SME tax disputes
09/01/2012
Small businesses will be able to settle tax disputes with HM Revenue & Customs (HMRC) without having to go to a tribunal, under new plans unveiled today.
HMRC has launched a pilot scheme called Alternative Dispute Resolution (ADR) aimed at small and medium-sized enterprises (SMEs) which will allow them to resolve any tax issues resulting from an HMRC compliance check before a decision or assessment has been made.
Jim Stevenson, HMRC assistant director, local compliance, said: ‘ADR will help SMEs resolve disputes without having to go to a tribunal, saving them both time and money. It is a good opportunity for HMRC to work together with our customers to potentially resolve disputes much earlier than at present.
‘We have found that often there are communication problems. So the HMRC facilitator will help all parties reach a shared and full understanding of the disputed facts and arguments. The aim is to resolve the dispute or, if not, as many issues as possible.’
The pilot is taking place in North Wales and the North West following an earlier trial where 60% of disputes were either fully or partially resolved.
Andrew Gotch, chairman of the Chartered Institute of Taxation’s owner managed business sub-committee welcomed the move.
‘ADR has the potential to be a valuable Gordian knot-cutter in investigations and technical disputes that have run into the sand. Anything which can help resolve disputes between HMRC and taxpayers to mutual satisfaction without the need to resort to expensive and time-consuming litigation has to be good news for all sides.’
Pensions bill passed
03/11/2011
The Pensions Bill received Royal Assent today, becoming the Pensions Act 2011. The Act equalises men and women’s state pension ages to 65 by 2018 and accelerates the increase in state pension age to age 66 for both men and women by 2020.
It also introduces some changes to the new workplace pension reforms, which require most employers to automatically enrol some or all of their workers into a qualifying pension scheme that meets minimum standards, and pay contributions on their behalf. The new employer duties are being introduced from October 2012 through to September 2016. The largest employers will have to comply first, starting in October 2012.
The Act introduces an optional three month waiting period, enabling employers to wait for three months before enrolling staff. The Act also changes the level of earnings at which workers must be automatically enrolled to £7,475 and introduces new ways of certifying whether a pension scheme meets the minimum standards
Posted in Business Owners, Employed People, Financial Planning, Retirement, Self Employed | 
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File your tax return on time!
02/11/2011
In the past as long as you paid your tax liabilities on time and cleared any self-assessment tax due by 31 January, no late filing penalties were due. Even if you failed to pay your tax on time, late filing penalties were capped at £100 or nil if you were due a tax refund.
The goal posts have moved!
The 2010-11 tax returns have to be filed by 31 October 2011 if you are filing a paper return, or 31 January 2012 if you are filing electronically. If you fail to meet these deadlines you face the following penalty regime, even if your tax payments are up-to-date.
Penalties incurred
- One day late an initial penalty of £100.
Three months late a daily penalty of £10 per day up to a maximum of £900.
Six months late an additional £300 or 5% of any tax outstanding, whichever is the higher amount.
One year late a further £300 or 5% of any tax outstanding, whichever is the higher amount.
As you can see the minimum penalty for filing 6 months late is £1,300 even if all your tax due is paid on time or you are due a tax repayment
If you have had a relaxed attitude to meeting the filing deadline in the past; you may like to reconsider your priorities for the filing of the 2011 return!
Interest rate predictions
02/11/2011
The MPC’s latest decision was hold and a rise looks a long way off – despite figures showing (18 October) inflation had climbed to a new high of 5.2 per cent.
The committee is focused on heading off a double-dip recession, believing inflation will fall next year, and therefore opted at the October meeting to restart its quantitative easing programme – an electronic form of money printing. The October MPC minutes revealed members talked about £100billion of QE before agreeing on £75billion.
The vote was 9-0 in in favour of holding rates – the same as in September and August. The vote had been locked at 7-2 for two months before that and it was 6-3 earlier this year when a rate rise looked a possibility.
