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When loyalty costs

When loyalty costs

A super complaint launched by the Citizens Advice Bureau has found that loyalty costs UK consumers an additional £877 per annum; when compared to what new customers would pay for the same services. Their research found that five broad areas were affected by hiked renewal costs:

  • Mortgages;
  • Cash ISAs;
  • Insurances – income, sickness and protection insurances but particularly household insurance;
  • Broadband contracts;
  • Mobile phone contracts.

When loyalty costs mortgagees

A survey in late July by This is Money found that in some cases a building society was charging long-standing mortgage customers £4,020 more per year than new customers that signed up for the building society’s cheapest two-year fixed mortgage. Another building society brand was close behind charging an extra £3,156 to existing customers. Even the bank charging existing customers the least difference between charges for new customers had added an additional £1,788 in mortgage costs for loyal customers.

Many mortgage customers are getting caught-out by taking up good fixed-rate deals when they are new to a lender; only to find that standard variable rates – which are due at the end of the fixed-rate term, are much higher.

In fact; the gap between lenders best fixed-rate deals and standard variable rate has quadrupled in the past six years.

Typically banks and building societies offer fixed-rates from between two to five years. The same study found that the bigger the deposit in the first place 20%, 35% the greater the leap in cost from fixed-rates to variable rates.

We would recommend speaking to a mortgage specialist financial advisor about mortgage rates, especially if a mortgage has reached the end of its fixed-rate term.

Read our tips on how to prepare to meet an IFA.

However as regards mortgages, understanding any penalties eg early redemption fees, the mortgage terms and current property value are worth checking before booking a consultation with a mortgage specialist.

When loyalty costs cash ISA customers

Money Saving Expert found in June that banks offering loyalty reward Cash ISAs, were offering loyal customers dismal interest rates when compared to new customers. One bank was offering existing customers between 0.7% to 1.0% interest rates on a Cash ISA whereas, a competitor’s best buy instant Cash ISA was offering 1.3% interest rates to new customers.

Of course; the other benefit of ISAs is that investors do not pay tax on savings interest; or savers pay reduced tax on interest rates on investments including Capital Gains tax.

Cash ISAs are not the only Investment Savings Accounts that can be held. Investors can also save in Stocks and Shares ISAs which; provide investors with a way to invest individual company shares and money in a tax efficient way. Also; unit trusts, investment trusts, open-ended investment companies (Oeics), government bonds and corporate bonds. Can be included within these Stocks and Shares ISAs.

We would recommend speaking to an investment specialist IFA about savings and investments. Sharing financial goals with an IFA will help the investment specialist to tailor advice to help achieve a client’s financial objectives. Read our guide on how to prepare to meet an IFA here.

When loyalty costs insurances customers

Though the main findings of the super complaint launched by the Citizens Advice Bureau were against hiked home insurance prices, protection insurances also do not favour loyal customers. Many customers that purchase life insurance along with their mortgage may be paying more for their life insurance (level term life insurance) than they would if they had bought insurance from a different provider.

One such customer cancelled their existing policy, buying it again as a new customer from the same provider. In so doing they reduced their premiums to £9.00pm from £23.00pm; making an overall policy cost saving of more than £2,000.

If medical conditions have changed (for the better) after taking out protection insurances – income, sickness or medical insurances, some quite significant cost savings could be made. See our article on quitting smoking.

Again; we would advise that all life and protection insurances are reviewed regularly with an insurance specialist IFA. Preparing plan details including terms and premium costs will help the IFA to quickly see if the protection is right for the client and if any savings can be made.

Please call our team of Chichester-based IFAs on 01243 532 635 to arrange a consultation.

To discuss pensions, retirement and investment plans (including ISAs) with us please ask to speak to Richard Smith.

To discuss Life, serious illness, equity release (to provide for retirement income) and income protection insurances please ask to speak to Hamish Gairns.

To discuss mortgages and mortgage insurances please ask to speak to James Mayne.

How to prepare to meet an IFA

How to prepare to meet an IFA
Before preparing to meet an IFA, it is a good idea to take stock of finances. The more detailed the budget or finance plan is, the better able the IFA will be to give specific advice. Using a spreadsheet to list income, and costs or outgoings in one place; can help individuals to see how much disposable income they have. When drawing up a finance plan it is important not to forget finance and insurance costs.
Useful information to include in a finance plan about loans, credit card debt and mortgages is detailed below:

  • The loan or mortgage term – when the loan or mortgage ends
  • Any penalties for paying off the loan or mortgage early
  • The loan or mortgage monthly payments
  • The loan or mortgage interest rate
  • What the outstanding loan or mortgage amount is (include a date)
  • Any existing credit card debt (include a date)
  • And – if you are planning around a mortgage – what the approximate value of the property is.

