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Clarke Nicklin Financial Planning

'protecting your wealth and helping your investments grow'

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March 2017

Government to assist with the bank of Mum and Dad!

A new ISA is to become available from 6 April 2017, the new Lifetime ISA is aimed at young adults to start saving. This might be an ideal opportunity for parents wanting to assist their children in saving for a first time home. Or, it might indeed alleviate the need of the bank of Mum and Dad!

What is it?

Lifetime ISAs (also known as LISAs) are a new type of ISA designed to help people aged between 18 and 40 save up for their first home, or retirement. A LISA lets you save up to £4,000 per year. At the end of the tax year the Government will top up your ISA with a 25% bonus. You will be able to earn a 25% bonus on your LISA contributions up until the age of 50.

This means that if the full sum were to be contributed each year for the full term (until the age of 50) you would receive a bonus of £32,000.

There are rules that apply and withdrawals can be made at any time for other purposes but a 25% government withdrawal charge will be applied.

It could be an ideal way of saving for a first home and or retirement, as the account has to stay open with the hope that savers will continue to contribute to encourage a good saving attitude.

THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.

PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE

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Cash ISA at new low – but keep saving!

The average rate of a Cash ISA has fallen to a record low of 0.82% according to Moneyfacts, ten years ago the rate averaged at 5.06%.

‘Don’t let that put you off investing though’ comments Scott Herbert, Partner & IFA, Clarke Nicklin Financial Planning.

‘It’s vital for savers to consider their options. It highlights the need to research and source the best rates possible and to continually keep a track of how your investment is performing.

‘ISAs are a great way of putting cash aside. You don’t pay tax on interest or on income or capital gains from your investments; also the ISA limit for 2016/17 is increasing to £20,000 up from the existing £15,240.

‘There are other options available for you to consider though’, he adds. ‘Whilst ISAs are an integral part of financial planning its worth looking at alternatives such as Smoothed Investment returns, cash and having an equity portfolio.

‘Whichever investment route you are suited to will ultimately depend on your attitude to risk, higher risk means higher return but for the more cautious there is less chance of losing it.’

Scott has a mass of experience and deals with many high net worth individuals. If you wish to discuss any investment strategies then please contact katha@cnfp.co.uk or call 0161 495 4700 for a free no obligation appointment.

THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.

PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.

 

Tax free pension advice allowance

From 6 April 2017 many will be able to withdraw £500 up to three occasions (but once in a tax year) from their pension pots tax free for pension and retirement advice.

The government want to encourage individuals to make good financial decisions to save for their future. Many at present are unable to afford fees of a Financial Advisor upfront and then may not continuously review their finances. They now have the opportunity to do so without the financial burden upfront.

The allowance:

  • can be used a total of three times, only once in a tax year, allowing people to access retirement advice at different stages of their lives, for example when first choosing pension or just prior to retirement
  • will be available at any age, allowing people of all ages to engage with retirement planning
  • can be redeemed against the cost of regulated financial advice, including ‘robo advice’ as well as traditional face-to-face advice
  • will be available to holders of “defined contribution” pensions and hybrid pensions with a defined contribution element, not “defined benefit” or final salary type schemes

Economic Secretary to the Treasury, Simon Kirby said ‘Pensions and savings decisions are some of the most important a person will make during their lifetime. This allowance will help people get the vital financial help they need to plan for their retirement.’

Don’t miss the ISA deadline

Take control over where your money is invested tax-efficiently

Each tax year, we are each given an annual Individual Savings Account (ISA) allowance. The deadline to add to the tax-efficient accounts is at midnight on Tuesday 5 April 2017. It is a ‘use it or lose it’ allowance, meaning that if you don’t use all or part of it in one tax year, and you cannot take that allowance over to the next year.

The ISA limit for 2016/17 is £15,240, increasing to £20,000 in 2017/18.

Withdrawals to increase your income

Income from an ISA doesn’t affect your personal allowance or age-related allowance, and there’s no Capital Gains Tax (CGT) payable on any growth you may achieve. This means you could use withdrawals to increase your income when necessary.

Withdrawals from an ISA are tax-efficient

ISAs can give you control over your retirement income, as you can take as much money out as you like, whenever you want. Savings in an ISA and withdrawals from an ISA are tax-free. If you are a pension saver, you can generally also take out as much money as you like, whenever you want from age 55. Currently up to 25% of the pension pot can be withdrawn tax-efficient with additional withdrawals taxed at the applicable marginal rate of Income Tax.

Types of ISAs and allowances

Cash ISA – Anyone over the age of 16 can put their cash savings into a Cash ISA. Accounts can be either instant access, have notice periods or have fixed terms.