- In March/April, a rise was seen as imminent;
- In June, the forecast was for a hike in July/August 2012;
- By early August, futures markets earmarked early 2013 for the first increase;
- By October, the market priced early 2014 for a rate rise.
The counter argument to low rates is that inflation – at 5.2 per cent in September (18 October), up from 4.5 per cent and way above its 2 per cent target – is a problem and should be tackled.
There was a warning from the OECD that rate rises must happen in 2011 (25 May) to avoid inflation becoming ‘embedded’ in the economy.
But the over-arching mood is that the economic recovery remains weak, making it difficult to hike the cost of borrowing.
It’s also worth noting that in the US, the Fed Reserve has said (9 August) it expects its key rate to remain at rock bottom (it’s in a 0-0.25 per cent range) until 2013.
So when will the MPC make the first move?
Interest rate futures have seen a big shift in recent months. At the extremes, they pointed to an immediate rise in spring, but by early October indicated spring 2015 for the first increase.
Today (1 November) they indicate the first rise to be in September or October 2014. Last month’s plans for more QE had briefly combined with hopes for a euro rescue deal to marginally bring forward the chances of a rate rise – to early 2014 – but this soon reversed.
These market predictions are wildly volatile – as we’ve constantly warned – and should be treated with caution.
However, for now rate rises look like a distant prospect, despite raised concerns about inflation in the wake of QE2.
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Competition for NEST before it even launches?
02/11/2011
Danish-based rival to the National Employment Savings Trust (Nest) NOW: Pensions will carry a £1.50 a month administration charge and a single default fund, it has been announced.
Now Pensions is a low-cost, cautious, multi-employer and trust-based pensions scheme launched by Danish pension provider ATP to compete with government-backed Nest. Nest and NOW will go head-to-head competing for the lowest earners when auto-enrolment begins next November.
Under NOW’s scheme, members will be entered into a default fund combing three other funds: a managed diversified growth fund, a retirement protection fund and a cash protection fund. Charges will be £1.50 per month for administration and a 0.3% annual investment management charge
Morten Nilsson, chief executive of NOW: Pensions, said: ‘We believe auto-enrolment is a wake-up call to the UK pensions industry, and ATP’s experience in servicing virtually the entire Danish working population, 4.7 million members, and proven track record shows there are alternatives
‘We have been providing Denmark’s working population with stable, consistent returns over the past 45 years, no matter how volatile the economic climate, and we are confident we can do it here.’
Nest will charge 1.8% on each contribution and a 0.3% annual management charge.
On the face of it £1:50 per month may look like a low cost - but only if you are contributing more than £83.33 gross per month. What happens when contributions stop which is the best fund Nest or Now Pension. Who will advise employers and employees on the implications of their choices.
Business owners need to start forming relationships with IFAs to get help on the comi8ng epnsions decisions.
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Are Junior Isas worthwhile?
02/11/2011
Fidelity has stated the Junior Isa will “bring to parents and children a unique and compelling set of benefits and tax advantages”.
Really? Well I suppose there is tax-free interest – though children do have their own tax-free allowance and I doubt few but the richest breach it.
I suppose this will get around the byzantine tax rule that only allows children to earn £100 a year interest on money given to them by parents. Breaching this can trigger a tax bill at mum or dad’s highest marginal rate.
But I somehow doubt this has ever been tested – and any child who earns £100 a year is probably doing better than most adults.
Perhaps all the excitement is because children will be able to have stock market investments in their own name for all the good it is likely to do them.
Fidelity also tells us (and take a deep breath before reading this) that “assuming the maximum Junior Isa allowance is invested from birth (Apr 2011) to 17 (using 2011 amount adjusted for 2 per cent inflation each year with annual growth rate 5 per cent, no adjustment for inflation or charges on savings) the child would have £226,909.88 by the time they were 30 or £1,013,775.30 by the age of 60”.