Judging property value can be tricky. A local estate agent should be able to provide a market valuation, or if a more general figure is sought comparing prices online via a property listing site such as Rightmove or Zoopla may be sufficient.
Life assurance, savings, investments and pension valuations including death benefits should all be listed as assets. Though if an amount is paid monthly for a pension, investment, ISA or for insurance; it should be listed above as an outgoing.
As with loans or mortgages for any investments, ISAs, insurances (including any life, critical illness, income protection and buildings and contents insurance) and/or pension; You should include:

  • Term – when payment/final sum value is due
  • Current valuation (include a date)
  • Value to a spouse (if different to value to investment holder)

all monthly premiums/contributions should all be detailed.

All the above information is very useful to have prior to meeting with an IFA or when seeking a consultation with an IFA for the first time. It helps the advisor to properly assess and fully understand the current situation of the person, or people seeking advice. Knowing more about goals, aspirations and future objectives also allows the IFA to give you more ‘holistic’ advice, that is in keeping with lifestyle choices. The IFA’s approach when making their recommendations will be influenced by the individual’s thinking about what they want from their current or next life stage.
For targeted and tailor-made specialist advice we would recommend that people specify as best they can what they actually need.

When looking to maximise disposable income many people can cost save; even though changing the cost of living or increasing earnings may not be possible.

Cost saving tips
Many people regularly save hundreds of pounds per year on utility bills, household and car insurance, media streaming and television viewing deals, internet and mobile phone network and device costs; by checking the price to renew contracts with an existing supplier. A lot of businesses want to attract new customers. This means that though the first-year deal may be good value, often by year two or three the costs are higher than they would be with another provider. It might be worth diarizing anniversaries for the range of services as listed above. Companies such as Which? and uSwitch can help with reminders about service costs and renewals.

Although most advisors cannot give guidance on utility bills and TV deals they may be able to help with reducing monthly costs for protection assurances such as life, critical illness and income protection policies. Cash ISAs often attract an initial fixed interest rate and then after a pre-set term fall back on the providers’ variable rate, which can be quite low.
As well as reviewing household bills we would recommend reviewing: Cash ISAs, and protection assurances including life, critical illness and income protection policies.

The cost of living and earnings – what to expect
Despite enjoying economic growth and record-high employment figures, earnings in the UK are only just beginning to increase since 2008. In fact, in the three months to April earnings fell slightly by 0.1%, but they are just starting to recover.
According to the Office for National Statistics (ONS) average weekly earnings have increased throughout the second quarter of 2018 by 0.4%; when compared to the same period in 2017.
Mortgages and rent absorb the majority of debt for households. Currently the Bank of England has been able to maintain low interest rates, which means that predictions for the rising cost of servicing debts remain low. However; the finance media is speculating that interest rates may rise in August from 0.5% to 0.75% which will put more pressure on mortgage and rent payers alike.
But it is not all bad news; London used to top the bill as one of the most expensive cities to live in globally, but recent changes to the value of the dollar and pound have seen Paris, Zurich and Oslo topple London from a top 10 position. New York has fallen to 13th place on the ‘most expensive cities to live in’ list.

Though the UK economy is stable; the financial needs of the individual change depending on the life stage that they are in. A change to a life stage is very often what motivates someone to seek independent financial advice.

Please call our team of Chichester-based IFAs on 01243 532 635 to arrange a consultation.

To discuss pensions, retirement and investment plans (including ISA’s) with us please ask to speak to Richard Smith.

To discuss Life, serious illness, equity release (to provide for retirement income) and income protection insurances please ask to speak to Hamish Gairns.

To discuss mortgages and insurances please ask to speak to James Mayne.

Falling income; budget and savings planner

Falling income
Here in the UK though we have enjoyed strong economic growth and low unemployment figures, earnings are still low. In fact inflation-adjusted average earnings are 4% lower than they were before the financial crisis in 2008.

