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The Chancellor’s second Budget of 2017

Mr Hammond will probably be pleased if commentators decide that his Autumn Budget was a steady-as-she-goes, broadly modest Budget. After the national insurance u-turn he was forced to make after his March Budget this year, that was probably his aim.

In any case, for a variety of economic and political reasons, the Chancellor announced a relatively modest net tax giveaway of just under £1.6 billion for the coming tax year.

His main attention-seeking move was to give first time buyers an exemption from stamp duty land tax on the first £300,000 of value for properties worth up to £500,000. Rumours – probably from the Treasury itself – had trailed changes along these lines, and the new relief represents more than a third of his net giveaway.

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Press release – top award for financial experts

As published on the Shropshire Live website here.

thumbnail_Matrix award win Nov 17

ITV Weather Presenter Emma Jesson at the Awards ceremony

A leading Midlands firm of Chartered Financial Planners have snapped up another prestigious award.

The team from Matrix Capital, based near Bridgnorth, have been named Financial Planning Company of the Year at the annual West Midlands Insurance Institutes competition – the second time they’ve taken the title in the last three years.

Robin Melley, for the chartered financial planners, said: “We’re absolutely delighted to have received such high profile recognition for the services we deliver, and to have taken the award twice is a wonderful boost for our team.

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Use it or lose it!

The retirement planning landscape has changed; and in my view, pensions have now become a very attractive means of investing for the future to provide a future income and to protect wealth. Yes – protect wealth!

The new pension flexibilities and the changes to the death benefit rules have swept away moneymany of the obstacles in people’s minds regarding pension contributions. We are now seeing a reversal in negative attitudes towards pensions, particularly amongst our more affluent clients.

Instead of restricting pension contributions, we are now being asked to calculate the absolute maximum that they are able to contribute to their pension – so, why is that happening?

Here are two significant reasons:

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Revenge of the SIPP

piggy bankThe SIPP has been cropping up a lot in the pensions world but what is a SIPP and why the sudden attention? A SIPP (or Self Invested Personal Pension) is fast becoming an alternative to a more traditional personal or stakeholder pension with the theory being that a wisely-invested SIPP can grow your pension pot more than a normal pension could.

A SIPP is a type of personal pension and works in a similar way to a standard personal pension with the main difference being the level of flexibility within the wide range of investments you can choose from, manage yourself, whilst potentially consolidating your existing pensions in one place, all of which allow you to manage how you invest your retirement funds.

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Reduction to money purchase annual allowance (MPAA)

At Spring Budget 2017 the government announced that from 6th April 2017 the money purchase annual allowance (MPAA) will reduce to £4,000. Legislation will be included in Finance Bill 2017.

Anyone who has already triggered the MPAA may wish to consider making maximum use of the current £10,000 MPAA prior to 6th April. Once triggered, it is not possible to use carry forward to increase the MPAA.

As a reminder, we have included a list of the actions that trigger the MPAA and our full guide is available at the link below.

The following will trigger the MPAA (either from a UK registered pension plan or from an overseas scheme that has had UK tax relief)

  • Taking income from a flexi-access drawdown (FAD) plan (includes short term annuity purchase) – only withdrawing tax free cash won’t trigger the MPAA
  • Taking an uncrystallised funds pension lump sum (UFPLS) – if the UFPLS is £10,000 or less, see if it’s possible to take the funds as a ‘small pot’ instead as this won’t trigger the MPAA and isn’t a Benefit Crystallisation Event (BCE).
  • Converting capped drawdown to FAD and then drawing some income
  • Taking more than 150% GAD from a capped drawdown plan
  • Receiving a stand-alone lump sum when entitled to primary protection and Tax Free Cash protection is more than £375,000.
  • Receiving a payment from a flexible lifetime annuity (ie. one where payments can decrease)
  • Receiving 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 (e.g. a SSAS).
  • In addition, anyone who was in the old ‘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 (eg. where a beneficiary receives a FAD income payment from a dependant’s/nominee’s/successor’s FAD arrangement this isn’t a trigger).

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MPAA and Implications of Reduction

From 6th April 2017, the Money Purchase Annual Allowance will fall from £10,000 down to £4,000 for those who have accessed their pensions and are taking an income. This strategy is clearly aimed at setting the allowance as low as possible without impacting on Auto-Enrolment.