Wow – if I understand that correctly, by putting in £3600 a year, they might in 30 years’ time have enough for a house deposit. Of course that does rely on low inflation and rather better investment growth than most funds have managed over the past 10 years.
Of course this is pie in the sky. Very few parents can afford to put away £3600 a year for their children.
And how many would want to risk their children blowing the money when they are 18? Many will feel it is far better to keep the money under their own control so they can decide how it is spent.
I can see that Junior Isas offer a great opportunity to fund managers and banks to pull at the emotional strings of parents and grandparents.
But whether a decision to invest in a Junior Isa in preference to one’s own Isa or pension would, for the vast majority, be rooted in any logic is highly debatable.
The good news if you do go ahead -
Parents opening the new Junior Isa can earn 0.9 per cent more interest in the cash version than those stuck with a Child Trust Fund (CTF).
Junior Isa savers also have a far wider choice of funds and shares to invest their money in until they are 18
My feelings are that generally parents are better off using their own ISA allowances fully and only then deciding if they want to use a junior ISA. Using grandparents allownace s could aslo be a good idea but take care of any inheritance tax issues first.
FSA warnings over structured products
02/11/2011
Structured products offer a “guaranteed return” for a fixed time period usually dependent on the return of a number of financial stock indices.
The regulator has revealed it worried the growing number of structured products is placing a strain on firms’ systems and controls.
The City watchdog made its comments after assessing seven major providers of structured products and uncovering weaknesses in the way firms design and approve their products, thereby increasing the risk to consumers.
As a result of its assessments, the FSA today (2 November) introduced further guidance for firms when developing new structured products which they want to market to consumers.
Nausicaa Delfas, head of conduct supervision for the FSA, said: “Structured products are rising in popularity in today’s low interest rate environment, and we are concerned that the growing number of structured products, as well as increasing product complexity, is placing a strain on firms’ systems and controls.”
“Many of the problems we found with the product design process were rooted in the fact that the firms are focusing too much on their own commercial interests rather than the outcomes they are delivering to consumers.”
This is the second piece of guidance the FSA has published focusing on product design. Yesterday, the FSA and OFT jointly published guidance for consultation aimed at firms that are developing, or planning to develop, protection products similar to payment protection insurance.
The main problem with structured products is understanding exactly what you are buying and a proper assesment of the financial strength of the institution who provides the guarantees. With so many of the banks in trouble right now, it is a brave person who buys a structured product
House prices turning?
02/11/2011
In October, the price of a typical home was 0.8 per cent higher than 12 months ago, taking average house prices to £165,650.
Robert Gardner, chief economist at Nationwide, highlighted that given the “challenging economic backdrop”, the latest data is “encouraging”.
However, he warned that the data does not fundamentally change the picture of a housing market “that is treading water”.
He claimed that property transaction levels remain subdued and prices essentially flat compared to last year.
Mr Gardner said: “The outlook remains uncertain, but with the UK economic recovery expected to remain sluggish, house price growth is likely to remain soft in the period ahead, with prices moving sideways or drifting modestly lower over the next twelve months.
“Overall the pattern of transactions has been fairly stable, but the data indicates that there had been an increase in the proportion of sales occurring in more affluent areas and a similar reduction in less affluent areas.”
Mr Gardner emphasised that there was a correlation between trends in activity and employment.
He said: “For example, there has been a six per cent rise in employment in professional occupations since 2008, which is likely to have helped support housing market activity in ‘wealthy achiever’ neighbourhoods.
“Over the same period, employment amongst process, plant and machine operatives has fallen 13 per cent. Coupled with negative real wage growth, this is likely to have dampened activity amongst ‘moderate means’ and ‘hard pressed’.”
Nicholas Ayre, director of the property buying agency Home Fusion, claimed that average prices have “finally recovered” to where they were at this time last year.
He said: “But that can’t mask the fact that the number of sales is still paltry and the market is essentially stagnant.
