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one in seven widows are missing out on valuable tax breaks

New data reveals that thousands of widows are missing out on valuable tax breaks on money inherited from their late husbands or wives.

In 2015, the government introduced a new rule that allows spouses to claim an extra ISA allowance. This allowance, known as an Additional Permitted Subscription allowance (APS allowance), is available to the surviving spouse or civil partner of a deceased ISA investor, where the investor died on or after 3 December 2014.

According to the Tax Incentivised Savings Association (an ISA trade body), around 150,000 married ISA savers die each year. However, just 21,000 eligible spouses used their APS allowance in the 2017-18 tax year, meaning they may be paying more tax than they need to pay.

Many bereaved spouses are unaware of the extra protections they can claim on, while others find the process difficult and confusing.

It is thought that many of those who lose out are widows whose husbands pass away without informing them of the exact nature of their financial affairs. In some cases, widows only discover large sums of money long after their husband’s death.

Situations like this have led to many to call for greater transparency between spouses around their financial affairs. A culture of privacy around financial matters is rife among the ‘baby boomer’ generation, where the higher earner often manages the money and investments. This can leave the bereaved in a precarious position, especially if they don’t know what bank accounts, investments and companies their spouse may have managed.

If your partner has left funds held in an ISA to someone else, you’re still entitled to APS. For instance, if your partner left an ISA of £45,000 to their friends and family, you can use your APS allowance to put an extra £45,000 into an ISA of your own.

Think you might be able to claim? You can apply through your late partner’s ISA provider. You will need to fill in a form, similar to when you open an ISA.

Sources
https://www.telegraph.co.uk/personal-banking/savings/one-seven-widows-missing-valuable-tax-breaks/

how to pass on ISAs after you’re gone

ISAs have long been regarded as a simple and effective way of protecting your savings from the taxman, with the increased limit now allowing you to shelter up to £20,000 of your savings a year from being taxed. Whilst this can be a great help in protecting your nest egg during your own life, you’ll also want to know that your hard-earned savings will be safe after the event of your death so that as much of the money you’ve accumulated as possible can go to those you leave behind.

Thankfully, in the case of a spouse, this need not be a worry. The government introduced legislation in 2015 which means that surviving husbands, wives or civil partners can inherit an ISA from their other half with the tax-free wrapper remaining intact. The ISA will also not be subject to inheritance tax (IHT) if it’s being passed on to your spouse.

However, if you’re leaving an ISA to another family member, such as a child, the amount held in the account is still considered to be part of your estate. It could therefore be a contributing factor in pushing your assets over the amount that can be left to someone else without incurring tax, known as the ‘nil rate band’. As IHT is payable at a rate of 40%, this could put a serious dent in the amount your loved ones will actually receive after you’re gone.

If your savings are likely to push your estate above the nil rate band, there are options available to reduce the amount taken by the taxman. It’s now easier to safeguard your pension from IHT, no matter who you’re planning to leave it to. Those hoping to leave their money to someone other than a spouse or partner might consider keeping their money in a pension and live off their ISA income as far as possible, thereby being able to pass on their pension pot to a loved one without incurring tax upon it. It’s important to remember that not all pensions are set up to allow this, so it’s normally a good idea to seek professional advice about the best way to protect your estate from being taxed before making any plans for your savings.

Sources
http://www.telegraph.co.uk/money/special-reports/can-i-transfer-an-isa-on-death-without-penalty/
http://www.telegraph.co.uk/financial-services/investments/inheritance-tax/isa-tax-rules/
http://www.which.co.uk/money/savings-and-isas/isas/guides/cash-isas/can-you-inherit-an-isa

which is best? save or invest

Whilst you might expect an increase in the cash and investment ISA limit to be welcomed, at least one dissenting voice has come from Steve Webb, former Pensions Minister and current policy director at Royal London. Webb has warned that the rise in April from the current annual limit of £15,240 up to £20,000 could encourage poor long-term investment choices.

The criticism is aimed at the cash element in particular. Webb has described cash ISAs as useful as a ‘rainy day fund’ but unsuitable as a way to help invested money grow. As such, he’s advised that a more appropriate investment limit for cash ISAs would be £5,000, just a quarter of the proposed new limit.