For the purposes of the consultation, the Treasury outlines the situations where ‘accessing a pension flexibly’ – and therefore the new cap – applies:

  • Flexi drawdown including short term annuities.
  • Taking a lifetime annuity that allows actual or possible decreases in the amount of annuity payable.
  • Taking an uncrystallised funds pension lump sum.
  • Those without earnings who cannot normally “recycle” pension withdrawals by putting money withdrawn from a pension back into a pension, although contributions of up to £3,600 can be made, unsupported by earnings.
  • A stand-alone lump sum payment, made where the person has primary protection and a protected tax-free lump sum right which is greater than £375,000.
  • Where a pension scheme delivers the DC pension directly – a “scheme pension” and there are fewer than 12 individuals receiving a scheme pension.
  • Payment of one of the types of benefits listed above is from an overseas pension scheme that has benefited from UK tax relief.
  • The MPAA restriction applies from the day after the above trigger event has occurred.

Pension options that do not constitute accessing benefits flexibly include:

  • Receipt of a pension commencement lump sum.
  • An individual commences flexi-access drawdown, either by a new designation or through conversion of a capped drawdown contract, and does not receive any income.
  • An individual holds a capped drawdown contract that was set up before 6th April 2015, and does not receive income above the maximum income limit for the contract after 5th April 2015.
  • Receipt of payment from a standard lifetime annuity or scheme pension.
  • Receipt of a small lump sum or trivial commutation lump sum.
  • Receipt of income from a dependant’s drawdown contract.

Once triggered, the restricted allowance applies for the rest of the tax year and each subsequent year. Perhaps most importantly it is not contract-specific: if it applies, it covers all of a client’s money purchase arrangements.

If contributions exceed £10,000 in 2016/2017 or £4,000 in tax years from 2017/2018 onwards this will result in an annual allowance excess, with no option to carry forward from earlier years.

The remainder of the standard annual allowance – called the ‘alternative annual allowance’ – can be used to accrue defined benefits, to which carry forward can be added.

In most cases, the trigger event will occur part of the way through a tax year. As it is only money purchase contributions after this that are tested against the MPAA, that year must be apportioned. Contributions that were paid before the trigger are tested against the alternative annual allowance along with defined benefit accrual; all other contributions are tested against the MPAA. For instance, a monthly contribution to a group personal pension of £1,000 gross paid by a member who triggers the MPAA half way through the tax year will have the following annual allowance test: £6,000 tested against the MPAA; £6,000 tested against the alternative annual allowance.

Subsequent tax years are much simpler because the MPAA applies for the whole year.

Planning Opportunity

With this in mind a good trawl through the client bank is necessary, and all clients approaching the stage where they may access benefits need to be notified that the next 2 months or so is vital to their financial planning, with the option to pay the maximum allowance using carry forward still available, allowing a contribution of up to £170,000.

Sean Donald – Chartered Paraplanner, Timebank

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The Lifetime ISA

savings-streetAs announced in the 2016 Budget, the new Lifetime ISA will offer either saving towards retirement or a first mortgage for people aged between 18 and 40. The Government proposed that an individual can save up to £4,000 each year and receive a government bonus of 25% on saving which equates to a bonus of up to £1,000 a year.

Much like an ordinary Individual Savings Account (ISAs), the money can be invested as cash – or in stocks and shares. Cash LISAs are expected to pay out the same as ISAs.

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Your Autumn News Bulletin

 

pumpkin-green-1401364-638x450The end of high-interest current accounts?

The news that Santander had slashed in the interest rate on its market-leading current account from 3% to 1.5% did not surprise experts, who calculated the deal that has attracted 3 million customers  was costing Santander as much as £1 billion a year.

The 123 account pays the high rate on balances of between £3,000 and £20,000 and had attracted savers unable to get anywhere near the 3% interest rate elsewhere. Other banks with similar products have also said they are reviewing their rates following the cut in the Bank of England base rate in August.

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Inheritance Tax – it’s more important than ever!

The number of UK millionaires is on the rise!

NFU Mutuals’ analysis of HM Revenue and Customs’ (HMRC) UK Personal Wealth Statistics found that the number of millionaires in the UK is on the rise.

In 2001 just 174,000 people held more than £1 million in assets. Between 2008 and 2013 the number of UK millionaires rose by 27%, standing at just over 409,000 at the end of the period. 2010 saw a vast increase in the number of millionaires reaching over half a million. During this time, the increased wealth was attributed to a rise in property prices and share prices.

estimated-number-of-millionaires

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Inheritance Tax on Gifts

Inheritance Tax (IHT) is said to be the only “voluntary” tax. As with inheritance tax mitigation, it is possible to reduce liability or remove it completely.

The Nil-Rate Band

The nil-rate band is the value of an moneyestate that is not subject to Inheritance Tax in the United Kingdom.  Between the 6th April 2009 and the 5th April 2017, the nil rate band values at £325,000 per person. Anything above the nil rate band can be subject to Inheritance Tax upon death. In other words, do nothing and 40p in every pound of your inheritance or estate may be winging its way into the government’s pockets so it’s important to understand just how tax mitigation can work.

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