Newsletter – November 2018

The 2018 Budget – delivered on a Monday for the first time since 1962 – produced a number of surprises, not least some high-profile ‘giveaways’.

Announcements in the Budget included:

• A £650 increase in the personal allowance to £12,500 for 2019/20, the level originally pencilled in for 2020/21.
• A £3,650 increase in the higher rate threshold to £50,000, again targeted for 2020/21.
• A £25,000 increase in the pension lifetime allowance to £1,055,000 from April 2019.
• A one-third reduction in business rates on smaller retail premises, starting from next April.
• An increase in the annual investment allowance (AIA), from £200,000 to £1,000,000, from January.

However, Mr Hammond’s generosity was not all it appeared. For instance, the personal allowance and higher rate threshold will both be frozen in 2020/21, while the business rates reduction and higher AIA will only last for two years. The Chancellor also kept many tax thresholds and allowances unchanged.

A good example of the impact of frozen thresholds is the personal allowance that will continue to be tapered from an income level of £100,000. This threshold has applied since April 2010, and it creates high marginal rates for some taxpayers. Combined with the increase in the personal allowance, for income between the taper threshold of £100,000 and the starting point for additional rate tax of £150,000:

• the first £25,000 will be taxed at up to 60% (61.5% in Scotland); and
• the next £25,000 will be taxed at 40% (41% in Scotland).

By far the largest element of spending announced in the Budget was for the NHS. Investment is £7.35bn out of a total £15.09bn in 2019/20, rising to £27.61bn out of a total £30.56bn in 2023/24. With such large amounts to secure for the health service, the Chancellor has limited scope to reduce personal tax in the medium term.

If you would like to discuss the impact of the Budget on your finances, please get in touch.

Tax laws are subject to change. 

The Financial Conduct Authority does not regulate tax advice.

Two recent events have shone different lights on the government’s view of unmarried couples.   

As the graph shows, marriage has been drifting out of fashion for close to 50 years. There are now over 3.3 million unmarried couples in the UK, of which nearly half have children.

In spite of this major social change, governments have largely maintained sharp legislative distinctions between the married and unmarried. When they have conflated the two, it is usually to swell the Exchequer’s coffers, for example when applying the high income child benefit charge to unmarried couples with children.

This approach is starting to be challenged in the courts:

• In October, the Prime Minister announced at the Conservative Party conference that civil partnerships legislation would be extended to cover heterosexual couples. The announcement came after a June ruling from the Supreme Court that limiting Civil Partnerships only to same sex couples was in breach of the European Convention on Human Rights (ECHR).
• In a judicial review case in August, the Supreme Court found the government was wrong to deny an unmarried mother her claim for widowed parent’s allowance, again referring to the EHCR in the decision. The Department for Work and Pension’s response was that the judgement did not affect the eligibility regime for bereavement benefits, which replaced the widowed parent’s allowance for new claimants in April 2017.

If you are one of the 3.3 million unmarried couples, these decisions serve as a reminder that your status is very different from that of a married couple. Given the DWP’s stance, you could need more life and health protection than if you were married.

You will also potentially require a different approach to estate planning, as transfers on death to your partner, such as your interest in the family home, will not benefit from the inter-spouse inheritance tax exemption.

If you would like advice on how to plan for your family, please get in touch.

The Financial Conduct Authority does not regulate tax or trust advice and some forms of estate planning.  

Capital Gains Tax (CGT) is charged on the profit or gain made when you dispose of an asset. You won’t pay CGT on the sale of your principal private residence, stocks and shares held within an ISA, proceeds from life insurance policies, or the sale of a private car. However, assets such as shares, collective investments and second properties that generate a capital gain are potentially liable to CGT.

Different rates apply Every individual gets an exemption to set against any capital gains they have made in that tax year. For tax year 2018-19, this is £11,700.

After offsetting your annual exemption, CGT is charged at different rates, depending on your income tax band. So, for tax year 2018-19, basic rate taxpayers will pay 10% and higher rate or additional rate taxpayers will pay 20%.

There is a higher charge for those selling a second home, 18% for those in the basic rate income tax band, and 28% in the higher or additional rate income tax band. However, there are various reliefs available that can, in appropriate circumstances, be applied to reduce the tax payable, such as deemed occupation, principal private residence and lettings relief.

Reducing the amount payable

Since the rate of CGT you pay depends on your income tax band, making pension contributions or charitable donations could reduce your CGT liability. Making maximum use of your ISA allowance makes sense too, as any gains you make are tax-free.

Transfers made between spouses or civil partners are not liable to CGT, so for planning purposes it can pay to look at CGT as a couple.

Getting professional advice 

Taxation can be complex, so professional advice is essential.

