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.

Workplace Pensions

If you are an employer, or even a one-man limited company, you will need to find out when you have to implement the Compulsory Enrolment Workplace Pension, then give yourself 12 months to prepare for it. If you leave it until the last minute, it may be difficult to find someone available to assist you, as there are likely to be thousands or even tens of thousands of businesses looking for help and advice at the same time. This is not a matter to ignore, as there are significant penalties if you do not meet the timetable of requirements. Contact us on 01342 313302 or email us at info@sovereignfinance.org

Workplace Pensions – Important

The bad news is that all employers (even if you have only one employee) will be required to set up a Workplace Pension with the automatic enrolment of the their employees, and they will also be required to make payments into their employees' policies.

The good news is that if you have 40 employees or less, you will not be required to set up your Workplace Pension until some time in 2015. The Workplace Pension is being phased in over 6 years in stages with the largest employers who had to begin it in 2012.

For further information and to establish your exact “Staging Date”, go online to www.thepensionsregulator.gov.uk/automatic-employment

Tom Shuster
Partner

Changes you should know about

• There is a reduction in the amount a person can earn before he starts having to pay 40% tax. Taking into account the personal allowance, in this Tax Year (2012/2013) 40% tax kicks in above £42,475. In 2013/14 it will kick in at the lower level of £41,450.


• The maximum pension contribution annually will reduce from £50,000 to £40,000 but not until 2014/2015, so it will still be possible to contribute up to £50,000 in 2013/2014 (Note: there is no change to the rule that the maximum personal contribution an individual can make is limited to 100% of their taxable earnings; so, if their total taxable earnings are less than £50,000, this earnings level becomes their limit; however, there is also no change to the fact that a company can contribute up to £50,000 to an employee’s pension - even if that is more than his taxable income).

There are also a few promises the Chancellor has made for the future such as promising to raise the Inheritance Tax nil rate band in 2015/16 and also to make increases in the Capital Gains Tax Allowance, but I do not think we are being too cynical if we choose to ignore these until they actually happen! 2012 saw the Property Market pretty much flat, but the rental incomes generally increased as those who were unable to buy, had to rent. This has tempted landlords to buy more property. 2012 also saw the insurance market turned a bit on its head as a result of an EU Gender Directive – dictating to insurance companies that they had to give men and women equal insurance quotes – despite the over-riding statistical proof that young men have more automobile accidents than young women and that women generally live longer than men. 2013 also sees the FSA (Financial Services Authority) morph and divide itself into two new bodies – the FCA (Financial Conduct Authority) and the PRA (Prudential Regulatory Authority). We will have to wait and see whether this change will mean.

TIPS FOR THE MATURE AMONGST US!

If you are 65 or older, you can still get a mortgage. Most lenders have become very cautious about lending past the normal State retirement age, but there are still a number of smaller lenders who are willing to help and who can arrange borrowing even into a person’s 80s – where the pension or other guaranteed income can justify it, of course. We can assist you to find out what options would be available. Using the equity in your property may be a last resort but it is important to understand the options open to you. There are basically three approaches that are included under the term “Equity Release”.


– an Interest-Only Mortgage where you pay only the interest each month with no end date;

– a Life-Time Mortgage where the interest is added to the amount borrowed so no payment at all needs to be made;

– a Home Reversion Schemes whereby you give up ownership on part or all of the property in exchange for a lump sum and the right to live in the property indefinitely.


Equity Release options start to become available from age 55 onwards. Here, too, we can help you find out what is available for you to see if it helps you with what you want to achieve. Equity Release can, in some circumstances, provide a short-term solution to a financial problem. One of our clients who was selling his house to buy another decided to use Equity Release as a bridging loan.

PERSONAL TAX CHANGES

There were some useful improvements to individual tax benefits – although some of these were just future promises. The following were the immediate changes, which we felt were most significant for individuals:


• The increase in the Personal Allowance from 6 April 2013 to £9,440. This represents the amount an individual can earn before he starts paying any tax and is the largest ever such increase in one tax year. The current level is £8,105.

• The increase in the Individual Savings Account (ISA) from £10,680 per year to £11,280 from 6 April 2013. Half of this (£5,640) can be put into a Cash ISA.

• The reduction in the maximum rate of income tax from 50% to 45% from 6 April 2013 (for those earning in excess of £150,000).

• The increase in the Basic State Pension from £107.45 per week to £110.14 per week.

• Corporation Tax for smaller businesses does not change this year but it does remain very low at 20% and Corporation Tax for larger businesses will reduce from 24% to 23% in the new Tax Year.

There was also an announcement that will help many older people who have private Drawdown Pensions. The Government is reversing its previous position announced two years ago. This will allow individuals to draw a higher income from their Drawdown Pensions than before. This should mean that those with such pensions will be able to access approximately 20% more income than they can take currently. However, the Government has not yet announced a date from which this change is to apply so it is likely to take some months before we know when people will be able to take this higher income from their pension.

SUGGESTIONS FOR THE NEW YEAR

Review your mortgage interest rate. If you find that you are on the Standard Variable Rate with your lender (4.25% to 5.0%), contact us for quotes as you should be able to save 1% to 2% and that can mean quite a bit of savings each month. Lenders are having to compete more for business now and that means a better deal for the borrower. 3 and 5 year fixed rates are looking very competitive. As independent mortgage brokers we can help you find the best deal.


Review your pension. By survey almost half of the working population have never reviewed their pension plans, even though the majority of those contacted did say that they considered it important to know how their pension funds were invested. A failure to review your pension can leave you exposed to inappropriate investments and also prevent effective planning for your retirement income when you reach your 60s and 70s. It is also valuable to get a State Pension Forecast. We are available to help with this.

Get rid of any credit card debts that are hanging around. The temptation to pay just the minimum payment is intense and the credit card balances then do not go away. It is much better to organise a loan over a few years with fixed payments and pay off the credit cards. That is not to say that a credit card cannot be a useful tool, but you need to be disciplined and pay the full balance off each month.

If you are a 40% taxpayer. Do take the maximum advantage of your pension contributions to reduce how much you pay in tax.

Take advantage of your Individual Savings Account Allowance – Particularly the Cash ISA, so that you build up a cash cushion (and generally get a better rate of interest on your savings).

If you have an interest-only mortgage - Review it carefully to ensure that it will not become a problem when you reach the end of the mortgage term. It is wise to act early rather than ignore the problem until it is close upon you.

Review your insurances. If your circumstances have changed since you last took out life assurance, you may need more, or less, life assurance to meet your needs. One immediate benefit, however, is that the minimum technical requirement for those advising on investment, pensions and annuity has been increased. While examinations are not necessarily a true measure of understanding and ability, they can have value. Another change is that investment, pensions and annuity advice will now be charged for on a fee basis, rather than being paid by commission, as was generally the case before.

The intention is to bring the profession in line with other professions such as solicitors and accountants. We will need to see how the public responds to this major change. Advisers in 2013 will also be split into two groups –those who provide independent advice from across the market and those who provide advice restricted to certain parts of the market. Sovereign will continue to provide independent advice.

For speedy, impartial advice, contact us on 01342 313302.