Census Financial Planning

RDR-â-What-it-all-means

Fri, 17 Feb 2012 00:00:00 GMT

Its aim is to improve service levels and transparency and ensure the interests of financial advisers and their clients are in line. For the Financial Services Authority, the industry regulator, RDR is about establishing a “resilient, effective and attractive retail investment market that consumers can have confidence in and trust at a time when they need more help and advice than ever with their retirement and investment planning”.

You may have heard about the Retail Distribution Review (RDR) but do you know what it is all about? RDR sets out to ensure that, as the client of a financial adviser, you are offered a transparent and fair charging system for the advice you receive; are clear about the service you receive; and obtain advice from highly respected professionals. As things stand, all the changes required for RDR compliance will come into effect on 31 December 2012 and will apply to every adviser across the retail investment market, including independent financial advisers, wealth managers and stockbrokers as well as banks and other providers of financial products

‘Independent’ has always been a description that could only be used by those advisers who researched the whole financial market. Under RDR, the definition of ‘whole of market’ has expanded and will now cover areas such as ETFs, private equity and other more esoteric asset classes. An independent adviser must demonstrate they have considered all of these products in the process of addressing your financial requirements. If an adviser cannot meet the definition for independence, they will be deemed to be ‘restricted’ and will use a smaller range of investments in addressing your financial requirements.

Under new rules following the Retail Distribution Review, all financial advisers in the UK – whether they are described as ‘independent’ or ‘restricted’ – will have to achieve a higher minimum standard of qualification before they are allowed to provide advice. This means an increase in the basic level of knowledge and will lead to a higher level of professionalism for the industry as a whole. Many advisers are using the changing regulation as an opportunity to obtain qualifications beyond the minimum standard – for example to chartered or certified status.

In conjunction with other recent legislation, the Retail Distribution Review has specific rules about how clients should be treated and what information they should receive on an ongoing basis. Approved individuals within each advisory business are also legally accountable for ensuring those rules are followed. This provides you with the added reassurance your adviser’s business is being closely monitored within a regulatory framework. In the unlikely event anything does go wrong, there is both a set process and a chain of personal accountability to ensure things are put right.

The Retail Distribution Review is causing advisers to change they way they do business. Many are moving to a financial planning rather than product recommending role. Now, rather than recommending specific funds, say, they are more likely to offer you a comprehensive financial plan and help you keep this on track as your life changes and develops. This will involve recommending a whole range of different products and solutions, depending on what your circumstances demand. Also, as part of the changing charging structure for advisers, you are likely to be able to pick through a menu of different advice options priced at different levels.

As part of the Retail Distribution Review, developments in financial-planning technology have taken the industry by storm. More secure, more flexible and more user-friendly systems mean the way in which your financial plans and products are checked and monitored has improved immensely. Many now have the ability to access information on your products and investments at the touch of a button. For example, instant portfolio valuations let you know if your plans are on track while detailed breakdowns of the assets mean you can realign your investments with your risk profile before any deviation gets out of hand.

Paul Dixon
Chartered Financial Planner

Bond-market-risks-in-light-of-recent-downgrades--

Wed, 15 Feb 2012 00:00:00 GMT

However, there has been a shift in investors’ thinking in areas such as the credit default swap market where, for example, higher-grade companies such as Coca-Cola and Nestlé are in some instances now considered lower-risk than major sovereign borrowers, such as the US or Switzerland.

In many cases the rating agencies agree. The downgrades of the US, France and other eurozone nations may not have had the immediate impact on government borrowing costs that many expected, but they also reflect the idea some higher-quality corporates are now a better credit risk than some governments. A similar adjustment is going on in the appraisal of emerging market versus developed market government debt. In 1994 just 2% of the bonds in the leading JP Morgan Emerging Markets Bonds Global Diversified index were considered ‘investment grade’. Today, that figure has now moved up to 56% with major economies such Brazil now considered investment grade.

In many ways, this is a rational reappraisal of the new environment. Global corporations require people to buy soap, pet food or pharmaceuticals, say, and this will happen through most economic environments. However, governments need to raise revenue through taxes or through higher growth rates, both of which are difficult in the current environment. Company balance sheets are, in general, in better shape than those of most governments.

Equally, the balance sheets of many emerging market governments now look better than those of developed markets. Many have fiscal and budget surpluses. They experienced some acute pain in the early 1990s and have learned their lessons about the perils of high debt.

