Category: Uncategorised

We helped our client, a beneficiary of their father’s pension fund, to receive these benefits in the most tax-efficient way possible, minimising the potential large amounts of income tax.

 

Sadly, our client passed away at the age of 79. We had previously advised them to complete a pension drawdown nomination form, and they had elected their partner, son and daughter to receive these funds.

The son wished to take his benefit in the form of a lump sum death benefit, equating to £60,000.

As our client passed away over the  age of 75, the death benefit is taxable at the beneficiary's marginal rate.

Therefore, the lump-sum would be added to the son’s other income in the tax year, and he would be taxed accordingly.

 

The son had a salary of £40,000. This meant if he had taken the lump sum of £60,000, he would have paid £22,000 tax in total (£10,000 at 20% plus £50,000 at 40%), giving him a net benefit of £38,000.

Instead, we advised that the son should use inherited drawdown; which is taxed only when the beneficiary withdraws an income from their inherited fund.

Using inherited drawdown, the son withdrew £10,000 per annum over six years. This meant no higher income tax was payable (£60,000 at 20% = £12,000).

 

By advising the son to use inherited drawdown, we saved him a significant £10,000 in tax, allowing the son to receive more of his father’s hard-earned pension benefits.

Inherited drawdown provides beneficiaries with the ability to spread tax over many tax years. The beneficiary has the control to withdraw monies when they wish, and this flexibility can help utilise tax allowances and limit the amount of tax payable.

This case illustrates the importance for clients to have nomination forms for their pension funds, to ensure these benefits are passed onto the people they wish, and to update these when circumstances change.

 

Don't hesitate to contact a member of our team to talk about your personal circumstances.

Robert Young, Hanover Financial Management, pensions and employee benefits specialist reflects on the latest budget update and dissects what these changes actually mean for individuals with businesses, pensions, savings and investments.

 

Pensions 

Pensions tax relief

There are two ways in which tax relief is granted on employee pension contributions, net pay and relief at source. Currently, low earners receive tax relief under the relief at source method as the pension providers claim the 20% basic tax relief directly from the Government. As a result low earners who pay little or, no tax still receive the tax credit.ar

However, under the net pay scheme, pension contributions are deducted from pay before tax is calculated so higher earners receive tax relief at their highest marginal rate directly in payroll but lower earners who pay little or no tax lose out.

The Government have stated that they will introduce legislation to make top-up payments directly to the pension arrangements of low earning savers. It is anticipated that payments will start to be paid from 2025 to 2026 in respect of contributions made from 2024 to 2025. This will bring the two tax relief methods into line.

 

Allowances

No changes have been proposed about the annual allowance or money purchase annual allowance which remain at £40,0000 and £4,000 respectively.

The Lifetime Allowance is to remain fixed at this year’s amount of £1,073,100. It will no longer rise in line with the Consumer Price Index (CPI). This will not just impact high earners, but particularly in the short term will impact long-serving employees at a senior level in the medical and teaching professions.

This means more pension savers may be impacted by the LTA charge so this is an important issue to consider in deciding how to take retirement benefits.

 

Green NS&I product

The Chancellor announced in the budget a “Green Bond” launching in the summer by National Savings and Investments (NS&I). These bonds will raise funds for “green” projects and help the country on its journey to being carbon neutral, while at the same time helping to boost saving. The terms are not yet known but with government backing through NS&I it is anticipated these will prove to be popular, given the growing demand for sustainable investments.

 

National Insurance

The previously announced increase in National Insurance contributions to help cover the increasing cost of social care and the funding of the NHS was confirmed. National Insurance contributions will increase by 1.25% for the 2022/23 tax year.

Although National Insurance rates will return to current levels on 6 April 2023, the extra 1.25% will remain but as a separate Health and social care levy which will be ring-fenced to ensure that the funds raised are used for social care and the NHS. Unlike National Insurance contributions, this levy will apply to those over State Pension Age.

Employers pay on earnings over the Secondary Threshold and this will increase from £8,840 in 2021/22 to £9,100 in 2022/23.

 

Other

Employees currently pay 12% on earnings between the Primary Threshold and Upper Earnings Limit and 2% on earnings over the Upper Earnings Limit. So these rates will rise to 13.25% and 3.25% respectively. The Primary Threshold is £9,568 in the current 2021/22 tax year and will rise to £9,880 for 2022/23 and the Upper Earnings Limit which is £50,270 for 2021/22 will remain frozen at this level.

Salary exchange arrangements where an employee elects to give up salary in return for a higher employer pension contribution, offer National Insurance savings for both employees and employers and the maximum potential savings will rise significantly in 2022/23. Employers who have not previously considered this should now do so.

 

Dividends

In order to help fund social care and the NHS, dividend tax rates will also rise by 1.25% from 2022/23. The £2,000 dividend allowance will remain but thereafter the tax rates will be:

  • 8.75% for basic rate taxpayers
  • 33.75% for higher rate taxpayers
  • 39.35% for additional rate taxpayers

Shareholding directors will be used to managing their remuneration strategy with a mix of salary, dividends and employer pension contributions. Many will have adopted a strategy of main dividends and although this is likely to remain more tax-efficient than paying salary, the position should be reviewed in the light of these changes to determine the impact on post-tax income. Pension contributions remain even more tax-efficient up to the annual allowance.

 

Income tax

In England, the personal allowance and basic rate tax bands will remain frozen for 2022/23 so the personal allowance remains at £12,570 and higher rate tax will start to be paid on income over £50,270. Scotland and Wales set their own rates.

The tapering of this relief for those earning over £100,000 is to remain so that £1 of the allowance is lost for every £2 of income over £100,000 reducing to zero once income reaches £125,140. The effective tax on income in this band is 60% so employees with income at this level should certainly consider making additional pension contributions or exchanging income for additional employer pension contributions.

 

Inheritance tax

Tax (IHT) threshold is to remain frozen at £325,000 and the residential nil rate band will also be fixed at £175,000 until 5 April 2026. The result is that more and more people will fall into the IHT net so now is a good time to take advice and review what actions you can take to reduce or remove your liability to IHT.

 

Capital Gains tax

The annual exempt amount is to remain frozen at £12,300 until April 2026.

 

State pension

The Budget confirmed that the earnings element of the triple lock will not apply for 2022/23 so the increase will be 2.5% or the increase in CPI which for September was 3.1%. As a result of this the New State Pension is anticipated to rise from £179.60 per week to £185.15 per week in 2022/23.

With costs such as energy costs rising significantly and much faster than the inflation index, and energy costs being a major expense for many retired people, this change is likely to have a significant impact on the standard of living for many who are retired.

 

Normal minimum pension age

The Budget confirmed that the previously announced change would proceed and legislation is to be included in the Finance Bill 2021-22. This will increase the earliest age at which most pension savers will be able to access their pension arrangements without incurring an unauthorised payments tax charge, from age 55 to age 57. This increase, however, is not to take effect until April 2028.

 

Aspects of the budget relating to businesses and business owners

Corporation tax

It was confirmed that the Corporation Tax rate is to increase to 25% but only for financial years beginning on or after 1 April 2023 and for businesses with profits over £250,000. For small businesses with profits below £50,000, the rate will remain at 19%. There will be marginal relief introduced for businesses with profits between £50,000 and £250,000. Businesses both incorporated and unincorporated will be able to carry back trading losses for three years rather than just one year in 2020/21 and 2021/22 subject to certain thresholds. Businesses should look at the fine details of these changes and take advice on their impact.

 

Support for hospitality and leisure businesses

Recognising that the hospitality and leisure sectors have been particularly hard hit through the recent lockdowns as a result of the coronavirus, the Chancellor announced measures that should enable 90% of businesses in these sectors to receive at least 50% off their business rates in 2022/23.

In addition, it was announced that the business rate system would be reviewed and reformed to make it fairer, more responsive ad more supportive of investment.

 

Research and Development (R&D)

To ensure that the United Kingdom remains at the forefront of innovation, an increase to £20bn in public investment in R&D by 2024/25 was announced which represents around a 25% increase.

Plans to reform R&D tax reliefs to support modern research methods and further support to private R&D investment by increasing the funding for core Innovate UK programmes were also announced. The changes will also be designed to be more focused on domestic activity.

 

Shipping

The budget announced the first reform to Tonnage Tax since 2000, with changes to be introduced from April 2022. The changes aim to attract ships to register in the UK and for more shipping companies to base their headquarters in the UK, use the UK maritime services industry and fly the UK flag. The changes have been generally well-received by the UK maritime industry as a move to strengthen the UK maritime industry.