A report from Royal London backs up this view. Whilst cash ISAs continue to grow in popularity, the returns they offer often pale in comparison to many investment opportunities. Had all the money put into cash ISAs over the past decade been invested instead, the report estimates that savers would now collectively have £360 billion, significantly more than the actual figure of £250 billion. Inflation has also taken its toll on the value offered, with £26 billion worth of savings wiped out in the same period, thanks to cash ISAs failing to keep pace with inflation rates.

Most of us manage our finances in numbers a lot smaller than billions, however, so what does all of this mean? The latest figures show that £1,000 paid into a cash ISA a decade ago would be worth under £900 in today’s money. In contrast, had that money been invested in a typical multi-asset fund where money is spread across property, bonds and shares, it would be worth over £1,500 today.

Whilst this suggests that those looking to grow their money should opt for investments, it doesn’t take into account the safety of cash in the short term and the convenience of having money readily available in an ISA. The most important factor in making decisions around your finances is to think proactively.

Think about your individual circumstances before you opt to tie your money up in an investment but, equally, don’t simply place it all in a cash ISA if you can afford not to touch your savings and allow them to grow. 

Sources
http://www.thisismoney.co.uk/money/saving/article-4176724/Cash-Isa-limit-cut-argues-Steve-Webb.html

Help To Buy vs Lifetime: Which ISA is best?

 

Set to be introduced in April 2017, the Lifetime ISA essentially offers an alternative to the Help To Buy ISA. With two competing options on the table, it’s important to know which is best for you and your needs, as whilst they have some similarities, there are also key differences between the two.

The Help To Buy ISA allows you to save up to £200 each month to save for a deposit on your first home. The government then boosts your savings further to the tune of 25% up to a total limit of £3,000, as long as you’re a first time buyer purchasing a property priced up to £450,000 in London and up to £250,000 everywhere else in the UK. There is no minimum deposit each month, and you’re also able to pay in £1,000 when the account is opened that doesn’t count towards your monthly savings.

Available up to Autumn 2019, anyone aged sixteen or over is entitled to open a Help To Buy ISA. The accounts are limited to one per person, which means both people in a couple can have an account and benefit from the bonus.

The new Lifetime ISA is based on similar principles but has several important differences, with the most important being that it can be used either to save for purchasing your first home or as money put away as a pension for later in life. There’s no limit on how much you can save each month as long as you don’t go over the yearly cap of £4,000.

Again, the government offers a 25% bonus, but this is paid whether you use the money to purchase your first home up to a price of £450,000 anywhere in the country, or keep it for later in your life. Any money that’s taken out before your 60th birthday and not used for purchasing your first home will forfeit the government bonus plus any growth or interest earned from it, as well as incurring a 5% charge. If you wait until after you’re 60, you can take out everything tax-free.

As you will be allowed to have both a Lifetime ISA and a Help To Buy ISA, you can choose to do this, but you will only be able to use the bonus from one of the two accounts to buy a home. As the Lifetime ISA is essentially replacing the Help To Buy ISA, it makes sense to opt for the newer style of account after they are introduced next April. If you want to set up an ISA for your child, however, you could consider opening a Help To Buy ISA on their 16th birthday then transferring the savings to a Lifetime ISA two years later which will allow you to take full advantage of the government bonuses

As always, seeking professional advice to establish what is right for you and your objectives has to be paramount.  This article is intended to give information only and not advice.

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Sources: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/508117/Lifetime_ISA_explained.pdf, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/414027/FTB_factographic_final.pdf

60 is the new 40!

Good news for all of us who have accepted that we are getting older: Saga reports that new European research shows that 60 is the new 40! The research reveals that people are now reaching middle age at the tender age of 60, instead of the previously expected figure of 40 years old.

Saga’s Head of Communications, Lisa Harris, commented:

“Middle age is most certainly a state of mind. In today’s society we are living longer, healthier lives and the face of later life is changing beyond all recognition. Retirement is no longer a cliff edge decision where we stop working purely because we’ve celebrated a birthday. Instead we change the way we work – often with the goal of achieving a more rewarding work life balance that allows us to feel both valued in the workforce for the skills and experience we have to offer and also gives us the opportunity to travel, take part in hobbies, volunteer and generally have a bit of fun too. It’s not just about living longer – it’s about ageing well!”

