Category Archive Retirement Planning

Bymapfinancesadmin

New Tax Year Planning Pt. 2

In our second post about tax planning ahead of the new tax year, we look at income sharing, pension contributions, ISAs and Capital Gains.

Income Sharing

Always try and share income (if possible) between spouses, and so perhaps keep one or both of you out of 40% tax. Yes, we know this is not always possible, but for those who are self-employed, you should think about forming a partnership with your spouse, that would allow this.

Pension Contributions

Where you can afford it, try and maximise pension contributions. Bear in mind that you can put up to £40,000 into your pension every year, and equally where you haven’t used the previous three year’s allowances, you could put that into your pension too.

As you are potentially talking about paying up to £160,000 into your pension, then yes, you obviously need to be able to afford it. And whilst this money would be locked away until age 55 at the earliest, it would be less money to pay tax on now and mean a bigger pension upon retirement.

We had one client who through no fault of her own, received a salary which put her into the 45% tax bracket. Therefore, it was more than worth her while to put the excess amount which caused this, into her pension. You get tax relief at your highest rate of tax – and 45% relief is not to be snubbed! For every £1,000 that went into her pension, she only needed to pay £550, so that’s a bargain!

ISAs

Putting money into an ISA will reduce taxation, as there is no tax on dividends received, and ISAs will never be subject to Capital Gains Tax (CGT), no matter how much you encash later on.

Capital Gains

Everyone has an allowance of £11,700 which means you can make gains of £11,700 per year and pay no capital gains tax at all. This is one of those allowances with a ‘use it or lose it’ scenario, so if you are thinking about cashing in on something which would take you over this limit, and it is possible to cash in part of it this tax year and another part next tax year, you could make gains of £23,400 with no tax to pay at all.

This obviously may not always be possible, but can be done with investments and mean less of your gains are given away in tax.


If you would like to find out more information or would like to start investing today, please contact Money Advice & Planning Ltd on 0345 241 1808 or e-mail us at enquiries@mapfinances.co.uk.

The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Links to external sites are for information only and do not constitute endorsement. Always obtain independent professional advice for your own particular situation. Money Advice & Planning Ltd is authorised and regulated by the Financial Conduct Authority.

Bymapfinancesadmin

New Tax Year Planning Pt. 1

In the first of two posts about tax planning, ahead of the new tax year, we look at how you can use salaries, dividends and pensions to maximise tax-free income.

Salaries

You may think this is a strange one to put in for tax planning, but it is an obvious one, and sometimes we all miss the obvious. The main thing to remember about personal allowances is use it or lose it – it’s that simple.

In the current year we get a personal allowance of £11,850 which is the amount we can earn without paying any tax. If you have your own company, and you or your spouse haven’t used your allowances for the year, it is worth thinking about taking an amount as a salary to use these allowances up. After all, if you don’t, it means some tax-free money has gone.

Dividends

As with the above, if you are a shareholder of your own company, think about taking £2,000 in dividends, as this would be tax-free. Please ensure however that you have profits of at least this amount, as dividends should only be taken out of net profits.

You should even look at the possibility of taking out more than £2,000 if the company can afford it, as dividends over £2,000 are taxed at 7.5% for those in the 20% tax bracket (a saving of 12.5%) and at 32.5% for those in the 40% tax bracket (a saving of 7.5%). The same warning as before still applies however; the company must be making equivalent profits.

Pension Income

If you are taking a pension income and your fund could stand you taking out more and this amount is available tax-free, i.e. by taking up to £11,850, then why not? You should always maximise the tax-free element – even if you extract it and put it in the bank – as at least you are not paying tax on it. Don’t forget this applies per person, so if you are married, your spouse can do the same.


If you would like to find out more information or would like help with any aspect of tax planning mentioned, please contact Money Advice & Planning Ltd on 0345 241 1808 or e-mail us at enquiries@mapfinances.co.uk.

The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Links to external sites are for information only and do not constitute endorsement. Always obtain independent professional advice for your own particular situation. Money Advice & Planning Ltd is authorised and regulated by the Financial Conduct Authority.