For further information on CGT & Investing tax-efficiently please contact one of our advisers on 01793 881602
or download our free Key Guide:

Investing tax-efficiently

Our full range of Key Guides can be found here

Whilst businesses are generally quick to insure themselves against the most commonly encountered operational risks, it’s often the case that owners, directors and shareholders can overlook the need to protect what’s arguably their biggest and most precious asset – themselves, their management team and their workforce.

In today’s fast-paced business environment, it can be hard to find management time to think about those ‘what if’ scenarios that can happen to any business at any stage of its development. However, research has shown that more than half of all UK small and medium-sized enterprises would close within a year if a key employee were to die or become critically ill¹.

Planning for the unexpected

An analysis of your business protection requirements is an important first step in highlighting the risks you run and will enable your adviser to recommend the right solutions. These will vary from business to business, but could include:

• Key person insurance – insurance that pays a lump sum if someone integral to the business dies or is diagnosed with a serious illness.
• Relevant life plans – a term assurance plan that provides death-in-service benefits for employees with the premiums paid for by the employer. Employers can choose the level of cover and the length of the policy term they require to suit their specific business needs.
• Shareholder protection policies – these provide vital finance in the event of the death of a shareholder or partner in the business, removing the need for the remaining shareholders to rush to find the funds to buy out the deceased’s shares.

If you could use some advice on securing the future of your business, do get in touch.

1 Legal & General, 2017

For further information on business succession planning please contact one of our advisers on 01793 881602 or download our free Key Guide:

Business succession planning

Our full range of Key Guides can be found here

A leading think tank has proposed a radical shake up of the UK tax system. 

At the end of September, the US bank, Goldman Sachs, launched a new online easy-access savings account in the UK under the name of Marcus. It has offered a similar account in its home territory since 2016, gaining over 1.5 million customers according to the bank’s second quarter results. In the UK, 50,000 Marcus accounts were opened in the first fortnight after its introduction.

Marcus gained heavy press coverage at launch, not least because the interest rate on offer was – and at the time of writing, still is – top of the instant access league tables. The headline rate is 1.5%, but that is not quite the whole story. The rate is actually a variable 1.35%, plus a 0.15% ‘bonus’ payable for the first 12 months. However, even the 1.35% would leave Marcus very close to the top of the league tables.

UK banking history is littered with new-name deposit accounts that were league-topping at launch, only to disappear without trace a few years down the line, such as ING Direct or Cahoot. The strategy Goldman Sachs has adopted with Marcus in the US, however, has so far kept the account in a leading position: it is paying 1.95% against a national savings rate average of just 0.32%.

However, to paraphrase a common warning, past performance (in the States) is not necessarily a guide to the future (in the UK).

In the UK, Marcus’s 1.5% interest rate is still 0.9% below September’s CPI inflation figure of 2.4% or, if you prefer the old RPI measure, 1.8% short. Short-term interest rates, as measured by the Bank of England Base rate, have been below CPI inflation for much of the last 10 years. Even if you had an account consistently paying 0.75% above base rate (the dotted line), as Marcus is currently, your cash would still have lost buying power – and that is before considering any tax on interest.

There is no argument that Marcus is a competitive account, but it is perhaps not a long-term investment choice. If you would like to discuss your investment options, please get in touch.

The value of your investment can go down as well as up and you may not get back the full amount you invested. 

Past performance is not a reliable indicator of future performance. 

Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.

A 2.6% rise in the single tier state pension was announced in the 2018 Budget.

The increase to the single tier state pension, and its predecessor the basic state pension, will apply from next April. Other state pensions, such as the State Earnings Related Pensions Scheme (SERPS), will rise by 2.4%.

The higher increases for the two main pension benefits are the result of the ‘triple lock’, which requires the annual uplift to be greatest of:

• CPI inflation (2.4% in September 2018);
• Earnings inflation (2.6% for average weekly earnings to July 2018); and
• 2.5%.

The increased payment – £4.30 a week for the single tier pension – is often presented as extra money for pensioners. However, it is doing little more than maintaining the state pension’s buying power against inflation.

Earnings and CPI inflation have been roughly in line with each other for some time, which can be linked to any discussion about the lack of real wage growth. Had September’s annual inflation figure come in at 2.6%, as expected by many pundits, it would once again have been the triple lock winner, albeit matched by earnings.

Triple lock guarantee

The triple lock is only guaranteed until the end of the current parliament (2022, at the latest) after which its future is in doubt. There have been many calls for the triple lock to be scrapped, including from the House of Commons Work & Pensions Select Committee.

The problem with the triple lock is its cost, which is greater than a pure link to earnings or a simple price inflation.

To see how expensive providing only inflation proofing is you can look at pension annuity rates. For a 65-year-old, an RPI-linked annuity costs approximately two thirds more than an annuity which does not increase over time. While annuities are not as popular these days, that 66% difference is a fair indicator of how much more it costs to build inflation protection into your retirement planning.

