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Budget 2018

In a longer than usual Budget speech, and in a slightly more jocular than usual mood, the Chancellor laid out the government’s vision for post-Brexit Britain.

With a raft of measures aimed at shoring up businesses, infrastructure and the health service, Mr Hammond used the better than expected public finances to present an upbeat programme. Leaving some of the major announcements for last, this was a Budget to mark the coming of the end of austerity.

Some of the main announcements were:

  • The personal allowance will be raised to £12,500 from April 2019, one year earlier than planned. The higher rate threshold will also rise to £50,000 from April 2019, also a year earlier than planned, and will remain at the same level in 2020/21.
  • The lifetime allowance for pension savings will increase to £1,055,000 for 2019/20 in line with CPI.
  • The national living wage will increase from £7.83 an hour to £8.21.
  • The annual investment allowance (AIA) will increase to £1 million for all qualifying investments in plant and machinery made on or after 1 January 2019 until 31 December 2020.
  • For entrepreneurs’ relief, the minimum period throughout which the qualifying conditions for relief must be met will be extended from 12 months to 24 months from 6 April 2019.
  • From 1 April 2020, companies will be subject to a 50% limit on the proportion of annual capital gains that can be relieved by brought-forward capital losses. Companies will have unrestricted use of up to £5 million capital or income losses each year.
  • Business rates bills will be cut by one-third for retail properties with a rateable value below £51,000 for two years from April 2019.
  • Capital gains tax lettings relief will only apply where the owner of the property is in shared occupancy with the tenant. The final period exemption will also be generally reduced from 18 months to nine months.
  • The VAT registration threshold be maintained at the current level of £85,000 until April 2022.
  • From 1 April 2020, the amount of payable research and development (R&D) tax credits that a qualifying loss-making company can receive in any tax year will be restricted to three times the company’s total PAYE and NICs liability for that year.
  • From 6 April 2020, when a business enters insolvency, HMRC will be a preferred creditor for taxes collected by the business for the government such as VAT, PAYE income tax, employee NICs, and construction industry scheme deductions – but not such taxes as corporation tax and employer NICs.
  • Large social media platforms, search engines and online marketplaces will be pay a 2% tax on the revenues they earn which are linked to UK users from April 2020.
  • Fuel duty was frozen, alongside beer and spirits.

As usual, announcements that may be relevant to our individual clients will be considered within our normal review process. Please do get in touch if you have any queries.

Full summary available below

Budget Summary 2018

Budget Summary 2018

Tax Tables 

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What is a Lasting Power of Attorney (LPA) and what are the potential benefits of holding one.

What is an LPA?

A Lasting Power of Attorney (LPA) is a legal document that lets you (the ‘donor’) appoint one or more people (known as ‘attorneys’) to help you make decisions or to make decisions on your behalf.

An LPA would give more control over what happens to you if you had an accident or an illness and can’t make your own decisions if you lack mental capacity. The donor needs to be 18 or over and have mental capacity when making an LPA.

Two types of LPAs which would give power to your attorney enabling them to make decisions such as:

Health and welfare

– Daily routine; washing, dressing, eating etc

– Medical care

– Moving into a care home

– Life-sustaining treatment

It can only be used when you are unable to make your own decisions.

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Wondering where to start with retirement planning?

The first 5 steps for pension and retirement planning.

1. Be financially independent

Your ‘personal’ pension is ‘personal’ for a reason. Start to take an interest in your own savings and pension for the future. As you start to expand your knowledge of the different saving streams which can be used towards your retirement your confidence will grow. Professional advice will help guide you down the right path for financial independence, and we would hope this will enable you to understand the requirements to maximise your retirement pot.

2. Start saving now

It’s never too early to start saving for your retirement; it doesn’t matter how much you can afford to contribute towards your pension as every little bit helps. The Annual Allowance for pension contributions is £40,000 per year therefore anyone that hasn’t had their Annual Allowance tapered can make the maximum contribution, although certain rules apply. The £40,000 per year includes any contributions towards your company pension; if you can afford to put the maximum amount in to your pension it may be worth opening a personal pension.

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Money Purchase Annual Allowance (MPAA) does this affect you?

What is MPAA?

The MPAA is in connection to the annual allowance for pension contributions which is £40,000 however you can carry forward unused pension contributions for the previous three years. The MPAA was introduced on 6th April 2015. It was £10,000 in tax years 2015/16 and 2016/17. MPAA was reduced to £4,000 from 2017/18, It remains at £4,000 in 2018/19.

What are the MPAA rules?

Once the MPAA has been triggered, this will affect every tax year onwards including the year which the MPAA was triggered.

What will trigger the MPAA?

– Take income from a flexi-access drawdown (FAD) plan.

