KEEP CALM AND CARRY ON

Political uncertainties tend to shake confidence in a country. As the value of money and successful trade rely on confidence, this is non-optimum. While hoping that the current matters are resolved quickly, most of us will be limited as regards what we can do personally to affect the outcome. Personal financial basics, however, do not change even in such an environment. The first essential is to ensure that you have more money coming in than you are spending (taking into account ALL of your outgoings). A second one would be to ensure money is set aside as reserves for future disasters or emergencies. It does take a bit of organising to achieve this state which the famous author, Charles Dickens, had one of his characters (Mr Micawber) describe as a state of “Happiness” as compared to the state of “Misery” if one is overspending.

COUNTING THE COST OF CHRISTMAS

Those who are very forward thinking will have worked out their Christmas budget and earned the money well in advance. They then have no surprise credit card bills greeting them in the New Year. There are many, however who are not so well organised and credit card bills will be an unwelcome visitor in their households in January and February. Credit cards are a useful way to shop and pay and are valuable – providing that the balance is paid in full when it comes due. If you have had to use credit cards and do not have money to pay them off in full, we would advise that you take out a loan to pay them off. In this way you know they will eventually be paid off in full and end up costing you much less overall.

AUTUMN BUDGET

There was not much excitement in the Chancellor’s Autumn Budget but the removal of Stamp Duty for First Time Buyers on purchases of up to £300,000 (£500,000 in the London area) should help boost the property market. Many tax matters were not changed.

For example, the total that can be put in ISAs (Individual Savings Accounts) each year was not changed. There were some other tweaks in the Budget and here is a brief summary:

The Personal Tax Allowance is increasing from the 6th of April 2018 from £11,500 to £11,850. This

is the amount you can earn before you have to pay any tax. You will pay tax at 20% on earnings

you make above this £11,850 up to a further £34,500. This means that in the tax year 6 April

2018 to 5 April 2019 you would not start paying higher rate tax (40%) until your total earnings

exceeded £46,350 (£11,850 plus £33,500). Those with earnings in excess of £100,000 still face the

progressive loss of their Personal Tax Allowance and those earning over £150,000 will pay the

Additional Rate (45%) on any income they have in excess of £150,000.

Some additional changes were:

• Pension Lifetime Allowance increasing from £1,000,000 to £1,030,000;

• Capital Gains Tax Annual exemption increasing from £11,300 to £11,700;

• The Inheritance Tax nil-rate band will stay at £325,000 but the Residence Nil-Rate Band (the rather complicated allowance for those who, when they die, pass their private residence on to family members) was increased to £125,000. So a couple who die and pass the property they have lived in to their family would not have to pay any Inheritance Tax unless the value of their joint estate exceeded £900,000;

• Those receiving the State Pension will be pleased at the 3% increase in their pension payments. If they also have savings, the Bank Base Rate increase could mean that they also might receive a bit more income from their savings;

One useful allowance that has been continued is the Rent-A-Room scheme whereby you can rent out furnished rooms in the home you live in and make up to £7,500 free of tax. You can let as much of the house as you wish as long as you live there as your residence.

BANK OF MUM AND DAD!

At least one out of three first-time buyers are having to rely on assistance from their parents to buy their first property. In most cases this is help with money for the deposit, although in other cases the parents may act as guarantors.

THE BUDGET AND THE NEW TAX YEAR

The March Budget did not bring in any additional immediate changes to personal finances. Once

again the Chancellor has made promises for the future, but we will focus on what the tax position

is as from 6 April 2016. We will introduce the new LISA (Lifetime Individual Savings Accounts)

closer to her arrival time in 2017!

Beware - a Budget approaching !

The Budget the Chancellor will give on the 8th of July may have bad news for Higher Rate Taxpayers. There has been considerable discussion on whether he will limit tax relief on pensions to the Basic Rate (20%) tax relief. If you are a Higher Rate Taxpayer, you might want to consider making your pension contributions in this Tax Year sooner rather than later.

