The New Help to Buy ISA

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The new help to buy ISA will be available from 1st December 2015. This ISA will allow people aged 16 and over to save up to £200 per month, on top of an initial investment (up to £1,000), towards a deposit on a first property purchase.

Where an individual saves £12,000 into the help to buy ISA, the government will boost those savings by 25% to £15,000 when used for a deposit on the purchase of a first property. The tax free bonus will be limited to a minimum of £400 (maximum of £3,000) and will be available on UK properties up to a value of £450,000 in London and up to £250,000 in other parts of the country.

Because the help to buy ISA is per individual and not per property, if a couple save a deposit of £24,000 equally between them, they would receive an additional £6,000 from the government. Each first time buyer can only open one help to buy ISA during the lifetime of the scheme.

Payments made to a help to buy ISA count against the individuals annual limit and because it is effectively a cash ISA it means that another cash ISA cannot be opened. However, a stocks and shares ISA could still be opened, into which you could invest into cash following recent ISA reforms.

The new account will be available for 4 years from 1st December 2015, but there is no limit on how long the account can remain open.


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Fidelity - Outstanding Investment House 2015

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We are happy to announce that Morningstar, a leading provider of independent investment research in North America, Europe, Australia, and Asia, has named Fidelity as the Outstanding Investment House for 2015. 

The annual Morningstar awards recognise individual fund managers and fund groups that have made a substantial contribution to the retail investment management industry.

Jeremy Beckwith, director of UK manager research for Morningstar, said, “The awards draw on our extensive qualitative manager research to celebrate those in the UK investment industry who have achieved impressive returns and have been excellent stewards of fund shareholders’ capital over the long term.”

All of us here at GDA Financial Partners are delighted to know that the close relationship that we have forged with Fidelity help us to benefit our clients. Their extensive global network allows them to provide outstanding products and services that many of our clients have been able to take advantage of.

You can find out more about Fidelity by visiting their website: https://www.fidelity.co.uk/investor/default.page.

You can also find out more about the Morningstar awards and the other winners at: http://corporate.morningstar.com/us/asp/subject.aspx?xmlfile=174.xml&filter=PR5483.

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Sticking to your Guns during an Economic Downturn

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Declines in markets are normal when it comes to investing and it is a testing time at the moment for investors, particularly in international markets. Falls in the price of oil, slowed growth in China, renewed uncertainty in Greece and the potential for a rate increase in the US are all factors that make reviewing your portfolio a difficult task. While it is tempting to make changes when markets are weak, you should make an effort to resist the temptation. Why? Because your best decisions regarding investments should be based on savings you are getting and the investment plan you have in place. While it is important that you stay up-to-date with what is happening in investment markets, you should always understand headlines within contexts.

Now more than ever it is important to remember that your investments are for the longer term and that a fund cannot be expected to outperform all of the time in a global economy. With most of the main markets participants on holiday you can be assured that they will be thinking about how best to put their cash back to work when they  return and there are plenty of examples of funds that have moved from the bottom quartile to the top in a short space of time, explained by positive changes in the markets or fund managers overhauling the portfolio strategy.

This is a good opportunity recognise the expertise of your financial adviser and look to them for guidance. Your financial adviser will be in the best possible position to offer advice on the markets and valuable industry insights. The volatility of the markets and its effects on the funds in your portfolio have been carefully balanced based on your attitude to risk, therefore with higher risk portfolios more volatility is to be expected and will be particularly highlighted of late. However, you should also have a portfolio that is sufficiently diversified to help weather these periods of uncertainty. It will be difficult to stick to an investment plan unless you understand exactly what you will get out of sticking with your invested funds, regularly reviewing your investment plan and knowing what sorts of options are available to you will ensure that your goals are always realised.

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Key Announcements from the Summer Budget 2015

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This is a Budget that puts security first. It ensures economic security for working people by putting the public finances in order and setting out a bold plan for a more productive, balanced economy. It supports national security by investment in defence. It sets out bold reforms on tax and welfare, and introduces a National Living Wage so we move Britain from a low wage, high tax, high welfare economy to a higher wage, lower tax, lower welfare economy. It delivers on the promises on which the government was elected.
 

