THE TROUBLE WITH CASH ISAs

TODAY’S BLOG

THE TROUBLE WITH ISAS

HMRC have published their data about ISAs to the end of the 2018/19 tax year. Their data is reliable or should be because you will recall that each ISA requires your unique National Insurance number. As a result, it is possible to provide accurate data about income, age, gender, and employment.

The deeply disturbing news is that the vast bulk of ISAs are cash ISAs. Cash ISAs are glorified deposit accounts, cash is not a sensible long-term investment strategy, it is a perfect short-term spending strategy. As cash rates have declined from not very much to virtually nothing over the last 20 years, Cash ISAs have basically failed to keep pace with inflation.

“BUT CASH ISAs ARE LOW RISK”

“But Cash ISAs are low risk” you cry, well… what you really mean is that the value doesn’t go up and down (volatility) your assertion would be right, but when you factor inflation into the actual real world, then Cash ISAs are pretty much basically always guaranteed to go down. The risk you run is one of running out of money and the power of your pound shrinks.

There may of course be good reasons for holding Cash ISAs, but based on income range, people over £30,000 generally have more stocks and shares ISAs than Cash ISAs – though its still a fairly close-run thing.

HMRC ISA SUBSCRIPTIONS

“BUT AT LEAST CASH ISAs ARE TAX FREE”

Cash ISAs are tax free, that is certainly true. What that means is that the interest paid to you on your deposit is tax free. All good… well, it was. Since 6 April 2016 there has been a personal savings allowance. Basic Rate (20%) taxpayers are able to earn interest of £1,000 without it being taxed. Higher Rate taxpayers have a £500 allowance and Additional Rate – well, of course we know that it is politically expedient to be seen to punish anyone earning £150,000 or more, so no tax-free savings for you!

WHY LOCK INTO A DEPRECIATING ASSET?

Taking a basic rate taxpayer with interest rates at something like 1.5% at best, then you would need more than £66,000 in your cash ISA before any tax would be applied to the interest. At 1% it would require £100,000. Higher rate taxpayers simply halve the numbers. As for the tax that would be applied on interest above that – well no more than a round of drinks for most people.

A quick trawl of Cash ISA rates today (30/06/2020) and the very best rate I can find is 1.25% if you want to lock your cash up for 7 years… why anyone would do this is beyond me. Then there is the aggravation of regularly looking for a better rate and the hassle of moving your really rather duff Cash ISA into a different one. Life is too short for this nonsense isn’t it?

Similarly, junior ISAs – why bother holding cash for a child for 18 years and missing out on investment growth over nearly 2 decades. It is madness. Investors and savers really must understand what risk really means.

The value of ISAs to the end of the data was £584billion, of which cash ISAs account for 46% yet make up 76% of all ISAs. The chart below (from the HMRC bulletin – so labelled Chart 4) shows the fluctuating but growing value of shares in ISAs. Remember all are being added to each tax year, but the vast majority of the money each year goes into Cash ISAs.

CONFESSIONS OF A CASH ADDICT

OK – so you have some cash ISAs. I am not saying you shouldn’t have them, but only do so if you intend to spend the money fairly soon (within 3-5 years tops). Otherwise you are missing out on a lot of growth and the ability to keep the power of your £ working for you. If you would like a review, do some of the legwork, compile a list of your Cash ISAs, the balances, the Banks or Building Societies that they are with and the current rate of interest you earn. If there is a fixed rate, confirm when that ends. Then send me the information.

RISING VALUE OF ISAS

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

GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Bakery, 2D Edna Road, Raynes Park, London, SW20 8BT

Email – info@solomonsifa.co.uk 
Call – 020 8542 8084

WHAT WE’RE ALL ABOUT

If you would like a no-nonsense one page document explaining what financial planning is all about please enter your email here.

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GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Bakery, 2D Edna Road, Raynes Park, London, SW20 8BT

Email – info@solomonsifa.co.uk    Call – 020 8542 8084

WHAT WE’RE ALL ABOUT

If you would like a no-nonsense one page document explaining what financial planning is all about please enter your email here.

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THE TROUBLE WITH CASH ISAs2020-06-30T11:50:15+01:00

GOOD NEWS FOR CHILD TRUST FUNDS

TODAY’S BLOG

GOOD NEWS FOR CHILD TRUST FUNDS

Young people with a Child Trust Fund (CTFs) could see their savings automatically rolled into a new tax-free savings accounts at maturity under new government proposals. The first Child Trust Funds are due to mature in September this year and, under current arrangements, will be automatically cashed in once the account holder turns 18.

