News and blog

New Legislation allows IHT efficient ISAs

AIM

Some may think that ISAs are completely tax-free; however, they are only exempt from income and capital gains tax, not inheritance tax.

Like your remaining assets, any cash ISAs and stocks & shares ISAs you have will be added to the value of your estate when you die. This means that the value of your ISAs must be considered in any calculations that determine whether your estate is over the IHT threshold of £325,000.

However, recent rule changes confirmed by the Government mean investors will be able to take advantage of the tax-benefits of ISAs and mitigate their IHT liability, by investing in small businesses on AIM (Alternative Investment Market).  The Government is keen to encourage investment within growing companies and in an effort to stimulate this, will allow investors to not only benefit from the income and capital gains tax exemptions that ISAs already provide, but also any returns from AIM investments will become exempt from Inheritance Tax after two years, when the shares qualify for Business Property Relief.

Like any investment, it is important to consider the risk factor involved. Investing in AIM stocks can be more volatile than buying stocks and shares in larger more established organisations.

Investors should choose stocks or funds which are suitable for their objectives and not just for the tax benefits. When considering investments, it is sensible to take appropriate financial advice to help you understand the different tax liabilities associated with different investment options. What is tax-free during your lifetime might not necessarily be exempt from tax when you die.

Financial Product Best Buys – September 2013

To help you make more from your money, each newsletter Retirement and Investment Solutions provides you with best buys for your savings. Please bear in mind that these rates change frequently.

  • Best instant access
    Britannia BS 1.75% AER
    Min deposit: £500. Four withdrawals a year.
    Apply by phone, by post or in branch.

  • Best 1 year fixed rate
    Post Office 1.99% AER
    Min deposit: £500. Apply online.

  • Best 3 year fixed rate
    ICICI Bank UK 2.55% AER
    Min deposit: £1,000. Apply online.

  • Best 5 year fixed rate
    Shawbrook Bank 3% AER
    Min deposit: £5,000. Apply online or by post.

  • Best 1 year fixed rate Cash ISA
    Britannia 2% AER (2.35% for Co-op account holders)
    Minimum deposit £1. Apply online, by phone or in branch.

  • Best 3 year fixed rate Cash ISA
    Coventry BS 2.35% AER
    Minimum deposit £5,760. Apply online, by phone or in branch.

  • Best 5 year fixed rate Cash ISA
    Skipton BS 2.5% AER
    Minimum deposit £500. Apply online.

  • Instant Access ISA
    Tesco 2% AER
    Minimum deposit £1. Apply online or by post.

Inheritance Tax Update - £3 billion in Inheritance Tax paid last year


Official figures released recently highlight that families have paid more than £3 billion in Inheritance Tax last year, the highest amount in the last 6 years.

According to the Office for National Statistics, IHT payments steadily increased during 2007/2008, but fell due to the recent economic crisis.

However, the recovery in property prices, household savings and equities has heavily contributed to the recent increase of IHT payments.

The current freeze in the nil-rate band has also dragged more estates over the Inheritance Tax threshold, which stands at £325,000 until at least April 2018.

With the tax-free threshold frozen for a number of years and the housing market entering a wider recovery, Inheritance Tax payments are set to rise even further.

With Inheritance Tax affecting more and more of us, there are a number of strategies that can help keep your IHT liability to a minimum. Click here, for more information to help you keep control of your money.

Premium bond prize fund slashed


NSI

A premium bond is effectively a savings account from National Savings and Investments (NS&I), into which you can deposit between £100 and £30,000. What makes premium bonds different to standard savings accounts is that instead of earning interest on your invested money, you enter a monthly prize draw, with the chance of winning between £25 and £1million.

From the 1st August, the National Savings and Investments (NS&I) slashed the interest rate on Premium Bonds from 1.5% to 1.3%, in turn reducing the odds of winning a prize. There will now be only three prizes of £100,000 each month, rather than five, with other prize odds also falling.

Jane Platt, chief executive of NS&I, said: “Rates across the savings market have fallen in recent months, resulting in NS&I savings becoming increasingly attractive.

“To ensure we stay within our net financing target and balance the needs of savers, taxpayers and the stability of the broader financial services sector, we need to reduce the Premium Bond prize fund rate.”

The £1million top prize is unchanged, but there will be just three £100,000 prizes a month, instead of five. There will only be six £50,000 prizes, instead of nine and the number of £25,000 prizes will fall from 20 to 11.

table1
Source NS&I

Low savings rates mean premium bonds have been looking increasingly more attractive to those willing to invest, resulting in £1.5bn bonds being purchased in the last 12 months.  While the August changes will no doubt annoy investors, there are still 1,751,061 prizes to be awarded to 22 million holders. Premium Bond returns also carry the benefit of being tax-free.

