GETTING OLDER

It happens. It is a bit hard to avoid! A useful checklist for putting matters in order along the way could be as follows:

1. Get a Will made, if you have not already done so. Dying without a will leaves a problem for those left behind. If the will was made more than 5 or 10 years ago, review it.

2. Get a Lasting Power of Attorney done. Most people have had the experience with a family member or friend where they reached a point where they could not deal confidently with key decisions regarding their health or finances and would benefit from help from someone they can trust. The Lasting Power of Attorney (LPA) puts an arrangement in place so that the named person or persons can act on their behalf.

3. If you are single and your possessions, including your property, are worth in excess of £325,000, or if you are married and the value of your joint estate exceeds £650,000, find out how Inheritance Tax affects you and see if there are some simple actions you can take to minimise or avoid gifting Inland Revenue 40% of part of your estate.

PASSING PENSIONS DOWN THE GENERATIONS

Having sent that letter to nominate your beneficiaries, it is worth looking further at the range of options that may be available with the new Flexi-Access Drawdown Pension schemes (and older style pensions can be transferred to the new Flexi-Access pensions) which provide more choices of how you can choose to pass the money on when you die. The majority of older pensions will simply pay out a lump sum to the named beneficiary(s). This lump sum is tax-free if the person concerned is younger than 75 when he dies. If they are 75 or over when they pass away, the lump sum is taxed as if the beneficiary had earned it as income. This can result in a substantial tax charge.

If your pension is a new style Flexi-Access Drawdown, or if you transfer your existing pension to one, you can nominate anyone you want as a beneficiary, regardless of whether they are family or not. It is also possible to pass the pension, or part of it, to a beneficiary as a pension, as opposed to just a cash lump sum. Thus a person could pass his pension as a pension to a child or even grandchild and the child or grandchild would be able to access it immediately regardless of their age. And the pension benefit could be passed down the generations even further.

This opportunity won’t be of use to everyone, but it can have substantial income tax and inheritance
tax benefits so it is important to know what your options are. If you have a question on this, please
contact your pension provider or contact us.

REMINDER – TAX BANDS IN THE NEW TAX YEAR (2019/20)!

Here are the new Income Tax bands that come into force from the 6th of April:

• Personal Tax Allowance - £12,500

This is the amount that an individual can earn before he pays any tax at all.

• Basic Rate Taxpayer (20%) - £37,500

This is the amount of earnings over the £12,500 that an individual would pay 20% tax on. So you would have to earn in excess of £50,000 before you started paying higher rate tax.

• Higher Rate Taxpayer (40%)

This is the amount over and above the Personal Tax Allowance and the Basic Rate. 40% tax would be charged on earnings from £50,000 to £150,000.

• Above that is the Additional Rate of Tax, i.e. 45%. So earnings over £150,000 would be charged at 45%.

Other tax matters to note are as follows:

Capital Gains Tax Exemption - £12,000

Inheritance Tax Nil-rate Band - £325,000

(unchanged from last year)

Rent-a-room relief - £7,500 per annum

(unchanged from last year)

Pension Lifetime Allowance - £1,055,000

Annual Pension Allowance - £40,000

(subject to earnings)

GETTING OLD

It happens. A useful checklist for putting matters in order when dealing with someone who is getting old (even yourself!) could be as follows:

1. Get a Will made. Dying without a Will leaves a problem for those left behind.

2. Get a Lasting Power of Attorney made. Most people have had the experience with a family member or friend where they reached a point where the friend or family member could no longer deal confidently with key decisions regarding their health or finances and would benefit from help from someone they can trust. The Lasting Power of Attorney (LPA) puts an arrangement in place so that the named person or persons can act on behalf of their friend or family member.

3. Make a plan regarding any Inheritance Tax that might have to be paid when you die. For those who

add up the value of their estate including property value and find it is less than £325,000, a simple note showing what you added up – the items and their values, would probably be enough of a plan.

THE AUTUMN STATEMENT!

There was not much announced in the Chancellor’s October statement that was new, but it is

worth taking note of the key tax changes from the 6th of April 2019.

Personal Tax And Benefits Changing From 6 April 2019

• The Personal Allowance (the amount that you can earn before you have to start paying any tax)increases from £11,500 to £12,500.

• The amount you can earn over and above this Personal Allowance and pay only 20% tax increases

to £37,500. This means that in the new Tax Year you will only pay 40% tax on earnings you make in

excess of £50,000 per annum.

• Earnings you have in the new Tax Year above £150,000 will be subject to 45% tax, the “Additional Tax Rate”. (Note: if you earn £100,000 or more, your entitlement to the £12,500 Personal Allowance will be lost progressively until it is gone completely for those earning £122,000 or more.)

• The Individual Savings Account (ISA) contribution limit will remain the same at £20,000. This includes the total of all payments in the year to any ISA.

• The Capital Gains Tax allowance increases from £11,700 to £12,000.