This Budget sets out the action the government will take to:

• Eliminate the deficit and run an overall surplus to start paying down debt, while increasing spending on defence and the NHS.
• Reward work and back aspiration, by introducing a new National Living Wage, cutting taxes so people can keep more of what they earn, and reforming the welfare system to make it more affordable and fair to the taxpayers who pay for it.
• Back business and make the economy more productive, by cutting corporation tax and increasing the permanent level of the Annual Investment Allowance, and by undertaking major reform of funding for skills and infrastructure to ensure higher standards of living for everyone in the UK .
• Secure a truly national recovery, by devolving powers and budgets to build a Northern Powerhouse, and create the right conditions for strong growth throughout the UK.

 

Here are the key announcements made by George Osborne in the summer Budget (8 July):

 

1) New national living wage

From April 2016, a new national living wage of £7.20 an hour for those over 25 will be introduced. This will increase to more than £9 an hour by 2020.

 

2) Tax-free personal allowance increased

The tax-free personal allowance – the amount people earn before they have to start paying income tax – will increase to £11,000 in 2016 to 2017.

The government has an ambition to increase the personal allowance to £12,500 by 2020, and a law will be introduced so that once it reaches this level, people working 30 hours a week on the national minimum wage won’t pay income tax at all.

 

3) Welfare system cuts

Working-age benefits, including tax credits and local housing allowance, will be frozen for four years from 2016 to 2017, however this excludes maternity allowance, maternity pay, paternity pay and sick pay.

As speculated, the household benefit cap will be reduced to £20,000 across the country and £23,000 in London.

Support through the child tax credit will be limited to two children for children born from April 2017.

Those aged 18 to 21 who are on universal credit will have to apply for an apprenticeship or traineeship, gain work-based skills, or go on a work placement six months after the start of their claim.

Rents for social housing will also be reduced by 1 per cent a year for four years.

 

4) Reforming dividend tax

The dividend tax credit (which reduces the amount of tax paid on income from shares) will be replaced by a new £5,000 tax-free dividend allowance for all taxpayers from April 2016.

Tax rates on dividend income will be increased.

 

5) Family home taken out of inheritance tax

Currently, inheritance tax is charged at 40 per cent on estates over the tax-free allowance of £325,000 per person. From April 2017, couples will be offered a £1m family home allowance so they can pass their home on to their children or grandchildren tax-free after their death. This will be phased in from 2017 to 2018.

The allowance will be gradually withdrawn for estates worth more than £2m.

 

6) Limits to paying into pensions

The amount people with an income of more than £150,000 can pay tax-free into a pension will be reduced so that for every £2 of income they have in excess of £150,000, then their annual allowance is reduced by £1. Most people can contribute up to £40,000 a year to their pension tax-free.

 

7) Higher rate threshold will increase

The amount people will have to earn before they pay tax at 40 per cent will increase from £42,385 in 2015 to 2016 to £43,000 in 2016 to 2017.

 

8) Corporation tax will be cut

The main rate of corporation tax has already been cut from 28 per cent in 2010 to 20 per cent, in order to boost UK competitiveness but will fall further to 19 per cent in 2017, and then to 18 per cent in 2020.

 

9) Annual investment allowance will be increased

The annual investment allowance, which has previously been increased temporarily, will be set permanently at £200,000 from January 2016.

 

10) Employment allowance will increase

Businesses will have their employer national insurance bill cut by another £1,000 from April 2016, as the employment allowance rises from £2,000 to £3,000.

 

11) Insurance premium tax will increase

From November 2015 the standard rate of insurance premium tax will be increased from 6 per cent to 9.5 per cent.

 

12) Clamping down on claims management companies

The amount that can be charged by claims management companies – such as those that encourage claims for payment protection insurance or personal injury insurance – will be capped.

 

13) Restricting tax relief for wealthier landlords

Currently, individual landlords can deduct their costs – including mortgage interest – from their profits before they pay tax.

Wealthier landlords receive tax relief at 40 per cent and 45 per cent. This tax relief will be restricted to 20 per cent for all individuals by April 2020.

 

14) Ending permanent non-dom status

Non-domiciled individuals live in the UK but consider their permanent home to be elsewhere.

The UK rules allow non-doms to pay UK tax on their offshore income only when they bring it into the UK. However, permanent non-dom status will be abolished from April 2017.

From that date, anyone who has been resident in the UK for 15 of the past 20 years will be considered UK-domiciled for tax purposes.

 

15) Changing the way banks are taxed

Following increasing bank profits, and to reflect changes in bank regulation, the government is introducing a new 8 per cent tax on banking sector profits from January 2016.

The government is also introducing a phased reduction in the rate of the bank levy (which is charged on banks’ balance sheets) from 0.21 per cent to 0.1 per cent between 2016 and 2021.