This is despite the introduction of a national minimum wage in 1999. Currently the National Living Wage (NLW) for 25 year olds and above is £7.50 per hour. The government plans to raise the NLW to £9.00 per hour by 2020. This is a measure to help the lowest paid. Recent finance news has highlighted the growing gap between rich and poor; and how globalisation has exacerbated this situation. By 2020 it is projected that around 3m people will be paid at a higher rate because of the NLW. It is also expected that the NLW will make up 60% of median earnings by then. When the minimum wage was introduced in 1999 it made up 45% of median earnings. But, though the NLW is generally thought to increase productivity, it does not necessarily close the wealth gap.

And a net result of increasing wages bills for business owners; particularly small and medium size businesses, is that they make less hires. This also pushes companies towards automisation, and outsourcing to save UK labour costs.

The rising cost of living
Throw into our stretched income melting pot the rising cost of living: fuel and groceries growing prices pushed inflation to 2.3% in April of this year; the highest rate for more than three years. And it’s not just icebergs that have got pricier (67.2% more costly from Jan-Feb) it’s also business equipment such as laptops. Computers increased in price by 2.3%, from Jan-Feb, having been 5.1% cheaper throughout 2016. It is fair to say that both households and businesses are feeling the pinch.

How to reduce costs
There are economies to be made with some living costs such as: mobile phones, computers, internet, streaming media, landline phones and also utilities. Some reputable providers of ‘better deal’ information and services include: Which? YouSwitch and (part of the Curry’s retail chain) KnowHow. All of this can help to save domestic and company overhead costs.

Why a savings pot is handy
In March of this year the Office for National Statistics (ONS) warned that the household savings ratio had fallen to a record low since records began in 1963; at below 4%.
Perhaps, this is not surprising given falling wages and the rising cost of living but; having money put by in case of essential repairs (your boiler, your car) is a good idea. The recommended amount to have in your savings pot is enough to cover three months’ living costs, which would include a mortgage (if you have one) and any other regular financial out goings. So, the start for calculating how much you need in a savings pot is a finance plan.

How to do a finance plan
Simply put, a finance plan is a table where in the first column (A) you list income, and in the second column (B) you list costs or out goings. It is hoped that when you take B from A there is money leftover. This ‘spare’ income can be saved and invested. When drawing up a finance plan do not forget finance and insurance costs, if you do have loans including a mortgage or mortgages it is useful to detail:

  • When the loan ends
  • What the monthly payments are
  • What the interest rate is
  • Whether there are any penalties for early redemption
  • And – if you are planning around a mortgage – what the approximate value of the property is.

If you are unsure of a property value a check of (the post code + similar property type) on a property sales site such as Right Move or Zoopla; should give you a well-educated guesstimate of the value.
All of this information is very useful to have prior to meeting with your IFA, or if you are considering seeing an IFA for the first time.

Where to invest savings
When you are ready we would advise you to talk to a local independent financial advisor (IFA). Finance advisors have expertise in savings schemes including;

  • Stocks and shares ISAs
  • Cash ISAs
  • Lifetime ISAs

Also if you own your own home, or have more than one property your IFA can advise you on mortgages, re-mortgages and lifetime mortgages which can free up house wealth. If you draw a pension and this is your income; IFAs can advise you on retirement income, and living inheritance planning also.

In our fast-changing economy it helps to talk to an expert.

Contact Marchwood IFA to arrange a consultation with a financial services expert: 01243 532 635.

All work and no play; how work has changed for 30 year olds

All work and no play; how work has changed for 30 year olds.

There has been a lot of talk in the finance media about young working people and how hard up they are. Especially when compared to older employees that is those born in, or before, the 1970s. Now, if you got up on a school morning (aged 12) to do a paper round, or left school at 14 to start an apprenticeship you may think that this is complete poppycock. But here are the numbers which; do shed some sensible light on the whole debate.

Is it harder to earn if you are 15-30 years’ old?

According to the Institute of Fiscal Studies those born in the 1980’s are the first post-war group to experience lower incomes than those born in preceding decades. In addition this group has lived through four global recessions 1990-93, 1998, 2001-2002 and 2008.

