THM Financial Planning Client News Q1: 2016
I have pleasure in sending you the latest edition of our regular newsletter. I hope that the New Year has started well for you and that you didn t break your New Year resolutions too early! Any hopes for a quiet start in the world of investment were dashed almost immediately, with problems in China causing stock market volatility. Our first article shows the important numbers for January. That alone might be good reason to make sure that your investments and savings are on track to meet your needs. Steven Clemence Chartered Financial Planner In this edition: 1. The longest January on record? 2. Many big changes to personal finances in 2016 3. UK consumers set to waste 4.6 billion in unnecessary tax payments 4. Winners and losers from new 155 state pension 5. Inheritance tax receipts to rise 6. Pensions: excessive early exit fees to be capped www.thmarchfinancialplanning.co.uk
The longest January on record..? Investment markets did get off to a miserable start in 2016 but, as ever, the headlines for the falls were bigger than the ones for the rallies. And don t get too concerned by just one month s performance if you tailor your portfolio to your needs and appetite for investment risk. Here are the scores on the doors; if you weren t invested in metals in January, the return was negative. The large fall in China s stock market had a knock-on effect worldwide. The January turbulence in world stock markets, with many entering bear market territory, has been variously blamed on: Concerns about China, in terms of future growth, the currency, the equity market and bad debts. The fall in the price of oil. Usually a falling oil price is greeted as good news, akin to a tax cut for consuming countries, but this time there have been worries about the sovereign wealth funds of oil-rich nations being forced to liquidate holdings in an effort to replace lost oil revenues. Worries that the US Federal Reserve has started raising rates too soon. In the UK, Mark Carney as good as acknowledged a rate rise is now unlikely before 2017. Brexit worries are beginning to appear. As the table shows, Sterling had a poor month, with substantial declines against the dollar, yen and euro. Lost in all the attention given to the equity markets was the fact that Government bond markets benefitted from the turbulence, which is why the Gilt yield declined. January was a see-saw month, but it was also a reminder of the benefits of diversification both in terms of currencies and spread of assets. Past performance is not a guide for the future. The value of investments may fall as well as rise. Currency fluctuations can also affect performance.
Many big changes to personal finances in 2016 This year will bring good news for some (with no tax being deducted on interest) and bad news for others (buy-to-let investors will pay more stamp duty). There will also be more changes to the ISA regime with new investment opportunities and a new dividend allowance. But don t be concerned about coping with all the changes. Rather than write reams about every change or significant date, what I have done is listed them all below and if anything catches your eye that you need to know more about, just get in touch. Steven Clemence financialplanning@thmarch.co.uk Tel: 01822 855 555 10 big financial events in 2016 1. Savers deposit protection reduced on 1 January 2016 and this has now fallen to 75,000 2. Budget Day is on Wednesday, 16 March 3. A consultation begins on selling your annuity in the Spring 4. Stamp duty rises by 3% for buyers of additional properties on 1 April 5. The new tax year brings with it two new income tax allowances and several other changes: 6. Personal Savings Allowance of 1,000 (basic rate taxpayers), 500 (higher rate taxpayers) or zero (additional rate taxpayers) 7. New dividend allowance of 5,000 introduced; if you receive equity income you need to know what changes 8. Bank and building society interest will be paid gross once the Personal Savings Allowance starts 9. The new single rate state pension becomes payable 10. The Lifetime Allowance or the maximum you can have in a pension fund is reduced to 1 million; if this affects you, take action now to preserve the old higher allowance 11. The Scottish Rate of Income Tax starts to apply (albeit there is no overall change in the tax rate, currently) 12. ISAs will be able to hold peer-to-peer investments and crowd funding debt securities, plus you will be able to withdraw and then later replace money in your ISA in the same tax year, without losing your tax relief
UK consumers set to waste 4.6 billion in unnecessary tax payments UK consumers will save around 1 billion of unnecessary tax payments in 2016 due to more people joining workplace pension schemes, according to new research from unbiased.co.uk. In total 4.6 billion is set to be wasted this year (or 159 per taxpayer) across the areas of IHT, CGT and income tax (due to people not making good use of pensions and ISAs). Yet Brits are still set to hand over 4.6 billion in unnecessary tax payments this year. In 2015 there were 8.7 million people without any pension contributions, collectively wasting 2.9 billion in lost tax relief this is now down to 7 million people paying nothing into pensions, thus reducing the wastage to 1.9 billion. However, deterioration in other areas of tax waste means the net saving is only 300 million.