CTFs could instead be automatically rolled over into another account that continues to shelter the young saver’s cash from the taxman. Child Trust Funds were launched in 2005 as a way to encourage parents to start saving for their children. Children born between September 1, 2002 and 2 January 2, 2011 received between £250 or £500 to be invested on their behalf.

Parents, family and friends could continue to contribute to the account, with all gains tax-free. More than 6 million CTF accounts were opened and no money could be withdrawn until the child reached age 18. That means the first tranche of accounts will mature in September 2020. But CTFs were discontinued in 2011 and replaced with the Junior ISA (JISA).

For years, children with CTFs were left in limbo as savings providers stopped offering new products as JISAs took precedence. In 2015, the Government ruled that money held in CTFs could be transferred out to a JISA. For those who kept their money in a CTF, the money would automatically cash out once the accountholder turned 18. But many have considered this to be unfair. Junior ISAs are automatically rolled into adult Isa accounts when a child reaches 18, meaning they continue to enjoy their tax-free status. The Government’s latest move looks to be levelling up the playing field.

Note that tha current JISA limit (which is a tax year limit on contributions) is £4,368 for 2019/20.

Child Trust Funds

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

GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Bakery, 2D Edna Road, Raynes Park, London, SW20 8BT

Email – info@solomonsifa.co.uk 
Call – 020 8542 8084

WHAT WE’RE ALL ABOUT

If you would like a no-nonsense one page document explaining what financial planning is all about please enter your email here.

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GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Bakery, 2D Edna Road, Raynes Park, London, SW20 8BT

Email – info@solomonsifa.co.uk    Call – 020 8542 8084

WHAT WE’RE ALL ABOUT

If you would like a no-nonsense one page document explaining what financial planning is all about please enter your email here.

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GOOD NEWS FOR CHILD TRUST FUNDS2020-01-24T09:34:48+00:00

THE TAXMAN COMETH… AGAIN

TODAY’S BLOG

THE TAXMAN COMETH… AGAIN

A week today is deadline pay to send in your self-assessment tax return and payment to HMRC. The 31st January brings an end to arguably the worst month of the year with a tax deadline. Most people will be very familiar with 31/01 by now, but invariably a lot of people file their returns late.

In February 2019, HMRC confirmed that 93.68% of people filed their returns on time, which was a new record. There were 11.56 million taxpayers that had to file a return, 731,186 didn’t do so on time. Fines for not filing a return on time are £100, even if no tax is due. So that comes in at a neat £73,118,600 in immediate fines. After 3 months (30 April) additional penalties are applied at £10 a day.

Taxing Time

Left until the last minute.com…

A thumping 735,258 filed on the final day itself (6% of those that had to). Remember this is sending a return for the tax year that ended 5th April in the previous year!

Some 60,000 people tried to file their return between 4pm and 5pm on the 31st January 2019. That is really leaving it to the last minute (which is midnight of that day).

IMPORTANT – Pension Tax Tips Pre-Return:

These tips help taxpayers get all the pension tax relief to which they are entitled or to avoid an unexpected tax bill in years to come.

 A) Claim higher rate relief on personal pension contributions:

Many pension savers who pay income tax at the higher (or additional) rate, may be unaware that they need to claim higher rate relief through their tax return on contributions into a personal pension. Employee contributions into a personal pension or group personal pension automatically attract pension tax relief at the basic rate through the ‘relief at source’ method. This tax relief is claimed by the pension provider on behalf of the member. But those who pay tax at the 40% or 45% rate only get their extra tax relief if they claim it through their tax return. For example, someone who pays £80 into a personal pension automatically gets an extra £20 in basic rate relief added to their pension. But if they pay tax at 40% they are entitled to another £20 in tax relief which they will only get if they enter this information on their tax return.

B) Report contributions in excess of your annual allowance

Individuals are expected to report on their tax return any pension contributions (from themselves or their employer) into a Defined Contribution pension and/or any growth in Defined Benefit pension rights in excess of the Annual Allowance, so that additional tax can be paid.

C) Report contributions made on your behalf under ‘scheme pays’

HMRC recently admitted that some taxpayers were failing to report on their tax return that a pension tax charge had been paid on their behalf by their occupational pension scheme. A new FOI obtained by Royal London shows that in 2016/17 just over 1,000 people failed to report this information. As the number of people affected by ‘scheme pays’ has grown rapidly since 2016/17, it is likely that thousands of people are now failing to report this information. The FOI from HMRC says that this is a case of ‘under-reporting, not under-payment’, but taxpayers are expected to give complete information on their tax return.

