“Married Couples Tax Break” – new measure launched by HMRC

HMRC launched the registration for the new Marriage Allowance today, which is a tax break for married couples.

It enables married couples or civil partnerships to reduce their overall tax bills, by one member of the marriage/partnership electing to transfer part of their unused income tax allowances to their partner.

This is primarily of use where:

  • Only one member of the marriage/partnership works
  • One person works full time and the other works part time
  • One person has been on sabbatical or unpaid leave (e.g. maternity/paternity leave)

The allowance will operate as a claim, where one person will have to register online with HMRC and the change will be processed via the payroll (by coding). HMRC will confirm the recipient’s change to their Pay As Your Earn (PAYE) tax code.

It may be useful to inform your staff of this new allowance – full details can be found here.

For further advice, please contact Alastair Wilson on 0191 285 0321 or email Alastair.wilson@taitwalker.co.uk.

EBT users – time is running out to utilise the EBT Settlement Opportunity

Do you have an Employee Benefit Trust which is under enquiry from HMRC? If so, now is the time to consider your options in detail.

HMRC are closing access to the EBT Settlement Opportunity (EBTSO) as of 31 March 2015. Through the EBTSO tax liabilities can be settled with HMRC under beneficial terms.

As an added pressure Accelerated Payment Notices (APNs) are now being actively issued by HMRC. These require users of tax avoidance schemes to make upfront payments of tax in case of dispute.

If you have an EBT with unresolved HMRC enquiries regarding the payment of PAYE and INC, being forced to make a payment to HMRC is increasingly likely. With politicians and the media regularly commenting on tax avoidance schemes it appears unlikely that HMRC will reverse their policy of litigating against EBTs.

We recommend taking an informed decision over your next steps:

  • We can help you calculate the likely cost of a settlement compared with payment of the APN and potential litigation.
  • We can consider your particular situation and see whether the settlement cost could be reduced through the use of available tax reliefs.
  • If you decide to utilise the EBTSO we may also be able to help you agree a “time to pay” agreement, which may be more attractive than the APN’s 90 day payment terms.

Given the beneficial terms of the EBTSO it is likely that the cost of settling will be significantly less than the amount due on an APN. We therefore urge you to seriously consider registering interest for the EBTSO before the deadline passes on 31 March 2015.

If you would like more information, please do not hesitate to contact Alastair Wilson, Chris Hodgson or Louise Barker on 0191 285 0321.

If you owned a cash machine full of money would you insure it?

If you owned a cash machine full of money would you insure it?

I’m guessing for most of us the answer would be ‘yes’. Without wanting to end a Friday with doom and gloom, it’s important that we consider the ‘what if’ and the ‘how would I manage if’ questions that we all avoid.

If you were to be made redundant or became seriously ill and subsequently couldn’t work, how long would your savings last?

The latest ‘Deadline to the Breadline Report’ from Legal & General shows how long families would survive with the loss of income from the main bread winner.

The report found that, on average, people could be on the breadline in just 29 days if the bread winner suffered a critical illness, injury or death. This is reduced to only 14 days for working age families (18-64 years old).

Other key findings include that people believe their Deadline to the Breadline is 77 days and 35% of people have no savings. Worryingly, 36% of households do not have a plan in place to cope with possible financial difficulties.

The report also found that a 2% rise in interest rates would move the typical mortgaged household one day closer to the breadline and a 1% rise would mean that households would no longer be able to save each month and would have to rely on savings to make ends meet.

Legal & General have created a Deadline to the Breadline calculator to show your potential situation and it may help you to decide how to better manage your finances.

It is vital that you understand the importance of planning to ensure your family and your wealth are protected. If you’d like to discuss managing your finances with one of our specialists, please contact us on 0191 285 0321 or email advice@taitwalker.co.uk   

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Tait Walker Wealth Management is a trading style of Tait Walker Financial Services Ltd which is authorised and regulated by the Financial Conduct Authority.

Changes to the petition level on bankruptcies – will this help or hinder?

TURNAROUND AND INSOLVENCY

Discussions have been taking place regarding the level of debt required before petitioning for bankruptcy. It has now been confirmed that the proposed level will be increased from £750 to £5,000 – this is the first rise in limits since 1986.