What should this mean for investor portfolios? The environment is unusual but there is a shift taking place in the relative risk of global bonds. It is no longer sufficient to assume developed market government bonds are ‘risk-free’ or other types of bonds are necessarily ‘risky’. Investors are slowly shifting to reflect the new environment, with significant flows into emerging market bonds and out of eurozone bonds, and higher weightings in corporate rather than sovereign bonds. Bond market risk parameters have changed and investors should adjust their thinking accordingly.

Paul Dixon
Chartered Financial Planner

The-case-for-using-an-IFA-

Fri, 10 Feb 2012 00:00:00 GMT

. Arguably, one of the biggest priorities is your retirement planning. There is a host of ways in which you can save in a pension and in other savings vehicles, and of course, different people have different ambitions. An IFA can help you tailor a solution to your needs and help you determine what you need to save and invest to make sure your retirement is a comfortable one.

An IFA can also help you understand the process better. Your working years are when you save and invest. When you retire, you turn those investments into an income, but increasingly, there is no sharp cut off point and the transition between your working life and your retirement is a gradual one. But, it is not just your retirement planning which an IFA can help you with. We can also help make sure you have insured yourself against ill health or other risks to your income. You might even do the same with regard to your business protection.

You may wish to make use of other savings vehicles. Isas are a very useful and simple means of doing so, and now the Government has introduced the junior Isa so you can invest for your children as well.

If one of your big concerns is protecting your financial legacy for your loved ones, we can also help minimise the impact of Inheritance tax and there are a number of strategies to consider.

In essence, an adviser can work with you to help you understand your own personal circumstances, better consider your attitudes to risk, identify your goals, and plan ahead to achieve them.

He or she can also help you adapt those plans when circumstances change or when you need money for something unexpected. By using an IFA, we think you can stop worrying about the financial aspects of your life and get on with the rest of it. For more information on how our holistic financial review process could help you achieve your objectives, please contact Census on 028 9066 8700.

Paul Dixon
Chartered Financial Planner

How-the-year-has-started

Tue, 07 Feb 2012 00:00:00 GMT

The International Monetary Fund (IMF) believes the global economy is “deeply into the danger zone”, with the organisation’s managing director Christine Lagarde warning: “No-one is immune in the current situation. It is not just a eurozone crisis it is a crisis that could have spill-over effects around the world.”

January also saw Standard & Poor’s (S&P) downgrade the credit ratings of nine eurozone member countries, including France, which lost its coveted AAA rating. Austria, Cyprus, Italy, Portugal, Slovakia, Slovenia, Spain and Malta were also downgraded, with the ratings agency citing “insufficient” measures taken by European policymakers to address the debt crisis. S&P furthermore downgraded the rating of the European Financial Stability Facility as, having cut back the ratings of France and Austria, there were insufficient AAA-rated guarantors for the European bailout fund to retain its top status. In Germany, the DAX index rose 9.5% during January, while in France the CAC 40 index rose 3.3%. At the end of the month, a new European Union treaty, which is aimed at strengthening fiscal discipline, was signed by every member state with the exception of the UK and the Czech Republic.

In the UK, the FTSE 100 index rose by 2% during January. Hopes of a resolution to the eurozone’s debt crisis were tempered by fears over another UK recession, following the news the UK economy had contracted by 0.2% during the final quarter of 2011. In the US, the Federal Reserve announced that it does not expect to increase US interest rates until late 2014. The Dow Jones Industrial Average index rose 3.4% during January while the S&P 500 index rose 4.4%.

In China, the Shanghai Composite index rose 4.2% during January, boosted by optimism that policymakers might start to loosen their monetary stance. China’s government has taken extensive steps to cool the country’s expansion and promote a more sustainable rate of long-term growth. Meanwhile, the Nikkei 225 index rose by 4.1% during January, although sentiment was tempered by the news Japan had posted an annual trade deficit for 2011, caused by the effects of the Great East Japan Earthquake.

Paul Dixon

Chartered Financial Planner

Economic-Update

Fri, 03 Feb 2012 00:00:00 GMT

The Centre for Economics & Business Research (CEBR) believes the UK is already in recession and expects the UK’s economy to shrink by 0.4% in 2012. However, if the eurozone should break up, the CEBR believes the UK economy could contract by as much as 1.1% this year. Meanwhile, the British Chambers of Commerce considers that recession is not a foregone conclusion, although the UK economy is likely to undergo a period of stagnation.

