ISA rates?

Try looking here at Moneyfacts. However, I suggest doing a proper search using their search engine or any other that is widely available. Remember fixed rates are lock-in’s. If you think rates will rise, then you may wish to question the wisdom of locking into a low rate that is fixed for ages and if you are really locking away cash for 4 years or more, then perhaps you should be thinking about investment instead.

Anything else I should know?

Well, the age old one about bias. Financial advisers and financial planners like me are in part remunerated based upon the amount of money we look after, so if you invest more, we earn more. Of course the hope and expectation is that this is a very worthwhile exercise for you – getting better returns etc (but more importantly getting your money right for you). However it needs to be clear that its not free. Of course a Cash ISA with a Bank/Building Society can appear free – there are rarely any charges, but that doesn’t make it free. This is part of the problem with the delusion that the retail banking system maintains – that banking is free. It isn’t. The bank invariably pay bonuses to their staff for new accounts opened. They lend the money back out at far higher rates of interest and make profit as a result. However that money is at risk (of not actually being repaid to the Bank) and possible Bank collapse – hence the £85,000 FSCS protection and of course there is the inflation to also consider, you may actually be losing money – as many people are if their rate of interest is less than the rate of inflation (which is the majority of current accounts and many savings accounts).

A final point – this (the above) is not advice. You should naturally always plan with your own goals and context. A Cash ISA can be a very good tool in your financial box, but it may also be a rather blunt instrument – it all rather depends on the job at hand and the degree of skill you have using it. Here is a decent little video from Nationwide which is pretty clear. I’m not promoting Nationwide and depending on when you read this the information may be out of date. However the principles are right… oh yes, Nationwide do not pay me to mention them… so no cash for promotions.

I hope this is helpful.

Dominic Thomas

Cash for ISA QuestionsDominic2023-12-01T12:39:41+00:00

“A-List” you don’t want to be on

The Inland Revenue, these days known as HMRC, yesterday published its list of 1,172 “aggressive tax avoidance schemes” which are under investigation. These are the sort of schemes that the media has been providing significant coverage and delighting in the opportunity to have a pop at an “A-List” celebrity or two… or rather more. The list is a 2 page document of numbers, looking rather like a sequence from the film “The Matrix” which I asked my design team to parody to make the point. Like it?

Tax avoidance is perfectly legal, tax evasion is not. Tax avoidance includes everything from investing in an ISA, pension or using your annual capital gains allowance. It would also include moving savings into a lower or non-taxpayer’s name to avoid a higher rate of tax on an albeit puny amount of interest. These are of course “schemes” that are manufactured by the Chancellor and HM Treasury to satisfy number of aims. Firstly, to provide a tax-break for voters. Secondly to encourage saving and therefore reduce reliance on State support and finally to encourage trade, which is how we create jobs, raise taxes and pay our way. Most people with a modicum of intelligence will use tax avoidance schemes if they can.

Tax evasion is illegal, it always has been. Tax evasion is the deliberate and wilful, non-payment of owed taxes. This is effectively the running away to Rio with your millions out of the reach of HMRC. Society loses out and society is cheated and if the tax gap figures are to be believed this amounts to between £31-£35billion each year.

Aggressive tax avoidance schemes are a grey area, hence we are in this mess. To suggest that they sail close to the edge of the rules is fair. Some schemes deliberately creating or manufacturing losses, or moving money around offshore to avoid the UK tax system. As with most things, some of this is more obviously close to evasion than others. The motivation behind it all is to pay less tax, not necessarily to have a fantastic investment return. However in the context of 45% or 50% tax rates, the tax saving is of course a very healthy return. Invariably those that market and manufacture these schemes are paid handsomely (some might say excessively) for their cut of the scheme. For example on £100,000 investment, which might save £100,000 of tax a charge of £15,000 is not uncommon. The motivation is to save tax, because some people pay huge amounts, which they believe is unfair. This is probably due to a belief that Government has no real idea about how to spend wisely. It is often coupled with the idea that personal control over personal wealth is a defining feature of real freedom.

