Seneca Reid Newsletter Winter 2016

7/21/2019 Seneca Reid Newsletter Winter 2016

http://slidepdf.com/reader/full/seneca-reid-newsletter-winter-2016 1/8

Pension savers face

Lifetime Allowance cut

From 5 April 2016, your tax-free

pensions savings limit will be cut

from £1.25m to £1m. This cap is

called the ‘lifetime allowance’ andapplies to your entire pension savings

(apart from the state pension).

When the lifetime allowance was rst introduced

in 2006, it only affected high earners in the UK who

could afford to grow seven-gure pension pots.

But as the limit has reduced in recent years many more

thousands of people have been affected – especially

those in nal-salary schemes who have built their

entitlement through many years’ work.

Tax chargesIf your pension savings are worth more than the £1m lifetime

allowance when you take your benets, you’ll have to pay the

lifetime allowance tax charge on the excess. The tax charge is

55% if you take the excess pension pot as a lump sum, or 25%

if you take the pension as a regular payment.

Annual allowanceThe amount you can pay into your pension every year (the

annual allowance) is currently £40,000

. You usually pay taxif savings in your pension pot exceed the annual allowance,

but you can top up your allowance for the current tax year

(6 April to 5 April) with any allowance you didn’t use from

the previous three tax years.

Pensions savings allowances

Protecting your moneyIf you had a pension pot of more than £1.25m as at 5 April

2014 you may be able to claim Individual Protection 2014.

This will provide a protected lifetime allowance equal to the

value of your pension rights on 5 April 2014 (up to an overall

maximum of £1.5m).

You will not lose Individual Protection 2014 by making further

savings into your pension scheme, but any pension savings

in excess of your protected lifetime allowance will be subject

to the lifetime allowance charge.

Applying for Individual Protection 2014You became eligible to apply for Individual Protection 2014 from

18 August 2014. Applications are still open but must be received

by HMRC no later than 5 April 2017.

We expect to see similar transitional protection regimes

announced ahead of the lifetime allowance cut.

HM Revenue and Customs practice, and the law relating to taxation

are complex and subject to individual circumstances and changes

which cannot be foreseen.



Autumn Statement – What it means for you

The balance of economic changes had

been moving in the Chancellor’s direction,

giving him some wriggle room to make

a number of surprise announcements in

his 2015 Autumn Statement.

Tax creditsOne of the biggest of those was the Chancellor’s U-turn on tax

credits. He was widely expected to water down his summer cuts,

but instead, abandoned nearly all of the measures, leaving the

main taper rate and income thresholds unchanged.

The housing marketMr Osborne also returned to the stamp duty land tax (SDLT)

rules for residential property, announcing that, from 1 April 2016,

the rate of SDLT on purchases of “additional residential property”

(eg. second homes and Buy to Let) will increase by three

percentage points.

He also revealed further initiatives for homebuyers, promising

a total of 400,000 affordable housing starts by 2020/21, half

of which would be starter homes sold with a 20% discount

to young rst-time buyers.

In the city, a new Help to Buy equity loan scheme will give London

buyers 40% of the home's value from early 2016, as opposed to

the 20%, offered by the current scheme. The government is also

announcing a series of other schemes, including Help to Buy:

Shared Ownership to help more people get onto the housing ladder.

PensionsWhile making no fresh major pension tax announcements, the

Chancellor did execute a subtle cut to the cost of pension tax relief

for the government by pushing back six months the dates on which

auto-enrolment contributions will increase. The rise from 2% to 5%

total contributions will now occur in April 2018, with the nal move

to 8% a year later.

From April 2016, the basic state pension will rise to £119.30

per week, an increase of £3.35 - the highest real terms increaseto the state pension for 15 years.

Inheritance tax

There were two small pieces of good news on the IHT front:

• No action will be taken over the use of deeds of variation

to make post-death amendments to wills.

• The legislation on pension plans in drawdown is to be claried

to ensure normally no IHT is payable on funds remaining at death.

