Fact Find Glossary Index

Transcription

1 Fact Find Glossary Index This glossary of terms supplements the Berkeley Burke & Co Ltd Online Fact Find. To navigate to the item you require further information on, simply click the item listed below to go to the relevant section. Annuities Bereavement Allowance Capital Gains tax (CGT) Capital Repayment or Interest Only Carers Allowances Cash ISAs Critical Illness Cover Direct Shareholdings (Unlisted, FTSE, AIM) Endowments Enterprise Investment Schemes Family Income Benefit Final Salary Pensions Fixed Rate or Variable Rate Her Majesty's Revenue & Customs (HMRC) Income Protection Insurance Income Tax Inheritance Tax (IHT) and Gifting Investment Trusts Long Term Care Insurance Lifetime Allowance (LTA) National Insurance National Savings and Investments Products (NS&I) Occupational (Employer Sponsored) Pensions Onshore & Offshore Bonds Pension Contributions & Tax Relief Pension Drawdown Personal Pensions Power of Attorney Self-Invested Personal Pensions (SIPPs) Small Self-Administered Schemes (SSAS) Stakeholder Pensions State Pension Stocks and Shares NISAs Term Assurance Unit Trusts & Open Ended Investment Companies (OEICs) Venture Capital Trusts (VCT) Whole of Life Insurance Widowed Parents Allowance

2 Glossary of Terms Annuities These are contracts sold by an insurance company designed to provide taxable payments to the holder at specified intervals, more often than not for the duration of the holder s lifetime. Bereavement Allowance Bereavement Allowance is a weekly benefit for widows, widowers, or surviving civil partners. Eligibility is subject to meeting certain criteria. From April 2016 this form of support shall be replaced by a new form of allowance called Bereavement Support Payment. Capital Gains tax (CGT) CGT is a tax on the profit when you sell (or dispose of ) something (an asset ) that s increased in value. It's the gain (profit) you make that is taxed, not the amount you receive. We all have an annual exemption of 11,100 (2015/16), total gains below this are not subject to CGT. Any losses from previous years can also be used to lessen the gains subject to tax. Capital Repayment or Interest Only A capital repayment mortgage is a mortgage in which the monthly repayments consist of repaying the capital amount borrowed as well as the accrued interest, so that the amount borrowed decreases throughout the term and by the end of the term the loan has been fully repaid. An interest-only mortgage only pays the interest borrowed on a monthly basis. At the end of the mortgage term the initial sum borrowed remains unpaid. Carers Allowances Carer's Allowance is a taxable means-tested state benefit, which is paid on a weekly basis, which is designed to help people who look after someone who is disabled. Cash ISAs Are essentially cash accounts that pay interest tax-free, unlike ordinary current and savings accounts, which pay interest after tax is taken. For each tax year, there's a limit to the amount you can deposit into your Cash ISA, this is your annual allowance. The allowance for the 2015/2016 tax year is 15,240, which you can invest in a Cash ISA, a Stocks and Shares ISA or a combination of the two. The tax year runs from 6 April to 5 April.

3 Critical Illness Cover Critical Illness Cover is an insurance product in which the insurer is contracted to typically make a lump sum cash payment if the policyholder is diagnosed with one of the specific illnesses on a predetermined list as part of an insurance policy. Direct Shareholdings (Unlisted, FTSE, AIM) Direct share ownership occurs where an individual owns at least one share of a company s stock, stock being units of capital raised by the company. Shareholders are a company's owners. They have the potential to profit if the company does well, but that comes with the potential to lose if the company does poorly. A shareholder may also be referred to as a "stockholder". The terms FTSE and AIM refer to the investment index where the company is listed, for instance FTSE 100 listed companies represents a list of share prices in the 100 largest and most actively traded companies on the London Stock Exchange. The AIM index is a sub-market of the London Stock Exchange, allowing smaller companies to list shares. The FTSE and AIM indexes are UK stock exchanges, but there are many others, such as United States NYSE and NASDAQ (often referred to as the Dow Jones) and the Japanese TYO (often referred to as Nikkei). Shares in small companies which are not listed on an exchange are referred to as Unlisted or Unquoted shares. Endowments An endowment policy is a life insurance contract designed to pay a lump sum after a specific term (on its 'maturity') or on death. Typical maturities are ten, fifteen or twenty years or up to a certain age limit. Some policies also pay out in the case of the diagnosis of a critical illness. Enterprise Investment Schemes The Enterprise Investment Scheme is a government backed scheme which is designed to help smaller, higher-risk companies raise finance by offering tax relief on new shares in those companies that qualify. Family Income Benefit Family Income Benefit is a life insurance policy that pays an income to dependants on the death of the insured. The income is payable for the remainder of the policy term. Final Salary Pensions Final salary schemes are a type of pension scheme that are offered by employers. The benefits you receive at retirement are based on your earnings immediately before retirement and your length of membership in the scheme. Earnings are based not on years served with the employer because often there is a waiting period in place before an employee is eligible to join the scheme.

