MoneyMatters March/April 2012 Life AssurancePROTECTEDRIGHTS PENSIONHow the changes affect you Tax Relief INVESTINGISA IN A RECESSION Beat theINVESTING TAX CLOCK G Lifestyle Protection G Creating Wealth G Tax Rules G Copperfields Financial Management Ltd Basepoint Business Centre, Oakfield Close, Tewkesbury, Gloucestershire GL20 8SD. T: 01684 851224 26 Kings Hill Avenue, Kings Hill, West Malling, Maidstone, Kent ME19 4AE. T: 01732 424035 Copperfields Financial Management Limited is an appointed representative of Financial Ltd which is authorised and regulated by the Financial Services Authority.
inside Pension Tax Relief No automatic tax relief Page 2 ISA Investing A tax efficient wrapper Page 7 Q&A Be in control of your pension Page 10 Beat the tax clock Beat the tax clock SIPPs ISA loophole Make the most of concessions Page 3 For people aged between 16 and 18 Ways of saving for retirement Page 10 Everyone faces a race against the clock to make the most out of limited tax Page 7 concessions before they vanish at the end of the current tax year on April 5. End of Tax Year planning Investing in a recessions Taking advantage of tax breaks Page 4 Annuity Nerves of steel required Page 11 Asset switching Use your CGT exemption as they like worth up to £250 to different Before you plan your retirement... Husbands and wives should consider Capital gains tax is charged when you sell individuals. Page 8 switching assets between each other. Aim to assets, including shares and property, for a None of these will affect the £325,000 Income tax and income tax Company Succession Planning put income in the name of the person with the proﬁt. It is levied at 18 per cent for basic rate nil-rate band. You can still give away bigger allowances Page 5 Ensure your business survives Page 12 lowest income tax rate or who has some taxpayers, rising to 28 per cent if you pay sums, however if you die within seven years of Protected Rights unused personal allowance. income tax at 40 or 50 per cent. making these gifts they will be treated as part Government to abolish contracting Maximise your cash ISAs The annual allowance provides the ﬁrst of your estate and may be subject to IHT. Life assurance out of State Pension Reader reply section £10,600 of any proﬁts tax free. The CGT Cash ISAs are where to start for tax-free Protect savings Which products to choose Page 6 Page 9 Personalised reply section Page 12 exemption is one area of tax planning people saving. They are deposit accounts where all The Government is reducing the pension interest is paid free from tax. Savers can forget or fail to use fully. People, who may lifetime allowance on April 6 from £1.8million Need more information? Simply complete and return the information request on page 12 contribute a maximum of £5,340 this tax year, hold or have inherited substantial assets, to £1.5million. rising to £5,640 from April 6 2012. should think about selling a portion every tax Final salary pensions are valued at the rate year to bank proﬁts and use up the CGT of 20 times annual income. Meaning someone Claim your tax back allowance. who is already entitled to a pension of The Government pays tax credits to help Pension Tax Relief working couples and families, depending on Pension boosting £75,000 a year or more could have an issue. your income each tax year. You should inform Contributions into a pension qualify for tax Pensions are tested at retirement. Those HM Revenue & Customs promptly if that relief. This boosts the value of every £1 of over this limit will be taxed at 55 per cent, but income changes. taxed income that you pay in by 25p for basic anyone who thinks they might break through The value of the credits can rise if your rate taxpayers. the new allowance can protect their fund if income has gone down for whatever reason Higher rate taxpayers can claim back even they register with the Revenue before the end and there is no need to wait for the end of the more. There is a £50,000 annual limit for of the current tax year. tax year or to be sent a renewal form. This is pension contributions, though you need to A higher rate tax payer does not receive tax relief relief could be up to a maximum of 20 per cent, on top of the one of the rare occasions where it is worth have earned at least this sum during the year. getting in touch with HMRC quickly. Some bigger earners, or those who have been The value of your investment and automatically on their personal pension contributions, they basic rate of 20 per cent. made redundant, may be able to invest more, Also note, rises of income of less than the income from it can go down as have to claim it. This means that someone earning more than Additional rate tax payers £10,000 will not affect your credits in the and you can carry forward any unused well as up and you may not get £42,475 in the current ﬁnancial year could potentially be As from 6 April 2011, if you are an additional rate tax payer, current tax year. But prompt notiﬁcation allowances from the three previous tax years back the original amount invested. losing a ﬁfth of the value of their pension if they are not paying 50 per cent, you may also be able to claim additional makes any overpayment of credits next tax in some circumstances. Past performance is not a guide to actively claiming back higher rate tax relief on their tax relief at your highest rate. As with 40 per cent tax payers, year less likely. Children future performance. contributions. this depends on how much you earn over the higher rate tax Equity ISAs This is the ﬁrst tax season when the whole For those not adverse to risk, stocks and family