It is expected that this rise will take place in October 2015 however this still has to undergo parliamentary scrutiny.

The industry as a whole has been in agreement for some time that £750 is no longer appropriate so a rise was inevitable. However the jump to £5,000 is in my opinion too high and leaves creditors with limited options.

Is it really appropriate that creditors may have to look at the small claims court to try to obtain payment if the debt is less than £5,000?

Creditors have sometimes used the threat of bankruptcy to force the issue of payment with the debtor, and in some cases the debtor has the ability to pay but has failed to do so –  if creditors no longer have the threat of bankruptcy, does this reduce the sanctions that they have to encourage payment?

My experience with the Courts is that they are highly unlikely to allow a bankruptcy order on such a small debt, unless other avenues have been explored first and it can be demonstrated that the debtor has either failed to engage with the creditor or tried to find a solution.

On the other hand, it is agreed that the limit of £750 is too low and when the limit was set in 1986, all other amounts were equally proportionate to the debt limit. The possibility of losing your house for the £750 amount is clearly disproportionate.

The question I would ask is, in practise, how often does a creditor actually petition based on a petition debt of £750? My experience is that this does not happen often, whether that is because the creditor does not want to incur the costs associated with petitioning based on that level of debt or whether by virtue of the Courts being unwilling to allow proceedings to go ahead I cannot say, but in all my years dealing with insolvency I have not seen a petition debt listed totalling £750.

My experience of creditors’ petitioning for a debt of a few thousand pounds does occur and the reality is that this level of debt is enough to impact on a small business and can in turn result in the failure of that business or that individual. Therefore I think the Insolvency Service and the Parliamentary Committee needs to consider the impact of not having the bankruptcy option available to creditors for debts lower than £5,000.

I would hope that while the level of the petition debt is increased from its current level, that the amount expected in October 2015 is reviewed and decreased accordingly, but clearly we will need to await the scrutiny and see whether others feel the same as I do.

For further advice, please contact Lynn Marshall on 0191 285 0321 or email lynn.marshall@taitwalker.co.uk.

10 good reasons to pay into a pension before April

Mark Parkinson, Tait Walker’s Wealth Management Partner: “We have had many clients talking about the upcoming pension changes coming into effect in April 2015 – here’s some great advice from Standard Life ahead of the changes.”

There are less than three months to go before the new pension freedom becomes reality. With the legislation now in place, the run up to April is time to start planning in earnest to ensure your clients make the most of their pension savings.

To help, we’ve put together 10 reasons why your clients may wish to boost their pension pots before the tax year end.

1. Immediate access to savings for the over 55s

  • The new flexibility from April will mean that clients over 55 will have the same access to their pension savings as they do to any other investments. And with the combination of tax relief and tax free cash, pensions will outperform ISAs on a like for like basis for the vast majority of savers. So clients at or over this age should consider maximising their pension contributions ahead of saving through other investments.

2. Boost SIPP funds now before accessing the new flexibility

  • Anyone looking to take advantage of the new income flexibility may want to consider boosting their fund before April. Anyone accessing the new flexibility from the 6 April will find their annual allowance slashed to £10,000.
  • But remember that the reduced £10,000 annual allowance only applies for those who have accessed the new flexibility. Anyone in capped drawdown before April, or who only takes their tax free cash after April, will retain a £40,000 annual allowance.

3. IHT sheltering

  • The new death benefit rules will make pensions an extremely tax efficient way of passing on wealth to family members – there’s typically no IHT payable and the possibility of passing on funds to any family members free of tax for deaths before age 75.
  • Clients may want to consider moving savings which would otherwise be subject to IHT into their pension to shelter funds from IHT and benefit from tax free investment returns. And provided they’re not in serious ill-health at the time, any savings will be immediately outside the estate, with no need to wait 7 years to be free of IHT.

4. Get personal tax relief at top rates

  • For clients who are higher or additional rate tax payers this year, but are uncertain of their income levels next year, a pension contribution now will secure tax relief at their higher marginal rates.

    Typically, this may affect employees whose remuneration fluctuates with profit related bonuses, or self-employed individuals who have perhaps had a good year this year, but aren’t confident of repeating it in the next. Flexing the carry forward and PIP rules gives scope for some to pay up to £230,000 tax efficiently in 2014/15.