Furthermore what is typical of the global recessions is that they have all impacted house prices, and therefore homeownership, in the developed world. Their second impact has been on global markets, particularly commodities markets meaning that the return on work, state and private pension savings have suffered. Those born in the early 1980’s have an average individual wealth of £27,000; whereas those born ten years earlier have on average, almost twice the individual wealth at £53,000. The third impact of the global recessions has been a stagnation of working-age incomes; where pay and employment of young adults has been the first business cost to be reduced. The Association of Graduate Recruiters (AGR) recently surveyed 200 top UK graduate employers who have reduced graduate vacancies by 8% September 2016, as compared to September 2015.

Around 20% of the UK’s 65.2 million population is aged 15-29 years’ old, making them today’s young employees. They are better educated, healthier and richer than their predecessors. However, education, beyond state primary and secondary school, has become so expensive that most post-graduates are left with debts of £30,000 or more. It is not surprising that a reliance on the ‘bank of mum and dad’ (finance advisors call this: Living Inheritance Planning) has evolved in the UK. And the ‘bank of mum and dad’ is set to become entrenched when we factor rising house prices into the search for higher incomes.

In the knowledge economy it pays to work in the city. Over 50% of the world’s people live in cities and by 2050 the UN predict that that figure will rise to 66%. In London, where house prices are the highest globally, 25% of the population are aged 25-34 years’ old, whereas across the rest of England they account for 12% of the population. Gathering in cities is not just about chasing high incomes; young well-educated people are bound to want to mix with other like-minded young singles. Though many singles delay starting a family, instead taking further study whilst in their 20s and 30s, so as to enhance their career prospects.

We would advise our ‘bright young thing’ readers to consult their Independent Financial Advisor (IFA) about finance planning, particularly in light of lower returns on pension savings investments and rising house prices.

For ‘bank of mum and dad’ or ‘bank of grandma and grandad’ readers we would advise that you consult your IFA about finance planning. You might like to consider asking about Living Inheritance Planning, equity release and Individual Savings Accounts (ISAs).

Contact MarchwoodIFA for friendly expert advice on pensions, mortgages, equity release, Living Inheritance Planning and ISAs.

Autumn Statement 2015

1) U-turn on tax credits
There will be no further cuts to tax credits.
The disregard will be £2,500. This will mean that any reduction in income in a year of less than £2,500 will have no impact on a tax credit award. In addition, no further changes will be made to the universal credit taper, or to the work allowances beyond those that passed through parliament already.
The minimum income floor in universal credit will increase with the national living wage.
Despite the freeze, Mr Osborne said government will still achieve the promised £12bn per year of welfare savings, unveiling a raft of civil service cuts.

2) Further crackdown on tax evasion and changes for VCTs and CGT
New penalties will be introduced for the General Anti-Abuse Rule, action will be taken on disguised remuneration schemes and stamp duty avoidance.
Mr Osborne said he would also stop abuse of the intangible fixed assets regime and capital allowances.
Energy generation will now be excluded from the venture capital schemes, in a move Mr Osborne said was “to ensure that they remain well targeted at higher risk companies”.
Once digital tax accounts are in place in 2016, he said capital gains tax will have to be paid within 30 days of completion of any disposal of residential property.

3) Auto-enrolment changes and increases to state pension
The next two phases of contribution rate increases for auto-enrolment schemes will be aligned with the tax years.
Mr Osborne said he will increase the state pension age with life expectancy in order to maintain a triple lock on the value of the state pension.
Next year the basic state pension will increase by £3.35 to £119.30 a week. The full rate for the new state pension is set at £155.65.
The savings credit will be frozen at its current level where income is unchanged.

4) The Chancellor wants to build as well as balance the books
The housing budget is doubled to more than £2bn a year and 400,000 more affordable new homes are set to be built by the end of the decade.
Mr Osborne said: “That’s the biggest house building programme by any government since the 1970s.”
Almost half of the building will be starter homes, sold at 20 per cent off market value to young first-time buyers. A total of 135,000 will be Help to Buy: Shared Ownership.
Right to Buy will be extended to housing association tenants and from midnight tonight, tenants of five housing associations will be able to start the process of buying their own home.
The planning system is set for reform and public land suitable for 160,000 homes will be released along with unused commercial land re-designated for starter homes.
The government will also launch London Help to Buy, which will see Londoners with a 5 per cent deposit able to get an interest-free loan worth up to 40 per cent of the value of a newly-built home.

5) Bad news for buy-to-let and property investors
To tackle cash purchases that were not hit by the Summer Budget changes to mortgage interest relief, new rates of stamp duty will be introduced at 3 per cent higher on the purchase of additional properties like buy-to-lets and second homes.
This rate will be introduced in April next year and government will consult on the details so that corporate property development isn’t affected.