 

16) Student maintenance grants will be replaced with loans

From the 2016 to2 017 academic year, cash support for new students will increase by £766 to £8,200 a year, the highest level ever for students from low-income households.

New maintenance loan support will replace student grants.

 

17) Road tax reform

The road tax system will be revised to make it fairer and sustainable.

From 2017, there will be a flat rate road tax of £140 for most cars, except in the first year when tax will remain linked to the CO2 emissions that cars produce. Electric cars won't pay any road tax at all and the most expensive cars will pay more.

 

 

References:

 

1. HM Treasury 2015, Summer Budget 2015, accessed 9 July 2015: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/443232/50325_Summer_Budget_15_Web_Accessible.pdf

 

2. FT Adviser 2015, Summer Budget 2015: All the key announcements, accessed 9 July 2015: http://www.ftadviser.com/2015/07/08/pensions/personal-pensions/summer-budget-all-the-key-announcements-Kav7rhGXQS2fZ9psvrFVnI/article-2.html?ftar=true

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Pension Withdrawals - Paying your Tax

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Since the new pension freedoms were announced in April 2015, if you are over 55 you have been able to withdraw money from your pension in a whole new way, you can now even withdraw the entire pension pot if you wish. However, before you make a decision on withdrawing money from your pension it is a good idea to familiarise yourself with the new tax implications so that you do not pay too much tax. The key point to understand is that money that you take from your pension pot may be added to your taxable income for the current period and will be taxed at your marginal rate. Therefore, if you don’t need to take a large cash lump sum from your pension, you could save yourself a big tax bill by choosing to go into flexible drawdown and take money from your pension pot over a number of years instead.

 

For example, if you have £30,000 income a year, your marginal rate of tax is currently 20%. If you cash in a pension pot worth £90,000, even after taking your tax-free lump sum (currently 25% which equates to £22,500), your total income for the year will be £97,500. This pushes you over the 40% tax threshold (£31,785 in the 2015-16 tax year after the personal allowance). Below the 40% tax threshold you will be taxed at 20% for everything above £10,600. £10,600 being the 2015-16 allowance that everyone can earn tax-free. This would mean that your tax payable would be £28,403 on your total earnings, or £16,403 on your pension pot for the tax year 2015-16 (if you have no other income).

 

Or, if you have £45,000 income a year, your marginal rate of tax is 40%. If you cash in a pension pot worth £300,000, even after taking your tax-free lump sum (currently 25% which equates to £75,000), your total income for the year will be £225,045. This pushes you over the 40% tax threshold and into the additional tax bracket (over £150,000 in the 2015-16 tax year). Below the 40% tax threshold you will be taxed at 20% for everything above £10,600. £10,600 being the 2015-16 allowance that everyone can earn tax-free. Above the 40% tax threshold you will be taxed at 40% for everything above £31,785 up to the additional rate tax threshold (currently £150,000 for the 2015-16 tax year). Anything above £150,000 will be taxed at 45%. This would mean that your tax payable would be £122,476 on your total earnings, or £83,153 on your pension pot for the tax year 2015-16 (if you have no other income).

 

Whether you wish to take a lump sum, go into pension drawdown or take out an annuity will be a decision based on your individual circumstances and needs. The key to reduce your tax liability is to understand the trigger events and work with the tools available to you so that you are not paying undue tax on your pension pot. Although the new pension freedoms look simple enough on the surface, it is always worth talking through your options with an independent financial adviser at the outset. Your adviser will be able to offer advice on all areas of retirement planning including: triviality and small pots; flexible drawdown; annuities; and tax liability on death, so that you can put a plan in place that efficiently takes you from where you are now, to where you need to be in the future in the most tax efficient way possible.


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Pensions are changing! Are you ready for April 6th 2015?

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Flexible Access 

From April 2015 if you are aged 55 or over you will have total freedom over how you take an income or a lump sum from your pension. You can take the whole pension as cash with the first 25% tax-free, take smaller lump sums as you wish with 25% of each withdrawal tax free and the rest taxed as income, or take up to 25% tax-free and a regular taxable income from the rest.

Annual Allowances

Pension contributions are currently subject to a £40,000 annual allowance and specific contribution rules. However, if after April 2015 you make withdrawals from a defined contribution pension in addition to tax-free cash, contributions to defined contribution plans could be restricted to £10,000.

