*Correct at 10 February 2015 YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

Transcription

1 Issue 11 Spring 2015 Viewpoint Your latest newsletter from Sanderson Financial Ltd Low rates, why wait? UK interest rates have been at the record low of 0.5% since March Although recent growth in the economy has led many to suggest that rates will rise again, the continuing low inflation level, gives little reason to raise the cost of borrowing. Indeed, the Bank of England hinted interest rates won t rise until Spring Get the right advice While banks and building societies are competing for your business, you need to be aware of the fees which may make the overall price more expensive. While it may be cheaper than ever to get a mortgage, borrowing has become harder since new affordability rules were brought in during April The new rules require lenders to look more closely at outgoings too. As well as pay slips and bank statements, details of regular payments such as haircuts, holidays and childcare could be required on your application. Rethink your savings plans The rock-bottom interest rates mean savers are not getting such a great deal. You need to make sure you put your money in the right type of account with the best rate. A great time for borrowers The low interest rates have helped banks and building societies keep prices down on mortgages. Data from the Bank of England shows the average two-year fixed rate for a borrower with a 25% deposit is now 2.01%*. This is down from 3.11% in January The average five-year fixed rate mortgage for someone with a 25% deposit stands at 3.09%*. The average rate on a 10% deposit mortgage stands at 3.79%, while the average rate on 5% deposit is 4.79%*. One option is to use your yearly ISA Allowance. A cash ISA is simply a savings account where you don't pay tax on the interest. As of 6 April, savers can put up to 15,240 into their ISA and if you opt for an easy-access ISA you can take the money out whenever you like. Whether you are looking for your first home, a bigger house or just to remortgage, or you want to know more about your saving options including ISAs, talk to us and you ll get the advice you need to get a great deal. *Correct at 10 February 2015 YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE. For this service a fee of 250 or 0.50% of the loan amount if greater is payable on completion. Typically this will be 250. COPEN961 Exp. 01/10/2015

2 Pension Freedom: Making the right decision During last year's Budget announcement, the Chancellor introduced the prospect of pension changes. These changes were confirmed in the Taxation of Pensions Act 2014 and have now taken effect. The freedom granted by these changes is good news for all pension savers but could lead to many people making bad decisions and paying unnecessary tax. That s why it s important to understand what the changes mean to you and why professional financial advice can help you make the right decisions with your pension. 1 2 Greater freedom over how you take tax free cash Most people can now take up to 25% tax-free cash from their pension, either by: Taking your Pension Commencement Lump Sum in full, with subsequent withdrawals taxed as income; or Making a series of withdrawals over time, receiving 25% of each withdrawal tax free. Flexible access from age 55 People over the age of 55 will have greater power over how they invest their retirement savings and more choice in terms of the options available. You can now: Take the whole fund as cash in one go Take smaller lump sums as and when needed Take a regular income via income drawdown, or an annuity Choosing to take your pension in stages, rather than in one go, could help you manage your tax liability. 3 Restrictions on how much you can contribute to pensions Pension contributions are subject to a 40,000 annual allowance and specific contribution rules. This remains true under the new rules. However, if after 6 April 2015 you make any withdrawals from your pension in addition to any tax-free cash, contributions to defined contribution plans will be restricted to 10, % pension death tax to be abolished Up until April 2015, it was normally only possible to pass a pension on as a tax-free lump sum if you died before age 75 and you had not taken any tax-free cash or income. Otherwise, any lump sum paid from the fund was subject to a 55% tax charge. From April 2015 this tax charge was abolished and the tax treatment of any pension you pass on will depend on your age when you die: If you die before age 75, your beneficiaries can take the whole pension fund as a lump sum or draw an income from it tax free, when using income drawdown. If you die after age 75, your beneficiaries can: 1. Take the whole fund as cash in one go: the pension fund will be subject to 45% tax. (From April 2016, lump sums will be taxed at the beneficiary's marginal rate). 2. Take a regular income through income drawdown or an annuity (option only available to dependants): the income will be subject to income tax at your beneficiary s marginal rate. 3. Take periodical lump sums through income drawdown: the lump sum payments will be treated as income, and subject to income tax at your beneficiary s marginal rate. If you re looking to access your pension in 2015, or you d like advice on your new pension choices, please get in touch. Income drawdown carries significant investment risk as your future income remains totally dependent on your pension fund performance. HM Revenue & Customs practice and the law relating to taxation are complex and subject to individual circumstances & charges which cannot be foreseen. COPEN962 Exp. 31/12/15