– Take an uncrystallised funds pension lump sum (UFPLS). Taking a certain amount some tax free and some taxable or the whole amount out of your pension.

– Convert capped drawdown to FAD and then draw some income.

– Take more than 150% Government Actuary’s Department (GAD) from a capped drawdown plan.

– Receive a stand-alone lump sum when entitled to primary protection and TFC protection is more than £375,000.

– Receive a payment from a flexible lifetime annuity (ie. one where payments can decrease).

– Receive a scheme pension from a Defined Contribution (DC) arrangement where it’s being paid directly from those DC funds to less than 11 other members.

– In addition, anyone in flexible drawdown before 6th April 2015 is subject to the MPAA from 6th April 2015 (irrespective of whether they have taken an income withdrawal before then).

The above relate to a member and their own funds – these triggers don’t apply where benefits are being paid to a dependant/beneficiary. Complexity is created if you have both a defined benefit (DB) and DC personal pension. Even having one employee/employer crystallised benefit limits your contribution to £4,000 with no ability to use carry forward.

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Incapacity Crisis: Why you need a Welfare Power of Attorney

The number of people living with dementia worldwide in 2015 was 47 million; by 2030 that figure will reach 75 million.  A new case is diagnosed every 3.2 seconds.  

With these shocking statistics it is not surprising that there is a widening gap between the rising number of people likely to lose capacity and the relatively small number who have arranged a Health and Welfare Lasting Power of Attorney (H&W LPA).  Only 928,000 H&W LPAs have been registered with the Office of the Public Guardian. This suggests there are 12 million people at significant risk of losing mental capacity who have not made proper arrangements for their care in old age.

The majority of people are still avoiding important conversations and practical actions to make their preferences known about their end-of-life care and final affairs.  We do need to talk about end-of life care and how we would want to be treated if we found ourselves in circumstances where our quality of life is extremely poor.  Often people tell us they simply want to be comfortable, hydrated and well cared-for.  However, if they have not legally empowered trusted individuals to make these wishes known, it could be that this is not what actually happens.

Part of the reluctance to make our wishes known is the misconception that the `next of kin,’ (which is a term widely used in health & social care decisions) has an automatic right to act on behalf of an incapacitated relative.  In fact, the term has little basis in law, the next of kin are not automatically empowered to make any decisions. The authority to make decisions still lies the professional within the health or social care system.

H&W LPAs are useful documents offering protection and control as they allow you to appoint your chosen attorneys. Conversations with relatives are important, but it’s also necessary to empower those chosen people in writing.  The best way to do this is to express your wishes in an H&W LPA; this eliminates doubt and gives legal validity to your choices.

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What is tapered annual allowance and how does it potentially affect you?

What is the Annual Allowance for pension contributions?

There is an annual limit on the total amount of pension contributions that each person can make without incurring a tax charge (this includes employer and employee contributions) which is called the Annual Allowance. Where the total employer and/or individual contribution exceeds the Annual Allowance a tax charge will apply. The rate of tax will be determined by your taxable income in the tax year. For the 2018/19 tax year the Annual Allowance has been set at £40,000.

What is tapered annual allowance?

Tapered annual allowance comes into effect when a person’s total ‘adjusted income’ is over £150,000 and their ‘threshold’ income is above £110,000.

So, what is ‘adjusted’ and ‘threshold’ income?

In simple terms, ‘adjusted’ income is total taxable remuneration including pension contributions from both the employee and the employer. ‘Threshold’ income ignores pension contributions. Consequently, if your ‘adjusted’ income is above £150,000 and your ‘threshold’ income is over £110,000, your annual allowance will be tapered down.

Tapered annual allowance came into effect after the 2016/17 tax year. Anyone who fell into the catchment area stated above would have their Annual Allowance. Unless a person’s income stays below the relevant thresholds year on year or stays at £210,000 or above year on year, they could find their annual allowance changing each year.

Confusion is often caused when calculating the adjusted and threshold income, particularly when deciding whether particular types of income need to be included. Care needs to be taken when preparing these calculations

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Inheritance Tax (IHT) payments to HRMC climb over £5 billion!

The table below shows the total amount of IHT collected each year by HMRC over the last 7 years. The total for 2010/11 was £2.7 billion compared to £5.2 billion in 2017/18. This trend is likely to continue.



How does IHT work?

IHT is typically based on the total value of a deceased person’s estate. When someone dies, the first step is to establish whether the estate is `excepted’ or not. There are three types of `excepted’ estates.

Three types of excepted estate

Low-value estates

A low-value estate is where the total value of the estate is below the nil rate band of £325,000. (2018/19)

Exempt estates

This is where the total value of the estate is below £1,000,000 and there is no IHT due because of a spouse, or civil partner exemption and/or charity exemption.