can top up an ISA. The Junior ISA, Claiming higher rate tax relief on personal pension band and your level of contribution, any additional rate tax shares ISAs are a good area of investment. launched in November, allows family or friends contributions is considered to be the single most important relief could be up to a maximum of 30 per cent, on top of the to save up to £3,600 each tax year into a These can be used to shelter funds investing in relief you can claim, yet hundreds of thousands could be basic rate of 20 per cent. shares, bonds and property. There is no further tax-free account on behalf of children. missing out. To obtain your additional tax relief you must ﬁle a The advantage of full tax relief straight income tax to pay on any dividends or However, if you or your child was eligible for tax return or get HM Revenue & Customs to change your tax If you are employed, your employer will take occupational payments from funds held in an ISA. Any a Child Trust fund then you cannot invest in a proﬁts when the investments are eventually Junior ISA. code. To do this, you have to contact your local tax ofﬁce. pension contributions from your pay sold are free from capital gains tax. The Like the adult ISA, the ‘JISA’ can be Claiming your tax back before deducting tax (excluding held in cash or invested in stocks and If you pay income tax on your earnings before any personal National Insurance To disc maximum that can be saved into a stocks and uss ho shares ISA is £10,680 this tax year, rising to shares. The account is open to anyone pension contributions, your pension provider claims tax back contributions). You only to get w aged 17 or under who does not already out of the mo £11,280 from April 6 2012. from the government at the basic rate of 20 per cent. In pay tax on the balance, so your p st Redundancy have a Child Trust Fund (CTF). Cash planni ens cannot be withdrawn until the child practice, this means that for every £80 you pay into your whether you pay tax at ng, ple ion The ﬁrst £30,000 of any redundancy turns 18. personal pension, you receive £100 invested in your pension basic, higher or additional contac ase settlement is tax-free, but the balance is taxed t us as income. Gift away fund. rate you receive the full for mo The ﬁrst £325,000 of any estate is tax-free and If you are a higher-rate taxpayer, or the If you are a higher rate tax payer paying 40 per cent, you may relief straight away. in re for married couples / civil partnerships the ﬁrst format redundancy payment moves you into a higher able to claim an additional tax relief. Depending on how much ion. tax band, discuss if you can get the payment £650,000 is tax free. Beyond this, IHT can be you earn over the higher rate tax band, any additional tax structured so that part of the payment is levied at 40 per cent, taking a large bite out of deferred into the next tax year. Also, a lifetime’s work. However, making annual depending on your employment outlook and gifts to family or friends can reduce the The articles featured in this publication are for your general information and use only and are not intended to address your particular requirements. They should not be relied age, it may also be beneﬁcial to have a potential for an IHT bill. Each person can give upon in their entirety. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without receiving appropriate professional portion of any redundancy paid into your up to £3,000 per tax year, plus as many gifts advice after a thorough examination of their particular situation. Will writing, buy-to-let mortgages, some forms of tax and estate planning are not regulated by the Financial Services Authority. Levels, bases of and reliefs from taxation are subject to change and their value depends on the individual circumstances of the investor. pension.2 3
Income tax and income tax allowances End of Tax Year planning Personal allowance Income tax personal allowances 2011-12 £7,475 2012-13 £8,105 Personal allowance for people aged 65-74 £9,940 £10,500 With the End of Tax year looming, make sure you take advantage of all of the tax Personal allowance for people aged 75 and over £10,090 £10,660 breaks available to you. There is still time to make provisions to avoid paying any Married couple’s allowance for people aged 75 and over £7,295 £7,705 unnecessary tax. As the saying goes; use them or lose them. Income limit for age-related allowances £24,000 £25,400 1. From the 2010-11 tax year the Personal Allowance reduces where the income is above £100, 000 - by £1 for every £2 of income above the £100,000 limit. This reduction applies irrespective of age. Use your ISA allowances Use your pensions allowance investors should also check that (It’s not just parents who get a 2. These allowances reduce where the income is above the income limit for age-related allowances by £1 for every ISAs should be at the top of most Almost everyone can pay into a HM Revenue & Customs isn’t gift exemption on marriage, it £2 of income above the limit. For the 2010-11 tax year the Personal Allowance for people aged 65 to 74 and 75 people’s savings and investment pension and obtain tax relief on deducting too much tax in can be used by others, including and over can be reduced below the basic Personal Allowance where the income is above £100,000. list, these are the reasons why: the contributions, even if you are respect of interest and dividends. Grandparents, but the limits are Tax free growth – no capital a non-earner. This means a When you receive a coding lower. Check www.hmrc.gov.uk gains tax £1,000 contribution costs just notice, cross check