3 The Budget 2015: Headlines Chancellor George Osborne announced his pre-election Budget on 18 March. He described it as a Budget that works for you, but does it? Here are the key announcements. Savings A new personal savings allowance From April 2016 you will be able to earn 500 (for higher rate taxpayers) or 1000 interest each year on your savings without paying tax on it using your new personal savings allowance. The starting rate band For 2015/16, the starting rate band for savings income has been widened from 2,880 to 5,000 and the rate reduced from 10% to 0%. Lifetime allowance The lifetime allowance is to be cut from 1.25m to 1m from April Annuity freedoms From April 2016, people who already have an annuity will be able to effectively sell it on for a cash lump sum. Subject to certain conditions. State pension The new single-tier state pension starts in April 2016, replacing both the basic state pension and the second state pension (S2P). By 6 April 2016, the state pension age for women will rise to 63. From December 2018 the state pension age for both men and women will start to increase to reach 66 by October ISAs Annual ISA investment limit The annual ISA investment limit for 2015/16 is 15,240 (all of which may now be placed in a cash ISA). The limit for the Junior ISA (JISA) is now 4,080. The Help to Buy ISA From the autumn, first-time buyers can receive an extra 50 for every 200 they save (up to a maximum of 3,000) thanks to the government's new Help to Buy ISA. ISA withdrawals ISAs will soon be more flexible: from the autumn, you can make a withdrawal from your ISA and top it back up within the same tax year, without losing your annual allowance. Tax Corporation Tax The mainstream rate of Corporation Tax fell to 20% on 1 April At the same time, the small profits rate (formerly smaller companies rate) was withdrawn. The tax-free personal allowance The amount you can earn before you have to start paying tax has increased to 10,600 for 2015/16. It will further increase to 10,800 in 2016/17 and 11,000 the year after. Capital Gains Tax Capital Gains Tax annual exemption has increased to 11,100 for 2015/16. Contact us today to find out what the 2015 Budget announcements mean for your finances. An ISA is a medium to long term investment, which aims to increase the value of the money you invest for growth or income or both. The value of your investments and any income from them can fall as well as rise. You may not get back the amount you invested. HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen. Tax concessions are not guaranteed and may change in the future. Tax free means the investor pays no tax. Pensions COPEN969 Exp. 30/09/2015

4 What s your deadline to the breadline? Research from Legal & General has revealed how quickly your money might run out if your household s main breadwinner died, or became unable to work due to long-term sickness or a critical illness. The insurer found that, on average, working age families in the UK have just two weeks before becoming totally reliant on state benefits, friends or family 1. Research results for the UK suggest that those in Wales are most at risk, being an average of just seven days from the breadline. Those in Scotland (17 days) and Northern Ireland (19 days) are also among the most vulnerable. The best-prepared region of the UK is Greater London where households are, on average, 83 days away from the deadline. Making cutbacks The research also showed that three quarters of households worry about a rise in the cost of living. A rise of just 1% in mortgage interest rates would mean that households would no longer be able to save each month and would have to change their spending habits or rely on existing savings to make ends meet. A rise of 2% would move them one day closer to the breadline. Shockingly, more than a quarter of those surveyed admitted they did not know where they d be able to make cutbacks to find extra money. How can you protect yourself? If you were left without an income, you may be surprised how quickly your savings could be swallowed up by things like rent or mortgage payments, bills and other financial commitments. A protection policy can help ensure your financial commitments are taken care of if you, or your household s main breadwinner, suffered a sudden loss of income. Your savings The average UK household has just 1,205 in savings and 35% of households admit to having no savings at all. Unforeseen events, ranging from illness to redundancy, often lead to a sudden loss of income, which means that over a third of UK households would not have enough cash to maintain their standard of living. 1 Legal & General s Deadline to the Breadline Report 2014 If you'd like advice on how to protect your finances, or you d like to review your protection needs, please get in touch. COPEN958 Exp. 31/12/15

