Tax Free Cash Archives - Financial Planning in Wimbledon

THE SPRING BUDGET 2023

Dominic Thomas
March 2023 • 10 min read

Pension reforms of sorts…

If you are under 75 and have a pension, today is a better day than yesterday. You may breathe a sigh of relief; the Chancellor has done something to directly benefit you. As with all Chancellors, there is of course some politics at play. Whatever your view of the rabble at the House of Commons, we finally have a Chancellor who seems to both understand maths and has an ability for some long-term thinking as well as valuing the concept of financial independence in his Spring Budget 2023.

As a reminder, it was the Blair Government who introduced the Finance Act 2004 which ushered in new pension rules from April 6th 2006 known as A-Day and termed “Pension Simplification”. The basic premise was to simplify pension funding, enabling anyone to make payments and get tax relief, restricted by a maximum annual contribution allowance and a lifetime allowance for the value of your pensions, be they final salary or investment based. It sounded so simple, something akin to the battery level on your mobile phone.

Next month, “pension simplification” turns 18 years old. Simple is certainly not a term that anyone would consider in the same breath as pension rules. A veritable smorgasbord of metrics are needed to monitor if you fall foul of the rules.

A-DAY TURNS ADULT

Today though, Mr Hunt has abolished the Lifetime Allowance, a welcome and grown up but unexpected move (it had been hinted that it would return to the level at which the Conservative Government inherited it at £1.8m. No, it’s abolished, completely! The Lifetime Allowance, which is something everyone had to assess pension benefits against will be gone from 6th April 2023. Do not retire before then – or more accurately do not crystallise any pension until then.

ANNUAL ALLOWANCE – UP BUT STILL TAPERED

He has not however returned the Annual Allowance to the 2010 level of £255,000 but has increased it from £40,000 to £60,000. In addition, the Tapered Annual Allowance has not been scrapped, but increased from £240,000 to £260,000 from 6 April 2023. The threshold test at income of £200,000 has not been altered. In theory therefore the new standard annual allowance of £60,000 will still reduce by £0.50 for each £1 over £260,000 but stopped at £360,000 when you will get the minimum maximum annual allowance of £10,000.

By way of example, someone with income of £300,000 would be £40,000 over the £260,000 threshold and thus see the annual allowance reduce from £60,000 to £40,000.

Those of you that have taken income from a personal pension (not a defined benefit/final salary pension) will be able to continue towards a pension under the Money Purchase Annual Allowance (MPAA) which is being increased from £4,000 back to £10,000. I understand this will double up as the minimum maximum (if you see what I mean) that anyone with income over £360,000 can also contribute (gross).

NEGATIVE TURNS POSITIVE

Medics (and a few others) that on occasion have a negative pension value for the year will now be able to offset this, something that was not possible previously.

25% TAX FREE CASH IS GOING FOR BIG PENSION POTS

There is a slight “fly in the ointment”. Under pension rules tax free cash is capped at 25% of the fund value, buried in page 100 of the Budget is the statement that advisers understand but most investors do not. “The maximum Pension Commencement Lump Sum for those without protections will be retained at its current level of £268,275 and will be frozen thereafter”. In other words, the tax free cash lump sum (PCLS) link is to be broken. 25% of the current lifetime allowance is £268,275 and this is therefore being retained, meaning that whether your pension fund is more than this, you cannot withdraw more than £268,275 as a tax free lump sum. In plain a pension fund of £2m does not produce tax free cash of £500,000 (25%) but £268,275.

One other “minor” point is that those with Primary, Enhanced, Fixed or even Individual Protection from 2006, 2012 (max £450,000), 2014 (max £375,000) and 2016 (max £312,500). Therefore some people will have a higher tax free cash entitlement than the new limit of £268,275).

ISAs, JISAs, VCTs, EIS, SEIS

All as previously.

INCOME TAX, CORPORATION TAX, CAPITAL GAINS TAX, INHERITANCE TAX

As previously announced for 2023/24.

On occasion, Budget plans get revised (remember the glove puppet of a PM?) so there is a possibility that after a little more thought, pressure and checking, some of the points in the Budget might need a tweak, but in general this is a rarity.

If you have questions, that I have the realistic possibility of answering (not “where is Cloddach Bridge?” which gets a sum for refurbishment…. which I imagine is one of those times we may remark, “what, a million pounds?” (actually £1.5m) is either a lot or a little, that old price and value thing… much like the criticism that will inevitably be made of the abolition of the lifetime allowance, which is, from my perspective of working with you, a very good thing indeed.