The Bank of England’s (BoE) Monetary Policy Committee maintained UK interest rates at 0.5% for yet another month. The annualised rate of inflation eased from 4.8% in November to 4.2% in December, and the Consumer Prices Index experienced its most substantial annualised monthly drop since between November and December 2008. The rate of unemployment rose to 8.4% during the three months to November, reaching its highest level since 1995.

According to a survey conducted by the Nationwide Building Society, consumer confidence is at “a low ebb”. Concerns over rising unemployment and steep increases in the cost of living have been exacerbated by uncertainty surrounding the outlook for the eurozone’s debt crisis. Elsewhere, against a backdrop of anaemic mortgage lending, the BoE warned that credit availability is likely to be dampened by the current economic uncertainty. Smaller companies’ appetite for credit fell sharply during the fourth quarter of 2011, while default rates on loans to medium-sized and large firms rose during the period.

UK companies are in relatively good shape with strong balance sheets and sizeable cash reserves; however, low confidence is leading to cuts in spending and recruitment. E&YIC warned that, contrary to earlier hopes, job losses in the public sector are not being offset by the private sector. Looking ahead, E&YIC urged UK companies to ensure they plan for different scenarios: “No-one really knows how the eurozone crisis is going to play out. Doing nothing is simply not an option.”

Paul Dixon

Chartered Financial Planner

Pension-Planning-for-end-of-Tax-year

Mon, 30 Jan 2012 00:00:00 GMT

Here are some of the areas where planning between now and 5 April 2012 could provide tax advantageous solutions to help you build a decent retirement income:

If you are subject to 50% income tax – you could pay personal contributions within 100% of the relevant earnings threshold, to reduce your taxable income below the 50% tax threshold.
If you have adjusted relevant income over £114,950 per annum – you could pay personal contributions to registered pension schemes to reduce your taxable income to below £100,000. This would enable your full personal allowance to be regained and may provide an effective marginal rate tax relief of 60% on contributions paid between £114,950 and £100,000.
Carry forward of unused annual allowance from 2008/09 – the allowance will be lost if not used. To utilise this you must ensure the full £50,000 annual allowance for 2011/12 tax year is used first, ensuring the pension input period for this contribution ends no later than 5 April 2012.
Use Employer contributions to reduce taxable profits in trading periods ending before 5 April 2012 - can be used for carry forward of unused annual allowances, for the current annual allowance and that for 2012/13 tax year.
Registering for fixed protection – If applicable you must complete this no later than 5 April 2012. 2011/12 is the last tax year in which money purchase contributions can be paid if fixed protection is to apply. Maximise this year`s annual allowance plus carry forward of unused relief for pension input periods ending in 2008/09 to 2010/11 tax years. We can also plan using your input period which will allow funding of 2012/13 annual allowance this tax year maximising input.
Recycling of unused income withdrawals as allowable contributions - minimum £3,600 if you are aged under 75, but could be higher if you have relevant earnings.
Gifting income using `normal expenditure` from drawdown funds – this helps reduce the potential 55% tax charge on death from drawdown fund, whilst ensuring future growth is with the beneficiary and not part of taxable drawdown fund. Funding third party contributions to pension arrangements of children or grandchildren is also an option.
Early crystallisation – if you are aged over 55 crystallising benefits this tax year while lifetime allowance is £1.8 million will create higher retained lifetime allowance for future use.

Paul Dixon
Chartered Financial Planner

How-to-pay-your-31-January-tax-bill

Fri, 27 Jan 2012 00:00:00 GMT

31 January Due Date

31 January 2012 is the due date for payment of any outstanding tax due for the tax year ended on 5 April 2011, to correspond with the 2010/11 tax return, but is also the due date for the first Payment on Account towards next year’s income tax liability (the tax year that ends on 5 April 2012) as well. Most people do not have to make Payments on Account, so those who are employees, pensioners, those where 80% of the tax due is collected via PAYE and those where the Payments on Account would total less than £1,000 can breathe a sigh of relief If you completed your return early, you should have received a reminder of the amount due from HMRC; however, non-receipt of a reminder is no excuse for not paying your tax. If you have completed your return in the past few months, you would have had to do it online, so you should have a note of the amount to pay, or you can check your online record.

How do you go about actually paying tax, and what happens if you are struggling?

The quickest and easiest way for most people would be to pay online.

You can pay by telephone or internet banking and in most systems, you should select HMRC as the payee in the relevant section of your internet banking. HMRC now accept faster payments, but if you are not sure whether your bank uses faster payments or not, allow three working days for the cash to reach HMRC’s account.