Bymapfinancesadmin

Tax Planning for Spouses

Capital

As mentioned in a separate article in our January 2019 Professional Newsletter, as transfers between husband and wife are ignored for Capital Gains Tax (CGT) purposes, why not use this as much as you can to reduce a clients’ tax bill for any gains?

Pensions

Many a time when looking at a couple’s finances, everything seems to be done in the husband’s name and very little in the wife’s. If you are wanting to reduce long-term tax, this needs to change.

Let’s say all pension planning is done in the husband’s name alone, and he ends up with a pension of £60k p/year. This will obviously be well into 40% tax whereas, if it was done jointly and evenly, such that each party had £30k pensions p/year, only 20% tax would be payable. That represents a big tax saving and shouldn’t be ignored. Planning must be started early on to achieve this – and that’s where MAP comes in.

If you are doing accounts for a self-employed person, is it possible to do the same thing as a partnership, by introducing a wife into the planning? Perhaps through setting up a Limited Liability Partnership?

Inheritance

Every individual now gets £325k basic exemption from Inheritance Tax Planning (IHT), and then on top of this is the residence nil rate band which in due course will bring the exemptions up to £500k per person. The same applies with CGT – if assets were owned jointly, then maximum exemption could be obtained, and so significant savings on tax could be made.

A lot of these simple exemptions need a bit of planning as they just don’t happen overnight. Care has to be taken every step of the way to ensure compliance with the legislation, and that is what we do at MAP.

One of our IFAs is also a qualified accountant (and ex-Inland Revenue employee), who has many years’ experience as a financial adviser, and his work is all about planning. If he can help your clients, just let us know.

If you would like to find out more information or would like to start investing today, please contact Money Advice & Planning Ltd on 0345 241 1808 or e-mail us at enquiries@mapfinances.co.uk.

The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Links to external sites are for information only and do not constitute endorsement. Always obtain independent professional advice for your own particular situation. Money Advice & Planning Ltd is authorised and regulated by the Financial Conduct Authority.

Bymapfinancesadmin

Why Accountants should do Tax Planning

As an accountant myself, I know that many accountants don’t want to stray into the financial advice market in case it goes wrong. It doesn’t need to be as black and white as that though.

When doing clients’ accounts and tax returns, it is easy enough for an accountant to recommend that someone see an Independent Financial Adviser (IFA) and potentially concentrate on pensions. You may have noticed when doing their accounts, that their tax bill has increased, and just about the only way to reduce that is contributions into pensions. This means you are at least helping your clients whilst not actually giving advice. They get the best of both worlds and is something that you won’t be held accountable for, but may get an income yourself from.

Accountants today should only recommend independent advisers, and that’s what MAP are. Moreover, the way we do our investing process keeps it that way, because we don’t outsource our investment process. What we invariably do for each client is invest in a spread of 10 investment funds through an investment platform, and then monitor those funds quarterly thereafter to ensure the client is always invested in funds on our approved Recommended Funds List.

In other words, we don’t let things drift, which is important when doing anything like this. Most people – even those that do their own investing – will treat investing as a one-off exercise, when in fact it needs to be a continuous exercise. MAP looks at all the funds that clients use every quarter, and if we are not happy with any fund, we will look to switch to others that we are happy with; so it is constant reviewing.

What could be better for your clients than using this kind of process, and your clients will love you for recommending this to them. They will then feel you are really looking after them with this kind of recommendation, and this will increase loyalty and client retention. Bear in mind we will also give you a percentage of the initial fee so that you can benefit from this as well as your client, and enable you to build an additional income stream for your business.

If you would like to find out more information or would like to start investing today, please contact Money Advice & Planning Ltd on 0345 241 1808 or e-mail us at enquiries@mapfinances.co.uk.

The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Links to external sites are for information only and do not constitute endorsement. Always obtain independent professional advice for your own particular situation. Money Advice & Planning Ltd is authorised and regulated by the Financial Conduct Authority.