  • For example, an additional rate taxpayer this year, who feared their income may dip to below £150,000 next year, could potentially save up to an extra £5,000 on their tax bill if they had scope to pay £100,000 now.

5. Pay employer contributions before corporation tax relief drops further

  • Corporation tax rates are set to fall to 20% in 2015. Companies may want to consider bringing forward pension funding plans to benefit from tax relief at the higher rate. Payments should be made before the end of the current business year, while rates are at their highest.
  • For the current financial year, the main rate is 21%. This drops to 20% for the financial year starting 1st April 2015.

6. Don’t miss out on £50,000 allowances from 2011/12 & 2012/13

  • Carry forward for 2011/12 & 2012/13 will still be based on a £50,000 allowance. But as each year passes, the £40,000 allowance dilutes what can be paid. Up to £190,000 can be paid to pensions for this tax year without triggering an annual allowance tax charge. By 2017/18, this will drop to £160,000 – if the allowance stays at £40,000. And don’t ignore the risk of further cuts.

7. Use next year’s allowance now

  • Some clients may be willing and able to pay more than their 2014/15 allowance in the current tax year – even after using up all their unused allowance from the three carry forward years. To achieve this, they can maximise payments against their 2014/15 annual allowance, close their 14/15 PIP early, and pay an extra £40,000 in this tax year (in respect of the 2015/16 PIP).
  • This might be good advice for a client with particularly high income for 2014/15 who wants to make the biggest contribution they can with 45% tax relief. Or perhaps the payment could come from a company who has had a particularly good year and wants to reward directors and senior employees, reducing their corporation tax bill.

8. Recover personal allowances

  • Pension contributions reduce an individual’s taxable income. So they’re a great way to reinstate the personal allowance.
  • For a higher rate taxpayer with taxable income of between £100,000 and £120,000, an individual contribution that reduces taxable income to £100,000 would achieve an effective rate of tax relief at 60%. For higher incomes, or larger contributions, the effective rate will fall somewhere between 40% and 60%.

9. Avoid the child benefit tax charge

  • An individual pension contribution can ensure that the value of child benefit is saved for the family, rather than being lost to the child benefit tax charge. And it might be as simple as redirecting existing pension saving from the lower earning partner to the other.
  • The child benefit, worth £2,475 to a family with three kids, is cancelled out by the tax charge if the taxable income of the highest earner exceeds £60,000. There’s no tax charge if the highest earner has income of £50,000 or less. As a pension contribution reduces income for this purpose, the tax charge can be avoided. The combination of higher rate tax relief on the contribution plus the child benefit tax charge saved can lead to effective rates of tax relief as high as 64% for a family with three children.

10. Sacrifice bonus for employer pension contribution

  • March and April is typically the time of year when many companies pay annual bonuses. Sacrificing a bonus for an employer pension contribution before the tax year end can bring several positive outcomes.
  • The employer and employee NI savings made could be used to boost pension funding, giving more in the pension pot for every £1 lost from take-home pay. And the client’s taxable income is reduced, potentially recovering personal allowance or avoiding the child benefit tax charge.

Source – Standard Life

For further advice regarding the pension changes, please contact a member of our team. You can also view our summary of the changes here.

The 7 most important times to consider seeking financial advice…

WEALTH_MANAGE

There are certain milestones that people reach in their lives whereby seeking financial advice can really pay off. Some may consider help from the experts as an unnecessary cost, however such assistance can settle your finances and ultimately secure your future.

If you do not wish to employ a financial adviser on an ongoing basis, simply talking to an expert during one of the major milestones can be very beneficial.

We have highlighted some of the most important stages requiring financial advice and how expert financial advice can help you.

  1. Getting your first job

    After securing your first job, financial planning can make a huge difference to how you spend and save your cash. Being financially sensible is very important and, by avoiding unnecessary use of credit cards, overdrafts and loans, you can prepare for major goals such as buying your own home. We recommend saving 10-20% of your monthly wage.

    Additionally, thanks to auto-enrolment which will be fully implemented by 2018, you will be placed into a workplace pension scheme. Financial experts, as well as workplace advisors, can inform you of the best way to invest your pension.