You can also set up a direct debit and they will just take the money out of your bank account. Or, if you just want to pay by card you can use BillPay with a debit or credit card, for a 1.4% fee (excluding American Express).

But what if this is all too modern for you? Well you can pay in person via Bank Giro at your bank or via the Post Office. Note that you will need to take an HMRC payslip with you as otherwise you may get charged. Alternatively you can generate and print off a payslip from HMRC’s website.

Finally, you can also pay by post, and stick a cheque in the prepaid envelope they have sent you. You should:

make your cheque payable to ‘HM Revenue & Customs only’ and write your Self-Assessment reference number after ‘HM Revenue & Customs only’
detach the payslip and send it with your cheque to HMRC using the pre-addressed envelope sent to you or the appropriate address below
do not fold the payslip or cheque and don’t fasten them with paper clips or staples etc.

HMRC recommend allowing at least three working days for your payment to reach them and it is important to note that they do not accept postdated cheques.

If you don’t have a pre-addressed HMRC envelope, use the following address:

HM Revenue & Customs
Bradford
BD98 1YY

But what if I don’t have the money?

If you are experiencing a short cash flow issue, provided you can pay by 1 March, not paying may be the cheapest option. HMRC will charge you interest on amounts paid late, but at a rate of 3% per annum, 30 days credit from the taxman will be considerably cheaper than putting it on your credit card.

Do note that once the tax is 30 days late, however, a late payment penalty of 5% is added to the outstanding sum, with a further 5% penalty every six months thereafter.

I really don’t have the money.

If you really can’t pay your tax bill, there are still some things you can do. Right now, you can contact HMRC’s Business Payment Support Service Helpline on 0845 302 1435.

This service is available for individuals and businesses who have not yet received a payment demand, and provided they are satisfied you are genuinely struggling to pay, HMRC may allow you to pay the bill off in monthly amounts by direct debit.

If you wait until after the demand for payment is issued, you will need to speak to your individual tax office about your payment options, and the telephone number will be shown on the demand for payment that will be issued shortly after 31 January.

Note that any late payments will include interest (at 3% per annum) but not penalties.

Paul Dixon
Chartered Financial Planner

Business-Protection-â-Taxation

Fri, 20 Jan 2012 00:00:00 GMT

Tax treatment of partnership or shareholder protection

Typically the premiums are paid by the director/business owner, but even if the business pays the premiums they are treated as drawings or directors’ remuneration and the business owner will be taxed as if he or she had paid them and the premiums are not classed as a business expense. Therefore there is no tax relief on the premiums. Equally there should be no tax implications on receipt of the monies either.

To comply with the agreements discussed in our last blog the plans should be written in a suitable trust for the other partners or shareholders, there will be no inheritance tax (IHT) implications prior to a claim. Care should be taken if the partners or shareholders are related.

By using the types of arrangements discussed in our last blog in combination with the trust, IHT can be avoided or significantly reduced. There is no tax liability on the proceeds of the plan for the business, as the proceeds do not belong to it.

This can be a complex area and liaison between the financial adviser and business owner’s solicitor can be a wise move.

Tax treatment for key employee cover

This type of cover doesn’t require the same types of agreements in place as the shareholder/partnership protection does. The main aim of this type of cover is to protect the business in the event of a key employee dying or being off ill.

Premiums paid by a company for cover on key employees may be treated as a business expense, which effectively means that corporation tax relief is available for the company. This treatment is typically available where; the policy is short-term (say for a fixed term of five years or less), the policy is to replace loss of profits or to cover the cost of replacing the employee only, and where the key person’s relationship with the business is employee/employer.

If the company wishes to use this tax treatment, it is recommended that the directors write to their company’s local inspector of taxes to get advice prior to setting up the cover, as all the facts in the particular case will be considered. If this treatment is not available no tax relief is allowed on the premiums.

On a valid claim, if the value is a trading receipt, which is likely to be the case if it is to replace a loss of profits, it will typically be subject to corporation tax. If, on a valid claim, the value is not trading receipt it will typically not be subject to corporation tax.

In February 2008, the Government brought life assurance policies which are company-owned under the ‘loan relationship’ rules. This can be relevant to policies with a surrender value or investment element and means that any increase in value in the company’s accounts of such policies in excess of the premiums paid will be subject to corporation tax each year.

This can be a complex area and liaison between the financial adviser and company’s accountant is recommended.

For further information and tax planning ideas, please do not hesitate to contact us on 028 9066 8700.