Bymapfinancesadmin

Why MAP use investment funds?

Some people over the years have asked us why we don’t use shares when we invest money for clients, and only stick to funds.

Basically, we think funds represent a safer way of doing things. If you were to invest in a company’s shares, you need to do a lot of homework on that one company, whereas if you invest in funds it is very different. Now each fund manager has their own ideas of course of how many companies they wish to invest in but, I would estimate an average of about 60 per fund; this is just to give you an overall idea.

When MAP places your investments, we usually use about 10 funds, so it doesn’t take too much to work out that you will be invested in about 600 companies, although there may be the odd duplication. This gives you a far better spread of investments than just one or two.

Working on the law of averages, you should anticipate some of those companies will do very well, some average, and some not so well; everyone cannot perform brilliantly (unfortunately). The simple fact that you have a good spread to start with will reduce your overall risk, unless of course you have started off with high risk funds only. It’s very much a case of not putting all your eggs into the one basket.

What MAP attempts to do for all clients is what we call in financial services as a good allocation. What this means is that we don’t put all your funds into the UK, America, Japan, etc. A good allocation will reflect the risk category that you have chosen. For example:

  • Low Risk will be interest-based investments and then low volatile equities that tends to be UK based, although it can be some other countries or indeed global.
  • Middle Risk will be mainly equities and could be from UK or Europe, or some global funds as well. In this category you can get financial investments and also UK Smaller Companies, to give a specific example.
  • High Risk tends to be areas deemed to be high risk and this could be Asia, Japan, or indeed America. It would also include high-risk investment types like Global new companies (what they call Alpha) or specialised investment areas like Healthcare.

In summary therefore, when MAP allocates your money to 10 funds, it is actually to hundreds of different areas. What we are hoping to achieve is a good spread of investments in countries, in investment types and in risk such that we can reduce your individual exposure as best we can.

Bear in mind of course that we only ever use funds that have been researched and are in our Recommended Fund List (RFL). There are of course no guarantees that these will always work the way we think they should, but regular research and analysis will help to reduce risks over time.

If you would like to find out more information or would like to start investing today, please contact Money Advice & Planning Ltd on 0345 241 1808 or e-mail us at enquiries@mapfinances.co.uk.

The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Links to external sites are for information only and do not constitute endorsement. Always obtain independent professional advice for your own particular situation. Money Advice & Planning Ltd is authorised and regulated by the Financial Conduct Authority.

Bymapfinancesadmin

October 2018 Budget

I know that when it comes to Budget time, I sit very close to the radio and try to gather as much information on changes as I can. The last one on Monday 29th October 2018 was no different.

What you should not do however is merely listen to it to see how it affects you today, and nothing else. You need to sit back after the event and decide what planning you need to do as a result.

What I will be looking at for clients is:

  • Where clients are withdrawing money from their pension and merely using up their allowances, then from April 2019, the basic allowance we all get changes from £11,850 to £12,500. This is a change from £987.50 per month to £1,041.67 per month, so why not take advantage of this. After all, it’s tax-free money.
  • The other big change in income tax is that the basic rate band which started at £46,350 is now pushed up to £50,000, and for those liable, this is a saving of £730 per year. So, before this change you would get £3,862.50 per month taxed at 20% before you were moved onto 40%, and now this is changing to £4,166.67 a month. That allows you another £304.17 taxed at 20% that previously was taxed at 40%.
  • National Insurance thresholds, which wasn’t really covered in the budget, will also rise as well.

We need to remember these rates will apply to the bulk of the UK but not to those who live in Scotland, as the Scottish Government have still to declare how much they intend to deviate from the UK Government. Once we have the rates from the Scottish Government, then we all need to sit down and see how much more we can get out of the system without tax, or before we get to 40%. Thereafter, it’s time to sit back and see what tweaks you can make to your own situation, to squeeze the maximum benefit out of the system.