“Demand is weak and, in many areas, so too is supply, as sellers hold off trying to sell in such an obviously lousy climate.
“If unemployment continues to rise, then we could see more properties come onto the market as people are forced to sell. This could provide further downward pressure on prices.
“The property market feels a little surreal at present, but while no one will be popping champagne corks today, these latest figures hint that there is still life in the old dog yet.”
How much will a euro bailout cost you?
27/09/2011
Each household in the country will be contributing nearly £5,000 if Britain had to stump up £115billion for euro bailouts.
There are fears the International Monetary Fund’s (IMF) £250billion war chest are horribly insufficient to save countries.
A fund of around £2.6trillion is the new target according to sources in Washington.
Christine Lagarde, IMF managing director, said £250billion ‘pales in comparison with the potential financing needs of vulnerable countries’ and needs to be expanded to deal with ‘worst-case scenarios’.
Her warning came as U.S. President Barack Obama said the debt crisis in Europe is ‘scaring the world’ and that eurozone leaders were not dealing with the issue quickly enough.
And a top Bank of England economist urged leaders around the world to stop the world plunging back into recession.
‘It’s doing something rather than just saying something that counts,’ said Ben Broadbent, a member of the Bank of England’s Monetary Policy Committee charged with setting UK interest rates.
Britainis liable for 4.5 per cent of IMF funding – meaning it would have to contribute around £115 billion to an enlarged bailout fund, or £4,600 per household.
It is conceivable that figure may turn out to be slightly lower because Britain’s share is falling as rapidly growing economies such as China contribute more.
Britain has already handed over £12.5billion in emergency loans to Greece,Ireland and Portugal to help prop up the euro.
Chancellor George Osborne has refused to make more British money available to rescue the single currency but would find it difficult to resist a call from the IMF.
The IMF raises money from its members and steps in to support debt-ridden countries such as Greece and Ireland with emergency loans.
Following crisis talks in Washington at the weekend, Mrs Lagarde said: ‘The Fund’s credibility, and hence effectiveness, rests on its perceived capacity to cope with worst-case scenarios. Our lending capacity looks comfortable today but pales in comparison with the potential financing needs of vulnerable countries and crisis bystanders. It will be useful to discuss, soon, the needs and contingency options.’
Plans are already in place to increase the size of the rescue pot to nearly £650billion.
Her predecessor Dominique Strauss-Kahn, who was forced to quit after he was arrested on rape charges which were later dropped, hoped to increase the war chest to as much as double that amount.
It is understood that Mrs Lagarde wants to go further.
A source in Washington said: ‘This is for the long term. There needs to be a serious discussion about the scale of the fund.’
The eurozone crisis has shown it is no longer just small developing countries at risk of drowning under a sea of debt.
Jennifer McKeown, a senior European economist at Capital Economics, said an enlarged war chest of between £1.3trillion and £2.6trillion ‘looks sensible because there are a lot of other countries around the world that might need help’.
It is feared that a Greek default will wreak havoc across the eurozone, with banks suffering punishing losses and larger countries such as Italy and Spain being dragged down.
The crisis threatens to eclipse the collapse of U.S.investment bank Lehman Brothers three years ago when banks dragged the world into recession. Edward Meir, a senior analyst at brokers MF Global, said: ‘These are very critical days, reminiscent of the touch-and-go situation we were in back in 2008.
‘The key difference this time around is that it is countries and not companies that are in danger of going bust.’
Mr Obama told a public meeting in San Francisco that the debt crisis in Europe was one of the principal reasons why the U.S.economy was faltering.
‘European nations are going through a financial crisis that is scaring the world and they are trying to take responsible actions but those actions haven’t been quite as quick as they need to be,’ he told supporters at a town meeting. Mr Obama has seen his approval ratings hit by rising unemployment and fears the U.S.could slide into another recession.
Terraced homes are the best investment?