• The Inheritance Tax Allowance nil-rate band remains the same at £325,000. For those married or in a civil-partnership each can claim this allowance, so effectively, their joint estate would have to be worth more than £650,000 before Inheritance Tax would have to be paid. However, for those with residential property that they are leaving to direct descendants there is also the additional “Residence Nil-Rate Band” which increases in the new Tax Year from £125,000 to £150,000. This is a rather complicated calculation and you should take tax advice regarding it. The Inheritance Tax rate remains at 40%.

• The Pension Lifetime Allowance will increase from £1,030,000 to £1,055,000.

• We understand that the Rent-A-Room relief will continue at the level of £7,500 per annum so those
renting up to two rooms in their own home can earn up to this amount without a tax liability.

NEW TAX ALLOWANCES

Here are the new tax allowances effective from 6 April 2018:

• Personal Tax Allowance (the amount you can earn before paying any tax at all) goes up to £11,850 per year;

• Basic Rate Tax Band goes up to £34,500 per year (so a person would have to earn in excess of £11,850 plus £34,500, i.e. £46,350, before they would start having to pay 40% tax);

• Capital Gains Tax (the amount of profit you can make on a transaction such as sale of shares before you have to pay tax) goes up to £11,700;

• Inheritance Tax nil-rate band (the amount that an estate has to be valued at before an Inheritance Tax/Death Duty has to be paid) stays at £325,000 but the extra allowance, which can be achieved by leaving the main residence to direct descendants, goes up to £125,000;

• The ISA (Individual Savings Account) limit remains at £20,000;

• Rent-a-Room Scheme tax allowance remains at £7,500 per annum (this is from the letting out of furnished accommodation in your home).

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.

WELCOME TO THE NEW TAX YEAR!

TAX NOTES FOR 2017/18 from the Budget

Personal Allowance £11,500 (reduced for those with incomes over £100,000)

20% Rate Tax Band £33,500 (adding in the Personal Allowance of £11,500 means that your income would need to be in excess of £45,000 before the 40% tax rate would start to be charged)

Annual ISA Allowance £20,000 (up from £15,400 last year)

Lifetime Pension Allowance £1 million

Inheritance Tax Nil Rate Band £325,000 (same as last year)

Annual Pension Allowance £40,000 (reduced for those with incomes over £100,000)

Rent-A-Room Allowance £7,000 per annum tax free (same as last year)

National Living Wage £7.50 per hour (up from £7.20 per hour last year)

INHERITANCE TAX CHANGES

Announced last year, from April 2017 there will be additional Inheritance Tax relief for those passing

residential property down to their children. This will be in addition to the £325,000 Inheritance

Tax relief for each individual. This will be an extra £100,000 in 2017/18 and will increase over the

coming years until it reaches £175,000 in 2020/21. While this is good news for many, the details

are rather complex so it is worth some study. It is called the Residence Nil Rate Band (RNRB). Go to

www.gov.uk/guidance/inheritance-tax-residence-nil-rate-band for more information.

LIFE ASSURANCE AND PUTTING THINGS IN ORDER

Unfortunately we do not live forever. To avoid leaving behind a confusion that family or friends have to sort out, there are some basic actions that should be taken:

1. Write to any company that you have a pension with and notify them of who you want the money to go to on your death. This is in addition to having a will. By letting the pension company have written notification, that money can be made available to the beneficiary(s) immediately. It does not have to wait for Grant of Probate, i.e. when your whole estate is valued up and your will reviewed. Such a notification would keep the pension funds from being included in your estate and possibly being subject to Inheritance Tax when you die.

2. Make sure you have an up-to-date will. These are not expensive.

3. In the event of illness or something else happening that affects your mental capacity – either for a short time or a long time – it is a good idea to look into doing a Lasting Power of Attorney. This is a written document that appoints someone to make decisions about your affairs in case you are not capable of doing so. There are two parts to this – one to deal with health issues and the other to deal with property and finance. In setting up a Lasting Power of Attorney you can do one or both parts. This is not inexpensive, but what it might save you in the long run might well be far more than the cost of getting one of these done.


4. Review your life assurance needs. If you have people who depend on you financially – whether a spouse, or children or business associates – having adequate life assurance is a good idea. Basic life assurance is generally inexpensive. We can provide quotes very quickly. Just give us a ring.

TAX NOTES for 2016/17

Personal Allowance      £11,000 (reduced for those with incomes over £100,000)

20% Rate Tax Band     £32,000 (adding in the personal allowance of £11,000 means

                                            that your income would need to be in excess of £43,000

                                            before the 40% rate starts to be charged)
Dividend Income Nil

Rate Band                   £5,000

Personal Savings

Allowance                   £1,000 (basic rate taxpayer), £500 (higher rate taxpayer)

ISA Allowance             £15,240 (same as last year)

Lifetime Pension

Allowance                   £1 million

Inheritance Tax Nil

Rate Band                   £325,000 (same as last year)

Annual Pension

Allowance                   £40,000 (reduced for those with income in excess of £150,000)

Rent-A-Room

Allowance                   £7,000 per annum - tax free (up from £4,250 last year)

State Pension              New Single Tier State Pension comes into effect

THE COST OF DYING – INHERITANCE TAX

The concept that a Government should be able to tax people when they die goes back many centuries as even Julius Caesar had a form of death tax.

