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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

The WHAT IF plan?

Have you ever thought about … what if? Just 2 words but with so much impact. What if … you could not work? What if … you fell ill? Or more seriously what if you died tomorrow? …
No one expects or wants these events to happen, planning for the consequences of the events is much more important.

Lets take a look at just one scenario and the impact this could have on you –

What if … you are unable to work?

We all understand the importance of insuring your tangible assets such as cars, household buildings and contents – now lets say that you come home one day and they are just a pile of ash. To add to the catastrophe you realise you have forgotten to renew your household buildings and contents insurance.

What would you do? How long would it take you to get back to the position you are in today? Probably a year or two perhaps, maybe longer? The point is you can. Your possessions, car or house do not earn money, you do. You are the income producing asset in your home.

We often are told ‘I can’t afford the premiums’. We do understand it can be difficult particularly during current economic conditions. However, the problem is not finding £40 per month out of your salary. The problem is your family finding £1,000 per month when they don’t have your income coming in. A good budget plan can help to review your monthly expenses and concentrate on your priorities.

Now think about your partner and if he/she is working or a mother/father or both! – the jobs that they do and the cost of childcare arrangements are often underestimated. What if … they were unable to work?

Income protection insurance is designed to replace a part of your lost earnings, helping to maintain important items of expenditure, to help you to meet the cost of running your home when illness or accident prevent you from working.

Endowment worries ?

Many would agree that buying a property can be one of the most stressful times in your life – once you have found the ideal home you will need to decide how you are going to pay for it. This is probably the biggest financial commitment you will make in your lifetime. The cost of renting or buying a property can take up a significant amount of your monthly income.

There are a variety of ways to pay off a mortgage, from a straight forward repayment of capital and interest to a repayment of interest only with an investment product running alongside. Many people may have endowment policies purchased in the 1980’s and 1990’s which were intended to pay off a mortgage at the end of the term.

As with any kind of financial planning; regular reviews are a must to make sure that your expectations in paying off your mortgage are on track, otherwise you could face a shortfall in reaching your goals. With this in mind, any mortgage decision you make is of utmost importance, as not reaching your financial aims could have a drastic effect.

There are many options available in the marketplace today. Taking action is paramount – with interest rates falling and fewer mortgage products being offered by banks and building societies you cannot afford to ignore the situation.

With the current economic uncertainy this is an excellent time to review your current position – you may not have to do anything – but you do have many options open to you especially if you have endowments. A good starting point is a reprojection letter from your policy provider and a balance statement from your mortgage company. This should enable you to ascertain whether your aims and policies are on track to meet your financial goals.