EnergyThe current Energy Companies Obligation, a government scheme

for larger suppliers to deliver energy efciency measures

to British homes, will be replaced from April 2017. Instead, a new

cheaper energy supplier obligation to reduce carbon emissions

will run for ve years, which should see 24 million households

save an average of £30 a year on their energy bills from 2017.

The Warm Home Discount scheme will also be extended to

2020-2021. This currently gives certain low-income households

a one-off reduction of £140 on their electricity bill.

Flood protection300,000 homes will be better protected from ooding by 2021,

with £2.3 billion for over 1,500 ood defence schemes across

the country.

Tax concessions are not guaranteed, may change in the future

and are subject to individual circumstances.

Contains public sector information licensed under the Open Government Licence v3.0.



More generous allowances

The ISA annual allowance now stands

at a record £15,240 – all of which can

be invested in a Cash ISA, a Stocks and

Shares ISA, or a combination of the two.

This gure is almost 30% more generous

than the 2013/14 allowance of £11,520

(of which only £5,760 could be invested

in a Cash ISA), giving you a much greater

opportunity to shelter more of your

savings from tax.

Your ISA is tax-efcient

Unlike some other investments your

returns are not subject to tax. That means

every extra pound you save (within your

allowance) will be sheltered from the

taxman. This tax-year, you can invest

up to £15,240 tax-free.

You can’t ‘carry over’ your

ISA allowance

Unlike some other personal allowances

(such as your pensions annual allowance),

you cannot carry any unused ISA

allowance over to the following tax year.

That makes it doubly important to investyour full allowance, if you can afford to.

Increased exibility

In years gone by, if you used up

your annual ISA limit but then made

a withdrawal during the same tax-year,

you’d be unable to replace it. As of April

2015, you now have the freedom to take

money out, and put it back in later in the

year, without losing any of your tax-free

entitlement. That means you needn’t

worry about missing out on lost interest

if you need to make a short-term raid

on your savings, but can afford to

replace it later.

The miracle ofcompound interest

Maximising your ISA savings can

deliver huge benets over the longer

term. For instance, assume you invested

the current maximum allowance of

£15,240 in a Cash ISA, every year,

for 25 years. Even if your investment

grows at a modest 2.5% each year, your

£381,000 total investment would have

grown to £528,542.54. The same

investment with a 5% annual growth

rate would return £756,297.33.

5 reasons why you shoulduse your full ISA allowance

Isa FActsTo open an ISA, you must be:

• 16 or over (for a Cash ISA)

• 18 or over (for a Stocks and Shares ISA)

• Resident in the UK

• A Crown servant (eg. diplomatic or

overseas civil service) or their spouse

or civil partner if you don’t live in the UK

There are two types of ISAs:

• CASH ISA

You don’t pay tax on savings

account interest.

• STOCKS AND SHARES ISA

You don’t pay tax on any income

or capital gains you’ve made on

your investments.

If you complete a tax return, you don’t need

to declare any ISA interest or prots on i t.

You can put money into one Cash ISA

and one Stocks and Shares ISA each

tax year.

You can save up to £15,240 in one type

of account or split the allowance across

both types.

The tax efciency of ISAs is based on

current rules. The current tax situation

may not be maintained. The benet

of the tax treatment depends on the

individual circumstances.

The value of your stocks and shares ISA

and any income from it may fall as well

as rise. You may not get back the amount

you originally invested.

Contains public sector information licensed

under the Open Government Licence v3.0.

If you haven’t used up your ISA allowancefor 2015/16, you have until 5 April to do so.

With the tax-year end fast approaching, the clock is ticking for

you to use up all of your £15,240 ISA allowance for this tax-year.

But why is it so important to use up your allowance? Here are

ve great reasons:



Tax credit on dividend income

Dividends are currently paid with

a 10% tax credit. For every £1,000

of dividend income received, it's

assumed that £111 in basic rate tax

has already been paid, making the

total dividend £1,111. From 6 April

2016, this tax credit will be scrapped.

From April 2016, all dividend income will be treated

as gross and the rate of tax payable on dividends will

depend on the investor's other taxable income. Every

investor will have a £5,000 tax-free dividend allowance

as well as their personal allowance. Beyond this, thepersonal tax liability for taxpayers increases by 7.5%

(basic rate), 32.5% (higher rate) and 38.1% (additional

rate) compared to 2015/16.