Paul Dixon
Chartered Financial Planner

Business-Protection-â-Getting-it-right

Thu, 19 Jan 2012 00:00:00 GMT

Regardless of the type of plan being used, you will need some form of an agreement to know how the funds can be used after a claim has been made. This agreement must be in accordance with the company’s Articles of Association.

How the policies are established and what they are meant to protect may have an impact on the taxation treatment of any benefits received or premiums paid. For example, a buy and sell agreement is a binding contract on the shareholder or partner’s family to sell their share, and for the remaining partners or shareholders to buy it. HMRC view this as a contract for sale and as such Business Property Relief for Inheritance Tax purposes will be lost. Instead of this type of agreement a single or double option agreement could be used.

Cross option Agreement

This type of agreement provides the surviving business owners with the option to buy the shares of their ill or deceased colleague usually within 6 months of the event. If they exercise the option then the person insured (or their beneficiaries) are required to sell their share of the business to the other business owners.

Similarly, the agreement gives the insured or beneficiaries the option to sell their share and if exercised the business owners are then required to buy the share of the business back.

As this is not a binding contract for sale there is no loss of business property relief if applicable. If a new owner joins the business then the agreement will have to be redrawn.

Single Option Agreement

This is usually used for critical illness policies and operates in the same way as the double option agreement. However only the insured can exercise the option requiring the remaining business owners to buy the share of the business. This gives the control to the insured as they may have suffered a critical illness but feel that with time they can return to the business and do not want to give up their share. Again with this being an option agreement there is no biding contract for sale and so business property relief can be claimed.

Automatic Accrual Agreements

Some types of businesses, for instance Dentist or Solicitor, require that the business can only be owned by a suitably qualified individual and therefore cannot be passed to a family member. In this instance the partnership should use an automatic accrual agreement which states that each partner’s share will automatically pass to the other partners on death.

To make sure the deceased partner’s family receives ‘compensation’ for the deceased’s share of the business, each partner has a policy written in trust for their own family to cover the value of their share of the business. Using an automatic accrual agreement, however, will mean that the share of the business will be deemed to have been in cash as opposed to shares and therefore this could lead to a tax liability.

If a partner leaves the business they can opt to carry on paying the premiums of their life assurance policy for their family’s benefit.

As you can see there are many different issues to consider and as each companies circumstances are different, which ever route is chosen it is important to seek appropriate advice.

For further information and tax planning ideas, please do not hesitate to contact us on 028 9066 8700.

Paul Dixon
Chartered Financial Planner

Bypass-Trusts-and-their-Inheritance-Tax-Treatment-IHT

Fri, 13 Jan 2012 00:00:00 GMT

However as the member will likely have nominated his spouse as the beneficiary the proceeds will just simply accumulate in the estate of the spouse. Besides IHT is only due on passing assets down a generation and not to the surviving spouse. If the death benefits are paid directly to a surviving spouse then on their death there could be a potential liability of 40%.

The bypass trust can be used to mitigate this problem. The bypass trust is setup by the member during their lifetime. This can be done by gifting a nominal sum (£10) into the trust. You would then need to make sure you have nominated the trust as your preferred beneficiary by notifying the trustees. This is usually done with a nomination or expression of wish form. It is important to note that not all schemes will allow a trust to be nominated.

The trust will include a wide range of beneficiaries, giving the trustees the power to use their discretion to make sure all dependants can receive their share.

The bypass trust will usually be a discretionary trust and therefore there are tax implications as follows:

On creation of the trust
10 yearly periodic reviews
Exit charges

As mentioned earlier if the trust is set up with a nominal sum, say £10, then this will be within the annual allowance and there will be no immediate charge to IHT. If the trust is set up with a larger investment then there is potential IHT implications depending upon whether or not the member has used up their annual exemption and also the total of their chargeable transfers made in the last 7 years. If tax is payable on set up it will be at 20% on the excess over and above the Nil rate Band.

The payment of the death benefits (whenever that may occur) will not trigger an IHT charge as these were held under trust by the pension scheme originally.

Depending on the type of pension scheme and when the trust is set up, there may be one periodic charge date (ten year anniversary of the trust) or two periodic charge dates. The two dates can be ten years from, the date the trust was established and the date member joined the pension scheme or alternatively ten years from the date the trust was established and the date the death benefits were paid into the trust.

