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New Tax Year Resolutions

As the new tax year is upon us, why not take time to re-appraise your financial position. By making some simple changes your financial position could be significantly enhanced. With the new higher rate of income tax and low interest rates, it is time to take action to make sure your financial planning meets your objectives.

Our top 10 tips are listed below;

1) Make use of your ISA allowances

If you are fortunate enough to have savings it is important to make sure that you do not pay unnecessary tax on the interest. The Cash ISA allowance has now been increased to £5,100.

2) Make full use of personal allowances

Your personal allowance will depend on your age and income but if you are not using all of your personal allowance consider whether income producing assets can be transferred from your spouse.

3) Consider ownership of income producing assets

If your spouse pays tax at lower rate than you it might be worth moving income producing assets into their name.

4) Protect your personal allowance

If you have taxable income over £100,000 your personal allowance will be reduced by £1 for every £2 in excess of £100,000 until it is completely eroded. The personal allowance could be reinstated by making pension contributions or by sacrificing salary in favour of other benefits.

5) Look at your protection arrangements

Life cover is one of the few things that have got cheaper over the years. If you have old life policies it may be worth seeing if these can be replaced with cheaper cover. This would not be advisable though if your health has deteriorated. It is also important to also make sure that your cover is sufficient and the term remains appropriate.

6) Put life cover in trust

If your life cover is not written under a trust it will form part of your estate and may therefore be taxable on death. Furthermore your beneficiaries will not get the proceeds until probate has been granted.

7) Claim gift aid

If you are a higher rate taxpayer and have made gifts to charities you can claim tax relief at the rate of 20%

8 ) Set mortgage interest against rental income

If you have a buy to let mortgage interest can be offset against your rental income for tax purposes. It is therefore best to secure debt against your rental property rather than your main residence although what matters is the purpose of the borrowing.

9) Consider repaying Mortgage Debt

With savings rates at all time lows it might make more sense to use savings to repay mortgage debt, particularly if you are on an uncompetitive fixed rate. Watch out for early repayment charges.

10) Make a Will

The laws of intestacy are complex and are unlikely to result in the best outcome for those you would want to benefit on your death. Having a valid and appropriate will in place is vital.

By David Anderson – Chartered Financial Planner @ Concept Financial Planning Ltd

The NO Wedding Planner

Recent figures show a significant decrease in the marriage rate. From a peak in 1940 when, spurred on by an impending war, 426,1000 young couples married, in total just 228,204 marriages took place during 2008 in England and Wales.

The falling marriage rate is partly attributable to a rise in the number of people choosing to remain single but is mostly down to the fact that more and more couples are choosing not to marry and this has ramifications for their financial planning.

Let us consider the example of Paul and Sarah. They own a property valued at £600,000. The property is owned 60% by Paul and 40% by Sarah, reflecting their differing initial deposits. They have an outstanding mortgage of £100,000. The mortgage is covered by a life assurance policy which will pay out on the first death. They also have a joint savings account with a balance of £50,000. They have wills which leave assets to each other on the first death.

Sadly Paul suffers a fatal heart attack. His estate is valued as follows:

Property £300,000 (60% share less mortgage)
Life assurance benefit £100,000
Savings Account £25,000
Total £425,000

Assets passing between UK domiciled spouses are exempt from Inheritance Tax but the same exemption is not afforded to cohabiting couples and therefore the value of the estate above the nil rate band (currently £325,000) will attract Inheritance Tax at 40%. This means Sarah will need to settle a tax bill of £40,000 before probate can be granted.

The tax bill could have been easily avoided simply by writing the life assurance policy in trust so that it did not form part of Paul’s taxable estate. This would also mean that the proceeds would be available immediately without the need to wait for probate to be granted which can take many months.

The position could have been considerably worse had Paul and Sarah not written Wills. Under the laws of intestacy, where there are no children, cohabiting partners do not receive anything and Sarah could have found herself co-owning the house with Paul’s parents.

David Anderson is a Chartered Financial Planner with Concept Financial Planning

Concept Financial Planning Website

Why make a Will?

Is this one of the tasks that is always something to do next week or you get a free moment? We all know that next week never arrives and as for a free moment !

Benjamin Franklin (1706-90) said ‘ In this world nothing can be said to be certain, except death and taxes’

So why is it important to make a Will or regulary review one?
It is the only way you can determine who you want your estate to go to. If you have minor children, you can indicate in a Will who you would like to look after them should you die. This is particularly important where a relationship has broken up and the relationship between the individual and former partners is not good.
If your circumstances change it is important to make sure that you Will reflects your new circumstances.
Making a Will can mean a different inheritance tax IHT treatment of your estate or a change in the way that assets are assessed for Means Tested purposes should you need long term care.

Writing a Will is fundamental to the financial planning process because you are able to guide how your wealth is passed on down generations should you wish.

What happens if I do not make a Will?
You will die intestate. The rules of intestacy are different in different parts of the UK so it is important to keep up to date on the current position as this can change. The rules may mean that the people you want to inherit from you don’t or in a different proportion from want you would ideally like.

Who can make a Will?
Everyone aged 18 or over (12 in Scotland) or a serving member of the armed forcescan make a Will if they are of sound mind.
Even people who are deemed not to be of sound mind can make a Will or codicil to an existing Will if approved by the Court of Protection.

Do I have to use a solicitor to draft a Will?
You do not have to use a solicitor but I would strongly advise that you do so or at the very least use an individual who specialises in drafting Wills. This is especially true if your Will is complex. Sorting out mistakes after you have died may cause huge problems for your executors/personal representatives

TOP TIPS
If you don’t have a Will, make sure you know what will happen to your estate if you die without making one.

Before making a Will, think about what you want to happen to your estate.

Before making a Will yourself, think about taking advice from a solicitor or professional Will writer

Don’t try and change a Will by writing on the original

Make sure your chosen executors are happy to act in that capacity. Make sure they know where the Will is kept and if there are any special arrangements you want them to carry out quickly on your death such as funeral arrangements and organ donations. Time may be of the essence.