4 Fixed Rate or Variable Rate A Fixed Rate mortgage is a mortgage loan where the interest payable remains fixed either for the entire term of the loan or for part of the term. A Variable Rate mortgage is a mortgage loan where the interest payable fluctuates over time, because it is based on an underlying benchmark that changes periodically. Her Majesty's Revenue & Customs (HMRC) HMRC is a non-ministerial department of the UK Government responsible for the collection of taxes, the payment of some forms of state support, and the administration of other regulatory regimes including the national minimum wage. Income Protection Insurance Income Protection Insurance (IPI) is an insurance policy, paying benefits to policyholders who are incapacitated and hence unable to work due to illness or accident. Income Tax Income Tax is a tax levied on both earned income, such as wages, salaries and commission and unearned income, such as dividends, bank interest and rental income. Income tax may also be levied against non-state pension retirement income. Inheritance Tax (IHT) and Gifting Inheritance Tax is paid if a person s estate (their property, money and possessions) is worth more than 325,000 when they die. This is called the Inheritance Tax threshold. Spouses are able "share" the threshold, effectively making the allowance for couples 650,000. The estate may not have to pay Inheritance Tax on assets the deceased gave away as gifts while they were alive. The original owner must live for 7 years after giving the gift. Any gifts made less than 7 years before death count towards the Inheritance Tax threshold ( 325,000). However, gifts between a husband and wife or civil partners who are both domiciled in the UK, where the transfer is from a party domiciled in the UK to a partner domiciled abroad, only gifts up to 55,000 are exempt. There are many more gifts that can be made that are exempt from IHT, such as Gifts to people getting married up to: 5,000 from each parent of the couple; 2,500 from each grandparent or more remote relative; 2,500 from bridegroom to bride (and vice versa) and between civil partners; 1,000 from anyone else. In addition any number of gifts up to 250 to each recipient, but these gifts are meant to cover things such as birthday and Christmas presents. Furthermore, gifts for maintenance of husband, wife or civil partner, ex-husband, ex-wife or excivil partner and relatives dependent on you through old age or infirmity, and for maintenance, education or training of your children (including step and adopted children) in full-time education or aged 18 or under.

5 Finally, gifts up to 3,000 in total in each tax year. You cannot combine these with a 250 gift to the same person. Husbands, wives and civil partners each have a 3,000 allowance limit. You can carry any unused allowance forward one year only, to the next year. This gift allowance is known as the annual exemption. Investment Trusts An Investment Trust a limited company whose business is the investment of shareholders' funds, the shares being traded like those of any other public company. Long Term Care Insurance This is an insurance product that helps provide for the cost of long-term care beyond a predetermined deferred period, that is to say payments commence after a waiting period following a claim being made against the plan. Lifetime Allowance (LTA) The Lifetime Allowance is a limit on the amount of pension benefit that can be drawn from pension schemes, whether lump sums or retirement income, before an extra tax charge applies. The Lifetime Allowance for 2015/16 is 1,250,000. You may be able to avoid having to pay the Annual Allowance tax charge, even if you have exceeded the Lifetime Allowance, if you had applied for and been granted one of five "LTA protections". These protections (Enhanced Protection, Primary Protection, Fixed Protection 2012 & 2014 and Individual Protection) permit you to exceed the lifetime allowance without incurring a tax charge, each protection has different features and qualifying criteria. National Insurance National insurance contributions, made by the employed, employers or self-employed, were initially used to fund programs for the ill and unemployed, but are now also used to fund for state pension provision. National Savings and Investments Products (NS&I) NS&I (National Savings and Investments), a state-owned savings bank in the UK, offers Premium Bonds and a range of other savings and investments, including Direct Saver, Direct ISA and Children s Bonds. Occupational (Employer Sponsored) Pensions The contracts are often Personal Pension and Stakeholder Group arrangements set up by an employer for the benefit of employees. The employer will invariably contribute and, more often than not, the employee is also expected to contribute.