  2. Buying your first home

    Acquiring your first home is one of the most significant milestones in a person’s life. By employing an independent adviser, it is likely you will receive the most suitable mortgage rate on the market and you will have the correct protections in place to cover you and your new home.

    Life assurance, critical illness cover, income protection cover and possibly redundancy cover are topics that can be discussed with your financial adviser. The professional guidance that you receive may drastically improve your financial prospects.

  3. Getting married

    It is important when getting married to make sure that your protection policies (life insurance, critical illness cover and income protection) are up-to-date and able to cover expenses for you and your spouse in the event of your death.

    You will also need to make sure your will is up to date – an old will becomes invalid unless written specifically in light of marriage.

  4. Having children

    Again, reviewing your protections to ensure your family can cope in the event of your death, redundancy or ill health is of utmost importance. A financial expert can ensure that you are obtaining sufficient life cover and organising your will in the best way.

    As school fees, clothing, food and presents can be very costly, it is essential to have basic life insurance in place.

  5. Getting a divorce

    It is highly likely that you will need financial advice in the event of a divorce. There are usually key financial impacts at this time, including:

    – considerable drop in income for one or both parties
    – receipt of a large sum from a settlement or the loss of capital due to paying the settlement
    – change in expenditure
    – possibly needing to move home

    Rebuilding your finances requires professional advice – you need to protect any maintenance income by way of life insurance or critical illness. You may also need mortgage advice or to touch on the merits of pension sharing in your divorce.

  6. Retiring

    This is a time when financial support is vital as your choices may determine your lifestyle for the next 2-3 decades. It is a time when, in the event of any financial mistakes, recovery may be impossible.

    Taking independent advice when you retire can give you a realistic outlook regarding how long your money will last. This will ensure that you spend wisely and budget appropriately when needed.

  7. Receiving a windfall

    Claiming inheritance or a having lottery win can significantly change your life. An adviser can help you to understand the importance of being sensible with your money and can assist you in the implementation of a sound investment plan. Squandering your windfall will only end in misery!

    A full financial review may be in order in this case, dependent upon how much money you have acquired. An independent financial adviser will look at your windfall in its entirety and will help set out your objectives. They will advise you on all aspects of saving and investing, as well as helping you to navigate the tax implications.

Are you coming up to, or currently in the midst of, any of the milestones discussed above? For financial advice regarding any of the stages listed, or for any others that you may be going through, please contact us on 0191 385 0321 or email advice@taitwalker.co.uk

 

Tait Walker Wealth Management is a trading style of Tait Walker Financial Services Ltd which is authorised and regulated by the Financial Conduct Authority.  Company Number 5674020. Incorporated in England.

Pension Changes, fairness and succession planning for family businesses

WEALTH_MANAGE

Our Corporate Finance Partner, Steve Plaskitt shares his thoughts on our recent Pensions Update seminar…

Growing up in a family business, I am well aware that it is difficult to pass business/wealth to the next generation without diluting it or distributing it unfairly.  I am very lucky as a second son of a second son as, under traditional methods where all the inheritance would pass to the oldest child, I may have had a very different upbringing.  Thankfully, my Grandfather didn’t follow these rules and wanted to treat his offspring fairly.

These thoughts came to me after I attended the pension seminar run by Tait Walker Wealth Management last week hosted by Phil Griffin and Chris Hodgson.  The seminar aimed to easily explain the new pension changes that are due out in December 2014, their taxation implications and how that also impacts retirement planning.  And it did!  For those who follow the right advice, private pension pots can now be regarded as a tax efficient savings account which may be passed from one generation to the next.

For a fleeting moment I was able to understand everything and, in particular, the impact that this change could have on planning succession in a family business.  It may even be a way to address two difficult topics:

  • How to pass the family business to the next generation without diluting the quality of its management
  • How to try and treat offspring in a fair way when planning your will

For a simplistic example, consider the owner of a family business looking to plan for his retirement with a daughter involved in the business and a son who is not. Let’s also assume that the family business is worth £1m and the pension pot also worth £1m.

  • Dividing the shares in the family company between the two is likely to create future problems for the business as the shareholders may have different goals and ambitions; for a start, the daughter is building up value for her brother who is not involved.  And how would the family company be passed to the third generation?  It is no wonder that many third generation family business owners decide to sell.
  • The new rules allow the simpler and fairer way: give £1m of shares to the daughter and £1m of pension pot to the son.