However, investors need to remember that when reviewing or considering any investment opportunity, it is important to seek financial advice to help you make the most of your finances. At Retirement and Investment Solutions, we tailor advice and recommendations to your personal circumstances, ensuring that your investments work for you and your needs.

The new flat-rate state pension - what it means for you

Earlier this year, the government announced plans to abolish the existing two-part pension and introduce a simpler, fairer single-tier system in 2016. The aim of the new pension is to reduce the complexities of the current state pension and provide clarity regarding the value of individuals’ income in retirement.

Who will be affected and what does this mean for the future of your state pension?

  • The new pension will apply to people who reach State Pension age after the changes are introduced and will not affect people who are already in receipt of the current state pension of £110.15 a week or up to £142.70 if they receive pension credit and/or the second state pension.
  • Workers retiring after that date will have to build up 35 years of National Insurance contributions to get the full £144 a week, which is expected to have risen to £155 by 2016. Taking a career break to raise a family will also be counted towards the total NI contributions needed for a full state pension. To qualify for any pension at all you will need to have worked a set number of years – this has not yet been confirmed, but is likely to be between 7-10.
  • Non-working partners in married couples can currently claim up to £66 per week ‘Married couples pension’ throughout their retirement. However, under the new changes from 2016, couples will each qualify for the full new payment as individuals, rather than receive the current less generous joint couple’s rate.
  • Means testing for the pension credit will also end. Pensioners whose income falls short of a guaranteed minimum currently have to undergo detailed assessments of their income and savings.
  • The pension can be deferred beyond State pension age, but the only option will be to increase the amount of State pension, unlike now when you can opt to receive a lump sum.  The rate of increase applying in deferment has not been set yet, but the white paper released in January indicated that the rate could be 50% of the current rate, i.e. 5.2% per annum. The taxable lump sum option will be removed.
  • If an individual has accrued state pension that is of a higher value than the full level of the single tier pension as a result of transitional protection, the pension in payment will increase in line with the Consumer Price Index.
  • Contracting out of the second state pension will also end when the reforms are implemented in 2016. This will result in an estimated six million workers facing higher National Insurance payments in future.

Retirement and Investment Solutions will be continuously monitoring the changes surrounding pensions for clients, keeping you up-to-date with the latest developments that could affect your retirement income.  If you have any questions regarding your pension, please contact us on ....

Investments - An introduction to Tactical Asset Allocation

Investors selecting an appropriate portfolio to help boost their retirement savings are often bewildered by the array of investment opportunities available.

When it comes to securing a suitable retirement investment portfolio, Retirement and Investment Solutions believe diversification is a fundamental concept. A diversified portfolio spreads the risk over many different areas, obtaining returns from multiple channels to generate more consistent and stable results, instead of adopting more volatile individual avenues.

In today’s sophisticated global financial markets, there are countless possibilities to help boost your retirement income, one of which is Tactical Asset Allocation. Tactical Asset Allocation is the practice of shifting an asset allocation by relatively small amounts to benefit from short to medium economic or market opportunities. Instead of buying and selling stocks, you add other asset classes to the mix such as bonds, gold, silver, currencies, etc. This way, when one asset goes down in price, others rise. Ideally, the gains are higher than the losses, which results in a slow, steady growth in your overall investment portfolio.

Tactical allocation involves making a judgment call on where you think the economy and the financial markets may be headed, in order to navigate financial market uncertainty.  As shown in the table below, there can be a wide variation in asset class each year, so it can be effective to have an asset mix that reduces risk when markets are volatile and takes a few more calculated risks when markets are more stable.

Asset-table
The table above highlights how each of the different asset classes have performed over the last 10 years.  As you will see, not one of the asset classes has consistently been a top performer.  For example, Asia Equity was top in 2012, but was the second worst performing class one year earlier.   In 2012 Commodities propped up the table and Gilts (a bond issued by the UK government) topped the table in 2011.  However, markets can be unpredictable, which means that strong performance one year may not guarantee a return the next.

By maintaining an active approach to asset allocation, investors can identify shorter-term investment opportunities, with the view that at times certain assets and markets offer better value than others.

Current market conditions are driving investors to think more tactically when reviewing the investment avenues they explore. However, methods like Tactical Asset Allocation involve frequent trading and higher maintenance and expertise in order to generate the results you desire.

