A SAFE HAVEN FOR CASH!

While there is a great deal of competition by banks and building societies for your cash deposits, a safe and secure option is the National Savings and Investments Bank (NS&I).

While deposits with other savings institutions are insured by the Government up to a maximum

of £85,000 for each individuals, NS&I is a Government institution and ALL money held in S&I is guaranteed by the Treasury. (Note: The £85,000 limit applies to each banking group so you would need to check if you have savings with two or more companies which might in the same banking group, e.g. the Lloyds Banking Group includes Lloyds Bank, the Halifax and the Bank of Scotland so the £85,000 limit would apply to the total sum you have in all three of those institutions.)”.

Here is a look at some of the NS&I products:

1. Premium Bonds set to return 1.40% free of tax. Maximum £50,000 per person.

2. Guaranteed Income Bonds paying 1.45% guaranteed for one year or 1.90% guaranteed for 3 years (taxable). Maximum £10,000 per person in each.

3. Income Bond paying 1.15% with a maximum of £1 million (taxable)

4. Direct ISA paying 0.90% free of tax.

It is worth looking at NS&I as an option for your cash savings.

OTHER OPTIONS FOR OLDER BORROWERS

The market is becoming generally more flexible in dealing with borrowers aged 60 and over.

Many lenders will automatically accept earnings from employment for up to age 70. Where the

borrowers have pension incomes or investment income, then mortgage terms up to 80, or even

age 85, are not out of the question. Give us a ring and we can make enquiries for you.

TAX-FREE SAVINGS ACCOUNTS

The ISA (Individual Savings Account) is the most commonly used tax-free savings plan. From the

6th of April 2017 the limit that one can put into ISAs in this tax year is £20,000. There are various ISA choices which one can use but the total in the year cannot exceed the £20,000.

YOUR ISA MENU

A. The “old fashioned” simple ISA – can be invested in cash or stocks and shares. Good for anyone.

B. Junior ISA – only for those under 18. Anyone can pay into it for the person concerned,  e.g. grandparents. The maximum annual contribution is £4,080.

C. Help to Buy ISA – Only of real use for someone looking to save specifically to buy their first property. Anyone over 16 can start one, but the bonus from the Government is only added when the person actually buys their first property. If monies are taken from the Help to Buy ISA for other than purchasing the person’s own first home, no Government bonus is added to the monies withdrawn. The maximum that can be saved in the Help to Buy ISA is £1200 initially and £200 per month thereafter up to a maximum of £12,000. The Government bonus added is 25% up to a maximum of £3000.

D. Innovative Finance ISA – High risk. You lend your money through websites regulated by the FCA (Financial Conduct Authority). These are known as peer-to-peer lending platforms or “crowd-lending”. The expected return is approximately double the rates offered by Cash ISA providers. For more information go to MoneySavingExpert.com – “Peer to Peer Lending”

E. The new Lifetime ISA (Lisa) launched 6 April 2017. This is only available for those aged 18 to 40. It is complicated but generally it would suit someone saving for buying their first property or as an alternative to a pension – particularly for someone who is self-employed. The maximum you can put in is £4,000 per annum. The Government will add a 25% bonus each year. The Lisa can be invested in cash, or stocks and shares. Note: The 25% Government bonus is added annually to what you put in, but monies cannot be withdrawn before age 60 unless it is being used for buying a first home. After age 60 it can be used for any purpose. Withdrawals for any purpose other than the home purchase before age 60 are subject to a 25% penalty. The Government will only add its annual 25% bonus for monies put into the Lisa up to age 50.

Note:

Lisa's are not yet broadly available as many providers consider them too complicated. Search the Internet if you want to know what choices there are.

RETIREMENT MENU

Cash please

Those who are 55 and older can now draw out all (!) of their pension fund as cash. So you can ask to have it all as cash (!)   BUT…

Tax! The downside is that with each pension only 25% of the fund can be taken tax-free.

Any amount that you take over and above this tax-free 25% will be taxed as if you had earned it in the Tax Year in which you draw it out. That amount is added to your other income and is taxed accordingly.
Example:
A person aged 55 is earning £20,000 per annum and paying about £1,800 in tax on those earnings. He has a pension fund worth £40,000 and he wants to take it all out. He would get the first £10,000 tax free. The remaining £30,000 would be added to his £20,000 other earnings and he would be taxed

as if he had earned £50,000. This would result in him paying £9,200 in tax instead of £1,800. So he would lose £7,400 of his £30,000 pension to the taxman. A person already earning enough to put him in the higher rate tax bracket (40% tax where the total income exceeds £43,000) could lose 40% of the money he takes out over and above the tax-free amount. In our example of a £40,000 pension fund, he would still get the £10,000 tax-free but lose £12,000 of the remaining £30,000 in tax). Therefore it is important to take tax into account when working out when to take money out of the pension.