against any for the current limits). Bands of taxable earned income I No need to record your ISA £800, the balance being paid by accompanying notes. Capital gains tax (CGT) income or proﬁts on your tax the Government. Most higher 2011-12 2012-13 Inheritance tax (IHT) You could make use of the capital return rate taxpayers can reclaim up to Every tax year you can ‘gift’ gains tax annual exemption for Starting rate for savings: 10%* £0 - £2,560 £0 - £2,710 I Tax free income on corporate a further £200 tax relief via their £3,000 which will not count 2011/12 of £10,600 for each bonds and other ﬁxed interest tax returns. The current tax rules Basic rate 20% £0 - £35,000 £0 - £34,370 towards your total estate and if individual, including your stocks and no further tax on limit the amount that can be you do not use the full exemption children. For example, it may be Higher rate 40% £35,001 - £150,000 £34,371 - £150,000 everything else contributed to registered pension in one year, you can carry it worth selling shares if they have Additional rate 50% Over £150,000 Over £150,000 I The income has no impact on schemes each year as tax- forward but for one year only. delivered losses because these age related allowances relieved contributions to £50,000 Gifts of up to £250 a person are can be set against gains made on * The 10 per cent starting rate applies to savings income only. If your non-savings income is above this limit then making it perfect for or 100 per cent of UK taxable also exempt, but you are not other assets this year. the 10 per cent starting rate for savings will not apply. supplementing pension earnings, whichever is lower. permitted to use the two The tax on proﬁts from the sale The rates available for dividends are the 10 per cent ordinary rate, the 32.5 per cent dividend upper rate and the income in retirement A new three year “carry together. If a gift is regular, of a buy-to-let could be cancelled dividend additional rate of 42.5 per cent. I The allowance will increase in forward” of unused annual comes out of your income but out by losses on equities. If loss the 2012/13 tax year by £600, allowance was introduced from therefore the overall personal 2011/12. Initially you will be able does not impact upon your making disposals are not made Inheritance tax standard of living, any amount until later they cannot be carried allowance will be £11,280 in to carry forward unused can be given away and ignored back against gains in previous Inheritance tax total, £5,640 can be invested allowance from 2008/09, 2009/10 for IHT. You will need to keep full years. into a cash ISA. The whole and 2010/11, provided you were 2011-12 2012-13 records of any gifts made, to Main residence relief If you allowance can be put into a a member of any registered assist with probate. own more than one residence, Rate 40% 40% Stocks and Shares ISA, or the scheme during the relevant year. You cannot use your ‘annual you can elect which one you remaining £5,640, if wishing The exercise will assume that a Individual nil-rate band £325,000 £325,000 exemption’ and your ‘small gifts want to be treated as your to invest in both. If you are £50,000 annual allowance exemption’ together to give principal private residence (PPR) Since 9 October 2007, it has been possible to transfer any unused IHT nil-rate band from a late spouse or civil unhappy where you are applied for those years (rather someone £3,250, but you can use for CGT purposes. partner to reduce the estate of the surviving spouse or civil partner. invested you can transfer your than the actual ﬁgure) and use a your ‘annual exemption’ with any ISA to another provider. notional carry forward calculation other exemption, such as the All of the tax beneﬁts quoted if total contributions exceeded Individual savings accounts (ISAs) ‘wedding/civil partnership above can be changed and the £50,000 during a tax year. ceremony gift exemption’. exact beneﬁt will depend on ISA maximum limits Check your tax code Ie: If one of your children your circumstances. Having the wrong tax code can marries or forms a civil 2011-12 2012-13 be costly. Many pensioners can partnership you can give them Some aspects of Tax Cash £5,340 £5,640 be on the wrong code as they £5,000 under the wedding/civil Planning are not regulated Stocks and Shares (overall limit) £10,680 £11,280 have not been moved on to the partnership gift exemption and by the Financial Services higher personal allowances that £3,000 under the annual Authority. From 2010-11 these limits became indexed in line with RPI increases to the preceding September and rounded up kick in at 65 and 75. Savers and exemption - a total of £8,000. to be divisible by £120. Lifetime and Annual allowances Allowance 2011-12 2012-13 Lifetime allowance £1,800,000 £1,500,000 Annual allowance £50,000 £50,000 The government announced on 14 October 2010 changes to the lifetime allowance for tax relief on pensions. From 2012-13 onwards, the lifetime allowance for pension savings for individuals will be reduced from the current level of £1.8 million to £1.5 million.4 5