And finally…

There were some strange excuses too… here is a video HMRC put together about them.

Here are some things that didn’t pass the valid expense claims.

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

GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Bakery, 2D Edna Road, Raynes Park, London, SW20 8BT

Email – info@solomonsifa.co.uk 
Call – 020 8542 8084

WHAT WE’RE ALL ABOUT

If you would like a no-nonsense one page document explaining what financial planning is all about please enter your email here.

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GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Bakery, 2D Edna Road, Raynes Park, London, SW20 8BT

Email – info@solomonsifa.co.uk    Call – 020 8542 8084

WHAT WE’RE ALL ABOUT

If you would like a no-nonsense one page document explaining what financial planning is all about please enter your email here.

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THE TAXMAN COMETH… AGAIN2020-01-23T19:13:46+00:00

THE TAX YEAR

TODAY’S BLOG

THE TAX YEAR

The new Tax Year is now well under way. Those of you that are employed will be receiving your first payslip of the new tax year and will also shortly have a P60. For those that are self-employed, many will now be starting to collate information for the tax year that has now ended, ready for submission of your self assessment accounts to HMRC.

I’m often, ok, sometimes… asked why does that tax year begin on 6th April rather than 1st January. This is a good example of “recency bias” in assuming that things have always been as they are now. In practice it wasn’t until 1751 that England adopted 1st January as the opening day of the new year. The Scottish were considerably ahead adopting 1st January from about 1600. It would not surprise most Scottish that they have been out-partying the English on new years eve.

Why? well as is often the case, our calendar and practices stem from religious beliefs and events. England, being Protestant didn’t adopt the Gregorian calendar when it was introduced in 1582 by the Pope. You may recall that the 16th century had somewhat sanguine relationships with Rome and the Catholic Church, so following the lead from Vatican City about when to set the date wasn’t likely to hold a great sense of importance. The Scottish naturally took a rather different approach.

A New Dawn

The Solstice or Spring Equinox really marks the new year, which in England dates back as far as Stonehenge, which I am told is about 2500BC and recent DNA discoveries suggest that those that built Stonehenge were from Anatolia (modern Turkey). March 25th was the equivalent of January 1st.  As Christianity spread and Easter took the place of Spring Equinox, the minor problems of the calendar drift began to materialise over centuries. By 1584 the then Pope Gregory decreed the changes required, making the adjustments. It wasn’t until the Calendar Act in 1750 that the calendar correction was applied to England (and the Empire) in 1751.

In Time with Europe

The English calendar needed to add 11 days to catch up with the Gregorian Calendar. So September 2nd was followed by September 14th. This made for a short year (25 March to 31 December) and tax collectors basically didnt like it, so simply shifed 25 March by adding 11 days and allowing for the Leap Year of 1800, so the new tax year began on 6th April. Not even time can truly bend the two great certainties of life… death and taxes.

Here is a short video we made about this.

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

GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Bakery, 2D Edna Road, Raynes Park, London, SW20 8BT

Email – info@solomonsifa.co.uk 
Call – 020 8542 8084

WHAT WE’RE ALL ABOUT

If you would like a no-nonsense one page document explaining what financial planning is all about please enter your email here.

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GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Bakery, 2D Edna Road, Raynes Park, London, SW20 8BT

Email – info@solomonsifa.co.uk    Call – 020 8542 8084

WHAT WE’RE ALL ABOUT

If you would like a no-nonsense one page document explaining what financial planning is all about please enter your email here.

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THE TAX YEAR2019-04-29T18:07:11+01:00

NOW WE’RE TALKING

TODAY’S BLOG

NOW WE’RE TALKING

The end of the tax year is only a few weeks away, the latest online edition of Talking Money is available for you to read and we think you should download our app. Its a really useful bit of kit to hold on your smartphone or tablet. You can access it for free from your usual app shop (apple or android) simply search for “My IFA” and when you locate a rather dull grey icon of  of a fella that looks like he may be an outline from the mafia, download and use the password SOLOMONS.

We have created a short video which explains a few of the many features, one I use quite a lot is the mileage tracker which helps me accurately record business miles, but there are loads of features and calculators.

Here is the video of our app

Have a quick look at this video, let me know what you think.

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

GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Bakery, 2D Edna Road, Raynes Park, London, SW20 8BT

Email – info@solomonsifa.co.uk 
Call – 020 8542 8084

WHAT WE’RE ALL ABOUT

If you would like a no-nonsense one page document explaining what financial planning is all about please enter your email here.