Stocks & Shares ISA – Anyone over the age of 18 can put individual shares or managed funds into a Stocks & Shares ISA.

Innovative Finance ISA – This ISA is for investments in peer-to-peer lending platforms. You must be over the age of 18 to invest.

Help to Buy ISA – To help first-time buyers over the age of 18 get on the property ladder.  You can start with a lump sum deposit of up to £1,200. You can then save up to £200 a month.

For every £200 you save, the Government will add 25% up to a maximum bonus of £3,000. It’s available per buyer, not household, so if you are saving with a partner, the bonus potential is up to £6,000 towards your house deposit.

Junior ISA – Cash or investments can be wrapped in this ISA on behalf of children under the age of 18. The Junior ISA has an annual allowance of £4,080. You must be a UK resident or crown employee to invest in any type of ISA.

Sheltering your money from tax

ISAs are becoming an integral part of financial planning. However, it is important to remember that an ISA is just a way of sheltering your money from tax. It’s not an investment in its own right although they offer a unique range of benefits.

It’s worth considering other investments strategies too, such as:-

Smoothed Investment returns

Cash – Safe liquid, FSOS protection

Equity portfolio

Expert professional investment advice

Choosing how you invest will depend on the level of risk you are comfortable taking with your money, as well as factors such as how soon you will need to access your money. If you require individual expert professional advice to beat the ISA deadline on 5 April, please contact us to review the most appropriate options for your particular situation.

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.

THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.

PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.

 

‘Mid-life savings crisis’ – start looking at realistic options

Retirement planning is simply about how you look at your future. However, more than a million Britons are facing a ‘mid-life savings crisis’ as they near the age of 40 with no retirement savings, according to research from Zurich. A third of British adults aged 35 to 39 say they have no money saved into a pension, despite approaching the mid-point of their working lives.

Among ‘millennials’ (born between 1980 and 1999), the picture is equally bleak with almost two in five adults aged 25 to 34 not saving into a pension.

The findings highlight how financial pressures could be forcing some to start saving later, while others are struggling to save at all. Rising rents and house prices, combined with years of low wage growth, have made it harder than ever for people to save.

Wiping off tens of thousands of pounds

Delaying saving for a few years can wipe tens of thousands of pounds off the future value of your pot. The earlier you start investing into a pension, the more your savings will benefit from the compounded benefit of growth on growth.

It is important to maximise employer contributions and take advantage of pension tax relief. The good news is that your employer and the Government can help to boost your savings.

If you save into a workplace scheme, it is likely that your employer will pay into your pot – with many matching your contribution.

Under auto enrolment, all employers are obliged to pay into a workplace pension for their employees. If you decide to opt out of the scheme, you will miss out on employer contributions and tax relief, which is free money by any other name.

Regardless of whether or not you have started to save, these four tips can help get your pension on track:

  • Take advantage of tax relief

Any money you pay into your pension receives a rebate from the Government at the same rate as you pay Income Tax – 20%, 40% or 45%. This means it costs a basic rate taxpayer 80p to put £1 into their pension, a higher rate taxpayer 60p and a top rate taxpayer 55p.

  • Maximise employer contributions

Make the most of your workplace pension scheme. Some employers will match your pension contribution, which can turbo-charge your savings. For example, if you increase your current contribution by 3%, your employer may pay in an extra 3% too.

  • Taking risk can work to your benefit in the long term

It’s not too late. Even if you’re starting to save from 40, it’s likely you’ll have another 25 years before retirement.

To build up a healthy investment plan firstly consider your attitude to risk. The higher levels of return have a higher risk factor due to the more volatile sectors and regions that are targeted   whereas the more cautious have a lower return.

  • Plan ahead

Know how much you need to invest each month to achieve your ideal retirement, and don’t forget to factor in inflation. Everyone’s different. And it’s likely the things you spend your money on now will change when you stop working.

Source data: Total sample size was 1,018 adults aged 18 to 39. Fieldwork was undertaken from 10–13 June 2016. The survey was carried out online. The figures have been weighted and are representative of all GB adults (aged 18 to 39).

A PENSION IS A LONG-TERM INVESTMENT. THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.

YOUR PENSION INCOME COULD ALSO BE AFFECTED BY INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS. THE TAX IMPLICATIONS OF PENSION WITHDRAWALS WILL BE BASED ON YOUR INDIVIDUAL CIRCUMSTANCES, TAX LEGISLATION AND REGULATION, WHICH ARE SUBJECT TO CHANGE IN THE FUTURE.

LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION MAY BE SUBJECT TO CHANGE, AND THEIR VALUE DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF THE INVESTOR.

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