BACK TO ALL BLOGS

THE SPRING BUDGET 2023Dominic2023-12-01T12:12:35+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

The Offshore Treasure Island

1950: Treasure Island – Haskin

I have to admit to being a little amused by some of the comments in the media about offshore tax havens. Most amusing of all is the political nonsense that seems to gush from every quarter. Politicians have known that offshore investing and saving is available and has been for many years. HMRC has the role of collecting tax and interpreting the laws agreed and set by the Treasury. These need to be democratic, so that we don’t have a country that is effectively a tax dictator.

Government (and it really makes no difference who is in power) tweak and tinker at the edges, claiming that they are making adjustments for our general good. Governments attempt to encourage or discourage investment, to encourage or discourage enterprise. Now we may be entering the realm of political philosophy, but the purpose of this exercise is to find a balance for all citizens to live in a degree of harmony, rewarded for enterprise and not rewarded for laziness; providing good care, education etc for all of us and a welfare state for those that are truly unfortunate.

An element of financial advice will consider reducing or minimising someone’s tax. This can be done to varying degrees depending upon the complexity of the person’s affairs. So an ISA is a tax avoidance – of future capital gains and income tax. A pension is a tax avoidance, in that there is a tax reducing element (tax relief) to encourage saving and there is a tax free lump sum upon retirement. The scale of products or solutions grows. Placing money offshore can be perfectly legitimate as a place to hold funds, but once they are returned (repatriated) to the UK tax might be payable (depending one the personal allowance etc).

There are of course all sorts of offshore schemes that are deliberately set up to minimise tax. These invariably carry other problems (for example, not being tested in law – so the tax avoidance may prove pointless). You can also find that the investment is plainly “rubbish”.

If politicians were genuine about wanting to change the tax system they could do so easily. All that we need is a single rate of tax. At the moment there are volumes of tax rules. There are lots of tax rates. Taxing income, gains, profit, dividends, inheritance, and so on. It is a badly thought through system, providing motivation (legitimately) to find a way of reducing tax on “income” depending how the income is derived. This is not a difficult problem to resolve. All income earned in the UK should be subject to UK tax, all income and assets bought in the UK should be subject to UK tax. A single tax rate would work. It is fair, it is proportionate. So there’s my challenge to HMRC, Treasury and Parliament.

We are a boutique firm of financial planners. We create financial plans designed to achieve a desired lifestyle. We will craft and implement your plan that will provide you with the greatest chance of accomplishing your unique goals based upon the values that you hold. Financial products are little more than the tools to achieve your required results
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The Offshore Treasure IslandDominic2023-12-01T12:22:35+00:00

Savings That Beat Inflation

1950: Highly Dangerous – Baker

Here’s an up to date list of some of the better paying accounts available at the moment. Remember this is not advice, just a list (I’m not deliberately being patronising, but it seems that the regulators assume that people are incapable of recognising the difference). My advice is to check the details, think about the FSCS compensation limits and the number of Banks covered by a single Banking license.

Instant Access Accounts

Online: ING 3.24%

Bank: Virgin Money 2.60%

Building Society: Manchester 2.81%

Cash ISA – Variable Rate

Online: Santander 3.30%

Bank: Barclays 3.05%

Building Society: Newcastle 2.60%

Cash ISA – Fixed Rate

Online: Governor Money 4.05% (5 year fix)

Bank: Halifax 4.15% (5 year fix)

Building Society: Kent Reliance 3.75% (5 year fix)

I hope that this is helpful in the fight against inflation and dreadful deposit account rates for short-term holdings. Please note that it is very rare that I would encourage anyone to lock into a 5 year cash deposit account – this is for people that have very specific time based goals over 5 years. Inflation is ruining the value of the cash. Don’t forget that interest within a Cash ISA is tax free.

We are a boutique firm of financial planners. We create financial plans designed to achieve a desired lifestyle. We will craft and implement your plan that will provide you with the greatest chance of accomplishing your unique goals based upon the values that you hold. Financial products are little more than the tools to achieve your required results
Call us today or visit our website for more information and to arrange a meeting

Savings That Beat InflationDominic2023-12-01T12:22:10+00:00

Cash ISA Latest Rates

1964: Time of Indifference – Maselli

It has been a little time since I last updated the blog with some of the top rates. Please note that I am often very suspicious of top paying rates. When a bank or building society offer the best rates, it does not mean that they really are the best, in current times it is more likely to mean that they are the most hungry for new funds, which may mean that they want to be competitive, but may also mean that they need the cash more than their competitors. So please treat such lists with a degree of caution. You should also always check the details carefully – making sure that it really is an account that you want. Finally – compensation is very much the word of the day, so make sure that your accounts are within the FSCS compensation limits.