My view is simple. It isn‘t surprising that people want to reduce their tax bill. The tax system could be both simple and fair, but it is highly complex. I believe that this is deliberate. Complexity serves the very wealthy, who are also those with power. However some of these schemes are used by more “ordinary people” not simply the super-rich. People that fundamentally believe that they pay more than their fair share of tax. This is where the debate or argument needs to be had, as there is little real prospect of Governments (of any persuasion) having a simple Tax and Trust system, despite deceptive terms like “Simplification”.

Whatever your view, HMRC are now investigating a huge number of schemes, each of the numbers represents a scheme number. HMRC now has the power to simply take money from your bank account. This process is very much a case of guilty until proven innocent and whilst some will be, not all are, yet this approach could have a very damaging impact. Of course, those that peddle the schemes are usually covered by water-tight contracts with clauses waiving any responsibility and point to “Queen’s Council” as opinion not “fact”. Hmmm.

Anyway, we will not use schemes that “sail close to the edge” of tax rules. We will use allowances and avoidance tools of course, but not the type that land you in trouble with HMRC. There will be no need to dodge bullets…

Dominic Thomas: Solomons

References:

HMRC Avoidance: http://www.hmrc.gov.uk/avoidance/

HMRC strategy: http://www.hmrc.gov.uk/budget2013/evade-avoid.htm

“A-List” you don’t want to be onDominic2023-12-01T12:39:25+00:00

Tax Year 2012-13 Ending

The 2012/13 tax year is nearly at an end. Time is running out. HMRC essentially operate a world of “use it or lose it”. For most people this means ensuring that you have maximised your pension allowances (£50,000 is the maximum permitted in the tax year, subject to a plethora of qualifying rules – aren’t we all thankful for pension “simplification”). These days pretty much the only advantage of a “pension” is the tax relief – which is applied at your highest rate of tax. Thereafter, have you used your ISA allowance, all £11,280 of it? capital gains tax allowances? and a heap of others for those with more sophisticated planning.

Most people give money to charity, so do remember that this attracts tax relief in a similar way to pensions. Also you are able to use your annual giving allowance of £3,000 per person (the giver) moving money from within your estate to those that you want to benefit, a very basic form of inheritance tax planning – it can certainly become much more complex based upon the size of the IHT problem that you expect.

There are other forms of allowances, but please treat these with caution and remember the adage “fools rush in where angels fear to tread”. I was on the train on Saturday evening, coming back from a very good performance of “The Judas Kiss” when the couple next to me started discussing their financial planning rather loudly ( I really wasn’t trying to listen). The subject of their conversations was about VCTs (Venture Capital Trusts) and the tax relief available. They had clearly not attended the same meeting as one was describing how the VCT worked to the other. Their “adviser” had not charged for his “advice” (not permitted nowadays) and I was rather concerned about their understanding of the risk involved and the lack of compensation coverage if or when things go wrong. The FSA would suggest that only around 3% of all investors are likely to find this sort of investment suitable (3% of investors, not 3% of the population). Of course some VCTs can be a great solution, others require you to be more of an expert than a Dragon in the Den. Please be aware that there will always be someone willing to discuss a “guaranteed winner” to an unsuspecting person. When it comes to investing, there is no such thing as a guarantee, despite what it may say on the tin. Be warned – and sadly I have to say that the information on the MAS website fails to adequately convey the degree of risk with a VCT. You can lose all of your money. It is not called venture capital for nothing!

We will be closed for Easter (Good Friday is this Friday!). We re-open on Tuesday 2nd April and I can assure you that despite every good effort, attempting to make a tax-year end payment by Friday 5th April will create some significant stress if you leave it late.

