INVESTMENT BOND – A USEFUL FINANCIAL TOOL

If you are willing to take risk with some of your savings, one useful and historically successful tool, is an Investment Bond. Within the wrapper of the Investment Bond your money is invested in funds that invest in stocks and shares and bonds and property, etc.. The Investment Bond has special features. One of the most attractive one is that you can withdraw up to 5% (of the amount you originally invested) in each 12 month period free of tax in the year you withdraw it. It is considered a partial return of capital, i.e. of your original investment. Note: Ultimately there is a tax reckoning when the bond is cashed in but usually tax would only be chargeable on the profits made with the bond if the person concerned is a higher-rate taxpayer when he encashes it. Another feature is that the monies held in an investment bond currently are excluded in the calculations of savings when local authorities work out eligibility for funding nursing home care.

SOME SAVINGS AND INVESTMENT OPTIONS

With interest rates at low levels it is a struggle to get much of a return on your cash savings. It is very sensible to keep a reasonable amount of money in cash for emergencies and for anything you will need to pay for in the near future. However, in the longer term you may wish to take a risk with some of your savings by investing them in stocks and shares. One easy way to do this is to use a Stocks and Shares ISA into which you pay monthly. By saving on a monthly basis the risk is less as sometimes you are buying when the market is high and sometimes you are buying when the market is low.


For those with a lump sum they are willing to invest for 5 years or longer, it may be worth looking at an Investment Bond. The money you put in is invested in a range of stocks and shares. You can decide at the start what level of risk you are willing to take, and you can change that whenever you wish. The Investment Bond has a useful feature. Each year you can withdraw up to 5% of the amount originally invested without paying tax. This would give you an annual amount of 5% net each year. This compares well with the 1% to 2% you might get from cash savings options, although you do need to take into account that the value of your investment overall will be going up and down in line with the Stockmarket. We would be happy to discuss this option with you in more detail. Just give us a ring.

THE MIDDLE ROAD FOR PENSIONS!

For the last few years those with personal pensions have found that they have a wide freedom of choice as to how they can take their pension benefits from age 55.

The new Flexi-Drawdown Pension arrangement allows you to keep your pension fund invested indefinitely and still have the option of taking out money from the pension at any time – whether that means taking it all at once, or monthly, or annually, or just bit by bit as needed. By leaving it invested in this way there is a chance of making a good return on your pension investment so that it lasts longer (although the value of the fund can go down as well as up, so it could also shorten the time the pension fund lasts).

The traditional way of taking pension income – the Lifetime Annuity, is also still available. In this way you can secure an income for life by exchanging some or all of your pension fund for a guaranteed income for life with a fixed rate of return. This provides the certainty of income for those who need that sort of certainty, but does mean that the lump sum used to “buy” the annuity is gone forever. There is a middle road option which not everyone is aware of. This is the “Fixed Term Annuity”.

This arrangement guarantees an income for a period of time – usually 5 years – with a guaranteed lump sum at the end of the fixed term. This provides the certainty of income for the fixed period which, for example, might be needed to cover a shortfall of income until one’s State Pension comes into payment. Additionally it guarantees a fixed lump sum on maturity. At that point you have the chance of making your choice all over again – whether that choice is to put the lump sum in a Flexi-Drawdown pension or purchase a Lifetime Annuity, or even purchase another Fixed Term Annuity. So this middle way provides some of each – guaranteed (!) – some income and some lump sum.

All of these choices have their advantages and disadvantages and so it is important to choose the one that best matches your income and investment needs. We can assist you to choose the option that best suits your situation.

MORTGAGES FOR THE OVER 55s

There is more flexibility now for those over 55 to be able to take out a mortgage. You still need to meet the lender’s income requirements but earned income in many cases can be accepted up to age 70. Beyond age 70 the income the lenders will take into account usually needs to be pension income or income from property rental or investments.

The Inertia Tax!