One is tempted to ask, what now happens at 40 then? If no longer the threshold of ‘middle-age’, what significance does passing one’s birthday at 40 now have? It used to be an important marker of ageing – passing into middle-age with a feeling of old age creeping up on us, just around the corner. It used to feel like the beginning of the end – time to stop playing sport, stop thinking we are young and let ‘middle-age spread’ take over. Perhaps today’s perception of our life at 40, and for those that will follow us into this new idea of age, will now be marked by similar previously unrecognisable thoughts. Will 40 become the age we finally manage to buy our first house, or see us looking sceptically forward at another thirty years of employment, before we can afford to retire?

To balance this, at 60 we are now constantly reminded to develop a healthy lifestyle and exercise to keep fit – we have a new lifetime ahead of us – time to start playing sport again. So old-age is off the agenda, until we are at least 85, when we might have to finally consider giving up running marathons!


Sources: www.saga.co.uk (Published article: 2015/04 16)

 

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ISA ? …NISA ? …. Change is here …. Welcome to the new rules

In March this year the Chancellor announced a series of changes to the way in which people can save. As of today you can now put up to £15,000 into your individual savings account (ISA). In addition to this increase from £11,880, the government also added some flexibility to the way in which your ISA allowance can be used.

Previously only half your allowance could be saved in cash, whereas now you can put your entire allowance in cash. Another added benefit is that you can now switch between cash and stocks and shares whenever you like!

It’s not just about adult ISA’s – Junior ISA allowance increases from £3,840 to £4,000 !

 

ISA Rules 2014 2015

Some things about ISA’s you may not know ….

  • Only 26% of individuals earning between £100k – £150k maxed out their ISAs
  • 2012/13 subscriptions Cash £40 billion, Stocks ‘n’ Shares £16billion
  • £443 billion was held in ISAs (as at April 2013) split 50:50 cash/stocks ‘n’ shares

Source – A National Statistics publication

 

 

‘Changing lives one client at a time’

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ISA Questions Answered …

One of our suggested Financial New Year’s Resolutions for everyone this year is to pay less tax and one possible solution is to make sure that you are paying into an ISA and, if possible, using up your yearly ISA allocation.

These tax efficient savings vehicles have been around since April 1999 and are a great way to save and invest but many clients still have queries about them. We’ve put together the following answers to common questions, to help you understand ISAs better in the run up to end of the financial year, when your chance to use your 2013/2014’s allocation ends.

1. Exactly what is an ISA?

An ISA is a ‘wrapper’ that’s designed to go round an investment, making it more tax efficient. There are two types of ISA; Cash ISAs and Stocks and Shares ISAs. Cash is like a normal deposit account, except that you pay no tax on the interest you earn. Stock and Shares ISAs allow you to invest in equities, bonds or commercial property without paying personal tax on your returns.

2. How much can I contribute?

For the tax year ending 5th April 2014, the maximum level is £11,520 per individual (so a husband and wife could contribute £23,040). The maximum that can be contributed to a Cash ISA is £5,760. But there is no limit on the Stocks and Shares ISA, so if you only contribute, say, £3,000 to your Cash ISA, then you could contribute up to £8,520 to your Stocks and Shares ISA.

3. What are the crucial dates?

The ISA limits apply to a tax year – so the current allowance applies to the tax year running from 6th April 2013 to 5th April 2014. The next tax year starts on 6th April 2014 and the overall ISA limit for that year will rise to £11,880. It’s important to note that your ISA allowance cannot be carried forward from one tax year to the next.

4. Can children have an ISA?

Children aged 15 or under cannot have a Cash ISA, though there are other ways for them to save depending on when they were born. They become eligible for Cash ISAs at the age of 16 and 17, when they can have a Cash ISA, with the same limits as an adult.

5. Are the returns guaranteed?

Some ISA providers guarantee their interest rates on Cash ISAs but the return on a Stocks and Shares ISA cannot be guaranteed, and you could get back less than you invested. As with all forms of investment it makes sense to take advice from an independent financial adviser, and Stocks and Shares ISAs should be seen as a medium to long term investment.