5 Generating income in a lowest rate world If you rely on your savings to supplement your living costs, or provide you with an income in retirement, you may be finding it difficult to make ends meet at the moment. This is not surprising, as the cost of living has increased dramatically over the past ten years. At the same time, interest rates have fallen to unprecedented low levels along with the income you can receive from traditional sources of income such as bank deposit accounts and bonds. The chart below shows the annual income from a 10, day notice bank deposit account over the past fifteen years. You can see it has dropped from a peak of 420 in 2008 to only 73 now a fall of over 82%. And this is before the effect of inflation is taken into account: over the same period ( ), using the government s favoured measure of inflation (the Consumer Price Index), the value of money fell by over 20%, meaning that the real value of this income is even less Source Financial Express MoneyFacts 90 days notice 10,000 Consumer Price Inflation How can you find different ways of delivering income? An alternative might be to invest in stocks and shares that can deliver income through dividends, either by holding them directly or through an Equity Income fund. This can be attractive, although many investors find market volatility off-putting, as it can change both the value of their investment and the income it generates. One other approach is to take a much wider view and consider other potential sources of income from a broader range of asset classes and capital structures, across many different countries and regions, to provide diversification. Diversification makes sense The table below shows the annualised returns from a range of different asset classes over the past 10 years, covering different types of equities, government and company bonds, commodities, property and cash. You can see from the patchwork quilt effect that making a decision on which asset class to hold is tricky the top performer changes regularly and the returns are very volatile. Investors who are over-committed to one asset class run the risk of disproportionate losses should that asset class underperform. Taking a diversified approach means that a drop in the value of one asset may then be offset by increases in other asset classes, leading to smoother overall performance. To find out more about the investment and income solutions we can offer, please get in touch. You should not use past performance as a reliable indicator of future performance. It should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise. You may not get back the amount you originally invested % 20.1% 18.5% 45.1% 30.1% 27.4% 15.7% 17.8% 29.9% 20.8% 24.1% 18.1% 15.7% 12.8% 20.1% 20.0% 8.3% 13.1% 25.2% 19.3% 22.0% 16.8% 9.5% 5.7% 19.8% 14.5% 7.4% 12.3% 20.8% 13.9% 18.8% 5.0% 6.2% 5.6% 12.6% 14.3% 6.9% 11.1% 10.9% 12.2% 17.3% 1.6% 5.3% -4.1% 10.8% 9.8% 2.5% 2.7% 0.9% 6.9% 7.9% 0.7% 5.3% -12.8% 2.2% 8.4% 0.9% 2.4% 0.5% 1.2% 7.9% 0.7% 3.7% -22.5% 1.3% 7.2% -3.5% 0.8% -3.9% 0.5% 7.3% 4.9% -0.4% -4.7% 1.8% -5.5% -24.0% -29.9% -1.2% -7.6% 5.8% -6.7% -2.6% -6.3% Source: Threadneedle, Datastream and iboxx, in GBP as at 31 December 2014 is the FTSE All Share Index, European equities is the FTSE World Europe ex UK Index, is the Dow Jones-UBS Commodity Index, UK corporate bonds is the iboxx Sterling Non- Index (linked with UBS W All Stocks Investment Grade pre 30 June 2003), is the S&P 500 Composite Index, is the FTSE UK Government (All) Index, is the IPD Monthly Index (total return), is JPMorgan GBI Global (trade) (GBP Unhedged) Index. is 3M Libor. 0.8 % -14.7% -5.4% -11.2% 0.2% -11.8% COPEN965 Exp. 31/12/2015