Inheritance Tax (IHT) bills are rising. What can you do about yours?

What is the average IHT bill?

Latest HMRC data shows that the average IHT bill rose by £5,000 in 2013, when just under 18,000 estates (the largest number since 2008) paid over £3.05 billion. That’s an average individual bill of £170,000. The increase was due to a combination of rising house prices (which have increased by 21% since 2009 according to the Nationwide) and a tax-free allowance or ‘nil-rate band’ of £325,000 that has been frozen since 2009. Not surprisingly, more than half of the estates that had to pay IHT in 2013 were from those who had property in London and the South East

What is Inheritance Tax exactly and how is the tax-free allowance changing?

Inheritance Tax (IHT) is a tax on the estate (money, investments, property or possessions) that you leave behind when you die. It also applies to some gifts you may make while you are still alive. A certain amount can be passed to your inheritors without being taxed; this is known as the ‘nil-rate band’ which is £325,000 (£650,000 for couples) for 2015-2016. It will stay that way until at least 2020-2021. George Osborne announced in July 2015’s Summer Budget that he intends to scrap IHT when parents or grandparents pass on a home that is worth up to £1m (£500,000 for single people). This will be phased in gradually between 2017 and 2020. This means that the rise in IHT bills could start to slow in the coming years, although not until 2017 at the earliest.

We talk about the effects that this new ‘main residence nil-rate band’ will have as part of our blog about the writer PD James.

So what can you do in the meantime?

Money given away before you die is subject to IHT if you die within seven years of giving the gift. So one tip is to give substantial gifts at a time when you are confident of surviving more than seven years. Early planning of how to pass on your assets is important. This is an area where you do need specialist advice.

However, even if you do die within seven years of making a gift, there are several other exemptions worth taking into account to help reduce your estate’s IHT bill, including:

  1. You can give £3,000 away each tax year inheritance tax-free
  2. You can give a further £5,000 to a child – £2,500 to a grandchild or great-grandchild – if they are getting married.
  3. Gifts to charities and political parties are inheritance tax-free.
  4. You can give £250 each year, inheritance tax-free, to everyone you know, as long as the recipient hasn’t already benefitted from one of the other gifts mentioned above.
  5. You can also give away as much as you like from your income without it potentially being liable for inheritance tax. You do have to prove you have enough income left to maintain your normal lifestyle.

Inheritance Tax Calculator

This calculator (a link to the ‘This Is Money’ website) is handy way of working out your approximate inheritance tax (IHT) liability until the rule change in 2017. But it doesn’t show you how to use financial planning to mitigate the ultimate tax bill your estate will have to pay. You need an independent financial advisor for that. Link to Calculator

Next steps

If you feel that inheritance tax (IHT) planning is something that you or your family need, you should make sure that you consult an expert in the field. If you would like to find out more about the financial decisions you should take now to reduce a possible IHT bill, please contact Marchwood IFA. We can liaise with a solicitor to help you draw up a will that protects your family’s future.

Will you have too much invested with your bank after January 2016?

FSCS Logo

The Financial Services Compensation Scheme is an independent body, set up under the Financial Serices and Markets Act 2000, and is the UK’s statutory compensation scheme for customers of authorised financial services firms. It can pay compensation if a firm is unable, or likely to be unable, to pay claims against it.

The scheme covers deposits, insurance policies, insurance brokering, investments, mortgages and mortgage arrangement. FSCS is free to consumers and, since 2001, has helped more than 4.5 million people and paid out more than £26 billion. It is funded by levies on firms authorised by the Prudential Regulation Authority and the Financial Conduct Authority.

Changes to the compensation limit on deposits
If your bank, building society or credit union fails, the FSCS currently protects your eligible deposits up to a limit of £85,000 (or £170,000 in joint accounts). However, on 1st January 2016, the deposit protection limit is changing from £85,000 to £75,000. This recalculation of the threshold (which was increased from £35,000 to £50,000 in 2008 and then to £85,000 in 2011) follows falls in the value of the euro against the pound.

The limit is set by an EU directive that fixes the level of protection across the European Union at €100,000 or its equivalent. When the level was agreed in 2010, that figure equaled £85,000. But because the euro has fallen against the pound, it is being reset according to exchange rates today.