Foreign domiciliaries

These are the estates where there can be no liability to IHT because the gross value of the estate in the UK does not exceed £150,000

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Carry forward – How you could benefit and the requirements for entitlement

What is carry forward

Carry forward was (re)introduced in a new format in 2011/12, it has been possible, subject to conditions, to carry forward unused annual allowance from the three previous tax years to the current tax year. The annual pension allowance is £40,000 per year therefore it’s possible to bring 3 years’ worth of allowance to the current tax year.

Rules required to be eligible to carry forward pension contributions

  • Carry forward can only be used in the situation where the current years allowance has already been filled.
  • Unused annual allowance is used up from the earliest year first and worked forwards. All defined contribution (DC) pension and defined benefit (DB) accrual made by the individual into a pension pot must be added together.
  • Membership to a registered pension scheme is a requirement to use carry forward at some point during the years being carried forward.
  • There isn’t a requirement for UK earnings to have been received during the tax years being carried forward from.
  • Any unused annual allowance to carry forward from the previous tax year but one year’s annual allowance has been exceeded (known as an intervening year) within the three year carry forward period, the excess will use up some or all of the unused allowance from the earlier year(s) – but only for overpayments in tax years 2011/12 or later
  • Non-UK residents can still benefit from carry forward as long as they have been a member of a registered pension scheme at some point during the tax years. Examples would be, opening a personal pension before leaving the UK or if you have a deferred benefit within a final salary scheme.
  • If you trigger your money purchase annual allowance of £4,000, carry forward becomes invalided in relation to money purchase funding.
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The Royal Wedding: how marriage impacts Wills and changing family structures

The marriage of Prince Harry and Meghan Markle marks many historical changes for the royal family. Meghan is one of a few Americans and the first black woman to be welcomed into the royal family; she has previously been divorced which in the royal family’s past has been frowned upon by the Church of England. It is not only in the royal family that we are seeing changes in family structures in the UK. We are more frequently seeing people marry more than once, become part of a blended family and emigrate overseas. Changes like these can make the estate administration process when someone has passed away much more complicated, especially when no Will is present.

An important aspect of getting married is what effect the marriage has upon your existing Will, as it could have a significant impact on your wishes after you have passed away. When a marriage takes place, any existing Will becomes invalid as it is automatically revoked. If you were to pass away after you had got married but before you created a new Will, your estate would be distributed in accordance with the rules of intestacy. This means your spouse or civil partner would not automatically receive all of your estate if you have children, grandchildren or great-grandchildren. Your spouse or civil partner would receive the first £250,000 of your estate and then half of everything that is remaining above that amount. The other half would be distributed to your children, grandchildren or great-grandchildren. Any joint bank accounts and property held as joint tenants will also automatically pass to the other owner by survivorship outside of the intestacy rules.

By way of illustration if you die without a Will leaving a spouse, 2 children and an estate of £450,000.  Your spouse takes your personal effects and £250,000 plus half of the remaining £200,000.  The children take £50,000 each when they reach 18.  If the children decide that they want the money straight away your spouse could be forced to sell the property they are living in.

No matter the value of your estate, your age or status, it’s highly important to make plans for the future to ensure your wishes are heard and your legacy is protected after you have passed away. Creating a valid Will and keeping it up-to-date is the only way to guarantee that your estate is distributed in accordance with your wishes.

Sue Jenden – Sue Jenden Associates

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Do you know all the facts about Individual Savings Accounts (ISA’s)? Are you aware ISA’s can be passed on?

Although ISA’s are a tax efficient way to build up wealth, they may be far less efficient when passing them on. So, you do need to have an understanding of what happens to your ISA when you die.

Inheritable ISA rules were introduced in April 2015; individuals can now inherit the value of their deceased spouse or civil partner’s ISA’s, if they died on or after the 3rd December 2014.

The ISA isn’t actually transferred to the surviving spouse or civil partner but an Additional Permitted Subscription (APS) is created when the ISA investor dies.

What is an APS and how does it work?ISA

For example, if Mr and Mrs Smith both have £125,000 in their ISA’s and Mr Smith dies, his widow will inherit his APS of £125,000 in addition to her own ISA value. The allowance is available for three years from his death or 180 days after the estate administration is finalised. If Mrs Smith remarries Mr Bloggs and then Mrs Bloggs dies, the APS would continue to be passed on to Mr Bloggs, therefore he would inherit an APS of £250,000.

If Mr Smith had multiple ISA’s, Mrs Smith could combine all APS’s by transferring them to her provider of choice. However, once a provider has been selected, the APS can only be maximised with that provider.

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