6. I’ve heard people say ISAs are better than pensions: is that right?

No, not necessarily. ISAs and pensions are entirely separate and both can, and most likely should, play a part in your financial planning. The best idea is to talk to us about your long term financial goals, and we’ll discuss the advantages and disadvantages of both ISAs and pensions and help you decide on what’s best for you.

7. My ISA was with XYZ Building Society last year. Do I have to stay with them this year?

No, absolutely not. You can have a different ISA provider every year if you so choose. For Cash ISAs, it obviously makes sense to choose the provider who’ll give you the best rate of return, and for a Stocks and Shares ISA, you’ll naturally want to consider the past performance of the provider (although it’s no guarantee of the future returns) and the range of funds offered.

8. I have ISAs with several different providers. Can I consolidate them?

Yes, you can – and you won’t lose the tax ‘wrapper.’ Many previously attractive savings accounts cease to have a good rate of interest and naturally some Stocks and Shares ISAs don’t perform as well as investors would have hoped. Consolidating your ISAs may also substantially reduce your paperwork. We’ll be happy to talk you through the advantages and disadvantages of doing it.

9. Can I save regularly in an ISA? I prefer saving on a monthly basis.

‘Yes’ is the simple answer to that question. We’ll happily advise on which providers accept monthly savings.

10. Someone mentioned ‘re-registering’ an ISA. What does that mean?

Some clients are now choosing to keep track of their investments via what’s known as a ‘wrap.’ Essentially this means that investments with different companies and/or investment groups are brought together under an overall ‘wrap’ for ease of administration. If an ISA is included in this type of arrangement it will need re-registering to the wrap provider. The underlying investment doesn’t change.

If you’d like any further details or advice on your current or planned ISA investments or you have any other questions, then as always, don’t hesitate to contact us.

 

The value of investments and the income from them can go down as well as up and you may get back less than you originally invested.


Sources: http://www.hmrc.gov.uk/

 

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An ISA millionaire shows the real power of tax free saving

Lord Lee, hailed as Britain’s first ISA millionaire, tells a compelling tale about how a sensible approach to investment, which includes the prevalent use of the tax free accounts, can pay huge dividends.

Writing in The Telegraph, Lord Lee describes how, after 16 years of investing a total of £126,000 into ISAs, his pot had grown to a hugely impressive £1 million.

Of course, not everyone who invests in ISAs will reach the level of return achieved by Lord Lee, but as we approach the April deadline for using your 2013/2014 annual ISA allowance, his examples proves a potent reminder of just how valuable ISAs can be to your investment portfolio.

Using mainly Stocks and Shares ISAs, Lee preaches patience to ISA investors and revealed that his own biggest investing flaw was a lack of it. Certainly Lee now seems to have little reason to worry, but with one holding sold early for between £4.88 and £11 now worth north of £20, the investor still clearly has some regrets.

For any investors who are not currently following Lord Lee’s example, April 5th is a key date. The end of the current tax year marks your last chance to invest up to the government imposed maximum ISA limit. This year the limit has been set at £11,520, with no more than £5,760 able to be held in a Cash ISA.

Lee ends his article by hailing British business and by saying that we, as a nation, should be encouraging responsible savings and investments. Certainly, using your ISA allowance is one very sensible way of starting to do just that.

Sources: http://www.telegraph.co.uk

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Transfer of Child Trust Fund savings into Junior ISAs

Since Child Trust Funds (CTFs) were phased out in 2011, parents and the savings industry have lobbied the government to allow the money held in them to be transferred into the Junior ISAs that superseded them. The ISA market is seen as having far more choice and, where the money is held in a savings account, often offers better rates.

The dissatisfaction surrounding the current process stems from the fact that more than six million children with CTFs have been unable to access these apparently better products, under the current rules.

As announced by the Chancellor in the 2013 Budget, steps are now being taken to assess the situation further. The Treasury is currently involved in a consultation on allowing the transfer of savings from a CTF to a Junior ISA.

The purpose is to assess whether transfers should be allowed and then to settle on the proposed approach. When the consultation closes, the government will consider all responses and collate them into a published document.

To the delight of the savings industry and the parents who lobbied for the change, the government has recommended as part of the consultation that the current rules be relaxed so that parents can now opt to transfer their portion of the total £4.8bn now held in CTFs, to Junior ISAs.