What about investments, mortgages, pensions and insurance?
Other than deposits, the compensation limits (which can be seen in the table below) are not changing in January 2016.

Percentages Maximum Compensation
Deposits 100% of the first £85,000 per person per firm
(for claims against firms declared in default from 31 December 2010).
100% of the first £50,000 per person per firm
(for claims against firms declared in default from 7 October 2008).
£85,000 (£75,000 from 1st January 2016)
Investments 100% of the first 100% of the first £50,000 per person per firm
(for claims against firms declared in default from 1 January 2010).
£50,000
Mortgage advice and arranging 100% of the first £50,000 per person per firm
(for claims against firms declared in default from 1 January 2010).
£50,000
Insurance Business
(e.g. pensions, life assurance, home and travel)
90% of the claim with no upper limit. Compulsory insurance is protected in full. Unlimited
General insurance advice and arranging
(for business conducted on or after 14 January 2005)
90% of the claim with no upper limit. Compulsory insurance is protected in full.  Unlimited

What should you do?
If you have eligible deposits of over £75,000 in any single bank or building society, you probably won’t be fully covered after 1st January 2016. And look out for banks that share a banking licence because they are part of the same banking group. Bank of Scotland, for instance, shares a licence with AA, Aviva, BM Savings (Birmingham Midshires), Halifax, Intelligent Finance, SAGA, and St James’s Place. If your savings are split between any of these banks and amount to more than £75,000, you may not be covered. (HSBC Bank and First Direct also share the same banking licence.)

Why not contact your financial adviser and ask him or her to check your finances for you, to give you peace of mind before next January? If you act in time, you may be able to avoid any risk of not being completely covered by the FSCS.

PD James’s estate to pay £8 million in inheritance tax

PD James

Britain’s ‘Queen of Crime’, novelist P D James left more than £22 million in her will when she died last November, probate records show. As well as writing 20 books and working as a senior civil servant, she invested in property, owning two houses, four flats and a valuable beach hut in Southwold, Suffolk.

The writer left most of her estate, valued at £22,403,597 before inheritance tax (IHT) to her two daughters. Based on a 40% tax rate on everything above the IHT nil-rate band (which is currently £650,000 for a married person whose spouse has died), we estimate that her estate will have to pay more than £8 million in tax. (If she had left at least 10% of her estate to charity, the IHT tax rate would have been 36% on everything above the nil-rate band.)

So why did PD James leave so much to HMRC? Given she was a writer of crime and detective novels, you could call it her last unsolved mystery.

What is Inheritance Tax?
Inheritance Tax (IHT) is a tax on the money, investments, property or possessions (your ‘estate’) that you leave behind when you die. It also applies to some gifts you may make while you are still alive. A certain amount can be passed to your inheritors without being taxed; this is known as your ‘tax-free allowance’. The allowance or ‘nil-rate band’ for 2015-2016 has been frozen at £325,000 (£650,000 for couples), the same as it has been since 2010-11. It will stay that way until at least 2020-2021 as the government continues to rebuild its finances following the credit crisis.

Inheritance tax to be scrapped on homes up to £1m
Chancellor, George Osborne announced in July’s Summer Budget that he intended to scrap IHT when parents or grandparents pass on a home that is worth up to £1m (£500,000 for single people). This will be phased in gradually between 2017 and 2020.

This is how it will work.

  • Currently, the £325,000 per person nil-rate band (£650,000 for couples where, when the first one dies, their allowance is passed to the survivor) means that property to that value can be left without attracting IHT.
  • A new tax-free ‘main residence’ allowance will be introduced from 2017, but only on a main residence and where the recipient of the property is a direct descendant (classed as children, step-children and grandchildren). It is being phased in, starting at £100,000 from April 2017, increasing by £25,000 each year until it reaches £175,000 in 2020. (From that point it will rise in line with inflation.)
  • Therefore, from 2017 the maximum that can be passed on tax-free is £425,000 per person, or £850,000 for married couples or those in a civil partnership. (i.e. £325,000 + £100,000 for singles, £650,000 + £200,000 for couples).
  • By 2020, the tax-free amount will be £500,000 for singles (£175,000 property allowance, plus £325,000 nil-rate band) and £1 million for couples (£350,000 property allowance, plus £650,000 nil-rate band), as the main residence allowance rises.