 

To discuss the impact of the budget on your business, investments, pensions or savings please get in touch. We will be happy to discuss your requirements and ensure your funds are working effectively for you.
For more financial advice, don't hesitate to get in touch with a member of our team.

 

Hanover Financial Management Limited is an appointed representative of Culver Financial Management Limited which is authorised and regulated by the Financial Conduct Authority No. 114852. Hanover Financial Management Limited is registered in England and Wales with number 8586887. Culver Financial Management Limited is registered in England and Wales with number 01157569. The Financial Conduct Authority does not regulate tax advice or trusts. The value of investments can fall as well as rise. You may not get back what you invest.

The Financial Ombudsman Service is available to sort out individual complaints that clients and financial services businesses aren’t able to resolve themselves. To contact the Financial Ombudsman Service please visitwww.financial-ombudsman.org.uk.

 

 

 

The news from the market feels like a broken record, as the main focus this month continues to be inflationary pressures around the global economies. For the last few months, talk from the central banks has focused on the high inflationary figures are temporary, and how they will decrease as we enter 2022.

However, there seems to have been a shift from suggesting these are transitory problems to the potential that inflation will be higher for longer.

 

Inflation could last longer than planned

On this note, the International Monetary Fund (IMF) advised that the global economies are facing inflationary pressures that will be “higher and longer than expected”.

The US Federal Reserve Chair Jerome Powell warned: “We now see higher inflation and the bottlenecks lasting well into next year”.

 

Interest rates are set to rise

Here in the UK, it is now widely anticipated that interest rates are set to rise sooner rather than later. The Bank of England’s (BoE) Monetary Policy Committee (MPC), currently have interest rates set at 0.1%; the lowest level in the history of BoE. However, they are tipped to rise by 15 basis points, if not by Christmas, certainly in the early part of 2022. For context, the UK’s annualised rate of consumer price inflation (CPI) actually fell from 3.2% to 3.1% in September but this remains well above the BoE’s target of 2%. There is now an expectation in some quarters that the CPI index could go as high as 5% during 2022.

The Chancellor of the Exchequer, Rishi Sunak, delivered his Autumn Budget on 27 October. I won’t go into too much detail in regards to this, as my colleague Robert Young has written a separate article on this for our monthly newsletter.

In short, he announced upgraded economic forecasts, along with some increased spending on public services. To help the hospitality, leisure and retail sectors, he unveiled a new 50% business rates discount to aid these companies. To add to the discussion on interest rates, he advised that the UK’s public finances are now twice more sensitive to changes in the rate than they were before the pandemic. By the end of the month, the FTSE 100 index had risen by 2.1%.

 

Across the Atlantic

In keeping with the inflationary news, the US economy only grew by 2% in the third quarter (down from 6.7% in the second quarter). This was largely blamed on the inflationary pressures, the impact of the Delta variant of Covid-19 and supply chain problems (we aren’t alone in this!). Throughout the month, the rate of unemployment in the US fell to 4.8% from 5.2%. However, this is still some way ahead of the 3.5% which was seen in February 2020, prior to the pandemic. Despite all this news, the Dow Jones Industrial Average Index increased by 5.8% over the course of October.

 

Rise in inflation in 'eurozone'

As you would expect, Europe is no different to the rest of the world, and the European Central Bank (ECB) have also seen inflationary pressures dominate the recent narrative. So much so that, ECB President Christine Lagarde observed after a recent meeting: “We talked about inflation, inflation, inflation”. In October, the eurozone’s inflation rose sharply from 3.4% to 4.1%. As with other central banks, the ECB expects these pressures to be a short term issue and to fall back during 2022. Although, they are acknowledging this will take longer than they had originally forecast - which seems to be a familiar theme for this review!

 

Japan provides a change of scenery

Japan is taking a different approach to the other major central banks. The Bank of Japan has kept its interest rate at -0.1% and is looking to maintain its policy easing. This is a far different approach, where most of the central banks are at the very least considering a tightening of their monetary policies in the near future.

 

As always, I hope that you have found this review a useful read. If you have any questions in regards to this, or any other financial matter please do not hesitate to contact one of us at Hanover.

Richard Brazier

 

 Richard Brazier

Director

E RichardBrazier@hanoverfm.co.uk

Who should you contact for more information?

Director Richard Brazier

Financial Adviser Amanda Beacon

Senior Consultant Graham Smithson

What is it?

The aim of the policy is to provide a lump-sum benefit on the death of a single employee. This removes the need for the company to set up a registered group life scheme. The policy is designed to meet the requirements of a single-life relevant life policy under S393B (4) (b) of the Income Tax (Earnings and Pensions) Act 2003.
Relevant life policies are primarily aimed at 2 groups:

  • High-earning employees who have substantial pension funds and don’t want their death-in-service benefits to form part of their lifetime allowance.
  • Small businesses that don’t have enough eligible employees to warrant a group life scheme.

Relevant life policies can also be used by directors of a company.
Provided the arrangement meets the criteria below, a relevant life policy has a number of advantages.

  • The benefit won’t form part of the employee’s lifetime pension allowance.
  • The premiums paid won’t form part of the employee’s annual allowance (the amount that can be contributed by, or on behalf of, an individual to any registered pension scheme with the benefit of tax relief). So the employee is still able to make full use of their annual allowance to make contributions to a registered pension scheme.
  • Premiums paid by employers are not normally assessable for employer or employee National Insurance contributions.

A terminal illness benefit is available on most contracts. In the event of the employee being diagnosed as suffering from a terminal illness i.e. one where the expectation of life is less than twelve months, the sum assured under the contract will become payable.

Eligibility

The policy must meet the following rules to qualify as a single-person relevant life policy:

  • The policy must only provide for a lump-sum death benefit payable before the age of 75.
  • No other benefit must be conferred under the policy.
  • The policy must not be capable of having a surrender value. There are circumstances in which a small surrender value is allowed.
  • Any benefit must only be payable to an individual or a charity.
  • The main purpose of the policy must not be tax-avoidance.

Taxation

Premiums paid by employers are not normally assessable on the employees as a benefit-in-kind so they’re not subject to income tax.

The premiums may be treated as an allowable expense for the employer in calculating their tax liability provided that the local inspector of taxes is satisfied they qualify under the ‘wholly and exclusively’ rules.

As the benefits are payable through a discretionary trust, in most cases the benefits are paid free of inheritance tax as the payment is not part of the employee’s estate. But the trust will be subject to normal inheritance tax rules for discretionary trusts, which in some circumstances may give rise to the following charges:

  • Up to 6% of the value of the trust fund on each 10th anniversary of the date the trust was established (the periodic charge). A periodic charge will only apply if there is a value held in the trust at the 10th anniversary. This could happen if, for example, an employee dies shortly before the 10th anniversary and the benefits have not been distributed to the beneficiaries.
  • Up to 6% of the value of the fund on appointment of benefits out of the trust to a beneficiary (the exit charge).

All statements concerning the tax treatment of products and their benefits are based on our understanding of current tax law and HM Revenue and Customs’ practice. Levels and bases of tax relief are subject to change.

Risk considerations

There are a number of risk considerations that need to be taken into account. It is important that you are aware of these.

  • This contract is designed to provide a high level of cover at minimal cost and therefore does not acquire a surrender value at any time.
  • If for any reason premiums are not paid, cover will cease.
  • Failure to disclose any requested or relevant information may adversely affect any future claims.
  • At the end of the term selected, cover will cease and no further benefit will be payable.
  • The present tax-free treatment of the policy benefits may change.
  • If any relevant information provided, when applying, is not disclosed accurately and honestly, this could result in any cover offered becoming invalid and/or may result in the non-payment of any future claims.
  • If this policy is to replace any existing policy offering the same type level of cover, the existing policy must not be cancelled until the new policy is in force.

If you think this will be beneficial to you, your company or your charity, please get in touch with one of our team members.

September was a month which saw a number of different factors at play, all of which caused concerns to the investment markets. In no particular order those concerns included:

·        Rising inflation;

·        Stuttering economic growth;

·        More hawkish rhetoric from central banks;

·        Energy prices rapidly increasing; and

·        The ongoing speculation around the Chinese real estate company, Evergrande, which could be on the brink of collapse.