6 Onshore & Offshore Bonds These bonds are investment policies that include elements of life insurance policies. An insurance company will take the initial lump sum premium and invest it for income and or capital gains which accrue until a policyholder withdraws money from the policy. Income tax may become payable in any one of various Chargeable Events, such events may occur on the death of the policy holder, on maturity of the bond (if it is subject to a term), where the bond is assigned (given) to someone else or where part or full withdrawals or surrenders are made. Pension Contributions & Tax Relief If you're a UK income tax payer, when paying into your pension, you receive tax relief on any contributions that you make. This is at the highest rate of income tax that you pay, so you can receive an additional 20%, 40% or 45% on top of the amount contributed. This is paid provided that the total gross pension contributions (being the sum contributed including the tax relief) paid into your pension scheme, by you, your employer and anyone else don't exceed the lower of your annual gross (pre-tax) earnings and the annual allowance, which is currently 40,000 for those not currently taking any retirement benefits. The annual allowance is a limit to the total amount of contributions that can be paid to your pension schemes in each tax year, contributions over this amount may carry a tax charge. Those not in employment can still contribute 2,880 in a tax year and receive an additional 20%, or 720, in tax relief. Pension Drawdown Pension Drawdown refers to when you have taken retirement benefits from a non-final Salary pension scheme, the earliest point at which you can take such benefits is currently age 55. Pension Drawdown is a very complex area and benefits come in many forms. Generally speaking you receive lump sum payments, a proportion of which or entirely tax free, and/or taxable income payments. Personal Pensions Personal pensions are individual contracts between you and the pension provider and are set up by you, the member. The pension provider is often an insurance company, although there are also a number of independent providers. You can have a personal pension if you're employed, self-employed or not working. If you re employed, your employer can also contribute to your personal pension. Power of Attorney A Lasting Power of Attorney (LPA) is a legal tool that allows you to appoint someone to make certain decisions on your behalf. The appointed person can manage your finances for you in the future if you reach a point where you are no longer able to make decisions for yourself.

7 Self-Invested Personal Pensions (SIPPs) A SIPP is the name given the type of personal pension scheme, which allows individuals to make their own investment decisions from the full range of pension investments approved by HM Revenue and Customs (HMRC). Other types of personal pension often have a restricted investment choice. Small Self-Administered Schemes (SSAS) A SSAS is a type of employer sponsored workplace pension which are generally set up to provide retirement benefits for a small number of a company s directors and/or senior or key staff under the one scheme. The number of members is generally limited to 12. Stakeholder Pensions Stakeholder pension schemes are similar to personal pensions and benefit from the same tax advantages whether you re employed, self-employed or not working. They are designed to be accessible for all, and have limits on the charges they can impose. However they also often have restrictions, such as a very limited investment choice. State Pension The basic State Pension is paid to you by the government when you reach State Pension age. It is based on the number of qualifying years gained through National Insurance contributions (NICs) you've paid, are treated as having paid or have been credited with throughout your working life. In order to work out how much State Pension you may be entitled to you can apply for a State Pension Statement. The Statement provides an estimate of your State Pension based on your National Insurance (NI) record as it stands when the statement is produced. You can defer taking your State Pension in exchange for higher State Pension income or a lump sum, from April 2016 you shall not be able to defer your State Pension for a lump sum. You may also be eligible to claim Pension Credit. Pension Credit is an income-related benefit made up of two parts, Guarantee Credit and Savings Credit. Guarantee Credit tops up your weekly income if it s below (for single people) or (for couples). Savings Credit is an extra payment for people who saved some money towards their retirement, for example a personal pension. Eligibility to Savings Credit shall cease for those who claim after April Stocks and Shares NISAs Stocks and Shares NISAs can invest in funds (shares or bonds from various companies pooled into one investment), fixed interest securities (basically a loan to a company or a government), and shares in individual companies. For each tax year, there's a limit to the amount you can deposit into your Stocks and Shares NISA, this is your annual allowance. The allowance for the 2015/2016 tax year is 15,240, which you can invest in a Cash ISA, a Stocks and Shares NISA or a combination of the two. The tax year runs from 6 April to 5 April.

8 Term Assurance Term insurance is a type of life insurance policy that provides cover for a certain period of time, or a specified "term" of years. If the insured dies during the time period specified in the policy and the policy is in force then a death benefit will be paid. The amount payable on death can either decrease, increase or remain level throughout the duration of the term, this depend on the terms and conditions of the contract. Unit Trusts & Open Ended Investment Companies (OEICs) Unit Trusts and OEICs are arrangements in which individuals can invest in investment funds that invest in stocks and shares, fixed interest securities and commercial property. Rather than buying shares in one company, Unit Trust and OEIC investors seek to diversify their investment portfolio and help spread the risk around. Venture Capital Trusts (VCT) A Venture Capital Trust is a company whose shares trade on the London Stock Exchange. A VCT aims to make money by investing in other companies. These are typically very small companies which are looking for further investment to help develop their business. Whole of Life Insurance Whole of Life Insurance is a type of life insurance policy that remains in force for the entire life of the plan holder, as long as premiums remain paid. The sum assured is paid on the plan holder s death. Widowed Parents Allowance Widowed Parent's Allowance is a weekly state benefit for widows, widowers, or surviving civil partners who have a dependent child or are pregnant. Eligibility is subject to meeting certain criteria. From April 2016 this form of support shall be replaced by a new form of allowance called Bereavement Support Payment. Berkeley Burke & Co Ltd (a company registered in England with company number , and Financial Services Register number ) is Authorised and Regulated by the Financial Conduct Authority). The content of this guide provides information only. The content of this guide does not provide, and should not be construed as providing, any specific advice.