So what does this mean for you?Essentially it will make life better for many small

investors seeking an income from their shareholding.

However, you should know:

1. whether your investment generates a yield (this

is the income generated by the underlying assets

which may be paid to you or reinvested in the fund).

2. whether the yield is taxed as dividend or interest.

3. how much that yield is.

Let’s look at two hypothetical examples:

Fund A has a yield of 4%, taxed as dividend.

You can invest up to £125,000 in this fund, before

triggering a tax liability on the income generated.

Fund B has a yield of 1% taxed as dividend.

You can invest up to £500,000 in this fund, before

triggering a tax liability on the income generated.

It is important to make the right investment fund

choices to meet your own personal objectives

and that includes minimising your tax liability.

We can help you here.

Consider taking the following actions to help offset

the loss of the 10% tax credits:

1. Maximise your ISA and Pension investments – these

are not subject to taxation on the yield generated by

the fund.

2. For couples, make the most of each person’s £5,000

dividend income allowance by considering to split

your investments.

3. Use the new personal savings allowance for other types

of investment fund. In most cases, the income from xed

interest funds and corporate bonds is subject to interest

tax, not dividend tax. From April 2016, the rst £1,000

of interest income from these holdings will be free of

income tax under the new personal savings allowance

(£500 for higher rate taxpayers).

4. Consider deferring taxation using an Onshore

or Offshore Investment Bond for part of your

investments.

The value of investments and any income from

them can fall as well as rise. You may not get

back the amount originally invested.

HM Revenue and Customs practice and the law

relating to taxation are complex and subject to

individual circumstances and changes which

cannot be foreseen



The outgoings we face today justto keep on top of the mortgage or

rent, utilities, food and other regular

commitments such as loans and

childcare costs, can be signifcant.

So it’s important to plan for the

unexpected and avoid making

a potentially costly mistake.

We might worry about how we would pay the bills andlook after our families if we were to have an accident,

but the truth is many of us don’t have cover in place to

protect against it. With 30% of households admitting they

wouldn’t be able to pay their mortgage if they were to

unexpectedly lose their income1, it’s clear there’s a real

risk of serious nancial hardship if income stops - even

for a short time.

The importance of

appropriate protectionMost of us buy travel insurance when we go on holiday.

We insure our pets against illness and the sometimes

eye-watering vets bills this can incur. We insure our

mobile phones, washing machines, gadgets and cars.

But all of these expenses need to be funded from

somewhere, and if a sudden event affects our personal

cash ow, it would be hard to see how we could keep these

other insurances going – let alone all the other outgoings.

Swiss Re2 estimates that the average person is

underinsured by as much as £100,000, with single parents,

couples with children and the under-35s the most likely to

not have the right cover. That is just an estimate – it could

be higher and the pressures on average incomes mean it

probably is.

Is it time to review your circumstances?There is real value in taking time to regularly think about

your personal circumstances. As you go through life, your

lifestyle will change and so too will your need for protection.

There are a number of affordable protection products

available that give you peace of mind in knowing your

nances would stay intact. These include life and critical

illness cover, income protection, insurance aimed

specically at hospital stays and treatments, as well asaccident protection.

What’s your personalfnancial wellness plan?

1HSBC Survey 20152http://www.swissre.com/media/news_releases/nr_20120611_Term_Health_Watch.htm



You may take extra care whilst taking down the

Christmas decorations or spring cleaning for Easter,

but can you be sure your family are being as vigilant?

Every year 1:

• There are approximately 5,000 deaths as the result

of an accident at home – with children under ve

and people over 65 most likely to have an accident

• 200,000 people report injuries that result in more

than three days off work

• Almost 7,000 people were admitted to hospital

after accidents involving a ladder

• Nearly 4,000 were admitted to hospital following

accidents involving furniture

• 3,053 were injured due to accidental poisoning

• 137,264 under 18s are admitted to hospital due

to injury

Spring cleaning may sound harmless but it can

involve many of the chores that lead to trips,

slips and falls. It is important to take the time

out to think about your safety. If you need to climb,

avoid using chairs and use a step ladder instead.