Now of course, no family business is exactly the same and I have not yet come across the above situation, but I can clearly see that by allowing the value of pensions to be handed down to the next generation, the number of options available to the owner of a family business increase.

For those contemplating their retirement, a combination of corporate finance (pre-sale planning), wealth management and taxation advice could offer a fair solution that would be great for family harmony and for business.

To discuss the new pension changes, please contact a member of our Wealth Management team.

Make grants your New Year resolution…

CORPORATE FINANCE

Companies can benefit from grants in the North East, especially those thinking about their investment plans and those aiming to create or safeguard jobs.

The main regional funds are the Tees Valley Business Compass and the Let’s Grow Fund. Let’s Grow is a quarterly competition and the next expression of interest closes on 23rd January 2015.

Why should you apply for a grant?

186 of 270 expressions from the first fund were considered and 102 awards were made, so with careful thought, you could have a good chance of securing a grant.

We should be able to help you win a grant if:

  • You are planning on minimal levels of capital expenditure in three years, e.g. £100,000 or more in Tees Valley or £200,000 or more elsewhere
  • You are creating jobs and/or safeguarding them
  • You have, for example, 3-5 months before you want to start and are not already committed to projects

If you have any queries or would like to discuss any of these details further, please contact a member of our specialist grants team at steve.plaskitt@taitwalker.co.uk or lee.jefferson@taitwalker.co.uk

Engineering skills fund launches

MANUFACTURING ENGINEERING

A £10m pot to allow small and medium-sized engineering companies to develop the skills of their workforce has been opened to applications.

Engineering businesses in England with fewer than 250 employees can apply for a share of the first £2.5m of the £10m fund to develop innovative company-specific training.

The match-funded cash pot forms part of a £30m initiative for investment in skills. Two previous tranches of funding have been provided under the project to improve engineering careers and develop female engineers.

This final round has been designed with smaller businesses in mind, with the minimum funding threshold reduced.

Skills minister Nick Boles said: “A company’s greatest asset is its people and making sure they have the right skills is vital in supporting the long-term economic plan.

“This funding gives employers the power to unlock the full potential of their workforce by designing and developing training catered to their specific needs. I encourage all small and medium sized engineering firms to consider how they could use this funding to take their business to the next level.”

Tim Thomas, head of skills and employment policy at EEF, added: “We are delighted that this scheme has now been opened to SME employers and that the minimum grant, which a company would need to match with their own money, has been dropped to £10,000.

“This makes the scheme far more accessible and reflects more realistically the amount many smaller companies may be able to invest in skills and training. It recognises the fact that many SMEs want to do more and provides solid support to help them achieve this.”

Applications will remain open until 27 February and the remaining £7.5m is to be opened up in the new year, if existing funds are taken up.

https://www.gov.uk/government/publications/employer-ownership-improving-engineering-careers-smaller-companies

How long can the average UK household survive after a sudden shock to their income?

TURNAROUND AND INSOLVENCY
The latest Deadline to the Breadline report shows that the average UK household could be on the breadline in 29 days and, for working age families (18-64 year olds), this is reduced to just 14 days.

In comparison to last years’ report, it is an improvement – but it is still worrying to know that our UK households have just under a month before relying solely on state benefits and family and friends for financial support.

It is so important that families consider improving their financial security in order to protect their future – especially as people estimate that their savings will last 77 days. This is over 2 ½ times the actual deadline.

Wales has the shortest deadline in the UK (7 days) followed by the North East at 16 days, and over a third of UK households have no financial back up plan that they can use in the event of an unforeseen shock to their income. With the average weekly cost of living at £381, these figures are a cause for concern.

The report also found that only 36% of UK households are protected by life insurance and critical illness cover.

It is vital that you understand the importance of financial planning in order to protect yourself and your family. If you’d like to discuss managing your finances with one of our specialists, please contact us on 0191 385 0321 or email advice@taitwalker.co.uk  

 

Tait Walker Wealth Management is a trading style of Tait Walker Financial Services Ltd which is authorised and regulated by the Financial Conduct Authority.  Company Number 5674020. Incorporated in England.

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