Monthly Archives: May 2014

Our 2014 Investment Action Plan – Part 5 – Make the Most of Low Interest Rates

While for many savers, the end of the low interest rate environment can’t come soon enough, for those of us with borrowings 2014 could be the last chance to really take advantage of the record low rates available on mortgages and other finance products.

The January 2014 figures for unemployment recorded a shock fall in the number of people out of work to 7.1%. This is now perilously close to the Bank of England’s 7% threshold for the consideration of a base rate increase.

The Monetary Policy Committee, who hold responsibility for setting interest rates in the UK, have been keen to point out that a breach of the 7% unemployment threshold will not automatically cause an increase in interest rates, however, given the improving state of the UK economy, it would seem reasonable to assume that we will see a base rate increase at some point in the coming 18 months.

Providers will soon start to “price in” this increase in interest rates, which will make the cost of mortgage finance higher than it has been previously. The current range of mortgage deals could well be the best we will ever see and it would make sense to lock into an attractive deal now to avoid the shock of a sudden rate rise. 

 

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

Our 2014 Investment Action Plan – Part 4 – Beware of Pension Tax Changes

As the current tax year draws to a close many individuals will be looking to take advantage of the generous tax relief available on pension contributions. While this is an effective form of planning for many clients, care needs
to be taken to ensure that pension contributions and overall savings remain within the permitted limits.

Pensions tax allowances have been an easy target for the government in recent years and 2014 is no different. Both
the Annual and Lifetime Allowance are set to be reduced once again.

The Annual Allowance is the amount of tax advantaged pension saving that an individual can make in a single “pension input period”, not to be confused with the tax year itself. A pension input period is normally 12 months and the actual dates are decided by the pension scheme. Each pension input period relates to a specific tax year. The annual allowance has been on the chopping block for a number of years now, looking something like this over the past few tax years:

10/11 – £255,000

11/12 – £50,000

12/13 – £50,000

13/14 – £50,000

14/15 – £40,000

You are able to carry forward any unused allowance from the previous 3 tax years, although there are special rules relating to this facility for the 10/11 tax year.

People who are members of a final salary pension scheme are particularly vulnerable to the annual allowance.
An increase in salary or a pensionable bonus could easily cause a breach of the allowance and the subsequent tax charge. A series of complex calculations are required to work out the deemed contributions for a final salary pension scheme member. The input amount is not simply based on the payments made by the member, as many people wrongly assume.

Individuals with personal pension schemes will have an easier time making the required calculations, but could
still find themselves over the annual allowance without proper planning.

The Lifetime Allowance is the lifetime limit on pension savings that an individual can accumulate. The allowance was previously £1.8m. This reduced to £1.5m on 6th April 2012 and will fall again to £1.25m this year.

The penalties on any excess pension savings over the lifetime allowance are particularly severe, with the maximum tax charge currently standing at 55%. Once again, members of final salary or career average pension schemes should check carefully where they stand. An annual pension entitlement of £40,000 is an indication that further planning may be required.

There is a range of different protection schemes available which can reduce the impact of the changing lifetime allowance. Care should be taken however, because these protections usually come with some rather restrictive caveats.

Professional advice should be taken to establish your position against the annual and lifetime allowance and to ensure that you take advantage of all of the protections available to you. It can take some time to accumulate all of the information required to provide comprehensive advice in this area so clients should act without delay. 

Our 2014 Investment Action Plan – Part 3 – Rebalance Investments

While the media painted a somewhat gloomy picture of the economy in 2013, on the whole, financial markets had a bumper year. Given the significant differences in performance across market sectors, it is likely that many portfolios will now be out of line with the intended asset allocation.

A priority for 2014 should be to ensure that portfolios are re-balanced back into line with the intended asset allocation and that a thorough review is conducted to ensure that the investments are still suitable for your needs and objectives.

Our 7 Step Investment Action Plan – Part 2 – Tax Allowances

 

The new year brings many resolutions of prudent financial management and plans to save and invest for our futures. Central to any of these plans should be the considered use of the available tax allowances and reliefs available to you on or before 5th April each tax year.

Many people leave the use of these allowances to the last minute which means that any decisions are usually rushed and ill thought out. It usually follows that the investments chosen are an afterthought and
do not get the attention or due diligence they deserve. Furthermore, investments made in haste often lack sufficient diversification and carry a far higher degree of risk than would normally be taken on by most clients.

By making early use of your tax allowances, not only will you benefit from a whole year of tax advantaged fund growth, you will also have sufficient time to really consider what your objectives are and how the various allowances can help you to achieve them. The result is the right tax wrapper for the right objective with the right investments, meaning you are far more likely to achieve your goals.