27/09/2011
The average price of a terraced house has risen faster than any other type of home over the last decade, a report reveals.
Between 2001 and 2011, the average terrace has shot up by 68 per cent in value, overshadowing the performance of bungalows and flats.
In 2001, the average terraced home cost £89,843. Today the same property would be worth £151,332, an increase of nearly £62,000.
All other types of properties have rocketed in value over the same period, but none has kept pace with the rise of the terraced house.
Flats and maisonettes are at the bottom of the property price rise league, up 49 per cent over the last decade. A flat which cost £109,936 in 2001 would cost £163,825 today, according to the Halifax, which is now part of the Lloyds Banking Group.
The figures highlight the long-term property boom, with prices reaching record highs in many areas despite the recent recession and the economic crisis.
For many families, who bought a terraced home many years ago before the boom, it has proved to be like winning the lottery.
Their home has shot up in value to such an extent that many could not afford to buy the same property if they were starting out again.
Halifax said the price of a terraced house has shot up so much because it is the most ‘affordable’ type of home in Britain. The average price of a terraced home is cheaper than the average price of any other type of property.
A typical bungalow costs £187,167. A semi-detached home costs an average of £164,970. A detached home costs £273,173 and a flat or maisonette costs £163,825.
Suren Thiru, housing economist at the Halifax, says: ‘Demand for terraced homes is likely to have been supported by their relatively favourable levels of affordability over the period.
‘The rapid house price rises have priced many potential home movers out of the upper end of the UK housing market.’
A separate report, from the property firm Hometrack, warns that only the rich can afford to buy in the countryside.
This is because the average price of a home on the first rung of the property ladder in rural areas, at £187,715, is far higher than in urban areas, at £133,005.
HMRC are moving to close the tax gap
21/09/2011
HM Revenue & Customs (HMRC) has vowed to clamp down on tax avoidance and close a £35 million tax gap.
The tax gap, what is owed minus what is actually collected, has reduced slightly in 2009/10 to £35 billion, or 7.9% of liabilities compared to 8.1% in 2008/09.
While HMRC said the amount was at the ‘lower end of the range’ of countries that publish their tax gaps, it said there was ‘no room for complacency’ when collecting what is owed.
David Gauke, exchequer secretary to the Treasury, said: ‘Although these numbers show continued progress by HMRC in reducing the tax gap, there is no room for complacency. Just in the last few weeks we have challenged offshore tax evaders, closed tax avoidance loopholes and created a new HMRC unit to ensure that the wealthier members of society pay their share.
‘We will continue to take action to prevent a minority of rule breakers dodging their responsibility to pay the right tax at the right time.’
In 2010 HMRC was given access to £917 million of funding in the government’s Spending Review to tackle the tax gap and raise revenues of £7 billion a year by 2014/15.
Dave Harnett, HMRC permanent secretary for tax, said: ‘The tax gap is the result of a wide range of behaviours and the challenges are constantly changing, but these figures show we are continuing to tackle non-compliance. The tax gap has reduced from 8.5% of total liabilities in 2004/05 to 7.9% in 2009/10 and we have almost doubled compliance revenue since 2005 to £14 billion.
‘HMRC staff have worked very hard to deliver these figures and we are going to do everything we can to achieve even more.
This now is becoming a re-occurring theme. Business owners and higher rate tax payers need to ensure they review their tax affair on a regular basis.
Vat registration crackdown
21/09/2011
HMRC are of the opinion that there are a number of businesses that should be registered for VAT, and so far, they have not registered.
They are in the process of sending out 40,000 letters to traders who they believe may be in this category.
HMRC are offering businesses that “come clean” and notify HMRC of an intention to register before the end of September 2011, reduced or nil penalties. Subsequently formal applications have to be submitted on VAT form 1 before 31 December 2011.
The current VAT registration threshold is £73,000. If you have already passed this annual limit in the last twelve months, are about to, or expect to in the next 30 days, you might like to respond to this offer.