Those with residential mortgages that stay on their lenders’ Standard Variable Rate are effectively suffering a voluntary tax by not taking advantage of their lender’s special deals. Shifting over to the lender’s special deals, such as a fixed rate for two or three years, can save hundreds or even thousands of pounds over those couple of years. Simply contact your lender and ask them what is

available. This same principle applies for those who have buy-to-let mortgages on investment properties.

OPTIONS AND SOLUTIONS!

While there is much uncertainty politically in our and other countries, we can maintain our own personal financial stability by following sensible and proven rules. One of the first is to ensure that you have more money coming in than you spend! This certainly will keep you in the “Happiness” zone described by Charles Dickens, in one of his books.

This principle applies to individuals as well as groups and businesses and even countries.

To achieve this you do need to have a bit of organization in place so you can see all that comes in

and all that goes out. Much more could be done to help educate those growing up so that they do

grasp such basics and also learn the patience of setting money aside for a special purchase rather

than having to buy things immediately on impulse.

MORTGAGES AND REMORTGAGES – LOOKING GOOD!

Residential mortgage rates remain very low although the most recent hike in inflation can be taken as a reminder that rates can go up.

It is probably a very good time to lock into a fixed interest rate for 5 years or so which can be as low as 2.0%. Many lenders are also working on making borrowing easier for older borrowers. We can provide rapid assessments of what rates may be available for your circumstances.

The market in purchasing buy-to-let properties has slowed following the hefty increases in Stamp Duty when you buy a second/investment property, and also due to the reduction in tax relief on mortgage interest for higher rate taxpayers. However, rates are also good in this sector for those reaching the end of a mortgage term on their rental property and looking to replace the existing mortgage.

LIFETIME ISA (LISA)! YET ANOTHER ISA, BUT PRETTY ATTRACTIVE

From 6 April 2016 there will now be the new Lifetime ISA (Individual Savings Account)available to anyone aged between 18 and 40.

You can put up to £4,000 into it each year. Up to age 50 any amount you put in will have a further 25% bonus added by the Government. For example, if you put in the full £4,000, the Government will add £1,000 at the end of the tax year, so you would have £5,000 in your Lifetime ISA. You can invest the money in cash or in stocks and shares.

This Lifetime ISA is meant to be a tool either for buying a first home or for use to help fund retirement from age 60. You can withdraw money at any time, but if it is withdrawn before age 60 and is not used to buy a first property, it will suffer a 25% penalty – in effect it is the Government taking back its bonus. From age 60 onwards you can take money out as you wish and it is not subject to tax. You can have a Lifetime ISA for up to £4000 per year if you qualify age-wise (18 to 40). It will count towards your total annual ISA allowance from next April of £20,000.

There is an ISA Helpline – 0300 2003312 – for those with questions about the Lifetime ISA or the other ISAs available. It is becoming rather complicated and it is good to have a point of contact to get questions answered.

SAVINGS AND INVESTMENT TIPS

1. Don’t forget about National Savings products. Premium Bonds and their Direct Saver and Direct ISA accounts are competitive and also not subject to the usual £75,000 maximum protection (per banking group).

2. Investment bonds allow for taking withdrawals each year of 5% of the original investment, and these are not treated as income and do not have to be declared in tax returns.

Note: this is possible for up to 20 years and then the overall return from the investment bond is subject to possible capital gains tax.

CHECKOUT SOME OF THE INVESTMENT GUARANTEES AVAILABLE

Whether you are investing in a pension or other investments, the challenge for many older people is how to achieve a reasonable income without having to take high risks. There are some guaranteed options worth considering. Do contact us if you would like to find out more.

WHEN LET-TO-BUY MAY BE BETTER THAN BUY-TO-LET!

If you live in a property and then sell it, generally you will pay no tax on any profit you make. And normally, when you buy a property and let it out, you will pay tax on all the profit you make on the sale. (Note: there are some exceptions in both case) However, if you let out a property you have lived in, there are tax reliefs that could save you a great deal of tax on your profits when you come to sell it. When you sell a property you have lived in, even if you are not living in it currently, you can claim tax relief for the time you did live in it and for the last 18 months before you sell it. Additionally you can claim “Letting Relief” of up to £40,000 for the period of time it was let. So if you are planning to invest in additional properties, it is worth knowing how these tax advantages could make Let-to-Buy an attractive option.