What if my estate is still worth more than £500,000 (or £1 million for couples) by 2020?
Money given away before you die is subject to IHT if you die within seven years of giving the gift. So one tip is to give substantial gifts at a time when you are confident of surviving more than seven years.  Early planning of how to pass on your assets is important.  This is an area where you do need specialist advice.

However, even if you do die within seven years of making a gift, there are several other exemptions worth taking into account to help reduce your estate’s IHT bill, including:

1. You can give £3,000 away each tax year inheritance tax-free
2. Gifts to charities and political parties are inheritance tax-free
3. You can give £250 each year, inheritance tax-free, to everyone you know

Beware: your partner will not necessarily inherit everything free of IHT
Many people assume that if they are married or in a civil partnership, IHT isn’t an immediate concern. But they may be wrong, as the family of comedian Rik Mayall recently discovered. Although Mayall was married, he had failed to write a valid will and died ‘intestate’. That meant that a portion of his estate automatically went to his children, thus triggering an IHT charge that would have been avoided if his estate been left to his wife.

The rules of intestacy changed in October 2014 and are now much more in favour of the surviving spouse. But even now, where there are children there is no guarantee that the spouse will inherit everything. It is therefore absolutely vital to make a will. It is the only way you can exercise control over who gets what, and how much. This is particularly important for unmarried couples, especially those with children.

If you are not married you do not get any special exemption on money left to your partner, so if your estate is worth more than £325,000, there will be a bill.

Inheritance Tax Calculator
This calculator (a link to the ‘This Is Money’ website) is handy way of working out your approximate inheritance tax (IHT) liability until the rule change in 2017. But it doesn’t show you how to use financial planning to mitigate the ultimate tax bill your estate will have to pay. You need an independent financial advisor for that.  Link to Calculator

Next steps
If you feel that inheritance tax (IHT) planning is something that you or your family need, you should make sure that you consult an expert in the field. If you would like to find out more about the financial decisions you should take now to reduce a possible IHT bill, please contact Marchwood IFA. We can liaise with a solicitor to help you draw up a will that protects your family’s future.

Rik Mayall’s family to pay thousands in inheritance tax?

Rik-Mayall-and-family-1999

One of the UK’s favourite comedians, famous for his roles in the Young Ones, The New Statesman, Bottom and Blackadder, Rik Mayall died suddenly last June, aged 56. It has now emerged that he failed to draw up a valid will before he died, meaning that his family face having to pay a huge inheritance tax bill on his £1.2 million estate.

Inheritance Tax (IHT) is simply a tax on the money or possessions you leave behind when you die. It also applies to some gifts you may make while you are still alive. A certain amount can be passed to your inheritors without being taxed; this is known as your ‘tax-free allowance’. The allowance or ‘threshold’ for 2013-2014 has been frozen at £325,000, the same as it has been since 2010-11. It will stay that way until at least 2017 as the government tries to rebuild its finances following the credit crisis. Inheritance tax due on money or possessions left when you die is paid from your estate (except in rare circumstances). Your estate comprises everything you own (money, property and investments), minus everything you owe (mortgage, loans, credit card bills) at the time of your death (including funeral expenses).

In Mayall’s case, where a married parent dies without a will, a portion of their assets go straight to their children and this triggers a potential tax bill. Rules about how someone’s estate is passed on when they die ‘intestate’ (i.e. without a will) changed last October, meaning that how Mayall’s estate is treated for IHT purposes is slightly different to how it would be if he died now.

This is how his assets are likely to be distributed, plus how things have changed since last October.

Before October 2014: Mayall’s assets up to £250,000 go to his wife, Barbara. Assets above that limit are split 50/50 between his wife and his three children. But for the assets above the £250,000 limit that are shared out, she only gets what’s called a “life interest” in the assets. So she can take interest from this share of the money, but can’t spend the capital. On her death this share passes to the children.

After October 2014: The situation is the same, except the “life interest” rule is removed. So now a spouse is free to spend without restriction his or her share of the 50/50 split of assets above the £250,000 already allocated to them.

What would have happened if Mayall had made a will?
If Mayall had left everything to his wife there would have been no inheritance tax payable. She would then have been able to add his tax free allowance to her own, creating a couples’ allowance of £650,000. She would have been able to make other plans to avoid her estate attracting IHT on her death by giving away assets to the children while still young enough to survive for a further seven years. Even after that time – i.e. in the last seven years of her life – there would be several tax-exempt gifts she could make to further reduce the value of her estate to below £650,000.