Life Assurance ISA Investing ISA An ISA is another form of a tax efﬁcient The Mini ISA was only allowed to hold one of wrapper in which you can place investments to the two components (shares or cash). As a We all want to protect our give them tax efﬁcient status. consequence, many investors would tend to family from ﬁnancial hardship, For the tax year 2011/2012 an individual’s invest the two components separately, with What are the options? Family income beneﬁt total annual allowance limit to an ISA is different providers. This meant that they would so it is important to know The cheapest, simplest form of This offers the policyholder’s £10,680, of which a maximum of £5,340 can often end up with two Mini ISAs in a tax year be held in cash. These ﬁgures are increasing in rather than one Maxi ISA. which products to choose, life assurance is term assurance. dependants a regular income 2012/13 to £11,280 and £5,640 respectively. Tax position of ISAs? loophole There is no investment element from the date of death until the including the most suitable and it pays out a lump sum if end of the policy term, instead of Subject to the overall limits, you can split your ISA between the following: Investments are free from capital gains tax, but investors no longer receive the 10 per cent tax sum assured, premium, terms you die within a speciﬁed period. any lump sum payment. STOCKS AND SHARES credit on dividends from UK equities. This was Types of term assurance are: Lifetime protection You can hold stocks and shares and managed removed from April 2004, so now such and payment provisions. Level term assurance investment funds within an ISA. dividends are fully taxable from this date, A “whole-of-life” assurance People aged between 16 and 18 can Which offers the same payout policy is designed to provide It is possible to invest up to £10,680 into although there will be no further tax liabilities, open two cash ISAs in the same tax throughout the life of the policy, cover throughout a person’s stocks and shares inside an ISA in the tax year even for higher rate taxpayers. However, year, which is an occurrence that is not your dependants receive the 2011/2012. investments in corporate bonds and gilts are lifetime. The policy only pays out allowed for anyone else. same amount whether you died CASH free from tax and are able to reclaim the full once the policyholder dies, 20 per cent tax credit. 16 year olds are eligible to open their on the ﬁrst day after taking the providing the policyholder’s You can as an option hold a proportion of your own adult cash ISA, worth £5,340 (or policy out or the ﬁnal day before ISA allowance in cash, which will earn tax-free Why invest? dependants with a tax free lump £5,640 next tax year), as well as saving it expired. interest. You are able to invest £5,340 of that The stocks and shares element of the ISA will sum. Depending on the up to £3,600 in a Junior ISA (JISA). They annual allowance into a cash deposit account allow you to take advantage of the reduction This is normally used alongside individual policy, policyholders can save almost £10,000 each tax year in the tax year 2011/2012. in risk by pooled resourced company share an interest-only mortgage, where may have to continue in cash ISAs. As long as you do not exceed the maximum investing. The stocks and shares element of an the debt has to be paid off only contributing right up until they ISA allowances in any one tax year, you can ISA can be used to invest in many different Allowing children aged 16 and 17 to on the last day of the mortgage die, or they may be able to stop split your ISA investments. For instance, in the types of investment fund including unit trusts, have both a JISA and an adult cash ISA term. 2011/2012 tax year, you could invest just investment trusts and OEICS. is something that has not been widely paying in once they reach a Decreasing term assurance £2,000 into a cash ISA and put the remaining Such funds are actively managed by a publicised but is something that, if stated age, even though the Here the payout reduces by a £8,680 allowance into a dedicated investment professional fund manger who will buy and sell possible, families should make the most cover continues until they die. of. ﬁxed amount every year, ﬁnally ISA that may provide higher returns than a shares on your behalf, with the aim of There are policies that also The full £3,600 JISA amount can be ending up at zero by the end of Cash ISA over the medium to long term. achieving the maximum possible return on offer cover for additional You only have one ISA allowance available your investment. In the past, over the medium saved in cash or divided between cash the term. Because the level of beneﬁts, such as a lump sum each tax year (6th April to the following 5th to long term, this type of investment has and stocks and shares, but whilst cover decreases during the term, that is payable if the policyholder April). Subject to the rules above, you can produced excellent levels of growth, although children can open an adult cash ISA at premiums on this type of becomes disabled or develops a however split your ISA allowance between two it is important to remember that past the age of 16, they won’t be able to insurance are lower than on level speciﬁed illness. Whole-of-life different providers, such as a Cash ISA with performance is no guarantee for the future, open a stocks and shares adult ISA until policies. This cover is often assurance policies are often one provider and an Investment ISA with and the value of such investments can fall as they are 18 years old. bought with repayment reviewable, usually after ten another. well as rise. The return is quite nice when a young mortgages, where the debt falls years, at which point the With effect from April 2011, the Government adult takes advantage of both this and during the mortgage term. conﬁrmed that each tax year, it is their next year’s full cash ISA allowance, they insurance company may decide Increasing term assurance intention to raise the amount that individuals would have saved an extra £10,980. If to increase the premiums or can put in to their annual ISA