In the UK inflation continues to dominate the investment picture. Having fallen to 2% in July the consumer price index increased to 3.2% in August. A lot of the reasoning for this increase was explained by prices 12 months ago being significantly lower as part of the government’s Eat Out to Help Out scheme. As we will all be aware, gas prices have surged in recent weeks, which is only going to fuel (no pun intended!) inflationary pressures. The Bank of England (BoE) is still expecting a figure of around 4% by the end of the year, but still considers this to be a temporary issue.

Once again, mirroring comments made in the US, the BoE advised that there was no need for immediate action on the increasing inflationary figures. However, the recent prices have probably increased the likelihood of some tightening of monetary policy in the not too distant future. For instance, the BoE have not ruled out interest rates increases this year, and the markets are pricing in an increase as early as February next year.

Growth in the economy still falls way below its pre-pandemic levels. In July the UK economy expanded by 0.1%. The three months to July saw unemployment fall to 4.6% and average wages increase by 6.8% (excluding bonuses). During September the FTSE 100 was down 0.5%.

As with the UK, it appears that the US is edging towards tapering its programme of asset purchases, and this could begin as early as this year. The Federal Reserve (Fed), has pointed towards a strong jobs market, economic growth and temporary inflationary pressures. Like the UK, there is a feeling that interest rates could rise in 2022, when this wasn’t expected until 2023. However, the Fed have indicated this is all dependent on pandemic containment.

In August, the annualised rate of inflation fell slightly to 5.3% from 5.4% in the US. There was some moderation in economic growth prospects for this year, with an expected figure of 5.9% down from 7%. Although this was countered by an increase to 3.8% for 2022, from the previous figure of 3.3%. It is clear that policymakers on both sides of the Atlantic are looking to prepare markets for future tightening of policy measures. September saw the Dow Jones Industrial Average fall by 4.3%.

Following a similar theme, the European Central Bank (ECB) announced it would look to draw back on the Pandemic Emergency Purchase Programme (PEPP). However, they stated that this wouldn’t be until March 2022 at the earliest, which helped to reassure the financial markets. Maybe in a further effort to calm the markets, the ECB President referred to this as recalibrating not tapering.

Meanwhile in Germany, voters went to the polls to determine a successor for Angela Merkel after 16 years in power. As widely predicted, the results of the poll were a coalition government, for which an agreement will need to be reached. The Dax Index was 3.6% down in September.

There will also a change of leadership in Japan, where Prime Minister Yoshihide Suga plans to stand down and be replaced by Fumio Kishida. Second quarter growth in Japan was higher than originally calculated, increasing to 1.9%. The Nikkei 225 Index rose by 4.9% by the end of September.

Fingers crossed the supply issues currently being seen in the UK haven’t impacted on you too much. I did have some difficulties with finding petrol in my local area but thankfully this seems to be easing now.  As always, if you have any queries in regards to any aspect of your financial planning, please do get in touch (link) with myself or one of the team.

 

 

We were approached by a company whose Managing Director was about to cease membership of their firm-wide Death-in-Service scheme. He had passed the retirement age of the scheme but was not intending on retiring.

As he was not intending to retire, the company wanted to provide him with the same level of life cover that he was entitled to under the Death in Service scheme. For various reasons he was not able to simply re-join the Death-in-Service scheme as a discretionary member, and the company weren’t prepared to increase the retirement age of the scheme.

We were asked if there was anything we could recommend in this instance. Our recommendation to the company was to take out a relevant life policy to age 75 for when the Managing Director intended to retire. This provided the same level of cover he had under the Death-in-Service scheme.

A relevant life policy had a number of advantages for the company and the Managing Director:

  • The benefit won’t form part of the employee’s lifetime pension allowance.
  • The premiums paid won’t form part of the employee’s annual allowance (the amount that can be contributed by, or on behalf of, an individual to any registered pension scheme with the benefit of tax relief). So the employee is still able to make full use of their annual allowance to make contributions to a registered pension scheme.
  • Premiums paid by employers are not normally assessable for employer or employee National Insurance contributions.
  • The policy is set up using a discretionary trust, which means the benefits should be free of inheritance tax, and do not form part of the employee’s estate.

In regards to these plans, the company is the owner of the plan, and the individual is the life assured. Due to the age of the client, and the sum assured, there was a requirement by the insurer for medical underwriting. Once this was completed the plan was placed on risk, and the Managing Director now has life cover until he turns 75.

For more details on Relevant Life Policies, please don't hesitate to contact a member of our team.

As the US economy continues to recover at a pace quicker than the US Federal Reserve (Fed) expected, they have indicated they may begin reducing their stimulus packages sooner than previously anticipated. The minutes from the Fed’s July meeting, which were released in August, and Fed Chairs Jerome Powell’s annual speech at the Jackson Hole symposium, both provided strong indications for a tapering of the current stimulus. However, Powell was very keen to emphasise that policymakers would be in no rush to tighten interest rates. In August, The Dow Jones Industrial Average Index rose by 1.2%.

Inflation continues to be a main headline in the US, and Powell used part of his speech to again address these concerns. Once again, he insisted that the inflationary pressures are merely a temporary issue caused by pandemic-related factors. Perhaps backing up his claim, the rate of inflation fell from 0.9% to 0.5%. This was the biggest fall seen in this index for over a year. He did, however, acknowledge that pressure on prices is higher than the Fed would like.

Much like the US, inflation is very much in focus in the UK. The annualised rate of consumer price inflation fell by 0.5% in July to 2%. The Bank of England (BoE) has indicated that inflation could rise as high as 4% by the end of the year. However, like the Fed, the BoE stands by its previous statements that they see these rises as “transitory” and expect the rate to fall back towards their target of 2% during 2022.

The issues that we have seen in regards to supply chain are not helping inflationary pressures in the UK are. Manufacturers are said to be experiencing the worst ever shortage of stock, according to The Confederation of British Industry (CBI).  During the three months up to July, job vacancies reached their highest level at 953,000. Maybe most publically, and certainly not helping the supply chain, has been the reported shortage of HGV drivers currently in the UK. During August, the FTSE 100 Index rose by 1.1%.

Japan managed to host the delayed Olympic Games during August, which were seen largely as a success. However, these took place against a backdrop of a country still battling Covid-19, and in particular, the Delta variant. There are concerns on how this is affecting the ability for continued economic growth, whilst the country is still under a state of emergency. In August, the Nikkei 225 Index increased by 3%.

At the risk of sounding like a broken record, Germany’s inflation rate rose to levels not seen since 2008 in August. The annualised increase of 3.4% was well above the European Central Bank’s 2% target. The second quarter saw a revised quarter on quarter growth estimate of 1.6%, helping to show Germany’s economic growth continues to rebound in 2021. Elsewhere in Europe, and showing that it’s not just an isolated problem for the UK, there have been supply chain disruptions. The German Dax Index rose by 1.9% by the end of August.

I very much hope that as the lockdown restrictions have relaxed in the UK, you have been able to take advantage of this over the summer. As always, if you have any queries in regards to any aspect of your financial planning, please do get in touch with myself or one of the team.

The benefits of regular savings

In the complex world of investment, timing appears to be crucial. However – unless you are gifted with foresight, and believe me very few investors are – you cannot predict what the stock market will do. This presents a problem for investors: not only to decide when to invest, but also when eventually to pull their money out of the market. This is where the benefits of ‘pound-cost averaging’ – or, in laymen’s terms, regular saving – come into play.

Pound-cost averaging works on the basis that, by regularly putting smaller amounts of money into a fund or other investment, you will reduce your overall risk of investing at the wrong time. Compared with investing one large sum in a single transaction, the risk is mitigated by the fact that smaller, regular sums will be invested over a period of time at a variety of prices.

Of course, in a rising market, regular savings will underperform the growth of a single lump sum because the later investments will miss out on the increase of the early days. However, in an up-and-down or falling market, the opposite is true. Later investments will buy in at lower or alternating prices – some lower than the original price – and will therefore gain a little more when the market finally does rise.

Similarly, regular saving is a great way to build up a lump sum from almost nothing. Setting aside a lump sum of £5,000 is a tall order for plenty of people, but putting aside £100 a month from your income might be less of an issue – and the addition of investment growth or interest means you could quickly build up a reasonable amount without necessarily noticing. And the longer you can leave that growing amount alone, the more impressive it potentially becomes.

Most investment products offer regular savings as an option, including investment funds, Individual Savings Accounts (ISAs), life assurance and pension plans. If you are considering equities for the first time, this is also an ideal way to start – if prices fall, your regular sum will buy a greater number of units in your chosen fund, which will then generate higher proportionate gains when prices start to rise again. Moreover, the small amount you invest every month should have a minimal impact on your cashflow and your lifestyle, and will also reduce your sensitivity to the short-term ups and downs of financial markets.

