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 Ending2017-01-06T14:39:49+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 Island2017-01-06T14:39:56+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
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Savings That Beat Inflation2017-01-06T14:40:00+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 Rates2017-01-06T14:40:03+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
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Bogus Pension “Cash Liberation” Schemes2017-01-06T14:40:08+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.
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 Again2017-01-06T14:40:15+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.
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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Squeezing The Middle – Tax is the Clue2017-01-06T14:40:15+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.
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?2017-01-06T14:40:16+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!
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…2017-01-06T14:40:17+00:00

Cash ISAs – All You Need To Know

Cash ISA is basically just a deposit account where the interest is paid without being taxed. It won’t be taxed either – provided that it remains in the ISA. A Cash ISA is a great place to park money (as it is not taxed) for those unlikely to use much of the full £10,680 (2011/12) ISA allowance. You can only contribute £5,340 towards a Cash ISA during the 2011/12 tax year. If you take money out of a Cash ISA that’s too bad (in terms of the allowance) – its measured on what you put in, not what you take out.

For example, if you put £3000 into a Cash ISA and withdraw £1,000, you have still used £3,000 of your allowance for the year.

As ISAs are individual and relate to a tax year, you can build up quite a number of them, perhaps with different Banks. This is not a problem, but you can only have one per tax year. So you couldn’t for example put £3000 with Nationwide and £2000 with Halifax during the same tax year (into a Cash ISA).

If your Cash ISA now has a poor rate of interest you can do one of two things. You may for example now have over £20,000 in various Cash ISAs. You could transfer it to another Cash ISA paying a better rate, the important thing is that you do not cash in your Cash ISA in order to move the money to a better Cash ISA – otherwise you are stuck with the same annual allowance of £5,340. In other words if you cash in your £20,000 in Cash ISAs, you lose the ISA status of that money. Moneyfacts.co.uk is a good place to seek out Cash ISA Transfer rates. I suggest doing their search rather than simply viewing their best buy list.

Alternatively, you could transfer a Cash ISA into a stocks and shares ISA, a form would be required for this, but if this would move the entire Cash ISA. If you only wanted to move £2000 or so from a Cash ISA you would be better off simply withdrawing this from your Cash ISA and writing out a cheque. This is an investment and so can (will) rise and fall in value. However, be warned that you cannot reverse this action. It is possible to hold “low risk” funds within a stocks and shares ISA, but technically you cannot hold cash within one. This can be a good option if you do not expect to use or need the funds for the long-term (over 5 years). An investment should provide a higher sum over the long-term as opposed to cash, not always, but in the majority of cases. You would be wise to see my guide called “Our Approach to Investing” for more information on this.

A Stocks and Shares ISA can have the full £10,680 allowance but only £5,340  if you have used any (even £1) of the Cash ISA allowance in the same tax year. Here is a link to the HMRC ISA factsheet.

It is worth noting that if you are not a taxpayer, then your interest on deposit accounts should not be taxed (unless it is so great that you have to). If you don’t earn enough to pay tax then the Bank or Building Society can provide you with an R85 form which means that your interest will be paid gross (untaxed). You are of course personally responsible for ensuring that you pay the right amount of tax under HMRC self assessment rules. I have put lots of links to the HMRC documents, so do use these sources.

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

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

Cash ISAs – All You Need To Know2017-01-06T14:40:23+00:00
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