allowance by The value of your investment and the income The potential payout increases by reduce the cover it provides. from it can go down as well as up and you that £10,980 were to grow at an inﬂation each April, therefore the limits for a small amount each year. This is may not get back the original amount average tax-free interest rate of 4 per 2012/13 are £5,640 into a cash ISA with the a useful way of protecting the Please contact us to review invested. Past performance is not a reliable cent, it would add about a further remainder up to the total allowance of initial amount against inﬂation. your life protection indicator for future results. Please contact us £18,000 to the overall ISA fund around £11,280 available to invest in an investment for further information or if you are in any the age of 30, without the inclusion of Convertible term assurance requirements. ISA. doubt as to the suitability of an investment. the value of the JISA fund, which when A more ﬂexible policy that allows Mini and Maxi ISA? added would make a very tidy return. the option of switching in the Since April 2008, the terms Mini and Maxi ISAs future to another type of life became technically incorrect. Over previous The value of your investment and assurance, such as a ‘whole-of- years, many people used their ISA allowances HM Revenue and Customs practice and by splitting the amount they invested in to two the law relating to taxation are the income from it can go down as life’ or endowment policy, well as up and you may not get without having to submit any different parts as a Mini cash ISA allowance complex and subject to individual with their bank or building society and a Mini circumstances and changes which back the original amount invested. further medical evidence. Past performance is not a guide to stocks and shares ISA allowance with an cannot be foreseen investment company. future performance.6 7
Annuity Q&A Q. Is my fund that has already been saved affected into occupational pension schemes whilst employees were contracted out affected? A. No, your money already held should remain in the scheme to provide members Protected Before you plan your retirement, you will Choosing an annuity will depend largely on Shopping around with a pension, on retirement, in accordance with scheme rules. need to appreciate how the money you have your ﬁnancial circumstances, the value of You can purchase your annuity from any in your pension pot will be used to provide your pension or pensions, your retirement provider, this means it need not be from the Q. What happens to ‘protected rights’ you with an income when you retire. One expectations and, possibly, on your health or company you had your pension plan with. already saved? option to choose is to invest most of your the health of your dependants. Be aware that the amount of income you A. At the moment the rebates together with Rights pension in an annuity, which pays you a You can also decide whether you would receive from your annuity can vary between any investment return are known as regular income throughout your retirement prefer a level annuity or an escalating different insurance companies, so it is “protected rights”. There are currently years. annuity. Level annuities pay you a ﬁxed level essential to receive comparisons before statutory restrictions on how protected An annuity is purchased using the lump of income each year, while an escalating making your ﬁnal decision. rights can be used. This is because they are sum from your pension or savings, which annuity increases each year in line with intended to be used to provide beneﬁts in Open market option place of the additional State Pension. provides you with a guaranteed income for inﬂation or at some ﬁxed rate. Pension fund providers are now legally However, from 6 April 2012 these the rest of your life. The size of the income The income generated from an escalating obliged to inform you of your rights to restrictions will no longer be in force and you receive depends on the size of your annuity is usually signiﬁcantly lower in the choose an annuity. You can decide to take former “protected rights” beneﬁts can be The Government is to abolish contracting Begin planning pension fund, your age, your gender and ﬁrst few years than you would expect to the ‘open market’ option providing that you treated the same as other pension beneﬁts. out of the additional State Pension (S2P), Considering how abolition will affect your your health. receive from a level annuity. have not already taken any beneﬁts from They will be retained in the pension scheme also called State Second Pension on a scheme. Decision making You can also decide whether you want your pension or agreed an existing annuity unless a transfer request has been made. deﬁned contribution basis from 6 April You will need to decide whether your DWP currently holds records showing As you near retirement, your pension fund your income to be paid for a guarantee with your pension provider. 