Inheritance Tax Calculator
This calculator (a link to the ‘This Is Money’ website) is handy way of working out your approximate inheritance tax (IHT) liability. But it doesn’t show you how to use financial planning to mitigate the ultimate tax bill your estate will have to pay. You need an independent financial advisor for that.  Link to Calculator

Next steps
If you feel that inheritance tax (IHT) planning is something that you or your family need, you should make sure that you consult an expert in the field. If you would like to find out more about the financial decisions you should take now to reduce a possible IHT bill, please contact Marchwood IFA. We can liaise with a solicitor to help you draw up a will that protects your family’s future.

Budget briefing – what do you need to know?

George and his budget briefcase

The Chancellor of the Exchequer, George Osborne, has just announced his latest Budget. Here at Marchwood, we’ve put together a short report for you so you don’t have to wade through pages and pages of in depth analysis in the weekend papers (although you’re welcome to do that if you wish!) So what will be the main changes that could affect your personal finances?

Tax Returns
Digital tax accounts will be introduced and self-assessment tax returns will be scrapped. Tax details will be held in one place and this will operate in a similar way to an online bank account. Information on pensions, employment income and savings income will automatically be collated to calculate the tax liability. The first of these accounts will be available from early 2016 although individuals who want to submit paper tax returns can continue to do so for now.

Income tax personal allowance
The income tax personal allowance will increase from £10,600 to £10,800 from 6th April 2016 and then to £11,000 from 6th April 2017.

Personal savings allowance
A Personal Savings Allowance – in effect ‘tax-free savings’ – will be introduced of up to £1,000 of a basic rate taxpayer’s savings income, and up to £500 of a higher rate taxpayer’s savings income each year from 6th April 2016. The Personal Savings Allowance will be in addition to the tax advantages available through ISAs (see below).

Personal tax & National Insurance bands
The higher rate tax threshold above which higher rate tax applies will increase from £42,385 to £42,700 from 6 April 2016 and then to £43,300 on 6 April 2017.  Class 2 National Insurance contributions are to be scrapped for the self-employed. The Government will consult on the detail on timing of these reforms later in 2015.

ISAs – additional flexibility
As long as ISA cash is taken out and replaced during the same tax year, such a move will no longer count towards the annual ISA contribution limit (which is due to rise to £15,240 this coming April). “With the fully flexible ISA, people will have complete freedom to take money out, and put it back in later in the year, without losing any of their tax-free entitlement” announced George Osborne. However, this new flexibility will apply to cash ISAs only, and not to stocks and shares ISAs. The change will be introduced this autumn after consultation.

Help to buy ISA
To help first time buyers save a deposit for a property, the government is launching ‘help to buy ISAs’ in autumn 2015. For every £200 a first time buyer saves, the government will provide a £50 bonus up to a maximum bonus of £3,000 on £12,000 of savings. Savers will have access to their own money and will be able to withdraw funds from their account if they need them for another purpose but the bonus will only be made available for home purchase.

Premium Bonds
The investment limit for premium bonds is rising to £50,000 from 1 June 2015.

Pensions
For those saving towards retirement, the announcement that pensioners will be able to trade in their annuities to release cash is a welcome move. It gives people even more flexibility and choice, and puts them in full control of their retirement income. However many people will be looking for guidance and support so that they make the right decision for their long-term financial health. This policy will not come in until 2016, so there is time for insurers to work out how they will actually provide cash in return for traded-in annuities.

The lifetime allowance (LTA) for pension saving
In a move that will probably be seen as making sure that older, wealthier voters do not benefit from all the Budget changes, the maximum lifetime allowance for tax-free pension savings has been cut again, this time to £1 million. (It has been reduced regularly from £1.8 million back in 2011). A £1 million pension pot seems a huge amount to most people, but – according to industry calculations – if you started your pension at age 30, and invested £793 per month in a medium risk portfolio* you could hit the £1m limit by the age of 68. Pension savings of this level might seem high, but this will include any contributions from your employer, and at least 20% tax relief from the government.

*Nutmeg calculations based on monthly contributions of £793 over 38 years. Figures assume an annualised return of 4.8%, after fees, on a pension portfolio made up of 65% equities (developed and emerging markets) and 35% government and corporate bonds.

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