If you would like to discuss your retirement plans in light of these developments, please get in touch.

The value of your investment can go down as well as up and you may not get back the full amount you invested. 

Past performance is not a reliable indicator of future performance

Fraudsters are sending the public fake TV licensing emails to steal their personal and financial information.

Victims who click on the link are led to a convincing looking TV Licensing website – this could lead to fraudsters draining bank accounts and committing identity fraud. In September and October alone, 2,685 reports have been made to Action Fraud’s phishing reporting tool.

Hooking victims in

Reports show that fraudsters are sending out fake TV Licence emails regarding refunds and payment issues to people across the UK. They will use headlines such as ‘correct your licensing information’, ‘billing information updates’ and ‘renew now’ to trick people into clicking on the link within the email.

When a victim clicks on the link, they will be led to a convincing looking TV Licencing website. The website is designed to harvest as much personal and financial information as possible from the victim.

Although all the emails are different in style, they all lead to the same website which is being hosted on different domains. The emails claim that TV Licencing has been trying to contact customers regarding the payment of a bill or a change to their personal information.

The fraudulent website will prompt victims to add their payment details, including the Card Verification Value (CVV) code on the back of their card, account number and sort code. With this information, fraudsters could drain bank accounts and commit identity fraud. It may also ask for the victim’s name, date of birth, address, phone number, email and even mother’s maiden name which suggests fraudsters will try to access other online accounts.

Protect yourself from fraudulent emails

TV Licensing has the below useful tips for spotting a scam email.

•  Never answer an unsolicited email from TV Licensing – the organisation will never email you, unprompted, to tell you that you’re entitled to a refund or ask for bank details/personal information.
•  Check the email contains your name – TV licensing will always include your name in any emails they send you.
•  Check the email subject line – anything along the lines of “Action required”, “Security Alert”, “System Upgrade”, “There is a secure message waiting for you”, and so on, should be treated as suspect.
•  Check the email address – does the email address look like one that TV Licensing use? For example donotreply@tvlicensing.co.uk. Look closely as often the address may be similar.
•  Check for a change in style – often the scammers will take the real emails and amend them. Look out for changes in the wording used, especially if it seems too casual or familiar.
•  Check for spelling and grammar – are there any spelling mistakes, missing full stops or other grammatical errors?
•  Check the links go to the TV Licensing website – hover over the links in the email to see their destination and check the web address carefully. If you are not sure, go directly to the TV Licensing website.
•  All of TV Licensing’s guidance on this issue is available on their website.

If you have been affected by this, or any other scam, report it to Action Fraud by calling
0300 123 2040, or by using the online reporting tool at www.actionfraud.police.uk

By clicking on one of these links you are departing from the regulatory site of Polestar. Neither Polestar nor Positive Solutions is responsible for the accuracy of the information contained within the linked site.

Planning is a major part of everyday life; we’re always thinking how to make the best use of our time and money, and as we get older we recognise the need for careful financial and legal planning too.

There are some key issues older people need to consider. These can include writing or updating their Will to ensure that their estate will be distributed according to their wishes, putting in place Lasting Powers of Attorney to safeguard their finances and their healthcare, making plans for later life care and transferring assets tax-efficiently to the next generation.

Making a Will

Having an up-to-date Will in place that reflects how you want your estate to be distributed on your death is the cornerstone of good estate planning. Sadly, statistics show that around two thirds of UK residents have yet to take this simple step¹, including 42% of over 55s. The figures reveal that one and a half million people haven’t updated their Will since getting married, making it void. Wills can have a major part to play in managing your estate’s liability to inheritance tax too.

Safeguarding your wishes

A Will isn’t the only piece of forward planning you should consider. A Lasting Power of Attorney enables you to choose the person or people who would be in charge of making decisions which affect you, if you are not able to do this for yourself. This makes things easier for family and relatives if you lose capacity, helping ensure that decisions that affect you would be made in your best interests, and that your affairs, both your financial and your health, are managed in the way you would have wanted.

Inheritance Tax planning

In the 2017-18 tax year, according to statistics from HM Revenue & Customs, Inheritance Tax receipts hit a hefty £5.2bn, brought about largely by rising property prices that are seeing more and more families drawn inexorably into the tax net. However, with careful planning and the use of annual tax exemptions, it is possible to reduce the amount of tax that would otherwise be payable.

Care in later life

Many people simply use the savings they have built up over the years to pay for the care they need. However, there are other ways to cover fees such as specialist long-term plans that are purchased with a lump sum and in return pay a guaranteed income for as long as you live. Taking financial advice will help ensure you’ve planned effectively for your future.

If you’re making plans for your retirement and would like some professional advice, then please get in touch.

1 Macmillan Cancer Support, 2018