For more information and advice on regular saving, please get in touch with a member of our team.

Robert Young, Hanover financial management, pensions and employee benefits specialist reflects on the latest budget update and dissects what they mean for individuals with businesses, pensions, savings and investments.

 

State Pension Underpayments

Just in advance of International Women’s Day on Monday 8 March, there is some good news for women from The Department for Work and Pensions (DWP). They have determined that State pensions have been underpaid to women dating back two decades. This position is to be redressed over the next 5 years, and estimated to cost the Government £3 bn - suggesting  this impacts more women than the pension industry anticipated.

 

Lifetime Allowance

The Lifetime Allowance is to be fixed at this year’s amount of £1,073,100. It will no longer rise in-line with the Consumer Price Index (CPI). This will not just impact really high earners, but particularly in the short term will impact long serving employees at a senior level in the medical and teaching professions.

After the introduction for the 2020/21 tax year of a higher level of remuneration before the tapered annual allowance kicks in, largely to ensure that senior doctors and medical practitioners and senior teachers did not suffer the reduced annual allowance this creates, these same groups are being hit by the freezing of the Lifetime Allowance (LTA). This seems a poor return for those who have been working hard to help us all pull through the coronavirus pandemic.  If you are impacted by this, now is the time to take some advice and see what if any options are available to you.

Instead of freezing the LTA, given that there is already in place an Annual Allowance which limits the amount that can be paid in and receive tax relief, consideration should be given to removing the LTA. Government wish to encourage all of us to save for retirement but the LTA penalises those who invest consistently over a long time and achieve good investment performance and which is ultimately more likely to stop us saving for retirement.

 

Green NS&I Product

The Chancellor announced in the budget a “Green Bond” launching in the summer by National Savings and Investments (NS&I). These bonds will raise funds for “green” projects and help the country on its journey to being carbon neutral, while at the same time helping to boost saving. The terms are not yet known but with government backing through NS&I it is anticipated these will prove to be popular, given the growing demand for sustainable investments.

 

Inheritance Tax

The Inheritance Tax (IHT) threshold is to remain frozen at £325,000 and the residential nil rate band will also be fixed at £175,000 until 5 April 2026. The result is that more and more people will fall into the IHT net so now is a good time to take advice and review what actions you can take to reduce or remove your liability to IHT.

 

Auto enrolment charge cap consultation

An auto- enrolment charge cap consultation is to be launched in the next month. The primary aim of this is to encourage pension schemes to invest in a wider range of assets, particularly venture capital and growth equity assets. There is a significant amount of capital in defined contribution workplace pension arrangements and the Government wishes to unlock this to help support the UK economy post-covid. In particular, this will look at averaging performance fees over a number of years. This could be a win for the economy and a win for pension savers with enhanced investment returns (just be aware of the LTA cap though!)

 

Stamp Duty and Mortgage Guarantee Scheme

The cut in stamp duty has been extended to 30 June 2021 but be aware that the transaction must be completed by then. To smooth the transition back to normal levels, the nil rate band will be £250,000 up to 30 September, reverting to the normal level of £125,000 from 1October. In addition, the Government is introducing a guarantee scheme to encourage lenders to offer mortgages with only a 5% deposit, as these mortgages will benefit from a government guarantee. If you are looking at moving onto the housing ladder, now may be a good time to do so. If you don’t have the deposit money, or cannot raise a large enough mortgage, perhaps a family member may be able to provide this, helping to reduce their potential IHT at the same time. These are serious financial matters so don’t forget to take advice on all aspects.

 

Aspects of the budget relating to businesses and business owners

Corporation Tax

The Corporation Tax rate is to increase to 25% but only for financial years beginning on or after 1 April 2023 and for businesses with profits over £250,000. For small businesses with profits below £50,000 the rate will remain at 19%. There will be marginal relief introduced for businesses with profits between £50,000 and £250,000. Businesses both incorporated and unincorporated will be able to carry back trading losses for three years rather than just one year in 2020/21 and 2021/22 subject to certain thresholds. Business should look at the fine details of these changes and take advice on their impact.

 

Coronavirus Support Schemes

The furlough scheme is being extended to 30 September 2021 and employees will continue to receive 80% of salary up to £2,500 a month. However, employers should note that from 1 July 2021 they will be required to pay 10% of unworked hours, rising to 20% in August and September. In addition employers must continue to meet the cost of employer National Insurance contributions and pension contributions.

Support for the self-employed continues up to 30 September 2021. A fourth grant for the period February 2021 to April 2021 will provide 80% of three month’s average trading profits subject to a cap of £7,500. Eligible self-employed workers will be able to be claim in late April. To be able to claim you must have filed a 2019/20 tax return, so if you became newly self-employed in 2019/20 you will now be able to claim. A final fifth grant for the period 1 May 2021 to 30 September 2021 will be available to claim in late July and will be subject to a turnover test.

 

To discuss the impact of the budget on your business, investments, pensions or savings please get in touch. We would be happy to discuss your requirements and ensure your funds are working effectively for you.

 

 

 

Robert Young | Partner & Consulting Actuary

 

  Robert Young

 

 

Hanover Financial Management Limited is an appointed representative of Culver Financial Management Limited which is authorised and regulated by the Financial Conduct Authority No. 114852. Hanover Financial Management Limited is registered in England and Wales with number 8586887. Culver Financial Management Limited is registered in England and Wales with number 01157569. The Financial Conduct Authority does not regulate tax advice or trusts. The value of investments can fall as well as rise. You may not get back what you invest.

 

The Financial Ombudsman Service is available to sort out individual complaints that clients and financial services businesses aren’t able to resolve themselves. To contact the Financial Ombudsman Service please visit www.financial-ombudsman.org.uk.

 

 

 

I hope that you are keeping safe and well. Depending on where you are reading this will dictate the current Covid restrictions you are currently following. Looking back, although my experience of the lockdown 2.0 in England was not as restrictive as the first, we will have to see how effective the various lockdowns and subsequent tier system measures were in due course.

In the last few weeks, we have finally seen some positive news in what has been an incredibly tough year; namely about the number of possible vaccines for the virus. Firstly, Pfizer and BioNTech announced trial results which were incredibly encouraging, which was quickly followed by similar results from Moderna, and the initial results from the Oxford University vaccine soon after.  Following this, Pfizer have just announced their approval from the MHRA, and the vaccine will be rolled out as early as next week.

On the day the Pfizer and BioNTech results were announced, the FTSE100 increased by over 5% immediately, finally closing the day over 4% higher. I believe this shows how the investment markets, and indeed ourselves, are looking for the light at the end of the tunnel. Let us hope that more of these vaccines indeed pass all the regulators tests and are available as early as this month.

On a more downbeat note, we are still seeing a rise in Covid cases, not only here, but across Europe and in the US. This has tempered some of the rises that we have seen in the markets. However, the FTSE100 has risen over 12% from the start of November, which is very welcome news for your investment portfolios. At the moment, the markets are very much weighing up the short term with cases rising, against the longer term prospects of successful vaccines.

Brexit is very much back in the news as the deadline to agree a deal with the EU approaches at the end of this year. The outcome of these negotiations will certainly have an impact on our investment markets. Although there appears to be ‘tentative’ possibility that a deal can be agreed, we will wait for further news on this.

In the US, we have recently seen the results of their presidential election. Although it is clear that Joe Biden has won, as we know, President Trump has so far not conceded defeat. His legal challenges are declined on an almost daily basis and the results for the individual states will soon have to be certified. Even if President Trump never concedes defeat, on 20 January 2021, Joe Biden will inevitably become the next President.

Since the election, the US investment markets have hit record highs; and the Dow Jones Industrial Average had its best month since January 1987 in November, as the index passed 30,000. However, I suspect this may be a reflection of the positive vaccine news, in addition to the reaction to Joe Biden being the next President.

Away from the election in the US, there is another government shutdown pending in December. However, optimism appears to be growing that a ‘stopgap’ stimulus package can be agreed to avoid this from happening.

Finally, as we count down to Christmas and look forward to the New Year, let’s hope that the optimism with the vaccines is not unfounded and that we finally start to see a return to normality in early months of 2021. As always, if you need to discuss any aspect of your investments or financial planning please do not hesitate to contact us.