The Treasury anticipates that many parents might still choose to keep the CTF rather than transferring it, meaning it would be necessary for providers to continue to offer competitive and alternative products to them.

CTFs were a Labour government initiative to promote saving and were available to children born between 1 September 2002 and 2 January 2011, with the government initially providing a starting voucher of £250. That was reduced to £50 as the accounts were phased out for new savers, before being replaced with Junior ISAs.

The Treasury appears to be seeking to support parents by ensuring that there are clear and simple ways to save for all children, stating within the consultation launch that at the present time the two tier system is unsatisfactory for those who have CTFs but want the wider choice of a Junior ISA.

The consultation runs until 6th August 2013 and HM Treasury is particularly interested to hear from: representative groups for children or savers and CTF holders, their parents or guardians.


Sources: www.hm-treasury.gov.uk

 

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Financial planning in your twenties, thirties and forties …

This is the first of two articles where we look at ‘financial planning through the decades:’ how your financial planning needs change through the various stages of your life.

Clearly the average client’s planning needs are completely different in their twenties to their fifties and, while it’s true to say there’s no such thing as an ‘average’ client, this short guide will hopefully help to set most people on the right path to a well-planned and prosperous financial future.

In this article we look at financial planning in your twenties, thirties and forties – next month we’ll look at how your financial planning needs change as you move into your fifties and beyond.

In your twenties

For many people their twenties come with one huge financial planning plus – no children. If you’re what used to be known as a DINKY (dual income, no kids) then it makes sense to take advantage of it.

It may not sound much fun to think about a pension as you contemplate nights out and holidays in Ibiza, but making a start on saving for your retirement – even if the contributions are relatively low – will pay huge dividends later on in life. With the vast majority of people now set to retire at 65 or later, money invested in your twenties will have the best part of 40 years to grow and benefit from the tax advantages that pensions enjoy.

It’s also important to start saving for the deposit on your first home. Mortgage lenders have toughened up their lending criteria considerably over the past few years and the more deposit you can put down on your first home, the better mortgage rate you’ll be able to obtain.

If you are saving in your twenties, then make sure that you save tax efficiently by opening an Individual Savings Account (ISA). There’s no point paying tax on your savings when you don’t need to.

Finally, your twenties may be a good time to look to reduce debt. With university students now expecting to graduate with upwards of £30,000 of debt, the time before children and mortgages come along may be a sensible time to try and pay off some debt – and hence ease the burden of future interest charges.

In your thirties

Your thirties can be a tough time financially, especially if starting a family means that one partner isn’t working, or only working part-time. Perhaps the most sensible advice is to try and avoid debt building up in your thirties – but if it is unavoidable, keep an eye on the interest rate you’re paying and try and pay off ‘expensive’ debt (such as credit cards) first.

If you’re in a company pension then your contributions will automatically be deducted from your wages – however, if you’re not in a company scheme, or you’re self-employed, then it is vital that you start to make some pension contributions at this stage in your life.

It’s also a good idea to start working with an independent financial adviser to regularly review your finances – for example, to make sure you have the most competitive mortgage and that your pension is on track to give you the retirement you’ll ultimately want.

Even though your thirties may be difficult financially, it obviously makes sense to try and save a little. As in your twenties, remember to make sure that your savings are invested tax efficiently and don’t be afraid to take a long term view with them.

In your forties

The good news as you enter your forties is that you’ll now be approaching your peak earning years. The chances are that you’ll still have children at home and a mortgage to pay, but now is the time to be increasing your pension and savings contributions and cutting down on debt.

These are the years when good financial planning can make a tremendous difference to your long-term prosperity. It’s not that many years since you were in your twenties – and sadly, it won’t be that long until you’re retiring, so efficient and effective planning becomes ever more important.

Many people start to inherit money in their forties and it might also be the time to start thinking about the potential cost of further education for your children. A lot of clients we speak to simply don’t want their children to graduate with a huge burden of debt, and savings that are made now could help your children significantly.

As we said at the beginning of this article, there are as many ‘right’ answers to financial planning as there are clients, every client is different – but the guidelines above will hold good for most people.

If you’d like to talk to us at any time about your financial planning – irrespective of your age – then don’t hesitate to contact us. 01737 225665 or advice@conceptfp.com

 

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