Penalties for late registration can be up to 100% of additional VAT due.
They have set up yet another specialist task force to tackle this avoidance.
Penalties will be levied in addition to recovery of unpaid taxes. Those businesses discovered may also face criminal prosecution.
Offshore tax evasion day are numbered
20/09/2011
The Government has signed an agreement with Switzerlandthat will see UK taxpayers with funds in Swiss bank accounts pay 48 per cent tax on investment income, 40 per cent on dividends and 27 per cent on gains.
Under the terms of the agreement, existing funds held by UK taxpayers in Switzerlandwill be subject to a one-off deduction of between 19 per cent and 34 per cent to settle past tax liabilities.
People who have already paid their taxes will not be affected. Swiss banks have agreed to make an up-front payment to Britainof £385m.
From 2013, a new withholding tax of 48 per cent on investment income, 40 per cent on dividends and 27 per cent on gains will be introduced for UK residents with funds in Swiss bank accounts.
This will be accompanied by a new information-sharing provision which will make it easier for HMRC to find out about Swiss accounts held by UK taxpayers.
The agreement is expected to secure up to £5bn of unpaid tax for theUK exchequer by 2015. The charges will not apply if the taxpayer authorises a full disclosure of their affairs to HMRC.
Chancellor George Osborne says: “The days when it was easy to stash the profits of tax evasion in Switzerlandare over.”
In February, HMRC unveiled the Liechtenstein disclosure facility (LDF), which offers an amnesty on funds held in offshore accounts around the world.
The arrangements mean that after full disclosure, a fine of up to 20 per cent of tax due will be levied instead of 100 per cent, with tax interest and penalties sought only for the previous 10 years rather than the previous 20 years.
PricewaterhouseCoopers tax partner Stephen Camm says: “The LDF is a better deal for UK taxpayers coming clean than the UK/Swiss treaty is likely to be although taxpayers have to give up secrecy under the the LDF, which they are not required to do under the UK/Swiss deal.”
New tax raid on the wealthy?
19/09/2011
The Treasury has vowed to clamp down on tax avoidance by the wealthy with the recruitment of 2,250 tax inspectors to target the country’s wealthiest people.
Speaking at the Liberal Democrat annual conference inBirmingham, chief secretary to the Treasury Danny Alexander said the government would ensure the 350,000 wealthiest people in theUKpaid their ‘fair share’ of tax.
‘We need to make sure tax owed is tax paid,’ said Alexander.
The extra staff will join a special unit within HM Revenue & Customs which scrutinises the tax arrangements of the richest 5,000 people in the country. The department’s remit will now be expanded to look at an additional 350,000 people who have a total wealth of more than £2.5 million.
‘It took 12 years for the previous government to take action against the wealthiest 5,000 people, some of who weren’t paying their fair share of tax,’ he said.
‘We can do better than that. My message to the small minority who don’t pay what they owe is simply. I agree with the chancellor. We will find you and your money and you will pay your fair share.’
The harsh words on tax avoidance were in contrast to Lib Dem leader Nick Clegg’s signal that he was willing to back down on the 50p tax rate for the wealthy.
Clegg has been a supporter of the Labour-introduced income tax rate for people earning over £150,000 but at the conference he signalled that the party would be willing to stand behind the abolition of the rate if more was done to help those on low incomes.
‘It stays unless we can make progress on lowering the tax burden on people on low incomes and secondly making sure, as the chancellor himself has said, we can find other ways that the wealthiest can pay their fair share.’
Lib Dem party president Tim Farron waded into the debate on the 50% tax rate, he said it would be ‘morally repugnant’ to bow to pressure to abolish the rate.
‘Are we all in this together? Well not if we give tax cuts to the rich. At a time when 90% of the country is struggling to pay the rent or the mortgage, giving a 1p tax cut to those who need it the least would not just be economically witless, it would be morally repugnant,’ said Farron.