Instant Access Accounts (£5,000 deposit)

Online: Coventry 3.15%

Bank: Virgin Money 2.85%

Building Society: Nottingham 3.25%

Cash ISA – Variable Rate

Online: Santander 4.00%

Bank: Barclays 3.05%

Building Society: Nationwide 4.25%

Cash ISA – Fixed Rate

Online: RBS 4.20%

Bank: Halifax 4.50%

Building Society: Yorkshire 5.00%

Cash ISA rates are generally not a lot better than standard deposit accounts at the moment, so there is very limited tax advantage with a Cash ISA at present.

We are a boutique firm of financial planners. We create financial plans designed to achieve a desired lifestyle. We will craft and implement your plan that will provide you with the greatest chance of accomplishing your unique goals based upon the values that you hold. Financial products are little more than the tools to achieve your required results
Call us today or visit our website for more information and to arrange a meeting

Cash ISA Latest RatesDominic2017-01-06T14:40:03+00:00

Bogus Pension “Cash Liberation” Schemes

2009: Lies and Illusions – Tibor Takacs

It is particularly concerning when I come across unregulated and unqualified people offering advice about pensions. However badly some people think of financial advisers, using companies that are not even regulated by the FSA is very worrying and illegal. Financial planners like me, spend years learning about pension rules – which are constantly being updated and despite promises from the previous Government to make pensions simple, the reality is completely the opposite. This is admittedly a very poor state of affairs when a pension should be in every UK adult’s vocabulary of financial planning. Good financial planning involves repayment of debt, building wealth and avoiding unnecessary charges and penalties. This latest “pension liberation” scam increases debt and reduces wealth and increases charges dramatically.

There has been a spate of small adverts, some appearing on social networking sites such as Facebook which I have seen myself and are completely misleading. These are designed to entice people needing cash and having a pension pot to “liberate” the cash from the pension. There is also the suggestion that investment performance will be improved. However cash from pensions can only be taken from age 55 and is restricted to 25% of the fund. Taking more is illegal and will invoke charges and penalties from HMRC resulting in a significantly worse pension. There has been over £200m moved into these bogus arrangements already according to the Pensions Regulator, FSA and HMRC the bulk of which has occurred since May 2010.

The schemes effectively set up loans and the only people making money from them are those that are “arranging” them. The promise is one of liberating up to 50% of the value of a pension fund before the age of 55. These schemes tend to operate by paying 50% of the fund in the form of a reciprocal loan with another investor. The balance of the fund is often put into some very dubious property deals. This is a scam, fraud -swindle and thoroughly unethical. Do not be taken in by such schemes. As a financial planner I find this deeply depressing, my industry has enough jargon and mis-selling scandals without another one rearing its head from “advisers” that are not advisers and unregulated. This will not end well. See here for more details about pension liberation. Please pass this post on to your social network friends. You can also click here to see some of the more common scams and swindles that the FSA attempt to prevent.

We are a boutique firm of financial planners. We create financial plans designed to achieve a desired lifestyle. We will craft and implement your plan that will provide you with the greatest chance of accomplishing your unique goals based upon the values that you hold. Financial products are little more than the tools to achieve your required results
Call us today or visit our website for more information and to arrange a meeting

Bogus Pension “Cash Liberation” SchemesDominic2017-01-06T14:40:08+00:00

ISA Rule Change – Never say Never Again

1983: Never Say Never Again – Kershner

The Treasury has announced a change in the ISA rules. It is my sincere hope that these are not rules that any of our clients will benefit by – as they are only enacted once an existing ISA provider company has gone bust. The change will enable investors that see an ISA provider go bust, maintain their previous ISA allowances rather than having to start again. Of course, one would hope and expect that should an ISA provider go bust then there is protection or at least compensation – but in some recent cases (Keydata) the value of the investment collapsed along with the product provider. This new change to the rules means that once the dust has settled, ISA allowances and previous contributions will be effectively protected.

Mark Hoban is reported to have said that this “will enable investors whose ISAs are affected by the failure or default of a financial firm to continue to benefit from tax-advantaged savings.”

Frankly, I hope that none of our clients ever see a day where their ISA product provider goes bust, but should that day ever arrive, this is at least good news.

DT

We are a boutique firm of financial planners. We create financial plans designed to achieve a desired lifestyle. We will craft and implement your plan that will provide you with the greatest chance of accomplishing your unique goals based upon the values that you hold. Financial products are little more than the tools to achieve your required results
Call us today or visit our website for more information and to arrange a meeting

ISA Rule Change – Never say Never AgainDominic2023-12-01T12:48:27+00:00

Squeezing The Middle – Tax is the Clue

1941: Ladies in Retirement – Vidor

We have heard discussion about the squeeze on middle-Britain, with politicians being typically vague at defining what they mean by middle-Britain. My guess is that it is anyone that has an income between £30,000 and £250,000 – yes quite a range I know, but in the big scheme of things, probably representative of who is actually paying the most taxes to HMRC. Anyone with declared earnings under £30,000 is paying 20% unless they are over 65 and caught out by the age allowance trap (which is where the additional, age-related personal allowance is gradually reduced back down at a rate of 50% for every £1 of income over £24,000 in 2011/12).