Most importantly, don’t rush things, as that's when

most accidents are likely to occur.

Take appropriate cover You may think ‘it won’t happen to me’ but accidents,

by their very nature will happen. Accident protection

can provide a cash lump sum when you really need it

for a range of specied accidental injuries. It can give

you a little more nancial security to help cope with

any loss of earnings through illness or injury.

Accident protection can provide cover for:

• Broken bones

• Hospitalisation due to accident and sickness

• Permanent injuries

• Permanent disablement

• Accidental death

• Funeral costs

Accidentprotection

More accidents happen in the home than anywhere else.

And during the winter months more time at home means

more chance of an accident.

1 ROSPA & MetLife



Protecting youremployees and assets

Whatever business

you’re in, having the

right insurance in

place is essential to

protect your assets

and responsibilities.

We’ve put together a

short description of themost common types of

cover for small businesses,

along with a brief checklist,

to get you thinking about

your current arrangements.

Common types of business insurance

Employer's Liability insurance is a legal requirement. It protects you in the event

a member of your staff is injured or becomes ill as a result of the work they do.

Public Liability insurance protects you should a member of the public suffer an

injury or damage their possessions whilst visiting your premises. It also covers you

when you carry out work away from your premises.

Professional Indemnity insurance covers the costs of legal action taken against you,

should a client feel they suffered nancial loss as a result of your professional opinion.

Depending on your circumstances, you may also need to consider things like buildings

insurance, business interruption, business feet insurance and insurance cover for tools.

Your business insurance checklist

Take the time to understand your policy/s

Whether taking out new cover, or renewing your business insurance, take the time

to understand your policy. Look at exactly what it does – and doesn’t - cover you

and your business for.

Check your cover levels and limits

Check and double-check the levels of cover you have. Are your liability limits

appropriate? Are there any exclusions that might apply in the event of a claim?

You may nd it useful to seek professional advice if you’re unsure.

Ask questions when things seem unclear

Don’t be afraid to ask questions. Do you know what Business Interruption or Goods

in Transit really means for your business? If your policy is heavy on jargon and hard

to understand, ask your provider for help. A good insurance provider will be happy

to explain what you are paying for.

Tell your insurer if your circumstances change

Make sure you tell your insurance provider if something changes in your business.

If you’ve taken on staff, diversied, grown or downsized, it’s important to let your

insurer know. If you don’t, you could nd yourself under-insured – or nd your policy

is no longer valid.

Seek professional advice

Buying insurance can sometimes appear simple, but it’s easy to overlook policy

features that could make a big difference if you ever need to make a claim.

Seeking professional advice will help ensure you’re fully informed about your policy.

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Business survival planningIf something happened to you,

your co-owners or employees,

could your business survive?

A study by Legal and General shows 46%1 of new

businesses would fold immediately following the death

or critical illness of a key person.

The loss of a key person within a small or medium-sized

business can cause unexpected costs at what would be

a difcult time. Not only would the business have to fund

the cost of recruiting and training a replacement, but it

would also risk suffering:

Business protection insurance can helpmitigate or even avoid these risks altogether.

As a business owner, you should know there are

three main types of business protection:

• Key Person Insurance – provides a lump sum to

the business on the death of an important member

of the business.

• Shareholder Protection Insurance – provides

a lump sum that will allow remaining shareholders

to buy the shares of a deceased shareholder.

• Business Loan Protection – provides a lump sum

to help a business pay any outstanding business loans.

There is also the option to take out relevant life

insurance in trust. Although this is not technically

business protection an agreement can be made

which species the terms on which proceeds can

be used.

Critical illness cover should also be a consideration,

as long-term or permanent absence from work,

could cause serious nancial pressures to you

and your business.

Protect your bottom linePeople are the biggest asset to any business and

Business Protection Insurance is designed to keep

your business trading should you lose the people

responsible for your prot margin.

Loss of prots

Loss of knowledge

Loss of important business contacts

1 Legal & General - State of the nation’s SMEs report

Documents

Seneca Reid Newsletter Winter 2016