The December 2014 Autumn Statement:

If we focus on the changes taking place in April 2015, we have the following tax changes:

1. The Personal Tax Allowance is increased from £10,000 to £10,600.

2. The Basic Rate Tax Band is slightly down from £31,865 to £31,785. This means that from 6 April 2015, with the first £10,600 earned being subject to no tax, you will not start paying 40% tax on earnings until they exceed £42,385. This is marginally better than last year’s £41,986.

3. The Individual Savings Accounts (ISAs) annual limit goes up to £15,240 and all of this can be put into cash or into stocks and shares.

The Chancellor also announced a major change in the way Stamp Duty is charged on property purchase. Under the old rules the Stamp Duty was calculated at a single rate based on the band into which the purchase price fell. Now you will pay only the rate of the tax on the part of the property price within each tax band – like income tax.

The tax bands are as follows:

£125,000                                      nil

£125,001 to £250,000                  2%

£250,001 to £925,000                  5%

£925,001 to £1,500,000              10%

£1,500,001 and over                    12%

Examples of the new calculations for the tax versus the old calculation:

Purchase Price              Tax under                      Tax under

                                        old rules                         new rules

£125,000                           nil                                    nil

£275,000                           £8,250                            £3,750

average family home       

£510,000                           £20,400                          £15,500

average London home

This should give a boost to property purchases.

STRIVING TO MEET EXPECTATIONS

From our surveys we understand that what the majority of our clients value most from us is our advice on financial matters, utilising our extensive knowledge and long experience over the last 30 plus years.

Those who have used us before know they can rely on us time and time again to provide a high quality service. Some of the recent client comments we have received:

“I would have no hesitation in recommending you. Thank you for all the excellent service over the years.”         – Mr I B of Cambridgeshire     

“We have dealt with Sovereign Finance for over 10 years and we have always been impressed with their attitude, as well as their ability to deliver market leading deals for our mortgages.”

 – Mr & Mrs PJF of Tonbridge

“We have always found them (Sovereign Finance) to be very efficient and helpful.”
 – Mr & Mrs JBF or Worthing

PROTECTING YOUR CASH DEPOSITS

Most people are aware that cash deposits in UK banking institutions are protected up to £85,000 in each account (£170,000, if a joint account). This is through the Financial Services Compensation Scheme. In the event of a claim the FSCS is required to refund the monies lost within 7 days. What is not broadly known, however, is that the £85,000 level of protection is only available for each banking group.

For example the Lloyds Banking Group includes Lloyds Bank, the AA, the Bank of Scotland, Capital Bank, the Halifax, Birmingham Midshires, Intelligent Finance, Saga and St James Place Bank.

This means that if you have deposits in several of the above, you are only protected for one total

amount of £85,000. To find out more visit the FSCS website at www.fscs.org.uk.

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.

Attack the Plastic

One of the unhappy after-Christmas and New Year “surprises” is the arrival of the credit card bills for the Christmas spending. Of the various financial tools available, the one we find most misused and most destructive are the credit card and store cards. A credit card used properly can be a very useful way to make purchases on-line, or when you are abroad, or to take advantage of a special offer. If you then pay the credit card balance off in full, you will have had 4 to 6 weeks free credit and will have avoided the “honey trap”. If you do not pay it off in full, it is all too easy to fall into the habit of just paying minimum payments. Paying minimum payments of 2% or 3% of the balance is an invitation into NeverNeverLand, as it will not pay off the debt and you will end up having paid an enormous amount of interest, while the credit card balances remain unpaid. If you need credit and are not going to be able to pay it off in full, use a loan. They are structured to ensure that the amount owed does really get paid off.

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!