2012. scheme continues or whether you need to details of an individual’s membership of a provider will inform you of your pension fund period, perhaps 5 or 10 years, but this will Before you take out your annuity, you can also reduce the amount of initial income This means that from 6 April 2012 make changes as National Insurance contracted-out deﬁned contribution total and offer you a quotation based on the also decide to withdraw a tax-free lump sum scheme. payable. affected employees will no longer be able rebates will no longer be paid. size of your fund. Generally, most people of up to 25 per cent of the total value of As all the rules around protected rights to use a Contracted Out Money Purchase You may also want to consider the purchase an annuity by the time they reach Enhanced annuity your pension, known as a Pension and the tracking of those rights are to be “COMP” occupational pension scheme to impact of the Government’s plans for age 75. You may qualify for an enhanced annuity Commencement Lump Sum. removed, the accuracy of DWP’s records contract out. employers to automatically enrol eligible will decline over time. It is therefore or an impaired life annuity, if you What to do suffer from poor health. These Employees will automatically be brought employees into qualifying workplace important that schemes ensure that their When annuity rates are falling it might be usually pay a higher income back into the additional State pension pension schemes. records are up to date prior to abolition. tempting to hold off buying an annuity, until amount if your health problems system unless they become a member of a You should discuss your options with You should also consider now the rates increase. This may not necessarily be administrative easement of having to track (such as high blood pressure, scheme which contracts out on a salary your advisors. Any changes will need to be the best course of action and should you protected rights beneﬁts separately and its kidney problems or diabetes) related basis. discussed with pension advisors, scheme decide to delay your purchase, rates could incorporation into the running of your could potentially reduce your Deﬁned Beneﬁt schemes can continue to trustees and members alike. fall even further. In addition, every month scheme. lifespan. Smokers or people without an annuity is a month without contract out on a salary related basis. Prepare to pay the correct National diagnosed with obesity may income and this lost income may not be What happens from 6 April 2012? Insurance contributions after the abolition Q. Are schemes affected that hold both also be able to receive an recovered in the future. You will not be able to use your COMP date. a section contracted out on a deﬁned ‘enhanced annuity’. occupational pension to contract Think about how you will communicate contribution (money purchase) basis and a section contracted out on a employees out of the additional State the National Insurance contribution deﬁned beneﬁt (salary related) basis Pension. changes and any scheme changes to your (a Contracted-out Mixed Beneﬁt Your employees may, depending on their employees. There is a fact sheet available (COMB) scheme)? For mo level of earnings, start to build up on the website www.direct.gov.uk which A. No further National Insurance rebates inform re entitlement to the additional State Pension you can give to employees to provide them will be payable for the period beyond the ation a abolition date for employees contracted out retirem bout instead. with information on what the abolition of ent pla You will no longer be required to make contracting out may mean for them. on a deﬁned contribution (money purchase) please nning basis. Members contracted out on a deﬁned contac the ‘minimum payment’ contributions into discuss t us to beneﬁt basis are not affected. your contracted-out occupational pension You should consider discussing The certiﬁcate for this scheme will y require our scheme. these changes with your remain valid only for the section of the ments Both you and your employees will pay professional ﬁnancial adviser. scheme contracted out on a deﬁned beneﬁt . the standard rate National Insurance basis. Your scheme will not need to apply contributions instead of the reduced for a new deﬁned beneﬁt contracting-out certiﬁcate as only the contracted-out contracted-out rate. deﬁned contribution part of the COMB will be cancelled after abolition.8 9
Q&A Can I gain tax relief? Just like other pensions, everyone including non-earning spouses, can gain basic rate relief on payments into a SIPP. High earners obtain more relief as they complete their tax returns, subject to various limits. 25 per cent of the value of your SIPP can be taken as tax-free cash to spend on anything you SIPPs There are a number of ways of saving for retirement and various types of pension tax-free lump sum the remaining 75 per cent can be taken gradually as an income or as like after you reach 55 years of age. plans. The Government believes retirement additional lump sums. Both are subject to What happens to the rest of my savings are so important that it offers your tax rate at that time, but this may be savings? generous tax beneﬁts to encourage people potentially a lower tax rate than the one you This is where SIPPs can prove very to make their own pension provision. It is currently pay, depending on your attractive. You are no longer required also the case that you may be able to circumstances at the time. to spend the remaining 75 per cent of contribute into more than one pension, you Growth your fund on an annuity or guaranteed Investing could contribute to a Self-Invested Personal UK pension fund investments grow free of income for life, when you retire. Savers Pension (SIPP) as well as to your company income and capital gains tax, except for the can manage their own SIPP to meet pension scheme for example. 