Richard Brazier – Director – Hanover Financial Management Limited

 

  Richard Brazier

Category: Uncategorised

We helped our client, a beneficiary of their father’s pension fund, to receive these benefits in the most tax-efficient way possible, minimising the potential large amounts of income tax.

 

Sadly, our client passed away at the age of 79. We had previously advised them to complete a pension drawdown nomination form, and they had elected their partner, son and daughter to receive these funds.

The son wished to take his benefit in the form of a lump sum death benefit, equating to £60,000.

As our client passed away over the  age of 75, the death benefit is taxable at the beneficiary's marginal rate.

Therefore, the lump-sum would be added to the son’s other income in the tax year, and he would be taxed accordingly.

 

The son had a salary of £40,000. This meant if he had taken the lump sum of £60,000, he would have paid £22,000 tax in total (£10,000 at 20% plus £50,000 at 40%), giving him a net benefit of £38,000.

Instead, we advised that the son should use inherited drawdown; which is taxed only when the beneficiary withdraws an income from their inherited fund.

Using inherited drawdown, the son withdrew £10,000 per annum over six years. This meant no higher income tax was payable (£60,000 at 20% = £12,000).

 

By advising the son to use inherited drawdown, we saved him a significant £10,000 in tax, allowing the son to receive more of his father’s hard-earned pension benefits.

Inherited drawdown provides beneficiaries with the ability to spread tax over many tax years. The beneficiary has the control to withdraw monies when they wish, and this flexibility can help utilise tax allowances and limit the amount of tax payable.

This case illustrates the importance for clients to have nomination forms for their pension funds, to ensure these benefits are passed onto the people they wish, and to update these when circumstances change.

 

Don't hesitate to contact a member of our team to talk about your personal circumstances.

Robert Young, Hanover Financial Management, pensions and employee benefits specialist reflects on the latest budget update and dissects what these changes actually mean for individuals with businesses, pensions, savings and investments.

 

Pensions 

Pensions tax relief

There are two ways in which tax relief is granted on employee pension contributions, net pay and relief at source. Currently, low earners receive tax relief under the relief at source method as the pension providers claim the 20% basic tax relief directly from the Government. As a result low earners who pay little or, no tax still receive the tax credit.ar

However, under the net pay scheme, pension contributions are deducted from pay before tax is calculated so higher earners receive tax relief at their highest marginal rate directly in payroll but lower earners who pay little or no tax lose out.

The Government have stated that they will introduce legislation to make top-up payments directly to the pension arrangements of low earning savers. It is anticipated that payments will start to be paid from 2025 to 2026 in respect of contributions made from 2024 to 2025. This will bring the two tax relief methods into line.

 

Allowances

No changes have been proposed about the annual allowance or money purchase annual allowance which remain at £40,0000 and £4,000 respectively.

The Lifetime Allowance is to remain fixed at this year’s amount of £1,073,100. It will no longer rise in line with the Consumer Price Index (CPI). This will not just impact high earners, but particularly in the short term will impact long-serving employees at a senior level in the medical and teaching professions.

This means more pension savers may be impacted by the LTA charge so this is an important issue to consider in deciding how to take retirement benefits.

 

Green NS&I product

The Chancellor announced in the budget a “Green Bond” launching in the summer by National Savings and Investments (NS&I). These bonds will raise funds for “green” projects and help the country on its journey to being carbon neutral, while at the same time helping to boost saving. The terms are not yet known but with government backing through NS&I it is anticipated these will prove to be popular, given the growing demand for sustainable investments.

 

National Insurance

The previously announced increase in National Insurance contributions to help cover the increasing cost of social care and the funding of the NHS was confirmed. National Insurance contributions will increase by 1.25% for the 2022/23 tax year.

Although National Insurance rates will return to current levels on 6 April 2023, the extra 1.25% will remain but as a separate Health and social care levy which will be ring-fenced to ensure that the funds raised are used for social care and the NHS. Unlike National Insurance contributions, this levy will apply to those over State Pension Age.

Employers pay on earnings over the Secondary Threshold and this will increase from £8,840 in 2021/22 to £9,100 in 2022/23.

 

Other

Employees currently pay 12% on earnings between the Primary Threshold and Upper Earnings Limit and 2% on earnings over the Upper Earnings Limit. So these rates will rise to 13.25% and 3.25% respectively. The Primary Threshold is £9,568 in the current 2021/22 tax year and will rise to £9,880 for 2022/23 and the Upper Earnings Limit which is £50,270 for 2021/22 will remain frozen at this level.

Salary exchange arrangements where an employee elects to give up salary in return for a higher employer pension contribution, offer National Insurance savings for both employees and employers and the maximum potential savings will rise significantly in 2022/23. Employers who have not previously considered this should now do so.

 

Dividends

In order to help fund social care and the NHS, dividend tax rates will also rise by 1.25% from 2022/23. The £2,000 dividend allowance will remain but thereafter the tax rates will be:

  • 8.75% for basic rate taxpayers
  • 33.75% for higher rate taxpayers
  • 39.35% for additional rate taxpayers

Shareholding directors will be used to managing their remuneration strategy with a mix of salary, dividends and employer pension contributions. Many will have adopted a strategy of main dividends and although this is likely to remain more tax-efficient than paying salary, the position should be reviewed in the light of these changes to determine the impact on post-tax income. Pension contributions remain even more tax-efficient up to the annual allowance.

 

Income tax

In England, the personal allowance and basic rate tax bands will remain frozen for 2022/23 so the personal allowance remains at £12,570 and higher rate tax will start to be paid on income over £50,270. Scotland and Wales set their own rates.

The tapering of this relief for those earning over £100,000 is to remain so that £1 of the allowance is lost for every £2 of income over £100,000 reducing to zero once income reaches £125,140. The effective tax on income in this band is 60% so employees with income at this level should certainly consider making additional pension contributions or exchanging income for additional employer pension contributions.

 

Inheritance tax

Tax (IHT) threshold is to remain frozen at £325,000 and the residential nil rate band will also be fixed at £175,000 until 5 April 2026. The result is that more and more people will fall into the IHT net so now is a good time to take advice and review what actions you can take to reduce or remove your liability to IHT.

 

Capital Gains tax

The annual exempt amount is to remain frozen at £12,300 until April 2026.

 

State pension

The Budget confirmed that the earnings element of the triple lock will not apply for 2022/23 so the increase will be 2.5% or the increase in CPI which for September was 3.1%. As a result of this the New State Pension is anticipated to rise from £179.60 per week to £185.15 per week in 2022/23.

With costs such as energy costs rising significantly and much faster than the inflation index, and energy costs being a major expense for many retired people, this change is likely to have a significant impact on the standard of living for many who are retired.

 

Normal minimum pension age

The Budget confirmed that the previously announced change would proceed and legislation is to be included in the Finance Bill 2021-22. This will increase the earliest age at which most pension savers will be able to access their pension arrangements without incurring an unauthorised payments tax charge, from age 55 to age 57. This increase, however, is not to take effect until April 2028.

 

Aspects of the budget relating to businesses and business owners

Corporation tax

It was confirmed that the Corporation Tax rate is to increase to 25% but only for financial years beginning on or after 1 April 2023 and for businesses with profits over £250,000. For small businesses with profits below £50,000, the rate will remain at 19%. There will be marginal relief introduced for businesses with profits between £50,000 and £250,000. Businesses both incorporated and unincorporated will be able to carry back trading losses for three years rather than just one year in 2020/21 and 2021/22 subject to certain thresholds. Businesses should look at the fine details of these changes and take advice on their impact.

 

Support for hospitality and leisure businesses

Recognising that the hospitality and leisure sectors have been particularly hard hit through the recent lockdowns as a result of the coronavirus, the Chancellor announced measures that should enable 90% of businesses in these sectors to receive at least 50% off their business rates in 2022/23.

In addition, it was announced that the business rate system would be reviewed and reformed to make it fairer, more responsive ad more supportive of investment.

 

Research and Development (R&D)

To ensure that the United Kingdom remains at the forefront of innovation, an increase to £20bn in public investment in R&D by 2024/25 was announced which represents around a 25% increase.

Plans to reform R&D tax reliefs to support modern research methods and further support to private R&D investment by increasing the funding for core Innovate UK programmes were also announced. The changes will also be designed to be more focused on domestic activity.

 

Shipping

The budget announced the first reform to Tonnage Tax since 2000, with changes to be introduced from April 2022. The changes aim to attract ships to register in the UK and for more shipping companies to base their headquarters in the UK, use the UK maritime services industry and fly the UK flag. The changes have been generally well-received by the UK maritime industry as a move to strengthen the UK maritime industry.