Winners and losers from new 155 state pension The Government is being accused of failing to warn future losers from the pending state pension overhaul that they need to make up the shortfall while they still have time. They have said the new state pension in April will make millions of people better off, with 75% of people set to gain in the first 15 years. That doesn t help the 25% who will be worse off! By 2030, over three million men, and over three million women will have benefited from a notionally higher state pension. This proportion then begins to gradually diminish over time, falling to around twothirds by 2040 and just over half by 2050, says a paper from the Department for Work and Pensions Minister for Pensions, Baroness Altmann said: Huge efforts have been put into reforming the mindblowingly complicated State Pension system that exists today into something that, over time, will be clearer for everybody. Many people may not totally agree with her, as trying to work out what you will get under the new state pension can easily be just as mindblowing. But anyone aged 55 or over can apply for a personalised state pension statement, which will give them an estimate of what they will get under the new system. This will be based on their work history and NI contributions to date, including information on their past contracting out record. So it may be easiest to just request this, from https://www.gov.uk/ state-pension-statement. If you do not have access to the internet, call 0345 3000 168 (from outside the UK, call: +44 (0)191 218 3600) We are told that women reaching state pension age over the next 5 years will receive, on average, approximately 190,000 of state pension over the course of their retirement. The equivalent figure for men is approximately 170,000. www.thmarchfinancialplanning.co.uk
Inheritance tax receipts to rise The Office for Budget Responsibility has announced that the number of families paying IHT is at a 35 year high. This is due primarily to the combination of property price increases and the frozen nil rate band. The nil rate band is the amount that you can leave to your family without 40% IHT being levied. It is currently 325,000 for each person and has been that since 2009. It will now stay at that level, impervious to inflation and rising house prices, until 2021. To take an admittedly exaggerated example, the average house price in London rose 64% to 531,000 in the 6 years to October 2015 whilst the nil rate band did not increase one iota. Almost three times as many estates are expected to be subject to IHT this year compared, with six years ago. But there is some hope for those families who have to suffer tens of thousands in tax, an additional nil rate band for the family home starts to takes effect next April (2017). This will start at 100,000 for each person ( 425,000 in total) increasing incrementally each year to 175,000 ( 500,000 in total) in 2020. But if you have an estate worth more than 2 million, it starts to get taken away again! While this additional residence nil rate band will clearly provide help, there are many conditions that have to be fulfilled. For example, the family home has to be left to a direct descendant of yours. If you are concerned about your family paying a large tax bill when you have gone, please get in touch and I can tell you how it applies in your situation and what you can do about it. Pensions: excessive early exit fees to be capped The Chancellor, George Osborne, has announced at Treasury Oral questions in the House of Commons that he will cap excessive exit charges for those looking to access their pension pot. He outlined proposals to place a duty on the Financial Conduct Authority to cap excessive early exit charges for those eligible to access the pension freedoms. The new duty, introduced through legislation, will form part of the response to the Government s Pension Transfers and Exit Charges consultation, and will help people take full advantage of the new flexibilities. Nearly 700,000 (16%) customers in contract-based schemes who are able to flexibly access their pension could face some sort of early exit charge. A significant minority faced charges that were high enough for the Government to consider that they effectively put them off accessing their pension flexibly. The Government will shortly publish its formal response to consultation that looked at ways of making the process for transferring pensions from one scheme to another quicker and smoother. If you are considering cashing in your pension pot, make sure you weigh up all the options before acting. Contact us for more information.
www.thmarchfinancialplanning.co.uk The information regarding taxation is based on our understanding of law, HM Revenue & Customs practice and current legislation, which may be altered and depends on the individual financial circumstances of the investor. T.H. March Financial Planning Limited Registered in England No 08357059. T.H. March Financial Planning Limited is Authorised and Regulated by the Financial Conduct Authority. You may check this at the FCA s register by visiting the FCA website http://www.fsa.gov.uk/register/ or by contacting the FCA on 0800 111 6768