10 per cent tax credits on UK dividends their changing individual needs. As an example, you may still hold high- Pension wrapper which a pension scheme cannot reclaim. yielding bonds, shares and funds to A SIPP is basically a pension wrapper, it Where tax has been deducted at source on in a recession deliver an income without relinquishing holds investments and provides the same tax income within a pension fund like rents, ownership or control of your capital, advantages as other personal pension plans. coupons and interest, this is reclaimed by the after you have retired. SIPPs allow you to take a more active pension provider and the tax credited back Do I have to manage the fund? involvement in your retirement planning. into the pension fund. Assets held in the No. Some SIPP providers offer access to You generally choose a number of different fund that carry no tax at source like discretionary fund management investments, unlike some other traditional Government gilts or offshore investments, The possibility of recession and a balance sheets with some exposure to bad debt, and bank services as an option, so a professional pension schemes that can be more are not subject to tax declaration or regulation is still ongoing and unclear. However, Banks could see can pick stocks and shares for you; restrictive, SIPPs offer greater choice over payments. second credit crunch will create a a sharp rally in their share prices should the economic picture be subject to the terms of your agreement. where your money is invested. Investment managing Are there drawbacks? You could consolidate your retirement You cannot draw on a SIPP pension before terrifying outlook for investors. better than expected and the Euro zone crisis be averted. However, this is highly uncertain, and as such banks appear a high SIPPs are not suitable for people who savings and bring them together by age 55 and there are usually additional costs Nerves of steel and a strong risk proposition. do not wish to take any interest in or transferring in other pensions into your SIPP. involved when investing. You may need to responsibility for their retirement constitution will be required by Unless you expect the UK to enjoy a strong cyclical recovery, the This may make it easier for you to manage spend time managing your investments. most sensible policy seems to be to concentrate on ‘defensive’ savings. Cheaper options, such as your investment portfolio. SIPPs charge higher costs than a stakeholder investors in 2012. The turbulence businesses. These are companies which survive and thrive in bad Stakeholder Pensions might prove more appropriate, as they require less Tax relief and you may pay two sets of management will continue until some deﬁnitive economic conditions. They tend to supply goods and services that people ﬁnd hard to cut back on even when incomes are being attention. SIPP investors receive tax relief on their fees for the wrapper and the underlying action is taken to save the euro squeezed, these sectors are pharmaceuticals, utilities and contributions, which could deliver beneﬁt investments. Will my employer contribute? This will depend on your employer, so from between 20 per cent to 50 per cent tax (or it is allowed to fail). telecommunications etc. Many pay attractive dividends to relief depending upon your own Forecasts for the euro zone suggest a second recession is widely investors and have strong balance sheets showing large amounts ask them. If you have access to a company or occupational scheme, and circumstances. predicted as austerity measures take effect. The UK exports 40 per of cash. The value of your investment and the The yields on offer make these areas an excellent choice for your employer is willing to contribute Most returns from investments within a income from it can go down as well as cent to the euro zone, so this is a worry for our future. A forecast towards that, it is advisable to SIPP are free of income and capital gains tax. by the Centre for Economics and Business Research (February equity income managers. Net yields on average of 4-5 per cent up and you may not get back the are common, and any income can be reinvested to boost growth investigate that option ﬁrst. However, However, unlike dividend payments received 2012) predicts the UK economy will shrink by 0.4 per cent this original amount invested. The Tax if not needed. With interest rates likely to remain low, it is thought you can have SIPPs and company outside a SIPP, there is no 10 per cent tax year, but could be as much as 1 per cent if the euro zone were to pensions at the same time. beneﬁts of SIPPs will depend on your the yields on offer from this type of company could prove popular credit applied to dividend payments within a break up. personal circumstances. The rules of with income-seeking investors, pushing prices even higher. One When is a good time to set up a SIPP. Maintaining international conﬁdence is key to the UK so it can SIPPs may change. SIPPs are not suitable main consideration to remember is that unlike cash, stock market SIPP? retain its triple-A credit rating. Failure to do so would result in a Tax advantages for everyone. Please seek Independent investments will ﬂuctuate in value and so neither income nor As soon as possible, the sooner you get dramatic rise in the UK’s borrowing costs, and a potential SIPPs are long-term savings vehicles with Financial Advice if you are unsure if they capital is guaranteed. started, the longer your money has the ‘debt-trap’. Only time will tell who is right. potential to grow and work in your certain tax advantages, so you should be are right for you. prepared to invest your money until at least What does this mean for investors? The value of your investment and the income from it can favour. Whether we slip back into recession or not, growth will probably age 55. There are various options for taking go down as well as up and you may not get back the If you have any doubts about the remain low. This means, it may be wise to avoid investing in original amount invested. Past performance is not a guide beneﬁts from your SIPP that you should be suitability of a SIPP or you need further businesses which rely on strong economies like retailers and to future performance. Please contact us for further aware of. Generally, you can receive up to 25 advice, you should seek advice from a lifestyle providers, Bank investing is also difﬁcult to justify. The information or if you are in any doubt as to the suitability per cent of the pension fund value as a suitably qualiﬁed ﬁnancial adviser. prospects for the sector remain unclear. Businesses still have of an investment.10 11