Upon paying a distribution from the trust (note it doesn’t all have to be distributed at once) there may be an exit charge due. The rate of tax applicable will be a proportion of the rate that was applied on the last periodic charge date, based upon the number of successive quarters that have passed since. Where different dates apply to different parts of the trust, the charge will have to be applied proportionately with different rates applying to each part as the number of quarters elapsed may be different.

To summarise, by using a bypass trust, you can ensure that pension death benefits do not just simply increase the IHT your family may have to pay upon the surviving spouses death. The monies in the trust fund do not form part of the beneficiaries estate until a distribution is made. Although this could be done by way of interest free loans to the beneficiary. There may be some IHT charges whilst the money is in the trust if the value of the trust fund is above the available Nil Rate Band.

For further information and tax planning ideas, please do not hesitate to contact us on 028 9066 8700.

Paul Dixon
Chartered Financial Planner

Avoid-underinsuring-your-home.

Wed, 11 Jan 2012 00:00:00 GMT

Recent research has suggested that one-fifth to one-quarter of UK homes are under-insured. And this figure is nearer two-thirds for higher-value homes. (Source: Association of British Insurers).

What happens if I make a claim, but I don’t have enough cover?

If you under-insure your home or contents, you are running the chance of being penalised when you make a claim. For example, a claim for £12,000 could be reduced to £9,000 if your total insurance is found to be 25% less than it should be. The ‘average clause’ enables insurers to do this, which is found in most policies. So it’s vital to set your sums insured at the right level. It is particularly important to have sufficient cover if you live in a listed property as you can legally be demanded to rebuild a property to exactly how it was before the damage occurred, no matter what the cost may be.

Should I insure my home for the rebuild or market value?

You should insure for the rebuild value, which is the cost to rebuild your home to its previous standard. The market value reflects its desirability and the cost of the land. Calculating rebuild costs for standard homes is relatively simple. For higher value homes it’s more difficult as the rebuild can involve specialist craftsmen and unusual materials. A few specialist insurers will send an expert appraiser to calculate the costs for you, so the responsibility is on the insurer not the owner to get it right.

How do I avoid contents under-insurance?

The most frequently overlooked items are: clothing, jewellery, art, soft furnishings, wine, electrical items, sports equipment and garden equipment/furniture. Visit each room to calculate the cost of replacing everything at today’s prices.

How do I know if I have enough cover on jewellery or art?

Valuations are usually recommended at least every three years. Jewellery values have recently been affected by rising precious metal and gem prices which has resulted in valuations which have been conducted one-two years ago being potentially inaccurate. Art prices fluctuate due to changing trends or the death of an artist. Regardless of the sum insured, many policies will only pay the market price for valuables, which is potentially less than the replacement cost. To avoid this, some specialist policies enable you to set an ‘agreed value’ for an item. This will be the exact sum you are paid whenever you make a claim during the policy year.

I cannot stress enough the importance of having adequate home insurance. Getting the right policy can often be difficult and frustrating due to the wide amount of variables and options that are available. If you would like us to review your current home insurance policy get in contact with me on 028 90 668700 and we will make sure you avoid the error of under-insurance.

Sarah McAfee
Financial Planner

A-benefit-of-marriage

Wed, 04 Jan 2012 00:00:00 GMT

It may sound odd to be talking about tax savings in marriage or civil partnership, but putting it another way you might be able to save significant sums in IHT.

To help solve this problem, co-habiting clients may want to arrange for life assurance to help pay any IHT liability, however unlike couples in marriage or civil partnerships, there could be an IHT liability on first death, even if they simply want to leave everything to their ‘partner’. Life assurance policies would normally be written in trust and therefore it is also likely if using a discretionary trust that the cohabitee’s name will have to be added to the beneficiary classes as it is unlikely to be covered by standard trust wording.

Additionally cohabiting couples need to consider making a will, otherwise they could face significant problems. Dying without a will means the deceased’s estate will be distributed according to the laws of intestacy. The problem arises in that the law and intestacy rights does not recognise a ‘common law marriage’. This was confirmed only last year in a government response to the Law Commission’s 2007 report.

Any assets owned jointly and held as joint tenants will automatically pass to the surviving owner. However anything owned in the deceased’s sole name, known as the free estate, would be subject to the laws of intestacy which will mean losing control over who benefits. This could even include the deceased’s share of their home, which the survivor will still be living in, if the property was held as tenants in common.

The following shows how the estate could be distributed in England, Wales and Northern Ireland. Different rules apply for Scotland, if you need details on these please contact us. Any free estate will be distributed to the first of the following categories, split into equal shares if more than one person fulfils that category.