When faced with investment opportunities, the importance of planning ahead becomes clear. Developing a portfolio structure that is capable of withstanding changes in the future can make all the difference when improving your retirement income. When constructing your portfolio, it is important to recognise that methods such as Tactical Asset Allocation can be an extension of your investment portfolio, instead of an alternative to it.  The main goal to consider when reviewing your investments is diversification, so that no one investment will make or break your finances.

At Retirement and Investment Solutions, we tailor our advice and recommendations to your personal circumstances, ensuring that your investments work for you and your needs. If you are struggling to choose the most appropriate investment opportunities, take advantage of our free no-obligation investment review.  Call us on 01489 878300 or email This email address is being protected from spambots. You need JavaScript enabled to view it. This e-mail address is being protected from spambots. You need JavaScript enabled to view it . 

Financial Product Best Buys – July 2013

To help you make more from your money, each month Retirement and Investment Solutions will provide you with best buys for your savings. Please bear in mind that these rates change frequently.

 

  • Best instant access
ICICI Bank UK 1.75% AER

Min deposit: £1. Apply online.

  • Best 1 year fixed rate

Raphaels Bank 2% AER

Min deposit: £5,000. Apply in branch or by post.

  • Best 3 year fixed rate

ICICI Bank UK 2.55% AER

Min deposit: £1,000. Apply online.

  • Best 5 year fixed rate

First Save 2.9% AER

Min deposit: £1,000. Apply online.

  • Best 1 year fixed rate Cash ISA

Tesco 2.05% AER

Minimum deposit £1. Apply online.

  • Best 3 year fixed rate Cash ISA

Coventry BS 2.5% AER

Minimum deposit £5,760. Apply online, by phone or in branch.

  • Best 5 year fixed rate Cash ISA

Virgin Fixed Rate 2.75% AER

Minimum deposit £1. Apply online.

  • Instant Access ISA         

Tesco 2% AER

Minimum deposit £1. Apply online or by telephone.

 

Self-employed and approaching retirement?

If you are self-employed, saving into a pension can be a difficult challenge, compared to those in employment. There are no employer contributions and irregular income patterns can make regular saving for your retirement easier said than done.

A typical member of a company pension scheme receives employer pension contributions of £2,232 a year, at 8.4% of annual salary, according to insurer Prudential. This amounts to £91,512 over an average working life of 41 years on a salary of £26,664 a year. However, self-employed workers without access to a company pension scheme miss out on this substantial sum towards their retirement funding.

Self-employed individuals are responsible for setting up their own private pension schemes. However, it is sometimes hard for those workers to distinguish between their business and personal finances. Often, investing in the business takes priority over saving for retirement.

According to data released by the Office for National Statistics (ONS), almost a third of people who had reached the state pension age last year were self-employed.  If you are self –employed and you have been considering retirement, it is important that you review the points below to help you make the most out of your retirement income.

  1. First of all, it is important to consider how much money you’ll need each year of your retirement. People significantly underestimated how long they will live in retirement and how much money they would need to live on. When you are older, you might have an outstanding debt, e.g. a mortgage, medical condition or dependent children.

  2. Request a state pension forecast from the Department for Work and Pensions (DWP) and consider if it is worth paying in backdated National Insurance Contributions (NI) for either yourself or your spouse.

  3. If possible, consider selling your business and using the proceeds to boost your retirement pot. Approach competitors that could be interested in your database and the contacts you have built up over the years.

  4. If selling your business is not an option, you could continue to work part time.

    If you are under 65 years old, your personal allowances, the amount individuals can earn each year before paying tax, is £9,440. The amount rises to £10,500 if you are 65-74 year-olds and £10,660 if you are over 75.

  5. If they have had previous employment within any organisations, make sure that you review any past pension schemes that you could have left behind. Take a look at Lost pension - missing since 1995! for top tips to help you source any lost pensions.

  6. If you have set up a private pension, make sure you review it regularly.

  7. Are you putting all your financial eggs in one basket?  Regularly review any investments that you may have to ensure that they are performing as well as they could be.  

  8. Make the most out of you ISA allowance and a new tax year. A maximum of £5,760 can be saved in a cash ISA, and a further £5,760 can be invested in a stocks and shares ISA in the same year. The more you use your annual ISA allowance, the more money you will keep from the taxman.

  9. If you are unsure whether you can afford to retire from your business, take advantage of Retirement and Investment Solutions FREE retirement review.

If you are self- employed and retirement is on the cards, it is important that you seek financial advice to help you make the right decisions for your retirement.

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Contact us

Retirement and Investment Solutions
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Waterlooville
Hampshire, PO7 7SE

T: 01489 878300
F: 0870 0104883
E: advice@retirementis.co.uk