Archive: Feb 2020

  1. Inheritance tax planning ahead of the Budget

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    There is a real concern that the inheritance tax rules may be due for a change. A couple of recent reports give an outline of the areas that may receive attention. One of these is the exemption for “normal expenditure out of income” and clients who can use this exemption may like to take early action.

    Despite a recent little dip because of the impact of the residence nil rate band, inheritance tax (IHT) receipts are on the rise again and are comfortably over £5 billion per tax year. The tax was payable on 4.6% of estates of those who died in 2016/17 – up from 2.6% in 2009.

    One of the most effective ways of combating IHT is to make lifetime gifts. There are potentially four drawbacks to this:

    • To be fully effective for IHT purposes the donor needs to survive seven years.
    • If the donor wants access to the property gifted, the gift with reservation of benefit rules will neutralise any potential IHT savings.
    • Will any capital gains tax arise on the gift?
    • The donor may be concerned over the loss of control over the asset gifted.

    All four of these drawbacks can be overcome if proper planning is undertaken. For example, if gifts are made regularly out of the donor’s surplus income, and those gifts do not affect the donor’s standard of living, they will be exempt when made – no need to live for a further seven years for IHT effectiveness.

    Because those gifts are of cash, no CGT issues arise. Further, because they are made out of surplus income, there is probably no requirement for the donor to have future access to the gifts and control can be exercised over the gifts by making the gifts into a trust.

    And remember, all income can be taken into account for these purposes – earned income, investment income and tax-free income, such as that from ISAs and flexi-access drawdown income from an income drawdown account where the pension scheme member died under age 75.

    An Example

    George is aged 57 and enjoys income of £150,000 per annum (£110,000 net) from his job as an architect. He and his wife, Samantha, have combined taxable estates of £3m and so face a hefty IHT charge of more than £900,000 on the second death. His sons, Robert (14) and Richard (12), are showing academic promise and are likely to go to university. He would like to put in place some funding to help them.

    George has surplus income of about £20,000 per annum. He thinks it would be good to use £10,000 of this to make a regular annual gift to a trust fund for the benefit of Robert and Richard. As each gift would be exempt under the normal expenditure exemption, there are no tax consequences on the gift and no requirement to live seven years for it to be IHT effective. The trustees invest in funds which are appropriate to the need to be drawn down over the next four to eight years.

    So, this all works very well for George. But he needs to bear in mind two important facts about the normal expenditure exemption:

    • Because the donor’s personal representatives (PRs) will probably need to claim the exemption on those gifts made within seven years of the donor’s death, it is best if the donor can leave full details of the circumstances of each gift when made, in particular, that it is made out of income and does not affect his standard of living. In this respect it is worth the donor completing the form IHT 403 (Return of gifts and other transfers of value) to give his PRs guidance.
    • The Office of Tax Simplification recently produced a report on the simplification of IHT in which they proposed that the annual exemption, the marriage exemption(s) and the normal expenditure out of income exemption should be bundled together as one exemption of about £25,000 per annum. More recently a cross party committee of MPs have suggested the Government make more radical changes to IHT. One of these would be to remove the normal expenditure out of income exemption.

    What should you do?

    So, what should clients do? Well, it is impossible to predict whether changes to IHT will be made by the Government in the forthcoming Budget or over the next year or two. But, given the healthy majority the current Government enjoys, there must be a chance that the system will, at the very least, be simplified. It also means that clients that can afford to make substantial gifts out of income may like to get that planning up and running before any rule change occurs – in the hope that if a rule change does occur, existing arrangements will be protected.

    If clients implement this planning now, it would make sense:

    • to evidence, in writing, the intention to make regular gifts to show they form a pattern of gifting;
    • to keep records of expenditure so that it can be shown that any payments out of income do not affect their standard of living; and
    • ideally complete form IHT403 which records gifts and expenditure and may help the client’s PRs to deal with any queries that arise from HMRC after the client’s death.
  2. January Inflation Numbers

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    The CPI for January showed an annual rate of 1.8%, up 0.5% from December. The market had expected a 0.3% increase, according to Reuters. Across December to January prices fell by 0.3%, whereas they dropped by 0.8% a year ago.

    The CPI/RPI gap was unchanged at 0.9%, with the RPI annual rate rising to 2.7%. Over the month, the RPI was down 0.4%.

