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.

PENSION “FREEDOMS” – AND DANGERS!

As predicted 2015 was a Year of the Pension with many people taking the opportunity to access the money they had in their pensions.

The Government hastened to get out warnings about consequences of doing this unwisely. Not the least of these was that the person could run out of money in retirement! An important warning in this regard was issued by Department for Works and Pensions. They issued a factsheet confirming that if people “spend, transfer or give away any money taken from a pension pot” they could be considered to have “deliberately deprived themselves of that money” to secure or increase benefits. This could mean a person later on being ineligible for State benefits that he might otherwise have had. For further information on this, visit the Department for Works and Pensions website and search on “Pension flexibilities and DWP benefits.”

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.

AND EVEN MORE PRESSURE ON BUY-TO-LETS!

As a further blow to landlords, the Government has announced it will be phasing out higher rate tax relief on mortgage interest paid on residential investment properties.

A landlord is entitled to claim tax relief on the interest he pays on any mortgage he has on a Buy-To-Let property. Currently that tax relief will be at the Landlord’s highest marginal rate of tax. So if he is a 40% taxpayer, he can claim 40% tax relief on the mortgage interest he pays. From April 2017 over a four year period the Government is changing this so eventually any tax relief will be limited to the 20% level. Not only is this a disadvantage for those landlords paying higher rate tax, it is also starting to affect how lenders will do their affordability calculations. These calculations are based on the expected rental income from the investment property. The lenders are concerned that the change the Government has announced might make it more difficult for some landlords to meet their mortgage payments. Therefore some lenders are tweaking their affordability calculations with the result that they may lend somewhat less than before for a given level of rental income.

 

THE AUTUMN STATEMENT!

There were not a great many new announcements in the Chancellor’s December Statement.

Many of the changes that will take place in 2016 had already been announced earlier.
Perhaps the biggest surprise was the Government’s strategy to limit the number of properties being taken up by Landlords by announcing an increase in Stamp Duty on second properties and investment properties by 3% (!) from the 6th of April. In our view this will just fuel a four month property boom as landlords buy before the deadline!

To illustrate the effect of this extra 3% tax, we can look at the Stamp Duty on Buy-to-Lets before and after the 5th of April 2016. Our understanding of the application of the Stamp Duty from 6 April looks like this:

Buy-To-Let                        Buy-To-Let                         Buy-To Let

Purchase Price                   Stamp Duty Now                 Stamp Duty  from 6 April

£125,000                            nil                                        3% = £3,750

£200,000                            £1,500                                 5% = £7,500

£275,000                            £3,750                                 8% = £12,000  (average family home)

£510,000                            £15,500                               8% = £30,800

Note: This increase in Stamp Duty will not apply to purchases of caravans, mobile homes or houseboats.

PENSION AND PROPERTY IN 2016

With the start of 2016 Sovereign enters its 35th year of trading. It looks like the focus of the New

Year will be on pension changes and the property market with an immediate rush on “Buy Nows”,

both on investment properties and on maximising pension contributions – all before the 6th of April!

2015 survived an election here and slumps in the Chinese economy there with little growth in our

own economy but also virtually no inflation. The new “pension freedoms” saw many dipping into

their pension funds for a whole variety of reasons – some sensible and others rather exotic, as

people realised that it was their money and they could have it when they want it (once they reached

age 55) – subject to tax. Workplace pensions in 2015 were reaching the smaller companies with a bit

of scrambling around to get things in place. 2016 will see the real tsunami of the Workplace Pension

as micro-companies approach their Staging Dates (dates by which they have to have the required

company pension in place).

THE KEY TO MANAGING YOUR FINANCES

One of the fundamental principles for us all – whether a Government, a business, a family, or an individual – is that we need to have more money coming in than is going out. It is vital to have controls in place to know how much income has come in and also to know what is being spent. The author Charles Dickens’ communicated this very clearly when he had one of his characters explain that happiness is having at least one more penny coming in as income than is being spent, and that misery starts as soon as that extra penny appears on the other side of the ledger.