One thing mentioned in the Budget was that pension cold calling will be made illegal from this Autumn, so if you are contacted by anyone asking you to move your pension, take down their details and we can inform the regulator about this, as this should not be happening.

Finally, the annual ISA allowance is staying at £20,000 per year, so no change. If you can afford a wee bit more into your ISA, as long as you don’t go over the £20,000 limit, this is worthwhile doing. Maybe even divert some of the tax savings above?

If you would like any advice or assistance in planning out how the budget has affected you, for good or for wose, contact Money Advice & Planning Ltd today on 0345 241 1808 or e-mail us at enquiries@mapfinances.co.uk.

The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Links to external sites are for information only and do not constitute endorsement. Always obtain independent professional advice for your own particular situation. Money Advice & Planning Ltd is authorised and regulated by the Financial Conduct Authority.

Bymapfinancesadmin

How long will your pension last?

From April 2015 when the then Chancellor George Osborne changed the rules and brought in pension freedoms, people have suddenly switched from buying an annuity to flexible drawdowns, where they can take out what they want when they want.

Now the FCA doesn’t have a problem with this, but they do have a problem with education more than anything else. They reckon that people are just walking into a nightmare, as there could very well be a problem at some time in the future when they will run out of pension money.

What on earth do these people do then, apart from telling a tale of woe? Pensions, as the FCA see it, are for when you retire, and if you take out a lot of money before you retire, then you won’t have it later. You can only spend it once after all!

If you run out of pension money in retirement – what are you going to live off? The State pension is certainly not enough for a comfortable life-style. How long are you going to live? Have you taken into account housing costs? What about care costs?

What we attempt to do at MAP is create a simple spreadsheet that shows your pension fund through the years to come, taking into account modest growth and withdrawals. Based on this information, we give a best effort at telling you how many years it might last. We only ever use low rates of growth to be pessimistic – 3% for cautious investors, 5% for middle risk investors and 7% for high risk investors – and we tend to work on an average of 6% withdrawals per year. So if you are a cautious investor, you can expect your fund to go down by about 3% per year, and therefore we need to look at longevity.

What we do in these spreadsheets is put in an estimate based on the information we have of how many years we think you have left to make your pension last. Having this kind of information is priceless to our clients and helps them to plan things out a bit better than they were before.

So, if you need some help in planning your retirement, please ask us for a forecast tailored for you. If you would like to discuss any aspect of retirement planning with Money Advice & Planning Ltd, please contact us today on 0345 241 1808 or e-mail us at enquiries@mapfinances.co.uk.

The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Links to external sites are for information only and do not constitute endorsement. Always obtain independent professional advice for your own particular situation. Money Advice & Planning Ltd is authorised and regulated by the Financial Conduct Authority.

Bymapfinancesadmin

Global Fund Markets

At the beginning of October, the tariffs Mr Trump hit China with finally had their effect on fund prices and values. To be honest, these tariffs had been in existence for a wee bit of time, so it wasn’t a surprise that they now hit home. What was a surprise was that the Dow Jones fell as well.

Admittedly. the Dow Jones fell because of people’s fears about interest rate rises, but there must have been an element of worry about global trade, which the USA plays a big part in. Personally, we think what Mr Trump is doing is wrong, and we reckon this will come back and bite him at some stage.

All of this however merely reinforces what we have said a few times now; that we reckon for the next few years, the world markets will be more unsettled and therefore more volatile. At the time of writing this article, we haven’t got a deal on Brexit agreed and through Parliament, Mr Trump is fighting with the Chinese, and we know we are in for a hard time when the current bull run finishes. The current run has gone for about 3–4 years more than it should have done; an end is inevitable, but we don’t know when.

These factors are over and above all ‘normal’ trading challenges, so as you can imagine, there is a lot going on at the moment to unsettle investments.

At MAP we will watch the markets carefully on our clients behalf, but there is no need at all for knee-jerk reactions. Everything will be planned and organised. The funds we put in our Recommended Fund Lists (RFL) are those with a reasonable amount of consistency, which is by far the best way to go.