UPS AND DOWNS OF INVESTMENTS

Recent events in China and their effect on Stock Markets internationally do show the risk that goes

along with such investments. Some general tips that we would recommend:

1. Diversify (Don’t put all of your eggs in one basket.).

2. Invest for the medium to long term (5 years plus).

3. Never invest in what you don’t understand.

4. Keep track of your investments and don’t be shy about taking a profit, or saying goodbye to a bad

investment.

5. Be your own person – don’t follow the herd.

6. Review your investments regularly (at least once or twice a year).

WHAT GUARANTEES CAN I GET ON MY INVESTMENTS?

Some guarantees are still possible. The dilemma for many is that they want to get a reasonable income from their investments but they do not want to take much of a risk.

The investment return on cash deposits is currently very limited – 1 to 2%. Better returns are available with annuities but lifetime annuities generally mean a loss of the cash in exchange for the income. But there are guaranteed funds which can provide a guaranteed income for life while still maintaining access to the capital. A client of ours, who is 70 has taken advantage of such guarantees, and has seen her £100,000 investment increase over the last 9 years to £120,000 while also having her guaranteed income for life increase from 5.0% per annum  originally to 6.5%. The funds are invested for growth in stocks and shares and are reviewed annually. If the fund values have improved above a certain point, the guaranteed income for life is increased, while she is still able to access the capital. If the fund values have gone down in that year, the income stays as it was. If she withdraws capital, then her income would reduce proportionately but would still have the lifetime guarantee. The theoretical worst case scenario is that her fund reduces to nil but she would still have the guaranteed income for life.

If you would like to discuss such a guaranteed investment approach to see if it would suit you, contact us.

A NEW RETIREMENT MENU FOR PERSONAL PENSIONS!

RETIREMENT MENU

Minimum age 55

(Note: different rules apply to Final Salary/Defined Benefit Pensions and some other schemes)

Cash please

You can have it all as cash but only 25% of it tax-free. You will be taxed on whatever else you take out in the same way as if you had earned it in that Tax Year.

Income please Option 1: You can still get an income guaranteed for life (Annuity -see further

notes below)

Option 2: If you have health issues you may be entitled to a higher guaranteed income for life (Enhanced Annuity)

Option 3: Draw an income from your pension fund itself (Drawdown)

Option 4: Use a guaranteed fund to protect your investment but still be able to take an income (Guarantees).

State Pension please  The State Pension is increasing but the State Pension age is also going please up. To find out when you will receive your State Pension go to www.gov.uk/calculate-state-pension.

“Side Dishes”

You may have other sources of income to help in retirement. This might be investment income, or rental income from an investment property or income from letting out one or more rooms in your home  (Rent-A-Room scheme allows you to earn up to £7500 tax-free).

More on Annuities 

There are a variety of annuities available. The general concept is that you use all or some of your pension fund to buy a guaranteed income for life or for a specified period. The older you are, the more income you will get for your money. The guaranteed income can be for the person with the pension and a spouse or partner – to go on for as long as the last survivor is alive. The annuity can provide a level income or an increasing income. There are also annuities which are linked to investments so they can go up or down.

More exotic dishes

The pension rules are different for other types of pensions. If yours is not a personal pension, do feel free to contact us for guidance.

WHY USE US?

We have over 30 years of experience with financial matters which has given us a great deal of expertise and know-how.

We seek to provide an efficient, professional and friendly service to all our clients.

Here are a few recent client comments:

“You are trustworthy and professional with clear explanations given. Thanks for your patience.”

– Mr JG of East Grinstead

“Thank you for your help and attention, excellent as always.”

– Mrs CC of Leicestershire

“Ever grateful for your prompt and helpful advice.”