Dominic

Tax Year 2012-13 EndingDominic2023-12-01T12:23:29+00:00

Tax Reclaim

For those of you that are higher rate taxpayers, remember that you need to reclaim your higher rate tax relief via your tax return. HMRC do not provide you with an indefinite amount of time to get this sorted. In practice anyone with higher rate relief claims must reclaim the 2008/09 year by 5th April 2013. So make sure you do! In general, you only have 4 years to make a claim.

Tax ReclaimDominic2023-12-01T12:23:29+00:00

Autumn Statement Summary

•	From 2014/15, the lifetime allowance for pension contributions will reduce from £1.5 million to £1.25 million and the annual allowance from £50,000 to £40,000;
•	The maximum income limit on capped drawdown arrangements is to be reinstated at 120% (from 100%);
•	The higher rate threshold for income tax will be increased by 1% rather than inflation in 2014/15 and 2015/16;
•	The personal allowance will be increased by a further £235 in April 2013, taking it to £9440;
•	ISA allowance will increase to £11,520 for 2013/14 (maximum £5,760 into cash);
•	Child Trust Fund and Junior ISA subscription limits will both increase to £3,720 for 2013/14;
•	The basic State Pension will increase by 2.5% in April 2013;
•	Most working age benefits and tax credits will be up-rated by 1% for three years from April 2013 – excluding disability and carers’ benefits;
•	There will be a further 1% cut in the main rate of corporation tax from April 2014, to 21%;
•	The Inheritance Tax Nil Rate Band will increase by 1% (rounded up) to £329,000 in 2015/16.

Autumn Statement SummaryDominic2023-12-01T12:23:17+00:00

Autumn Statement

George Osborne stuck his head above the pulpit today to deliver the Autumn statement. Perhaps the most predictable lynching of the year, with a general acknowledgement that things aren’t going as well as planned or expected. Many will say how they would have done things differently – but of course this is a rather academic debate and consigned to ancient history. As a consequence there is going to be more pain and more goalpost moving.

Lifetime Allowance cut by £250,000

A significant goalpost move which will have a direct impact on our clients regards pension allowances. The last Government devised “pension simplification” which as I have said before was a complete mess, resulting in ever more complication not less. They established a total lifetime allowance for the value of pension funds of all descriptions. Back in 2006 this was set at a pot worth £1.5m – with excess tax charges for those over this unless they had applied for HMRC protection (on the condition that no further payments to pensions were made – broadly speaking). The allowance crept up to £1.8m and was cut back to £1.5m at the start of this tax year as part of “austerity measures”. Today this has been trimmed even more by £250,000 to £1.25m for the 2014/15 tax year. This makes larger pension pots more likely to be taxed and creates a serious concern for those approaching this figure.

Annual Allowance reduced by 20%

In addition the annual allowance which was £255,000 a year was shrunk to £50,000 is going to be reduced further to £40,000 for the 2014/15 tax year. Ok this is a lot of money to many people, but is doesn’t look like a a system designed to encourage saving for a pension. In fact it looks like exactly the opposite. This sort of Government meddling is very unhelpful to anyone attempting to become financially independent. Restrict one or the other, but not both. I am sorry to say that I find our tax system rather daft. There are so many rules and rates of tax that this promotes an approach of tax minimisation wherever possible. This could be so easily resolved, should any politician have courage (which they don’t) by introducing a single rate of tax on all forms of income and ensuring that UK earnings were taxed in the UK. The solution is worryingly simple – remove the incentive to find the lowest rate of tax by making the tax rate the same for everyone.

Warning for high earners and NHS Consultants

Unfortunately, this latest round of goalpost moving will hit many high earners (such as Consultant Doctors) that are members of a final salary scheme (such as the NHS Pension) who have their annual allowance assessed a little differently (based on the notional rise in the value of their pension). Tax charges may apply and retiring before 2014/15 may now be a way of avoiding a penalty on £250,000 of 55% (£137,500) if you don’t have Fixed or Enhanced Protection. So more need for expert advice…

Autumn StatementDominic2023-12-01T12:23:16+00:00

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