There are no guarantees that this consistency will be maintained, but in using such funds and monitoring their ongoing performance, to ensure the consistency remains, there is in our eyes, no better approach to investing in the current climate.

If you would like to discuss any investments with Money Advice & Planning Ltd, please contact us today on 0345 241 1808 or e-mail us at enquiries@mapfinances.co.uk.

The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Links to external sites are for information only and do not constitute endorsement. Always obtain independent professional advice for your own particular situation. Money Advice & Planning Ltd is authorised and regulated by the Financial Conduct Authority.

Bymapfinancesadmin

IHT Planning Case Study

We always talk about IHT planning and what we can do for clients, but sometimes it is difficult to see the substance behind our words. So, what better way to explain things than by taking an example case:

Mr & Mrs Smith are both retired and aged 64 and 67 respectively. They have a house valued at £450k with no mortgage and have no children. Mr Smith has pension funds valued at £950k and Mrs Smith at £458k. They have £43k in the bank, approx. £26k in premium bonds and £450k in investments.

Scenario if they do nothing: Total assets for IHT is £450k + £43k + £26k + £450k = £969k.

IHT exemptions are £650k (£325k each), and of course pensions are excluded, meaning they are potentially liable to IHT for £319k, which at 40% = £127.6k.

This one is straightforward; if the clients invest £319k (minimum) into a bond and write it in trust, after seven years that money will be out with their estate and not chargeable to tax. If the clients wanted some income, they could take 5% of this £319k from said bond each year, which is also not taxable.

Seven years should be OK for this couple as they are ‘young enough’ (in relative terms), but if you have clients who are that bit older and may not have that seven years, they can invest in an AIM ISA which only takes two years to wash out the system. That may be better for your clients although it has more risk to it. You cannot take any 5% withdrawals from the ISA, so if your clients needed an income, then they shouldn’t go for this option.

Please note that if this couple had had children, they probably wouldn’t have needed to do anything, since they would each get £125k exemption on top of their £325k for Residence Nil Rate Band.

If you would like to discuss any investments with Money Advice & Planning Ltd, please contact us today on 0345 241 1808 or e-mail us at enquiries@mapfinances.co.uk.

The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Links to external sites are for information only and do not constitute endorsement. Always obtain independent professional advice for your own particular situation. Money Advice & Planning Ltd is authorised and regulated by the Financial Conduct Authority.

Bymapfinancesadmin

Divorce and Pensions

We all know that when a couple divorce, any pension funds need to be included in the final settlement. But at what value?

Whether you look at pension sharing, earmarking or indeed offsetting, you still must work to a value, and that’s where the difficulties might come in. If you are talking about a money purchase scheme or defined contribution (DC) scheme, the value is based on the underlying value of the assets it is invested in. That part is straightforward.

The difficulties come from a defined benefit (DB) scheme; sometimes known as an occupational or final salary scheme. Values given for a DB scheme are based on a whole series of assumptions that the scheme actuaries will make. You need to remember they make these assumptions based on the whole scheme and all of its members. It may be necessary therefore to ask if the actuary could provide a specific valuation based on current information, as opposed to historical data.

Once this has been done and you have more up-to-date information on the scheme as well as a value, it may be worthwhile considering moving a DB scheme into a DC one. That could make the whole separation proceedings a lot easier. This would also clarify values in the process, so may be beneficial.

When you are looking at a DB to DC transfer, you need to involve what is called a Pension Transfer Specialist (PTS), which is someone who has passed the PETR examinations and knows exactly what the FCA are looking for in terms of quality of advice. We are pleased to say MAP has advisers who are PTS’ and so can help you and your clients decide on the best route to go.

If you would like to discuss any investments with Money Advice & Planning Ltd, please contact us today on 0345 241 1808 or e-mail us at enquiries@mapfinances.co.uk.

The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Links to external sites are for information only and do not constitute endorsement. Always obtain independent professional advice for your own particular situation. Money Advice & Planning Ltd is authorised and regulated by the Financial Conduct Authority.