    The Office for National Statistics’ (ONS’s) favoured CPIH index rose 0.4% for the month to 1.8%. The ONS notes the following significant factors across the month:


    • Housing and household services: The largest increase came from this category. In January 2019, a fall in gas and electricity prices partially reflected energy providers beginning to operate Ofgem’s initial energy price cap. There was no such Ofgem adjustment this January because of a change in the timing of new pricing caps. These now take effect on 1 April and 1 October. The 0.2% inflation increase in gas and electricity bills created this month by the January 2019-January 2020 comparison will disappear in February, and in April energy prices will bring downward pressure on inflation because the cap rose by 9.3% in April 2019 but will drop by 1% in April 2020.
    • Transport: The main upward contributions came from fuels and lubricants, and airfares. Prices at the pump rose between December 2019 and January 2020 but fell between December 2018 and January 2019. There was also a large upward contribution from airfares where prices fell between December 2019 and January 2020 by 17.9%, compared with a fall of 25.5% a year earlier. There were further small upward contributions from vehicle maintenance and repairs, and other services. These upward contributions were partially offset by small downward contributions from rail and sea fares and the purchase of vehicles.
    • Clothing and footwear: This category also made a large upward contribution to the change in the inflation rate, with the main impact coming from women’s clothing. There was no evidence to suggest a reduction in the proportion of items being recorded on sale compared with January 2019, despite evidence of increased discounting reported in December 2019.
    • Restaurants and hotels: Overall prices for overnight hotel accommodation fell by 3.9% between December 2019 and January 2020, compared with a fall of 9.1% between December 2018 and January 2019.


    • Furniture, household equipment and maintenance: Overall prices fell by 3.1% between December 2019 and January 2020, compared with a fall of 2.1% between December 2018 and January 2019. The main downward movement came from furniture and furnishings, in particular from settees and double beds.
    • Food and non-alcoholic beverages: Overall prices fell by 0.1% between December 2019 and January 2020, compared with a rise of 0.1% a year earlier. There were downward contributions from margarine or low-fat spread; fish; fruit; and fruit squash. These were partially offset by upward contributions from bread and cereals; and sugar, jam, syrups, chocolate and confectionery. CPI inflation in this category is now 1.5%.


    In six of the twelve broad CPI groups, annual inflation increased, while three categories posted a decrease and the remaining three were unchanged. The category with the highest inflation rate remains in the Communications category, which fell 0.1% to 4.2%.

    Core CPI inflation (CPI excluding energy, food, alcohol and tobacco) rose 0.2% to 1.6%. Goods inflation rose 0.7% to 1.3%, while services inflation was up 0.2% at 1.6%.

    Producer Price Inflation was +1.1% on an annual basis, up 0.2% on the output (factory gate) measure. Input price inflation increased to 2.1% year-on-year, a 1.2% rise from December. The main driver here – for a change – was imported metal prices, not oil prices (which were the main driver for the output inflation rise).

    These inflation figures were higher than expected, but the quirks of energy price capping mean this could be a temporary blip rather than an omen of the end of sub-2% inflation. With earnings growth of 2.9% a year (total pay – 3.2% regular pay only) according to the latest statistics, real earnings growth continues to be positive.

    These inflation numbers to some extent vindicate the Monetary Policy Committee’s no change decision on 30 January. The MPC next meets on 25/26 March, by which time it will have another set of inflation statistics and the impact of the Budget to consider.

  3. Buy To Let and FTSE in the last 10 years

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    The Great British Public has long had a love affair with bricks and mortar, witness the continued (if waning) popularity of buy-to-let, despite all the tax obstacles being thrown at it (with more to arrive in April). It set us wondering what the last decade revealed about the returns from UK residential property compared to UK shares.