Start of 2014

With the start of 2014 Sovereign enters its 33rd year of trading. As always there were challenges to overcome in 2013 and more coming up in 2014. 2014 starts with an economy which looks to be on the road to recovery and with that cautious optimism comes an improving property market. The market will continue to benefit from the Government’s Help-to-Buy schemes as more first-time buyers and property movers now can buy with as little as a 5% deposit. In 2014 more employers will face having to move over to Compulsory Enrolment whereby they have to bring all of their staff into a company pension scheme and start paying something into the employee’s pension as well. While it represents a worthwhile effort to get people to start saving for retirement, it represents a large new administrative burden on employers. Those with 50 employees or less are not in the firing line until 2015/16. 2013 certainly had Great Britain fully on display with the Queen’s Diamond Jubilee, the Olympics and Para-Olympics, and a Brit winning the Wimbledon Men’s Finals for the first time in a very long time. 2014 may not be as full of spectacular presentations. There are the Winter Olympics in Russia and the World Cup in Brazil, but predictions of great results in either of these are a bit hard to find. 2014 will probably see politicians making many promises in advance of the next General Election in 2015. This was already visible in the Government’s Autumn Budget Statement. The Chancellor made a number of promises not due to start until April 2015 while the General Election is due to take place on 7 May 2015 and he might not be around afterwards!

Warning - plastic may damage your wealth!

As we move into the Christmas spending season, do remember that credit and store cards should be paid off in full each month. Otherwise the outstanding amount owed can hang around for many Christmases to come.

Taking with one hand

When it came to personal investments in his Autumn Statement on 5 December, Chancellor George Osborne gave with one hand and took away with the other. He extended the Isa allowance for the 2013/14 tax year to £11,520 – up from £11,280 in 2012/13 – and the government is consulting on whether to allow Aim shares to form part of an Isa. The Chancellor also raised the child trust fund and junior Isa limits – from £3,600 to £3,720 a year. Equally, he made a small extension to the capital gains tax allowance – from £11,000 in 2014/15 to £11,100 in 2015/16. However, pensions were subjected to a raid. The annual contribution limit was reduced from £50,000 to £40,000 for the 2014/15 tax year. This was mitigated to some extent by some changes in the carry forward rules, which mean that investors are now able to carry forward any unused allowance from the previous three years to the current tax year. Meanwhile the lifetime allowance is to be reduced from £1.5m to £1.25m from 2014/15. That said, the Chancellor was more generous with drawdown limits, which are to be increased from 100% of the value of an equivalent annuity to 120%. Some commentators suggested the basis for the calculation should move away from the 15-year gilt yield and, until this happens, income levels were likely to remain low and fluctuate over time. Osborne also made some changes to business tax rates, including extending the temporary doubling of the Small Business Rate Relief scheme until April 2014.

Budget 2011 - Tax

Chancellor George Osborne had already decided to raise the personal allowance to £7,475 from 6 April this year. He used this latest Budget to extend that allowance by another £630 to £8,105 from April 2012. He has also brought down the rate at which people start to pay higher rate tax from £43,875 to £42,475. As a legacy from the last Labour budget, the personal allowance will still be withdrawn completely at an income of £115,000. The Chancellor has also announced that, in future, tax allowances will be increased in line with the Consumer Prices Index rather than the Retail Price Index. Historically, the Retail Price Index has been higher, so this could have a long-term impact on the value of such increases for all taxpayers. The rules on inheritance tax and capital gains tax (CGT) remained largely unchanged. However, anyone leaving more than 10% of their estate to charity will see their inheritance tax bill fall by 10% while the amount qualifying for Entrepreneur’s Relief on CGT - where tax is charged at 10% rather than 18% or 28% - has doubled from £5m to £10m. There were some changes at the top end of the investment scale. Upfront tax relief on Enterprise Investment Schemes will rise from 20% to 30% while the amount that can be invested annually will rise from £500,000 to £1m. The Chancellor is also relaxing some of the rules around eligible companies for these and venture capital trusts to expand the potential for attracting this type of investment.