Company Succession Planning To ensure that your business survives after Failure to separate your business with that everyone involved with the plan is you, try to avoid the following mistakes. your estate plan aware of the change. Failure to plan Many small business owners think that they Failure to understand family There is no reason you can’t start can simply leave the business to their spouse It’s important when the business is closely preparation now with a series of plans at any or heirs when, in fact, the business comprises held in the family to separate the family point in the life of the business or even virtually all of their net worth. By leaving the dynamic from the business dynamic as much before the business even begins. business to one person, you’ve excluded all as possible and to recognize that these other heirs from inheritance. different forces are at work. Failure to obtain the correct valuation Your business succession plan will likely Failure to plan for health problems Failure to diversify the owner’s net involve selling the business or passing it to It is important to think of disability planning worth from the business as a whole your heirs, it is important to know what the and insurance into your business succession Many owners hold virtually all of their net appropriate sales price or inheritance value plan. What is your plan if you’re injured and worth in their business and ﬁnd themselves of the business is, so that plans for its unable to work? Who would run the in a difﬁcult situation in a business purchase for paying estate taxes can be business? Know the difference between downturn. After they are gone, their heirs made accordingly. power of attorney for asset management and may be forced to sell the business, when the It is wise to have updated valuations of a living trust. The power of attorney gives market is poor. the business to hand and have that legal authority of your affairs over to another Failure to consider contingencies information available to your family or person should you become incapacitated, but If you’ve decided to leave your business to intended successors. Should the business has minimal guidelines on how assets should an adult child, what will happen if that adult have to be sold in an unexpected be managed. A living trust allows for more child predeceases you? circumstance, rather than passed on, the complete instruction to be available. On the Planning can be the difference between known valuation of the business, as well as insurance side, consider the value of having a mortality and immortality of your business the loans or debts owed, having the personal disability income protection plan. and the goals you set for it. With proper information readily available will help the Failure to identify key employees planning, your business will survive you and process. Ensure key employees remain with the continue your legacy for years to come. Failure to organise the successors business during any succession transfer by This often involves a tough analysis of sharing your plan with them. This ensures whether family members have the skill set to run the business or whether your key succession candidates may have been working in the business.For more information on any subject that we have covered in this issue, or on any other subjects,please tick the appropriate box or boxes, include your personal details and return this section to us. I Financial wealth check Name I Tax efﬁcient investments Address I Pensions Postcode I Tax planning Tel. (home) Tel. (work) I Critical Illness cover Mobile Email I Protection I Mortgage/Re-Mortgage Please return to: Copperfields Financial Management Ltd, Basepoint Business Centre, Oakfield Close, Tewkesbury, Gloucestershire GL20 8SD. I Healthcare 26 Kings Hill Avenue, Kings Hill, West Malling, Maidstone, Kent ME19 4AE. I Director and employee beneﬁt schemesYou voluntarily choose to provide your personal details. Personal information will be treated as confidential by us and held in accordance with the Data Protection Act. You agree that personal information maybe used to provide you with details and products or services in writing or by telephone or email. This magazine is for general guidance only and represents our understanding of the current law and HM Revenue and Customs practice. We cannot assume legal responsibility for any errors or omissions it might contain. Level and bases of, and reliefs from taxation are those currently applying but are subject to change and their value depends on the individual circumstances of the investor. The value ofM8trix Media Limited, Basepoint Business & Innovation Centre, investments can go down as well as up, as can the income derived from them. You should remember that past performance does notGreat Marlings, Luton, Bedfordshire, LU2 8DL guarantee future growth or income and you may not get back the full amount invested.