 – Professor BHW of Oxford

“I needed someone I could trust.”
– Mr GN of Turners Hill,West Sussex


“That’s brilliant. Can’t believe how quick you got this (mortgage offer) through.”
– TM and DW of Crawley, West Sussex

INVESTMENT BASICS

When considering investing here are some proven successful tips:

1. Diversify. Don’t put all of your eggs in one basket.

2. Invest for the longer term where possible (5 years plus).

3. Keep track of your investments and don’t be shy about taking a profit.

4. Never buy what you don’t understand.

5. Take your own decisions – don’t follow the herd.

6. Review your investments regularly (at least once or twice a year).

A NEW ISA

From 1 July 2014 the amount that you can put into an ISA will go up to£15,000 – about £4000 more than currently.

It will also be much more flexible than existing ISAs as it will allow both cash savings and stocks and shares in the one investment. And, boldly, it will allow cash held in existing ISAs to be transferred

to stock and shares and reversely, will allow investment holdings in ISAs to be transferred fully to cash holdings regardless of the amounts –all remaining within the ISA tax-free wrapper.

ACT TODAY - MAKE SURE YOU USE YOUR TAX ALLOWANCES

In the run up to the end of the tax year, it's important that you consider all the tax-relief/exemptions and allowances that the Government offer. Please remember, many of these will be lost if you don't act before the tax year ends, on 5th April 2014.


You can manage your finances in a more tax-efficient way through:


- Savings - using tax efficient ISAs;
- Pensions - carrying forward any unused allowances;
- Investments - using up capital gains tax (CGT) exemptions and income tax personal allowances;
- Estate planning - inheritance tax (IHT) allowances and exemptions.


Do get in touch with us.

TAKE ADVANTAGE OF THE VALUE IN YOUR PROPERTY

As more and more older people need to take advantage of the value in their residential properties to help supplement income or for home improvements, the Equity Release market is growing. With the increased competition there is more choice and better interest rates. If you are in a position where you may need to consider this, we will be pleased to assist in researching the options for you without cost or obligation. Just give us a ring on 01342 313302 or email us. Note: the minimum age for Equity Release is usually 55. In the case of a married couple, the younger of the two would have to be at least 55 years of age.

THE AUTUMN STATEMENT

If we focus on the changes taking place in April 2014, we have the following tax changes: 1. Personal Tax Allowance increased from £9,440 to £10,000 2. Basic Rate Tax Band down from £32,010 to £31,865 (meaning that with the first £10,000 earned being subject to nil tax, you will not start paying 40% tax on earnings until they exceed £41,865 – marginally better than last year’s £41,450). 3. Individual Savings Accounts (ISAs) go up to £11,880 (last year £11,520) with half of this(£5940) able to be put in a Cash-ISA. 4. The main rate of corporation tax will be cut from 23% to 21% from April 2014. 5. A £1000 business rates discount in 2014/15 will apply to retail properties including pubs,cafes, restaurants and charity shops; and a 50% business reoccupation relief for businesses that move into retail premises that have been empty for a year or more. There is no change in the Property Stamp Duty Tax (still nil on purchase prices up to £125,000, 1% up to £250,000, 3% up to £500,000, 4% up to £1 million, 5% up to £2 million and 7% for over £2 million). The threshold for Inheritance Tax also remains unchanged at £325,000. The Capital Gains Tax Exemption is another tax allowance that is not changed this year –remaining at £11,000. And for those with significant pension savings, there is actually a reduction in the amount of pension they are entitled to accumulate in their lifetime (Lifetime Allowance) from £1.5 million to £1.25 million. The future carrots being dangled include: 1. From April 2015 no employer’s National Insurance tax on employees under the age of 21. 2. From 2015/16 married couples who are not higher rate taxpayers being able to possibly benefit when one spouse is not earning enough to use up all of their Personal Tax Allowance. Effectively this will be worth up to about £200 a year less tax for the couple to pay. 3. The Capital Gains Tax Exemption is promised to go up to £11,100 from April 2015. And then there is the contentious issue of an 11% pay rise for Members of Parliament from April 2015!