Individuals in existing capped drawdown from 6th April 2015
The £40,000 annual allowance is retained as long as the individual is in an existing 'capped' drawdown scheme on 6 April. They also keep the ability to carry forward unused contributions from the previous 3 tax years. The maximum carry forward limit is £180,000 in the 2015/2016 tax year.

Individuals going into drawdown after 6th April 2015
A £10,000 annual allowance for money purchase pension savings will apply to individuals who have accessed their pension savings flexibly from an Uncrystallised Fund Pension Lump Sum (UFPLS), a flexi-access drawdown fund or a flexible annuity. The £10,000 annual allowance will also apply to payments of a scheme pensions set up on or after 6 April 2015 from a scheme with less than 12 pensioner members. However, such individuals will retain an annual allowance for defined benefits pension savings of up to £40,000, depending on the value of new money purchase pension savings. The £10,000 annual allowance will not apply to an individual by virtue of their receiving a small pot lump sum. Unused annual allowance brought forward from earlier tax years will not be available to increase the £10,000 annual allowance for money purchase pension savings.

Death Tax

Currently, it is normally only possible to pass a pension on as a tax-free lump sum if you die before age 75 and you have not taken any tax-free cash or income. Otherwise, any lump sum paid from the fund is subject to a 55% tax charge. From April 2015 this tax charge will be abolished. The tax treatment of any defined contribution pension you pass on, which you do not use to purchase a lifetime annuity or scheme pension, will depend on whether you die before or after age 75.

If you die before age 75
Your beneficiaries can take the whole pension as a tax-free lump sum or take an income from it.

If you die after age 75
Your beneficiaries can either: take the whole pension as cash subject to 45% tax, take a regular income subject to tax at the beneficiaries marginal rate, or take smaller lump sums through income drawdown which will be treated as income and taxed at the beneficiaries marginal rate.

Death after buying an Annuity

If you buy an annuity, you can choose for the income to be paid to your spouse or partner after you die (a joint life annuity). You can also choose a guarantee period or value protection to ensure that should you die before the term ends it will continue to pay out to your spouse, partner or beneficiaries. Currently, these payments are subject to tax. In the Autumn Statement of 2014 the Chancellor announced they will be tax free if you die before age 75 and the annuity you have is a lifetime annuity (if you have a scheme pension, any guarantee period payments will be tax free but joint life or value protection payments will continue to be taxed.

Access to free impartial guidance

Everyone should have access to free impartial guidance to help them make sense of their options at retirement. This service will be provided by Citizens Advice Bureau and the Pensions Advisory Service and the Pension Wise website can be accessed at www.pensionwise.gov.uk. There will be no charge and your pension provider will be required to tell you about the impartial guidance.

Ability to transfer a defined benefit pension

Most people with a defined benefit, also known as a final salary, pension will also be able to take advantage of the new rules and make unlimited withdrawals. To do so, they will have to transfer to a defined contribution pension. But as you could lose very valuable benefits, you should seek appropriate independent advice first.



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Cash ISAs vs Stocks & Shares ISAs

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Do you have or are thinking about an ISA? The type of ISA, whether Cash or Stocks & Shares, that is right for you will largely depend on how long you want to invest for and how much risk you are willing to take.


Cash ISAs

• Good if you want to invest for less than five years, or where you don't want to take any investment risk*.
• Interest will be added to your Cash ISA every year or more frequently.
• Normally allow instant access to your investment, but if you do have a fixed term account you may lose interest if you make a withdrawal before the term is up.
• No investment choice. You receive interest on your savings at a fixed or variable rate.
• You can invest up to £15,000 in the 2014/15 tax year and you can split this between a Cash ISA and Stocks & Shares ISA as you wish. 

Stocks & Shares ISAs

• Good for investing for five years or more, and when you want to share in the potential growth in stockmarkets.
• The value of your ISA can fall as well as rise depending on the performance of your investments.
• You are able to make withdrawals from your ISA and this is usually within 8 to 10 days.
• You can choose from a wide range of investments including funds, trusts, bonds and individual shares to be held within your ISA.
• You can invest up to £15,000 in the 2014/15 tax year and you can split this between a Cash ISA and Stocks & Shares ISA as you wish. 

If you have any queries regarding your investments our Independent Financial Advisers are always happy to answer your questions, we offer 'no obligation' initial meetings and can help you find the perfect fit for your situation.

* If the inflation rate is higher than the interest rate you receive then even though you will see an increase in the value of your investment, it will be eroded in real terms.



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