(Note: this article refers to personal pensions only; the rules are different for a Final Salary Scheme where the benefit is based on the salary and years of service and some other special types of  pensions.)

Income Options

(Note: all these options assume that you take out the tax-free cash.)

Option 1: Leave the balance invested with the option to take out further funds in the future – either when your need is greater or when your tax position is more advantageous. This is called a Flexi-

Drawdown arrangement as it provides the flexibility for you to draw out whatever sums you want at any time you want them. But remember that once you have drawn out the tax-free element, any other monies you take out will be taxed. Such an arrangement also involves investing your pension fund so you would need to consider both the risk that comes with such investments as well as the provider’s charges for running the pension.

Option 2: Use the balance left over to set up a guaranteed income for life (an “annuity”). The amount of income received would depend on your age – the older you are, the more you would get. The amount of income you would get also depends on your state of health – the worse off you are health-wise, the greater the income you are likely to receive. You can set it up on just your life or so that it covers both you and your spouse/partner. The idea of guaranteed income is attractive but the current annuity rates are quite low so the amount of money you can obtain may be a bit disappointing.

Option 3: Take a short-term guaranteed income (a “temporary annuity”). This pays out a guaranteed level of income for a fixed number of years and then pays out a guaranteed sum on maturity – which can then be used again in Option 1 and 2 above or to repeat this Option 3 for a further term of years.

FINANCIAL BASICS

It is worth keeping a check on your Financial Basics:

• M ost important! – ensuring more money comes in than goes out

• Building up some cash reserves in case of an emergency (putting this cash into an ISA

   is a good plan for most)

• Life assurances kept at an adequate level (basic life assurance is inexpensive for most and

   we are happy to provide quotes)

• Build up some long range savings or investments, e.g. pension, property, stocks and

   shares (there are many options; feel free to discuss the options with us)

• Keep your credit in good shape by always making payments on time (setting up a Direct

   Debit helps ensure you do not forget)

• As you move into your 60s, look into taking out a Lasting Power of Attorney

• Make a Will

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.

TAX MATTERS – AFTER APRIL 2016!

1. The Personal Tax Allowance (what you can earn before you pay any tax) goes up from £10,600 to £11,000.

2. The Basic Rate Tax Band goes up from £31,785 to £32,000. This means that from the 6th of April, with the first £11,000 earned being subject to no tax, you will not start paying £40,000 tax on earnings until they exceed £43,000. This is marginally better than the previous year.

3. We understand that the annual ISA allowance will remain the same at £15,240. The new Help to Buy ISA will become available from the 6th of April. This is for First Time Buyers only. For full details search “Help To Buy ISA” at www.gov.uk.

4. From 6 April 2016 the Rent-A-Room relief rises from £4,250 per annum to £7,500. That is a very attractive tax-free source of income for those with spare rooms they can let.

5. If you have saved in a deposit account which is not an ISA, you will be familiar with the fact that the Bank or Building Society would automatically deduct 20% of the interest as tax (unless you were a non-taxpayer and filled out the appropriate form). This will change from next April. Deductions will no longer be made. And, in fact, there is a new Personal Savings Tax Allowance which will mean that for a basic rate taxpayer, the first £1000 he earns in savings interest will be tax-free. For higher-rate taxpayers this allowance reduces to £500 per annum.

PERSONAL SAVING ALLOWANCE

From April 2016 the Government is introducing a Personal Savings Allowance which will exempt

the first £1,000 of savings income from tax for basic rate taxpayers and the first £500 for higher

rate taxpayers. This is in addition to the other allowances. From that same date there will no

longer be the automatic deduction of 20% income tax by banks and building societies on non-ISA

savings. From April 2016 there is also a new £5,000 dividend allowance for those who receive

dividend income.

LOW RISK INVESTMENTS

Savings in cash are safe but they are also giving a very low return – 2% to 3% maximum.

This is tempting us to look for better returns. To cater for those with a low risk requirement investment providers are bringing out some investments with guarantees that protect your capital or protect the income.

The guarantees do come at a cost but it does mean that you can seek a better return without risking large parts of your savings. Do contact us if you would like more information on these options. 

THE NISA!

From the 1st of July 2014 all Individual Savings Accounts (ISA s) will become New ISA s

(NISA s).