=

GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Bakery, 2D Edna Road, Raynes Park, London, SW20 8BT

Email – info@solomonsifa.co.uk    Call – 020 8542 8084

WHAT WE’RE ALL ABOUT

If you would like a no-nonsense one page document explaining what financial planning is all about please enter your email here.

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NOW WE’RE TALKING2019-01-22T11:13:34+00:00

Help to Buy ISA… well, not that much help..

Help to Buy ISA…well not that much help

You may have heard of the Help to Buy ISAs. When this was announced by the then master of goalpost manoeuvers, Mr George Osborne, you would be forgiven for thinking that this was an innovative scheme to help savers get a bigger deposit for a house purchase. The Government will add 25% to whatever you save…. Well maybe not.. as ever, rarely do Governments make life easy, indeed one is often left to wonder if Government agenda is not precisely the opposite. So, let’s spell out a few of the issues. For the sake of simplicity, I will call the right to buy ISA “the plan” which will not help my search engine optimization, but will hopefully read a little better.

Maximum and Minimum

You can only save £200 a month into “the plan” with an initial deposit of £1000.The maximum that can be in the plan (from you is £12,000 – the minimum is £1,600). So the maximum £12,000 would get £3,000 (25%) from the Government, yes its better than nothing, but actually not that much help for a deposit. You have to be 16 or over for an account.

So then there is that mortgage…

Whilst it is possible to get a mortgage with a very small deposit (5%) the prevailing requirement is generally 15%-25% deposit. Of course this means being able to justify and afford the mortgage for the balance. So if the plan is 5% of the purchase price, that suggests a property valued at £300,000 and mortgage of £285,000… which in turn probably means an income of over £80,000. We don’t arrange mortgages, but generally borrowers can borrow up to about 3.5x their income. If you have found a property for £100,000 then of course this will be more useful, but one can only assume that the property is at least 100 miles from London.

The Hard Graft of Saving

As the plan is really a monthly saving scheme, that’s a total of 55 months or 4 and a half years of solid saving…. In the meantime, property prices are probably rising, at least in-line with inflation. Oh… just remind me how long is the typical Government lifetime? How time flies.. and policies change.

The Housing Problem

Another clause being that Government hand out only applies if the purchase price is up to £250,000 or £450,000 in London…. In which case for Londoners, clearly this would be just over a 3% deposit, so you will need other resources. The property must be in the UK (do not ask me what that would mean should either Scotland or Wales leave the UK). Naturally the plan cannot be used to purchase a second property, so if Mum and Dad have put your name of the deeds somewhere else… well, it’s not for you.

Meanwhile, as the Help to Buy ISA is really a Cash ISA, the savings earn interest, which today is about nothing. OK you can get some better deals, but not much better.

Snakes and Property Ladders

The Plan cannot be used for anything other than a deposit, not stamp duty, fees etc. It cannot form part of the deposit provided at Exchange of Contracts either…. which is quite daft! It must also be closed before you buy, which means obtaining a statement from the Bank to confirm that the account is closed (which may be easy in theory but hard in the stressful throws of purchasing a first home.. whilst the pressures mount from those higher in the chain.. It’s actually the conveyancing solicitor that claims the Government hand out for you between the Exchange and Completion… (I’m guessing a fee would apply to claim it)… what could possibly go wrong? (property falling through perhaps?).

Still, there’s no place like home….

So is it worth it? Launched nearly a year ago (December 2015) over 22,000 people have used the proceeds to buy a property, which presumably means that they had at the very most 10 months of £200 and £1000 initial deposit (£2000 in all) so a £500 help to buy. OK, ok… better than nothing, but is this really solving the housing crisis or simply providing a bit more cash to meet the inflated property prices? I think you can probably guess what I think.

However, this is money for nothing (well, there are some strings). In practice, perhaps try to use the account, fill it up to the maximum then forget about it in the hope that the offer remains valid for years to come. It does form part of your annual ISA allowance, but in practice only £2400 for most people, meaning that there is still a lot of ISA allowance left. If you move abroad or never end up buying a home, then you can easily get your money back, it simply will not be worth much more than you put in, due to poor rates of interest. Much like the Wizard of Oz, there are no magical solutions to resolve the housing crisis but if you make the effort and reflect on your own resourcefulness, its amazing what can be achieved… and you will have a bit more cash to play around with.

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

Help to Buy ISA… well, not that much help..2017-01-06T14:39:14+00:00
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