6 Small businesses face auto enrolment deadline In late January, The Pensions Regulator (TPR) released its latest quarterly figures showing how effectively employers are complying with the auto enrolment pension regime. Its report 1 showed a rise in notices issued to non-compliant employers, as more medium-sized businesses reached their staging date. Why are more employers being affected? Auto enrolment is being phased, or staged, depending on an employer s size. The first staging date for the largest employers (120,000+ employees) was 1 October Over the past two years, more businesses have gradually been required to meet the new rules and on 1 August 2015, the staging date for smaller employers (with between employees) begins. Action taken against non-compliant employers For the two-month period between October 2014 to December 2014, TPR issued 1,139 compliance notices - a 500% increase compared to the 177 compliance notices it issued for the two-year period between October 2012 to September Plan ahead to avoid being penalised TPR has repeated its warning that employers should start the process of auto enrolment planning a year before their staging date. It also added that failing to declare within five months of your staging date means you risk being fined. If your business is yet to enter the automatic enrolment process, do not leave things until the last moment. The sooner you start, the more likely you are to meet your obligations and avoid a potential fine. Pension Regulation Action Oct Sept 2014 Compliance notices issued Where there has been a contravention of one or more automatic enrolment employer duty provisions which must be remedied Unpaid contributions notices issued Sent to employers who have not made the required pension contributions on time Fixed penalty notices issued A flat 400 penalty for failure to comply with a statutory notice or a specific employer duty Oct Dec , There was a sharp increase in fines too: fixed penalty notices were issued for the period between October 2014 to December 2014, compared to just three between October 2012 to September The jump in notices issued reflects more medium-sized employers being affected by auto enrolment. Around 30,000 employers (with approximately 62 to 149 workers) reached their auto enrolment staging date in April 2014 to July 2014 and completed their declaration of compliance with auto enrolment law by the start of December Automatic enrolment: Compliance and enforcement, Quarterly Bulletin, 1 October 31 December 2014 To discuss the auto enrolment options we can offer you and your business, please get in touch. COPEN956 Exp. 31/12/2015

7 What s the real value of financial advice? Financial advice is about what to do, and what not to do with your hard-earned money. It s about planning and ongoing management, so that you can make the most of your income and any capital you ve saved, in order to provide a certain lifestyle for yourself or your family. Getting to know you Everyone s current situation and future objectives are different, so we'll start by finding out about your financial circumstances today, and what you want to achieve with your money in the future. We'll look at products such as mortgages, life insurance, savings accounts, investments and pensions and recommend what best suits you and your particular circumstances. Our recommendations will take into account: At times this can be complicated - especially when it comes to investing. But with the help of a professional financial adviser, you can make the right choices with your financial planning. Valuable, and accessible to everyone There may be times in your life when you are not sure what to do with your money. You may be buying your first home, looking to invest for the benefit of your children, or you may be approaching retirement. The professional support and knowledge a financial adviser can provide will help you manage your finances more efficiently and make sure you have protection in place that will maintain the lifestyle you ve created if something unexpected happened. How much you can afford Whether you re comfortable taking any risk with your money What tax you may be liable for Whether you want to save for the long or short term The benefits It's hard to put a value on the peace of mind you get from knowing you have a dedicated professional to support you through some difficult and complex choices. But, with sound financial advice you can be confident the recommendations you receive will be the right ones for you. Good financial advice will leave you knowing where you stand financially today, what goals you have for your money and greater confidence about the steps you must take to achieve them. If you'd like help making the right choice with your money, please get in touch. COPEN957 Exp. 01/04/2016

8 Insuring your estate against an IHT bill Whole of Life policies can offer an alternative to gifting, allowing you to preserve your family home for the next generation. If you re seeking to reduce or eliminate the burden of Inheritance Tax (IHT) on your death, gifting while still alive can often be the simplest and most obvious solution. Gifting involves giving away some or all of your estate to your intended beneficiaries prior to your death. Limitations of gifting Given the huge rise in house prices in the last 20 years, gifting can be invaluable in terms of reducing the tax exposure of an estate. But there are limitations. For instance, gifting your home may not be viable as you may plan on living there well into your later life. Even an informal arrangement with the beneficiaries that allows you to continue living there indefinitely will remove its gift status and make the property liable to IHT. An alternative solution An alternative to gifting is to take out a Whole of Life insurance policy. As the name suggests, rather than covering your life for a fixed period of time, the policy lasts until death, with a payment at the end. The policy could be set up to pay an amount equivalent to the IHT liability, thus preserving the estate. What's more, in normal circumstances, a life insurance policy payout would itself add to the estate and be liable to IHT. However, a policy written in trust does not count as part of the estate. This is because a trust is a distinct entity that can keep assets in its own right, and needs no human owner. Other benefits Whole of Life policies are often written on a joint life, second death basis. Given the estate will pass tax-free to the surviving spouse, this potentially results in a lower overall cost than a joint life, first death plan would do. Writing a Whole of Life policy in trust is a reasonably simple process, but will require professional guidance. If you d like to discuss this with us, please get in touch. HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen. Sanderson Financial Ltd 8 Ullenwood Court Ullenwood Cheltenham GL53 9QS enquiries@sandersonfinancial.co.uk COPEN955 Exp. 01/04/2016