 

To discuss the impact of the budget on your business, investments, pensions or savings please get in touch. We will be happy to discuss your requirements and ensure your funds are working effectively for you.
For more financial advice, don't hesitate to get in touch with a member of our team.

 

Hanover Financial Management Limited is an appointed representative of Culver Financial Management Limited which is authorised and regulated by the Financial Conduct Authority No. 114852. Hanover Financial Management Limited is registered in England and Wales with number 8586887. Culver Financial Management Limited is registered in England and Wales with number 01157569. The Financial Conduct Authority does not regulate tax advice or trusts. The value of investments can fall as well as rise. You may not get back what you invest.

The Financial Ombudsman Service is available to sort out individual complaints that clients and financial services businesses aren’t able to resolve themselves. To contact the Financial Ombudsman Service please visitwww.financial-ombudsman.org.uk.

 

 

 

The news from the market feels like a broken record, as the main focus this month continues to be inflationary pressures around the global economies. For the last few months, talk from the central banks has focused on the high inflationary figures are temporary, and how they will decrease as we enter 2022.

However, there seems to have been a shift from suggesting these are transitory problems to the potential that inflation will be higher for longer.

 

Inflation could last longer than planned

On this note, the International Monetary Fund (IMF) advised that the global economies are facing inflationary pressures that will be “higher and longer than expected”.

The US Federal Reserve Chair Jerome Powell warned: “We now see higher inflation and the bottlenecks lasting well into next year”.

 

Interest rates are set to rise

Here in the UK, it is now widely anticipated that interest rates are set to rise sooner rather than later. The Bank of England’s (BoE) Monetary Policy Committee (MPC), currently have interest rates set at 0.1%; the lowest level in the history of BoE. However, they are tipped to rise by 15 basis points, if not by Christmas, certainly in the early part of 2022. For context, the UK’s annualised rate of consumer price inflation (CPI) actually fell from 3.2% to 3.1% in September but this remains well above the BoE’s target of 2%. There is now an expectation in some quarters that the CPI index could go as high as 5% during 2022.

The Chancellor of the Exchequer, Rishi Sunak, delivered his Autumn Budget on 27 October. I won’t go into too much detail in regards to this, as my colleague Robert Young has written a separate article on this for our monthly newsletter.

In short, he announced upgraded economic forecasts, along with some increased spending on public services. To help the hospitality, leisure and retail sectors, he unveiled a new 50% business rates discount to aid these companies. To add to the discussion on interest rates, he advised that the UK’s public finances are now twice more sensitive to changes in the rate than they were before the pandemic. By the end of the month, the FTSE 100 index had risen by 2.1%.

 

Across the Atlantic

In keeping with the inflationary news, the US economy only grew by 2% in the third quarter (down from 6.7% in the second quarter). This was largely blamed on the inflationary pressures, the impact of the Delta variant of Covid-19 and supply chain problems (we aren’t alone in this!). Throughout the month, the rate of unemployment in the US fell to 4.8% from 5.2%. However, this is still some way ahead of the 3.5% which was seen in February 2020, prior to the pandemic. Despite all this news, the Dow Jones Industrial Average Index increased by 5.8% over the course of October.

 

Rise in inflation in 'eurozone'

As you would expect, Europe is no different to the rest of the world, and the European Central Bank (ECB) have also seen inflationary pressures dominate the recent narrative. So much so that, ECB President Christine Lagarde observed after a recent meeting: “We talked about inflation, inflation, inflation”. In October, the eurozone’s inflation rose sharply from 3.4% to 4.1%. As with other central banks, the ECB expects these pressures to be a short term issue and to fall back during 2022. Although, they are acknowledging this will take longer than they had originally forecast - which seems to be a familiar theme for this review!

 

Japan provides a change of scenery

Japan is taking a different approach to the other major central banks. The Bank of Japan has kept its interest rate at -0.1% and is looking to maintain its policy easing. This is a far different approach, where most of the central banks are at the very least considering a tightening of their monetary policies in the near future.

 

As always, I hope that you have found this review a useful read. If you have any questions in regards to this, or any other financial matter please do not hesitate to contact one of us at Hanover.

Richard Brazier

 

 Richard Brazier

Director

E RichardBrazier@hanoverfm.co.uk

Who should you contact for more information?

Director Richard Brazier

Financial Adviser Amanda Beacon

Senior Consultant Graham Smithson

What is it?

The aim of the policy is to provide a lump-sum benefit on the death of a single employee. This removes the need for the company to set up a registered group life scheme. The policy is designed to meet the requirements of a single-life relevant life policy under S393B (4) (b) of the Income Tax (Earnings and Pensions) Act 2003.
Relevant life policies are primarily aimed at 2 groups:

  • High-earning employees who have substantial pension funds and don’t want their death-in-service benefits to form part of their lifetime allowance.
  • Small businesses that don’t have enough eligible employees to warrant a group life scheme.

Relevant life policies can also be used by directors of a company.
Provided the arrangement meets the criteria below, a relevant life policy has a number of advantages.

  • The benefit won’t form part of the employee’s lifetime pension allowance.
  • The premiums paid won’t form part of the employee’s annual allowance (the amount that can be contributed by, or on behalf of, an individual to any registered pension scheme with the benefit of tax relief). So the employee is still able to make full use of their annual allowance to make contributions to a registered pension scheme.
  • Premiums paid by employers are not normally assessable for employer or employee National Insurance contributions.

A terminal illness benefit is available on most contracts. In the event of the employee being diagnosed as suffering from a terminal illness i.e. one where the expectation of life is less than twelve months, the sum assured under the contract will become payable.

Eligibility

The policy must meet the following rules to qualify as a single-person relevant life policy:

  • The policy must only provide for a lump-sum death benefit payable before the age of 75.
  • No other benefit must be conferred under the policy.
  • The policy must not be capable of having a surrender value. There are circumstances in which a small surrender value is allowed.
  • Any benefit must only be payable to an individual or a charity.
  • The main purpose of the policy must not be tax-avoidance.

Taxation

Premiums paid by employers are not normally assessable on the employees as a benefit-in-kind so they’re not subject to income tax.

The premiums may be treated as an allowable expense for the employer in calculating their tax liability provided that the local inspector of taxes is satisfied they qualify under the ‘wholly and exclusively’ rules.

As the benefits are payable through a discretionary trust, in most cases the benefits are paid free of inheritance tax as the payment is not part of the employee’s estate. But the trust will be subject to normal inheritance tax rules for discretionary trusts, which in some circumstances may give rise to the following charges:

  • Up to 6% of the value of the trust fund on each 10th anniversary of the date the trust was established (the periodic charge). A periodic charge will only apply if there is a value held in the trust at the 10th anniversary. This could happen if, for example, an employee dies shortly before the 10th anniversary and the benefits have not been distributed to the beneficiaries.
  • Up to 6% of the value of the fund on appointment of benefits out of the trust to a beneficiary (the exit charge).

All statements concerning the tax treatment of products and their benefits are based on our understanding of current tax law and HM Revenue and Customs’ practice. Levels and bases of tax relief are subject to change.

Risk considerations

There are a number of risk considerations that need to be taken into account. It is important that you are aware of these.

  • This contract is designed to provide a high level of cover at minimal cost and therefore does not acquire a surrender value at any time.
  • If for any reason premiums are not paid, cover will cease.
  • Failure to disclose any requested or relevant information may adversely affect any future claims.
  • At the end of the term selected, cover will cease and no further benefit will be payable.
  • The present tax-free treatment of the policy benefits may change.
  • If any relevant information provided, when applying, is not disclosed accurately and honestly, this could result in any cover offered becoming invalid and/or may result in the non-payment of any future claims.
  • If this policy is to replace any existing policy offering the same type level of cover, the existing policy must not be cancelled until the new policy is in force.

If you think this will be beneficial to you, your company or your charity, please get in touch with one of our team members.

September was a month which saw a number of different factors at play, all of which caused concerns to the investment markets. In no particular order those concerns included:

·        Rising inflation;

·        Stuttering economic growth;

·        More hawkish rhetoric from central banks;

·        Energy prices rapidly increasing; and

·        The ongoing speculation around the Chinese real estate company, Evergrande, which could be on the brink of collapse.