Children, if a child has already died, their issue (children) take the deceased’s share provided they attain age 18.
Parents
Brothers and sisters, or their issue
Half brothers and sisters, or their issue
Grandparents
Uncles, aunts, or their issue
Parents’ half brothers and sisters, or their issue
The Crown

It is possible to use a deed of variation to redirect an inheritance, however if you are a cohabite, it would be better not to have to rely on the generosity of possibly remote family members as they may not want to give up their inheritance. If anyone under 18 inherits then court permission will be required.

It may be possible to make a claim against the estate under various different Acts (depending upon where you are domiciled), however this claim is limited to a sum equivalent to maintenance.

It is therefore entirely possible that you could be cohabiting with someone who has children from a previous marriage whom you now consider your own and yet they would be entitled to nothing in the event of your death UNLESS you make a will.

Paul Dixon
Chartered Financial Planner

Merry-Christmas-from-Census-Financial-Planning

Thu, 22 Dec 2011 00:00:00 GMT

What a year we have had in 2011. The year began relatively calmly. After strong recovery in 2009 and 2010, we saw stockmarkets trade relatively flat in the first half of the year, managing to ride out global disasters like the Japanese earthquake and Tsunami.

Then in July, we saw the Republicans and Democrats pushing the US to the brink with regards to raising their debt ceiling. It was inevitable that this was always going to be resolved, yet in typical politician style, they managed to have this portrayed like a circus in the media. This was the start of investor nervousness.

Throughout the summer, rumours then started about the Greek debt and these came to a head in August when we saw the FTSE 100 drop from about 6,000 points to a little over 4,900, a drop of almost 20%. Since then I don’t think there has been a single day when the Euro debt crisis hasn’t been in the news. We saw a brief recovery in markets with the FTSE 100 rallying to 5,700 when the Greek bailout was announced, only for politicians to start playing mind games again when the Greek PM announced a referendum. This was never going to be allowed by the Euro leaders but still it destroyed any confidence in the markets.

Soon after this the problems spread to Italy and Spain. We have now seen changes in political leaders and governments in Greece, Italy and Spain. Each have announced austerity measures and we have had various Euro summits to try and address the issues.

The problems are still there with lower growth forecasts, even possible recessionary dips next year. We have also seen David Cameron attempt to protect Britain’s interest by refusing to sign up to the Euro deal, although Euro leaders have tried to push on ahead. Since this, other countries are now starting to question some parts of the agreement. This week we have seen a £407 billion emergency aid for European banks, the biggest ever funding scheme and one that was far larger than anyone expected.

We have seen companies survive the first credit crunch and those same companies have cut costs and turned into leaner, meaner and potentially more profitable businesses. In fact we have seen many companies beating market expectations regarding their profits this year. Therefore, there are companies out there, which fund managers can invest in which can still provide a return for investors. Additionally, the UK stockmarket is currently trading on a modest 9.2 price to earnings ratio, based on estimated 2012 earnings. This represents significant value when compared to the long term average of 15.

Over the last 10 years we have seen virtually no capital return from UK equities. However, the starting point is the key to any future growth. Ten years ago the P/E ratio was 24, as this had been horrendously inflated in the dot com boom. If we are starting 2012 with a ratio of 9.2 then companies represent considerably better value for money for the long term investor. With globalisation we have seen the link between the economic backdrop and stock market performance weaken. Companies listed on the FTSE 100 now achieve the majority of their profits from overseas and therefore it is the starting valuation of the stocks which will drive returns more so than the economic backdrop.

Let’s hope we see the Euro crisis sorted in the first half of the year and we can then see the true value of markets come into play. As I have said we have already seen a hint of that when the Greek bailout was announced, US markets that month had their best return since the 1970’s.

For your information, our office will close at 1pm on Friday 23^rd December and will reopen on Tuesday 3^rd January 2012. During this Christmas period you can keep in touch with us via our website at www.censusfinancial.co.uk, by visiting our Facebook page or by following us on Twitter @CensusFinancial.

All of the staff here at Census Financial Planning would like to take this opportunity to wish our clients and professional connections a very Merry Christmas and a happy New Year. We look forward to speaking with you in 2012.

In case you missed our Christmas card please click here.