So by way of a “heads up” from April, the scheduled changes to the tax system that will most likely effect you are as follows:

1. The standard personal allowance rises from £7,475 to £8,105

2. The age related allowance 65-74 rises from £9,940 to £10,500

3. The age related allowance 75+ rises from £10,090 to £10,660

4. The age related reduction trigger rises from £24,000 to £25,400

So if you are retired and you can adjust your income to £25,400 you will be better off. You can only “adjust” your income if you have assets that produce income that you can turn on and off, which probably means that you have had some very good financial planning advice. This would involve use of ISAs and using capital gains as income and so on.

Sadly, whilst the standard personal allowance rises, the band on which basic rate tax is levied is reduced from £35,000 to £34,370. Also don’t forget that if your declared income is £100,000 or more you begin to lose your personal allowance anyway. The good news? well the 50% tax rate will remain unchanged on any income over £150,000 – if indeed this is good news.

If you would like to have a look at a little more detail, here is the link to the HMRC tables for 2012/13.

DT

We are a boutique firm of financial planners. We create financial plans designed to achieve a desired lifestyle. We will craft and implement your plan that will provide you with the greatest chance of accomplishing your unique goals based upon the values that you hold. Financial products are little more than the tools to achieve your required results
Call us today or visit our website for more information and to arrange a meeting

Squeezing The Middle – Tax is the ClueDominic2023-12-01T12:48:30+00:00

Rumour Mill – Attack on Tax Free Cash and Tax Relief?

1941: Nothing But The Truth – Nugent

In one of the quality industry papers today I have read that the Government had considered announcing an end to higher rate tax relief on pensions in the Autumn Statement this week. However, it is alleged that the Chancellor decided against it, but is rumoured to be seriously considering this for the Budget. The Government is quoted as saying “The Government is committed to providing clear incentives to save in a pension, up to generous allowances, and has no current plans to restrict tax relief on pension contributions or to cap relief on the tax-free lump sum.”

So I guess who you believe is rather central to how to act on this “information”. Wouldn’t it be great just to have some rules that actually last and aren’t constantly amended? rather than everyone having to guess what might happen next.

For the record, in the current tax year 2011/12 the Annual Allowance is capped at £50,000 and the Lifetime Allowance is £1.8m. This will be reduced to £1.5m from 6th April 2012.

DT

We are a boutique firm of financial planners. We create financial plans designed to achieve a desired lifestyle. We will craft and implement your plan that will provide you with the greatest chance of accomplishing your unique goals based upon the values that you hold. Financial products are little more than the tools to achieve your required results
Call us today or visit our website for more information and to arrange a meeting

Rumour Mill – Attack on Tax Free Cash and Tax Relief?Dominic2023-12-01T12:48:30+00:00

Dear George…

1939: In Name Only – John Cromwell

We are gradually counting down to 29th November, when George Osbourne presents his Autumn Statement. There has been much debate in the press about whether he will abolish or reduce the amount of tax free cash available from pensions – currently 25% of the fund. A cynic might say that the change in terminology brought in by the previous Government might aid this cause.

Pensions no longer have a retirement date. The current and previous Governments have made this possible through the abolition of the compulsion to buy an annuity – even though in practice, most will still do so. You no longer retire – you crystallise benefits. Yes you did read that correctly, at least they didn’t call it “fossilize”.

The new jargon for the tax free lump sum is “Pension Commencement Lump Sum” PCLS… which leaves open the door for having no reference to tax free.

In his bid to cut costs, Mr Osbourne and the Treasury are also rumoured to be considering reducing or scrapping higher rate tax relief on pensions. In theory this could be worth £10,000 a year to someone using the £50,000 annual allowance. This sort of rumour has been around for as long as I can remember and one has to be a little suspicious of the financial services industry, who invariably use rumour of change to encourage people to take pre-emptive action.

Pensions have already had far too much change. These sort of changes would be entirely counter productive to encouraging the population to save for retirement and independence of the State. So should anyone with any input into the Treasury be reading this. Please don’t mess things up further!

DT

We are a boutique firm of financial planners. We create financial plans designed to achieve a desired lifestyle. We will craft and implement your plan that will provide you with the greatest chance of accomplishing your unique goals based upon the values that you hold. Financial products are little more than the tools to achieve your required results
Call us today or visit our website for more information and to arrange a meeting

Dear George…Dominic2023-12-01T12:48:39+00:00