However, it really surfaced in the UK in 1796 when “death taxes” were used to finance the war against Napoleon Bonaparte. We have been subject to one form or another of a tax on death since then.

Currently those who die and leave an estate are taxed at 40% on the value of the estate, i.e. the total value of all that a person owns, in excess of £325,000. If they leave their estate to a spouse or civil partner, there is no tax chargeable at that point. When the surviving spouse or civil partner dies, their £325,000 allowance can be added to their partner’s unused £325,000 Inheritance Tax Allowance. Thus tax is only then due on the amount of the estate in excess of £650,000.

The headlines from the July Budget was that the Chancellor would be protecting a family’s estate for up to £1,000,000. While that is good long range news, the facts are as follows:

• The current allowance (nil-rate band) of £325,000 is being frozen at £325,000 for the next two years.

• The increased allowance will only be phased in from April 2017 starting with an extra £100,000. That means it will not be until 2021 when the headline promised £1,000,000 provision would become available.

• The extra allowance will only be available to use in relation to residential property being passed on to children and their direct descendants.

UNLIMITED ACCESS TO YOUR PENSION FUND

Assuming the rules receive final approval, from the 6th of April 2015 those aged 55+ will be able to take unlimited amounts of cash from their pension. The first 25% will usually be tax-free and the rest will be taxed as income. It will be added to any other taxable income received during the tax year (e.g. your salary) and subject to tax at your highest rate. This new pension option is being call a “flexi-access drawdown”.

Note: Those with Final Salary Pensions (i.e. those based on the number of years you have worked and your salary when you retire) will not have the same unlimited access based on the proposed rules – unless they transfer their pension to a Money Purchase Scheme, i.e. one with a cash value.

Pitfalls to avoid:

1. Taking out too much, too quickly.

If you take it all out, you will have nothing to fall back on and you could pay high levels of tax. You can keep the tax low by taking amounts out annually at a level which keeps you from paying a higher rate of tax.

2. Once you start taking it out, you will severely limit how much you can then put into an existing or future pension.

Instead of  being able to contribute up to £40,000 a year into a pension, you will be limited to only

£10,000 a year. However, careful handling can enable you to gain some access to your pension fund while also being able to contribute up to the maximum of £40,000.

CHANGES IN THE LAW ABOUT WILLS

The new Inheritance and Trustees Powers Act 2014 takes a number of sensible steps to modernise the way someone’s estate is treated on death when there is no will. This includes the requirement of the court to consider not just spouses, but ex-spouses and co-habitants of the deceased, people who have been treated as ‘children of the family’ and people who were wholly or partly financially dependent on the deceased. While this does bring the legislation more in line with modern life, it is still best to have a will. It is only with a will that you can be sure that your intentions are carried out as to who you want to have what. The lack of a will almost always leads to disputes which are both unpleasant and can be costly.

Tax Facts!

Some key tax facts to remember for 2014/15:

Personal Tax Allowance: £10,000

Higher Rate Tax Band: starts at £41,865

Capital Gains Tax Annual Exemption: £11,000

Inheritance Tax Nil Rate Band: £325,000

Maximum Pension Lifetime Allowance:
£1.25 million
Residential Property Stamp Duty: the same as last year.

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.

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!

Capital Gains Tax

The Capital Gains Tax allowance has gone up slightly – from £10,600 to £10,900.


The Inheritance Tax Threshold remains at £325,000. The Cash ISA (Individual

Savings Account) annual maximum has increased from £5,640 to £5,760. A

Stocks and Shares ISA in 2014 can have £5,760 put in it as well, so the total

ISA allowance is £11,520. The Stamp Duty Tax on property purchase remains

the same as last year with those purchasing a property for over £2,000,000 suffering

an eye-watering 7% tax (£140,000 on a £2,000,001 purchase).

The end of the Tax Year

We are approaching the end of the Tax Year and it is a good time to ensure we are all taking advantage of all of the tax allowances available, including the Personal Tax Allowance, the ISA (Individual Savings Account) allowance, the Capital Gains Tax allowance, etc.


Use your Capital Gains Tax Allowance if you have investments that have gone up in value. You can realise tax-free profits of up to £10,600. As with your ISA allowance, you cannot carry this forward. Use it or lose it!

Maximise your pension contributions where possible. In the current Tax Year you can put a maximum of £50,000 into your pension, and even more if you have not used up your pension payment allowance in the preceding three years. In the new Tax Year this maximum reduces to £40,000. We would be pleased to assist.

Review all of your cash deposit accounts

We are approaching the end of the Tax Year and it is a good time to ensure we are all taking advantage of all of the tax allowances available, including the Personal Tax Allowance, the ISA (Individual Savings Account) allowance, the Capital Gains Tax allowance, etc.


Review all of your cash deposit accounts. Find out what interest rate you are receiving. You may be shocked to find interest rates of 0.10% for monies held in a savings account with the glorified name of “Gold” or “Platinum” savings account. Look for better rates.