Paul Dixon
Chartered Financial Planning

Offshore-Bonds-Sailing-in-the-tax-planning-mainstream

Fri, 16 Dec 2011 00:00:00 GMT

Deferring income tax on investment returns

A key advantage of offshore investment bonds is that investors can use the chargeable event gains regime to control when they pay income tax on their investment returns. They only incur an income tax liability if they incur a chargeable event. These include surrender of the whole bond, or bond segments, withdrawals exceeding their cumulative 5% a year allowance or if there’s a death claim.

Maximising spendable income

An investor can withdraw 5% a year from a bond for twenty years, without incurring any immediate liability to income tax. What does this mean? This provides the equivalent spendable income for a 50% taxpayer as earning 10% gross interest. The investor also doesn’t have to use all of the 5% allowance each year as restricting the level of regular withdrawals also provides greater potential for investment growth and reduces the risk of eroding capital.

If the investor doesn’t need regular income, the withdrawal allowance still offers benefits. For example if the investor’s made no withdrawals from the first day of the seventh policy year they could withdraw 35% of their original investment amount without incurring an immediate tax liability on any investment growth.

Switching and gifting without making CGT disposals

Investing in an open architecture offshore bond also offers CGT benefits. Investors can switch between different collective investments or move into cash without making CGT disposals. This offers the opportunity to review and rebalance the investor’s portfolio, leaving the CGT annual exemption available for use against other investments.

An easily overlooked benefit of bonds is the chance to make gifts without making GCT disposals. Investor’s often don’t realise until after the event that gifting an OEIC holding to a child is a CGT disposal. Unless any gain is covered by their annual exemption, the gifting investor is liable to pay the tax, without having realised the cash to cover the liability.

It is also possible for an offshore bond investor to assign a bond to an adult child. Provided the assignment is an outright gift from one individual to another, there is no chargeable event. The assignment is normally a potentially exempt transfer for IHT purposes, however, payments from a parent to maintain their child aged over 18 who is still in full-time education are exempt dispositions for IHT.

Trustee investments

Offshore investment bonds also offer planning opportunities for trustee of discretionary trusts, who are not disturbing income. An open architecture offshore bond provides the trustees with access to a wide range of deposits and collectives, enabling them to diversify the trust fund. It is also possible for the trustees to avoid a liability to income tax at 50% on any chargeable event gains.

The trustees can assign an investment bond or segments to adult beneficiaries – the assignment is not a chargeable event.

The trustees can use the 5% tax deferred withdrawal allowances to make appointments of trust capital to trust beneficiaries.

Non-domiciles

Offshore bonds also offer benefits to non-UK domiciles because bond gains aren’t ‘relevant foreign income’ for the remittance basis of taxation. A non-domicile can hold collective investments and deposits within an offshore bond wrapper and benefit from gross roll up until they incur a chargeable event gain. Provided that any other unremitted income and/or capital gains total less than £20,000 in a tax year, they don’t pay the remittance basis charge.

There are complex rules on remittances from mixed funds so to avoid these, non-domiciles either need to invest only funds on which all UK taxes have been paid, or avoid taking any withdrawals while UK resident.

Paul Dixon
Chartered Financial Adviser

Transfer-or-not

Mon, 12 Dec 2011 00:00:00 GMT

Most occupational pension schemes and private schemes can be transferred, but there are restrictions and potential pitfalls. It is not usually worth transferring final-salary or public-sector pension schemes; the benefits are too good to lose. You should only transfer if you have actually left a company: if your current employer contributes to your existing occupational pension scheme, you should not switch. Also it is worth noting that the money in your pension can only be transferred from one pension scheme to another (until you have retired), and not every new pension scheme accepts inward transfers. If your pension pot is very small, it may not be worthwhile switching: you will have to pay charges when you transfer, and some providers impose harsh penalties if you leave their scheme. And, if you are relatively close to retirement, you might not have sufficient time to recover the costs incurred by transferring.

According to the Pensions Advisory Service, the Department of Work & Pensions (DWP) is set to publish a consultation paper examining the consolidation of small pension pots. Possible approaches could see your pension pot moving with you when you change your employer; alternatively, when you change your job, your pension pot could be left behind and – unless you decide to opt out – the cash would automatically be transferred to a central aggregator fund. The DWP believes the changes would increase the visibility of pensions saving: instead of seeing several small figures, each individual would be able to view one larger, consolidated figure.

Transferring and aggregating your pension pots might generate significant long-term benefits; however, any decision to do so should be taken for the right reasons. Tread carefully and, above all, take expert advice before making an irreversible decision. Your financial adviser is well-placed to help you with this.

Paul Dixon
Chartered Financial Planner