In the UK inflation continues to dominate the investment picture. Having fallen to 2% in July the consumer price index increased to 3.2% in August. A lot of the reasoning for this increase was explained by prices 12 months ago being significantly lower as part of the government’s Eat Out to Help Out scheme. As we will all be aware, gas prices have surged in recent weeks, which is only going to fuel (no pun intended!) inflationary pressures. The Bank of England (BoE) is still expecting a figure of around 4% by the end of the year, but still considers this to be a temporary issue.

Once again, mirroring comments made in the US, the BoE advised that there was no need for immediate action on the increasing inflationary figures. However, the recent prices have probably increased the likelihood of some tightening of monetary policy in the not too distant future. For instance, the BoE have not ruled out interest rates increases this year, and the markets are pricing in an increase as early as February next year.

Growth in the economy still falls way below its pre-pandemic levels. In July the UK economy expanded by 0.1%. The three months to July saw unemployment fall to 4.6% and average wages increase by 6.8% (excluding bonuses). During September the FTSE 100 was down 0.5%.

As with the UK, it appears that the US is edging towards tapering its programme of asset purchases, and this could begin as early as this year. The Federal Reserve (Fed), has pointed towards a strong jobs market, economic growth and temporary inflationary pressures. Like the UK, there is a feeling that interest rates could rise in 2022, when this wasn’t expected until 2023. However, the Fed have indicated this is all dependent on pandemic containment.

In August, the annualised rate of inflation fell slightly to 5.3% from 5.4% in the US. There was some moderation in economic growth prospects for this year, with an expected figure of 5.9% down from 7%. Although this was countered by an increase to 3.8% for 2022, from the previous figure of 3.3%. It is clear that policymakers on both sides of the Atlantic are looking to prepare markets for future tightening of policy measures. September saw the Dow Jones Industrial Average fall by 4.3%.

Following a similar theme, the European Central Bank (ECB) announced it would look to draw back on the Pandemic Emergency Purchase Programme (PEPP). However, they stated that this wouldn’t be until March 2022 at the earliest, which helped to reassure the financial markets. Maybe in a further effort to calm the markets, the ECB President referred to this as recalibrating not tapering.

Meanwhile in Germany, voters went to the polls to determine a successor for Angela Merkel after 16 years in power. As widely predicted, the results of the poll were a coalition government, for which an agreement will need to be reached. The Dax Index was 3.6% down in September.

There will also a change of leadership in Japan, where Prime Minister Yoshihide Suga plans to stand down and be replaced by Fumio Kishida. Second quarter growth in Japan was higher than originally calculated, increasing to 1.9%. The Nikkei 225 Index rose by 4.9% by the end of September.

Fingers crossed the supply issues currently being seen in the UK haven’t impacted on you too much. I did have some difficulties with finding petrol in my local area but thankfully this seems to be easing now.  As always, if you have any queries in regards to any aspect of your financial planning, please do get in touch (link) with myself or one of the team.

 

 

We were approached by a company whose Managing Director was about to cease membership of their firm-wide Death-in-Service scheme. He had passed the retirement age of the scheme but was not intending on retiring.

As he was not intending to retire, the company wanted to provide him with the same level of life cover that he was entitled to under the Death in Service scheme. For various reasons he was not able to simply re-join the Death-in-Service scheme as a discretionary member, and the company weren’t prepared to increase the retirement age of the scheme.

We were asked if there was anything we could recommend in this instance. Our recommendation to the company was to take out a relevant life policy to age 75 for when the Managing Director intended to retire. This provided the same level of cover he had under the Death-in-Service scheme.

A relevant life policy had a number of advantages for the company and the Managing Director:

  • The benefit won’t form part of the employee’s lifetime pension allowance.
  • The premiums paid won’t form part of the employee’s annual allowance (the amount that can be contributed by, or on behalf of, an individual to any registered pension scheme with the benefit of tax relief). So the employee is still able to make full use of their annual allowance to make contributions to a registered pension scheme.
  • Premiums paid by employers are not normally assessable for employer or employee National Insurance contributions.
  • The policy is set up using a discretionary trust, which means the benefits should be free of inheritance tax, and do not form part of the employee’s estate.

In regards to these plans, the company is the owner of the plan, and the individual is the life assured. Due to the age of the client, and the sum assured, there was a requirement by the insurer for medical underwriting. Once this was completed the plan was placed on risk, and the Managing Director now has life cover until he turns 75.

For more details on Relevant Life Policies, please don't hesitate to contact a member of our team.

As the US economy continues to recover at a pace quicker than the US Federal Reserve (Fed) expected, they have indicated they may begin reducing their stimulus packages sooner than previously anticipated. The minutes from the Fed’s July meeting, which were released in August, and Fed Chairs Jerome Powell’s annual speech at the Jackson Hole symposium, both provided strong indications for a tapering of the current stimulus. However, Powell was very keen to emphasise that policymakers would be in no rush to tighten interest rates. In August, The Dow Jones Industrial Average Index rose by 1.2%.

Inflation continues to be a main headline in the US, and Powell used part of his speech to again address these concerns. Once again, he insisted that the inflationary pressures are merely a temporary issue caused by pandemic-related factors. Perhaps backing up his claim, the rate of inflation fell from 0.9% to 0.5%. This was the biggest fall seen in this index for over a year. He did, however, acknowledge that pressure on prices is higher than the Fed would like.

Much like the US, inflation is very much in focus in the UK. The annualised rate of consumer price inflation fell by 0.5% in July to 2%. The Bank of England (BoE) has indicated that inflation could rise as high as 4% by the end of the year. However, like the Fed, the BoE stands by its previous statements that they see these rises as “transitory” and expect the rate to fall back towards their target of 2% during 2022.

The issues that we have seen in regards to supply chain are not helping inflationary pressures in the UK are. Manufacturers are said to be experiencing the worst ever shortage of stock, according to The Confederation of British Industry (CBI).  During the three months up to July, job vacancies reached their highest level at 953,000. Maybe most publically, and certainly not helping the supply chain, has been the reported shortage of HGV drivers currently in the UK. During August, the FTSE 100 Index rose by 1.1%.

Japan managed to host the delayed Olympic Games during August, which were seen largely as a success. However, these took place against a backdrop of a country still battling Covid-19, and in particular, the Delta variant. There are concerns on how this is affecting the ability for continued economic growth, whilst the country is still under a state of emergency. In August, the Nikkei 225 Index increased by 3%.

At the risk of sounding like a broken record, Germany’s inflation rate rose to levels not seen since 2008 in August. The annualised increase of 3.4% was well above the European Central Bank’s 2% target. The second quarter saw a revised quarter on quarter growth estimate of 1.6%, helping to show Germany’s economic growth continues to rebound in 2021. Elsewhere in Europe, and showing that it’s not just an isolated problem for the UK, there have been supply chain disruptions. The German Dax Index rose by 1.9% by the end of August.

I very much hope that as the lockdown restrictions have relaxed in the UK, you have been able to take advantage of this over the summer. As always, if you have any queries in regards to any aspect of your financial planning, please do get in touch with myself or one of the team.

The benefits of regular savings

In the complex world of investment, timing appears to be crucial. However – unless you are gifted with foresight, and believe me very few investors are – you cannot predict what the stock market will do. This presents a problem for investors: not only to decide when to invest, but also when eventually to pull their money out of the market. This is where the benefits of ‘pound-cost averaging’ – or, in laymen’s terms, regular saving – come into play.

Pound-cost averaging works on the basis that, by regularly putting smaller amounts of money into a fund or other investment, you will reduce your overall risk of investing at the wrong time. Compared with investing one large sum in a single transaction, the risk is mitigated by the fact that smaller, regular sums will be invested over a period of time at a variety of prices.

Of course, in a rising market, regular savings will underperform the growth of a single lump sum because the later investments will miss out on the increase of the early days. However, in an up-and-down or falling market, the opposite is true. Later investments will buy in at lower or alternating prices – some lower than the original price – and will therefore gain a little more when the market finally does rise.

Similarly, regular saving is a great way to build up a lump sum from almost nothing. Setting aside a lump sum of £5,000 is a tall order for plenty of people, but putting aside £100 a month from your income might be less of an issue – and the addition of investment growth or interest means you could quickly build up a reasonable amount without necessarily noticing. And the longer you can leave that growing amount alone, the more impressive it potentially becomes.

Most investment products offer regular savings as an option, including investment funds, Individual Savings Accounts (ISAs), life assurance and pension plans. If you are considering equities for the first time, this is also an ideal way to start – if prices fall, your regular sum will buy a greater number of units in your chosen fund, which will then generate higher proportionate gains when prices start to rise again. Moreover, the small amount you invest every month should have a minimal impact on your cashflow and your lifestyle, and will also reduce your sensitivity to the short-term ups and downs of financial markets.