    The graph above is a limited attempt to do just that, looking also at inflation, as measured by the RPI and CPI:

    • It re-bases everything to 100 at December 2009 for consistency.
    • It uses the Land Registry index of house prices, which only runs to November 2019 – December’s figures are about a fortnight away. The Land Registry numbers are slower to appear than those of Nationwide and Halifax but include more underlying data as cash purchases are covered. Interestingly, the Nationwide figure for the decade shows house price growth of 33% against about 40% for the Land Registry. At 33%, the Nationwide Index very marginally underperformed the RPI over the ten years.
    • Similarly, we have used the more comprehensive FTSE All-Share rather than the FTSE 100 to show UK equity market performance. The FTSE 100 posted a gain of 39.9% over the decade, against 52.0% for the FTSE All-Share. That difference reflects the strong performance over the period of the FTSE 250 mid-cap shares (in the tier below the FTSE 100) – up 135.1%.
    • The gap between the RPI (blue line) and CPI (yellow line) is a 0.84% a year difference, which helps explain the controversy surrounding moves to reform the older index.
    • The FTSE All-Share and House Price data are capital values only. Consideration of income has been excluded mainly because of the paucity of rental data. For the FTSE All-Share, reinvesting dividend income would have produced a total return of 114.6% (7.94% a year).

    Past performance is not a guide to the future, as every financial ad reminds us. However, it can be a useful reminder of the past. How many people remember that house prices spent much of the first half of the decade growing at a slower pace than inflation..?

  4. Rumours of pension tax relief cuts are not going away

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    In the run up to most Budgets it is common to hear rumours suggesting some form of cut to pensions tax relief, however, this year it seems more likely than usual. We have a new Government with a significant majority, who have promised large scale spending on public services and they will need to raise some funds from somewhere. Pensions tax relief is expensive and so may be too big a target to resist.

    We also have a brand-new Chancellor who may not have previously been involved in understanding the complexity and potential unintended consequences of cutting pension tax reliefs.

    The strongest rumour to emerge at the time of writing is the cutting of tax relief for higher rate taxpayers. There are several issues with this idea including how it would work with net pay contributions, employer contributions and defined benefit schemes. It also isn’t clear how this would tie in with the Government’s promise to resolve the NHS staffing issues caused by the impact of pension taxation.

    Whether we will see any changes or not, it is often good planning to ensure pension contributions are maximised before the end of the tax year and for this year ensuring contributions are made before 11 March Budget Day may be worthwhile just in case any changes are introduced with immediate effect.

    As well as affordability, the restrictions to pension contributions are the client’s available annual allowance (including any carry forward relief) which applies to all contributions, and, where making personal contributions, their level of earnings.

    The annual allowance can now vary from anywhere between £4,000 for someone who is subject to the Money Purchase Annual allowance, all the way up to £160,000 where the client isn’t subject to tapering and has the maximum carry forward allowance available.

    Personal contributions are also limited to the higher of £3,600 gross and the client’s relevant UK earnings, which primarily means any income earned from employment or trade and doesn’t include investment income such as dividend income or rental income (apart from certain holiday letting income).

    Within these limits, making contributions to maximise contributions that at least receive higher rate tax relief maybe worthwhile. It is worth remembering that whilst investment income doesn’t count as relevant earnings, pension contributions can still be used to obtain higher rate tax relief on that income. For example, if someone has £50,000 of earnings and £10,000 of rental income, a £10,000 gross pension contribution will ensure all the rental income moves from being taxed at 40% down to 20%.

    For tax year 2019/20 any carry forward available from 2016/17 needs to be used or it will be lost. In order to use it contributions need to be made that, firstly, are enough to use up the current year’s annual allowance. Once the current year’s allowance has been used the rules ensure additional contributions then use the earliest carry forward year first.

    As well as receiving tax relief at the client’s highest marginal rate there can be additional tax benefits of pension contributions for some clients as they can be used to reclaim the personal allowance where income exceeds £100,000, and avoid the high income child benefit charge where income exceeds £50,000. The income definition used for both of these is “adjusted net income” and pension contributions will reduce this figure whether they are made by net pay (i.e. a gross contribution deducted from earnings) or by relief at source (i.e. paid net of basic rate tax). Where contributions can restore allowances or avoid charges the effective rates of tax can be 60%, or more, making pension contributions even more attractive.

    There is only a short wait now until we see if there are any significant changes to pension tax relief or if, once again, the rumours are deferred until the next Budget. However, where a client can achieve higher rate tax relief or greater it may be worth maximising contributions while we know it’s still available.

  5. Top 10 Tips for 2020 Tax Planning

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    With the end of the tax year just a few weeks away, below are my top 10 tips you can benefit from.