It applies to all existing ISAs and to new accounts opened up after the 1st of July. The NISA has three major advantages over the previous ISAs:

First, it has a higher limit of £15,000 per tax year;

Second, the £15,000 can be made up of any combination of cash and stocks and shares, including investing it all as cash;

Third, the new ISA will allow for transfers from current Stocks and Shares ISAs into cash holdings and vice versa (up to now it was only possible for a Stocks and Shares ISA to transfer to cash; now it can go either way). Any payments already made in this Tax Year, i.e. from the 6th of April 2014, into an ISA will count towards the £15,000 total. If you have made payments so far this Tax Year into both a Cash ISA and a Stocks and Shares ISA, you can add to either or both of them as long as the total contribution made in the current tax year does not exceed the £15,000 limit. You can pay into only one Cash ISA and one Stocks and Shares ISA in this tax year, but you should speak to your ISA provider to establish what options they have available for existing ISAs.

Those aged between 16 and 18 can open up a Cash NISA and pay up to £15,000 into it. For those under 16 there is the Junior ISA which, from the 1st of July, will allow up to £4,000 to be paid into it each Tax Year.

Savings Changes

To help pensioners who have been suffering from very low interest rates on their savings, the Chancellor has announced that in January 2015 he will be introducing a new “Pensioner Bond” for those aged over 65.

It will pay much better rates of interest than currently available. At this time it is estimated that the Bond will pay 2.8% for one year deposits and 4.0% for three year deposits. Up to £10,000 can be invested in each bond. He is also raising the cap on Premium Bond holdings in June from their current level of £30,000 to £40,000 and offering an additional million pound prize.

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.

ARE YOUR SAVINGS SAFE?

Remember that your cash savings are protected by the Financial Services Compensation Account, but only up to £85,000 for each saver for each of his accounts with different financial institutions. The thing to be aware of is that some savings institutions are part of the same banking group, and your protection is limited to £85,000 for all of your accounts with that group. It is a good idea to check and make sure. And remember that accounts held jointly with a spouse are entitled to twice the £85,000 protection, i.e. £170,000.

Pension Alerts

The maximum allowance for pension savings is £50,000 in this current 2013/2014 tax year but it reduces to £40,000 in the following tax year. The Pension Lifetime Allowance is also reducing from 6 April 2014. Currently it is £1.5 million but will go down to £1.25 million. If you are one of the lucky ones to have this as a problem, do take advice as you may have some options to help you.

OTHER OPTIONS FOR INCOME IN RETIREMENT

While pensions are traditionally the way most people will provide for themselves in their later years, they are not the only option. Many people have greater faith in property and will build up a portfolio of residential investment properties producing a net rental income and the possibility of an increase in the property values. Mortgages for Buy-To-Lets have become very competitive and still can be done on an interest-only basis in order to maximise the income produced. Please contact us if you require any further information about Buy-To-Let mortgages. Other savings such as Individual Savings Accounts and stocks and shares generally can also provide an income in retirement. The return on cash investments is not very good currently but has been better in the past. The income from shares in the way of dividends can provide a very useful source of retirement income, for those who understand the risks and are willing to take them. Pretty much a last resort for income or a lump sum in retirement are Equity Release Plans. They are available from age 55 (note: for a couple the qualifying age is determined by the younger of the two). Interest rates and costs for these options have been going down, so they are worth reviewing if needed. We would be happy to provide quotes and clarify the options for you.

Savings/Investment Tips

1. Don’t put all your eggs in one basket. 2. Do your homework. 3. Don’t gamble with money you can’t afford to lose. 4. Don’t be greedy. Expecting very high returns can expose you to very high risks. 5. Invest for the Long-Term. 6. Include tax planning in working out your savings and investments.

Long Term Care Costs to be Capped

In the Queen’s Speech the Government announced their intention from 2016 to put a cap on the costs that people are expected to pay if they go into long-term care. This is expected to be £72,000. Anything over this is to be paid for by the state. Those people who have accumulated savings and bought their homes currently face the prospect of the whole value of the estate disappearing in care home fees. Under the new guidelines it looks we will have the opportunity to keep more of the value of our estates – for our own use or to pass down to our beneficiaries.

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.

Use your Cash ISA allowance

Cash savings will almost always do better in a Cash ISA. Generally the interest rates are better and, of course, you get the interest free of tax. Since you can arrange to have immediate access to the cash in an ISA, it makes virtually no sense not to have as much of your cash savings as possible in Cash ISAs. In this Tax Year (2012/13) each individual can put up to £5,640 into a Cash ISA. If you do not use this year’s ISA allowance, you lose it. It cannot be carried forward.