For more information and advice on regular saving, please get in touch with a member of our team.

Robert Young, Hanover financial management, pensions and employee benefits specialist reflects on the latest budget update and dissects what they mean for individuals with businesses, pensions, savings and investments.

 

State Pension Underpayments

Just in advance of International Women’s Day on Monday 8 March, there is some good news for women from The Department for Work and Pensions (DWP). They have determined that State pensions have been underpaid to women dating back two decades. This position is to be redressed over the next 5 years, and estimated to cost the Government £3 bn - suggesting  this impacts more women than the pension industry anticipated.

 

Lifetime Allowance

The Lifetime Allowance is to be fixed at this year’s amount of £1,073,100. It will no longer rise in-line with the Consumer Price Index (CPI). This will not just impact really high earners, but particularly in the short term will impact long serving employees at a senior level in the medical and teaching professions.

After the introduction for the 2020/21 tax year of a higher level of remuneration before the tapered annual allowance kicks in, largely to ensure that senior doctors and medical practitioners and senior teachers did not suffer the reduced annual allowance this creates, these same groups are being hit by the freezing of the Lifetime Allowance (LTA). This seems a poor return for those who have been working hard to help us all pull through the coronavirus pandemic.  If you are impacted by this, now is the time to take some advice and see what if any options are available to you.

Instead of freezing the LTA, given that there is already in place an Annual Allowance which limits the amount that can be paid in and receive tax relief, consideration should be given to removing the LTA. Government wish to encourage all of us to save for retirement but the LTA penalises those who invest consistently over a long time and achieve good investment performance and which is ultimately more likely to stop us saving for retirement.

 

Green NS&I Product

The Chancellor announced in the budget a “Green Bond” launching in the summer by National Savings and Investments (NS&I). These bonds will raise funds for “green” projects and help the country on its journey to being carbon neutral, while at the same time helping to boost saving. The terms are not yet known but with government backing through NS&I it is anticipated these will prove to be popular, given the growing demand for sustainable investments.

 

Inheritance Tax

The Inheritance Tax (IHT) threshold is to remain frozen at £325,000 and the residential nil rate band will also be fixed at £175,000 until 5 April 2026. The result is that more and more people will fall into the IHT net so now is a good time to take advice and review what actions you can take to reduce or remove your liability to IHT.

 

Auto enrolment charge cap consultation

An auto- enrolment charge cap consultation is to be launched in the next month. The primary aim of this is to encourage pension schemes to invest in a wider range of assets, particularly venture capital and growth equity assets. There is a significant amount of capital in defined contribution workplace pension arrangements and the Government wishes to unlock this to help support the UK economy post-covid. In particular, this will look at averaging performance fees over a number of years. This could be a win for the economy and a win for pension savers with enhanced investment returns (just be aware of the LTA cap though!)

 

Stamp Duty and Mortgage Guarantee Scheme

The cut in stamp duty has been extended to 30 June 2021 but be aware that the transaction must be completed by then. To smooth the transition back to normal levels, the nil rate band will be £250,000 up to 30 September, reverting to the normal level of £125,000 from 1October. In addition, the Government is introducing a guarantee scheme to encourage lenders to offer mortgages with only a 5% deposit, as these mortgages will benefit from a government guarantee. If you are looking at moving onto the housing ladder, now may be a good time to do so. If you don’t have the deposit money, or cannot raise a large enough mortgage, perhaps a family member may be able to provide this, helping to reduce their potential IHT at the same time. These are serious financial matters so don’t forget to take advice on all aspects.

 

Aspects of the budget relating to businesses and business owners

Corporation Tax

The Corporation Tax rate is to increase to 25% but only for financial years beginning on or after 1 April 2023 and for businesses with profits over £250,000. For small businesses with profits below £50,000 the rate will remain at 19%. There will be marginal relief introduced for businesses with profits between £50,000 and £250,000. Businesses both incorporated and unincorporated will be able to carry back trading losses for three years rather than just one year in 2020/21 and 2021/22 subject to certain thresholds. Business should look at the fine details of these changes and take advice on their impact.

 

Coronavirus Support Schemes

The furlough scheme is being extended to 30 September 2021 and employees will continue to receive 80% of salary up to £2,500 a month. However, employers should note that from 1 July 2021 they will be required to pay 10% of unworked hours, rising to 20% in August and September. In addition employers must continue to meet the cost of employer National Insurance contributions and pension contributions.

Support for the self-employed continues up to 30 September 2021. A fourth grant for the period February 2021 to April 2021 will provide 80% of three month’s average trading profits subject to a cap of £7,500. Eligible self-employed workers will be able to be claim in late April. To be able to claim you must have filed a 2019/20 tax return, so if you became newly self-employed in 2019/20 you will now be able to claim. A final fifth grant for the period 1 May 2021 to 30 September 2021 will be available to claim in late July and will be subject to a turnover test.

 

To discuss the impact of the budget on your business, investments, pensions or savings please get in touch. We would be happy to discuss your requirements and ensure your funds are working effectively for you.

 

 

 

Robert Young | Partner & Consulting Actuary

 

  Robert Young

 

 

Hanover Financial Management Limited is an appointed representative of Culver Financial Management Limited which is authorised and regulated by the Financial Conduct Authority No. 114852. Hanover Financial Management Limited is registered in England and Wales with number 8586887. Culver Financial Management Limited is registered in England and Wales with number 01157569. The Financial Conduct Authority does not regulate tax advice or trusts. The value of investments can fall as well as rise. You may not get back what you invest.

 

The Financial Ombudsman Service is available to sort out individual complaints that clients and financial services businesses aren’t able to resolve themselves. To contact the Financial Ombudsman Service please visit www.financial-ombudsman.org.uk.

 

 

 

I hope that you are keeping safe and well. Depending on where you are reading this will dictate the current Covid restrictions you are currently following. Looking back, although my experience of the lockdown 2.0 in England was not as restrictive as the first, we will have to see how effective the various lockdowns and subsequent tier system measures were in due course.

In the last few weeks, we have finally seen some positive news in what has been an incredibly tough year; namely about the number of possible vaccines for the virus. Firstly, Pfizer and BioNTech announced trial results which were incredibly encouraging, which was quickly followed by similar results from Moderna, and the initial results from the Oxford University vaccine soon after.  Following this, Pfizer have just announced their approval from the MHRA, and the vaccine will be rolled out as early as next week.

On the day the Pfizer and BioNTech results were announced, the FTSE100 increased by over 5% immediately, finally closing the day over 4% higher. I believe this shows how the investment markets, and indeed ourselves, are looking for the light at the end of the tunnel. Let us hope that more of these vaccines indeed pass all the regulators tests and are available as early as this month.

On a more downbeat note, we are still seeing a rise in Covid cases, not only here, but across Europe and in the US. This has tempered some of the rises that we have seen in the markets. However, the FTSE100 has risen over 12% from the start of November, which is very welcome news for your investment portfolios. At the moment, the markets are very much weighing up the short term with cases rising, against the longer term prospects of successful vaccines.

Brexit is very much back in the news as the deadline to agree a deal with the EU approaches at the end of this year. The outcome of these negotiations will certainly have an impact on our investment markets. Although there appears to be ‘tentative’ possibility that a deal can be agreed, we will wait for further news on this.

In the US, we have recently seen the results of their presidential election. Although it is clear that Joe Biden has won, as we know, President Trump has so far not conceded defeat. His legal challenges are declined on an almost daily basis and the results for the individual states will soon have to be certified. Even if President Trump never concedes defeat, on 20 January 2021, Joe Biden will inevitably become the next President.

Since the election, the US investment markets have hit record highs; and the Dow Jones Industrial Average had its best month since January 1987 in November, as the index passed 30,000. However, I suspect this may be a reflection of the positive vaccine news, in addition to the reaction to Joe Biden being the next President.

Away from the election in the US, there is another government shutdown pending in December. However, optimism appears to be growing that a ‘stopgap’ stimulus package can be agreed to avoid this from happening.

Finally, as we count down to Christmas and look forward to the New Year, let’s hope that the optimism with the vaccines is not unfounded and that we finally start to see a return to normality in early months of 2021. As always, if you need to discuss any aspect of your investments or financial planning please do not hesitate to contact us.

Richard Brazier – Director – Hanover Financial Management Limited

 

  Richard Brazier

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