    1. Each person has an annual exemption of £12,000 to set against their capital gains. This allowance cannot be carried forward or transferred to another person. So if you are thinking of selling or gifting assets and have a spouse/civil partner, take advice to see if it is worthwhile transferring the asset to your spouse/civil partner before making any disposals, so as to utilise their annual exemption in addition to your own, this could save you up to £3336!
    2. Use up your £3,000 inheritance gift exemption for the current year, and also use the same exemption from the previous year (2018/19), if you have not already done so. The exempt amount may be carried forward one tax year only, after which it is lost.
    3. Review your pension contributions (including those made via salary sacrifice and those made by your employer) to ensure that you can make full use of the annual pensions allowance. Remember that if you were registered in a UK pension scheme in the three years prior to 2019/20, you have the opportunity to use up any unused annual allowance. The carry forward is a ‘use it or lose it’ relief and this year is the last year in which you can use up the unused Annual Allowance from 2016/17.
    4. For non-earners and for children, it is possible to make net pension contributions of up to £2,880 in the year. The government will add £720 to this level of contribution, so the value of the pension fund increases to £3,600 gross.
    5. Contribute to your ISA. The ISA allowance for 2019/20 is £20,000, for Junior, ISAs is £4,368 and Lifetime ISAs it’s £4000 plus a 25% bonus. Remember that income or disposals within the ISA wrapper will be tax-free.
    6. Make charitable donations via Gift Aid. If you are a higher rate or additional rate taxpayer, then you will gain relief on your donations.
    7. If you made capital losses in 2015/16, which you did not notify HMRC about, or you overpaid tax in that year, you have until 5 April 2020 to submit a claim to HMRC to notify them of the loss or reclaim the tax overpayment, after which the claim will be out of time.
    8. For enterprise investment scheme (EIS), seed enterprise investment scheme (SEIS) or venture capital trust (VCT) investments, consider making these sooner rather than later in order to generate an earlier tax repayment or to carry back the relief to the previous tax year. Remember that such investments carry risks and you could end up losing your investment, so you should seek advice before investing.
    9. Use your marriage tax allowance, if you are married or in a civil partnership and one of you is a non-taxpayer (earning below £12,500) and the other a basic rate (earning below £50,000) the non-tax payer can transfer 10% of their remaining personal allowance to the basic rate tax payer to use, this could save £250 of tax and you can claim for the previous four years to 2015/16, if you qualified.
    10. Finally, it is worth considering preparing your tax return earlier in the tax year so that should your tax liability have fallen from that in the previous year, the second payment on account becoming due by 31 July 2020 may be reduced (should you indeed fall within the payment on account regime). If, on the other hand, your tax liability has increased, an early understanding of this will allow you to budget for the additional tax to be paid by 31 January 2021.
  6. We are looking for a paraplanner to join our team

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    We are a multi award-winning financial planning firm near Swindon, Wiltshire, that is looking to recruit an experienced paraplanner to our team. We love what we do and we want to recruit someone who is as passionate about financial planning as we are.

    We have many years of experience providing financial plans for our clients enabling them to achieve their financial & personal goals. We are a small dynamic team where every member is valued and equally as important.

    The Role

    As a qualified paraplanner, you will be expected to provide support to our planner pre and post planning meeting, ensuring client satisfaction at all times.

    The successful candidate will be able to:

    • Work independently & manage their workload to enable them to meet various deadlines.
    • Provide effective specialist technical advice.
    • Communicate to a high standard whether it be with a client, provider or a member of the team.
    • Demonstrate excellent report writing skills.
    • Pay attention to quality and accuracy.

    Skills & Knowledge:

    • IT Competent – MS Office, FEAnalytics and ideally (not essential) Prestwood Software
    • Technical and detailed knowledge of pensions, investments and tax
    • Carry out technical calculations such as tapered annual allowance, lifetime allowance, inheritance tax
    • Ideally, you would hold a diploma level qualification in financial planning or above

    Package includes;

    • Competitive salary to reflect the experience
    • Discretionary bonus paid six-monthly
    • Non-contributory pension at 9%pa
    • Non-contributory private medical insurance
    • Christmas holiday office shut down in addition to holiday entitlement
    • Relaxing rural office with free parking

    To apply for this job send your CV and covering letter to