In our opionion tax should always be considered as a cost and regular reviews of your tax position with an experienced financial planner is essential in order to mitigate as much tax as possible
Architect puts down solid foundations
13/09/2011
A new client who owns a very successful firm of Architects was recently referred to us as he was concerned about the management of his investments. Lets call them Robert and Janice to avoid real names.
We transferred their existing investments and pensions across to our management under a Wrap platform and created immediate value by avoiding the drop in markets in July and August 2012 by being largely in cash. However, that is not the main purpose of this article.
During the discovery process it seems Janice had recently given birth to their third child. I suggested that we should look in depth at the foundation of their financial planning – their risk avoidance plans. I stated there is no point in building assets for the future only to have the “unforeseen” drive a huge hole in their financial plans.
The basic question raised was – What is the impact on the family and what would you like to happen in the following events:
- Death, disability or serious illness of Robert
- Death, disability or serious illness of Janice.
Although they already had a significant amount of protection planning most of it had been set up “piecemeal” over the years on marriage, birth of their children and increase in profitability of the firm. Some of the plans were also set up on a joint life basis which we pointed out is usually not the most suitable advice. In addition commission had been paid and was continuing to be paid to their old advisers.
We replaced many of the existing plans as their terms did not suit the family now and added income protection for Robert to the highest level possible. The premiums were also kept down by using Family income benefit plans rather than level term plans. The cover for Janice was reduced significantly as she was not working and the cover for Robert increased as he was now the sole breadwinner.
The fees payable to Bluebond were around £2500 to set up the plans but to Robert’s surprise and delight were the savings they made.
We calculated ( and showed them the calculations) that over the 20 year term of the plans until Robert was 65 that the savings made by the reduced premiums because Bluebond did not take any commission (either initial or ongoing) was over £21,000.
We were not surprised as we had been working this way for over 6 years. However for a client used to his adviser taking commissions and never paying fees before it came as something of a revelation.
Interest rates rise predictions
13/09/2011
The MPC’s latest decision was ‘hold’ and a rise looks a long way off. In fact, the focus has turned back on to whether the Bank of England will return to money printing rather than when it might increase borrowing costs.
The MPC voted 9-0 in favour of holding rates in August – (the September voting pattern and meeting minutes will be published tomorrow). The vote had been locked at 7-2 for two months and it was 6-3 before that.
That shift reflects the remarkable and rapid movement in forecasts for rates over the summer, with predictions for the first rise, week by week, taking huge strides into the future.
In June, the prediction had been for an increase in July or August 2012. And earlier this year, futures markets were even indicating at one point that a rate rise was imminent.
But by the start of August, futures markets were pencilling in early 2013 for the first increase. Now, following the massive stock market turbulence and government debt fears, markets are oscillating between a suggestion the first rise being in late 2014 or early 2015
Posted in Business Owners, Financial Planning, Investments, Retirement, Self Employed | No Comments »
House sales drop back to 2009 levels
13/09/2011
The number of property sales per surveyor over the three months to August dipped slightly to an average of 14, taking transactions back to 2009 levels, according to the Royal Institution of Chartered Surveyors.
In its latest UK Housing Market survey, respondents were asked for the reasons why they felt sales levels continue to be subdued.
Some 79 per cent of surveyors cited the general economic uncertainty, while 70 per cent felt a lack of mortgage finance was impacting negatively on transactions.
Rics claimed this was borne out in the number of first-time buyers who are still struggling to get a foot on the property ladder.
Around 40 per cent of respondents added that fears over house price falls were affecting transaction levels, as many buyers and sellers stay away from the market while they wait for things to improve.
New buyer enquiries, which signal buyer demand, fell back in August as 3 per cent more chartered surveyors reported a decrease rather than an increase.
The sluggish market contributed to the downbeat pricing picture in August, with 23 per cent more surveyors reporting prices fell rather than rose.
Price expectations also fell, as a net balance of 23 per cent anticipated prices to decline rather than rise over the next three months. However, the survey showed that surveyors were hopeful of a modest pick up in activity.
Alan Collett, housing spokesperson at Rics, said: “For the time being, our indicators suggest that demand for homes remain broadly steady, albeit at relatively low levels, despite the renewed bout of economic gloom.
“However, the risk is that the worsening economic picture will gradually begin to have a more material impact on sentiment and discourage potential house purchasers even where mortgage finance is available.”
State pension age to increase to 67 earlier than planned?
13/09/2011
Work and pensions secretary Iain Duncan Smith has confirmed the state pension age will increase to 67 earlier than planned.
The retirement age was due to rise to 67 in 2036 and to 68 by 2046 but Duncan Smith said the timescale, set out by the previous government, was ‘too slow’.
‘We’ve always said that the timescale left by the last government was too slow,’ he told the BBC.
‘The [last] government left us with a deadline in the 2030s and we think that’s too late because people’s age levels have increased even since they made that announcement.
‘People are living longer but they’re still retiring at the same age, so the purpose now is too look at that, and we’re reviewing that to see what might be reasonable, but always giving them good warning about what happens.’
Despite plans to speed up the increase in the retirement age, women may be given longer to prepare for the increase in their pension age to 65, due to happen in 2018, and another rise in 2020 to 66. Many, including independent pensions expert Ros Altmann, have argued the quick increase in women’s pension age to 66 is unfair.
She said: ‘Bringing forward the increase to 67 by 2026 will however allow the government to undo its terribly unfair plans that were hastily announced in the Pensions Bill. Having promised in the coalition agreement that it would not increase state pension age beyond age 65 before 2020, it went back on that promise and announced increases for some women in their late fifties and they have not had enough time to prepare.
‘They have written to me in despair as to how they can manage at such short notice to prepare for a two year delay in their pension, having already accepted a four year rise in the 1995 changes.’
The government has been holding a consultation over the summer into reform of state pensions.
Creative Inheritance tax planning for a retired accountant
01/09/2011
A long standing client Mark, who is an IT consultant, recently recommended Bluebond Tax and Trusts service to his parents after a number of attempts to encourage him to do so.
The scenario
Mark’s father, Andrew, is a retired accountant and about to turn 80 and so Mark was convinced that his Dad, being the careful type, had already sorted out his inheritance tax planning a long time ago, as he was very good with his money. Basically I could tell that Mark just did not want to ask the question because he did not want to be seen as trying to tell his parents what to do with their money.
On estimating Andrew and his wife Pauline’s potential IHT liability at around £400,000, I asked Mark if he was willing to risk £400,000 between himself and his brother Robert, without just asking his dad.
Eventually Mark did find a way to ask his Dad and he admitted huge surprise. It turned out that other than just making out simple wills, his parents had done no IHT planning or estate planning on a joint estate worth around £1.6 million including their home. In fact it seemed to have been weighing on Andrew’s mind for a few years but he had never known who to approach, and he didn’t think anything could be done anyway.
On discussion with Andrew and Pauline, it seemed their house was worth around £800,000 and they had cash and other investments including a wide range of shares that he had owned for years. Andrews’s pension was more than enough for them both to live on without any income from the investments.
What Andrew and Pauline wanted to achieve:
- If Andrew died first, that Pauline would have sufficient income to live on comfortably despite the pension being cut in half
- Ensure they paid as little IHT as possible
- Keep the money in the family if either of their sons got divorced
- Set up a fund to pay for their 4 grandchildren’s university education and also leave them some of their estate on their deaths
- They were happy to gift £300,000 to their children now, but did not want to simply fund their lifestyles
- Reduce the risk of their investment portfolio
What we recommended and the benefits:
We set up 4 lifetime discretionary trusts to spread the value of their assets (to reduce ongoing income tax) on death of both of them. I explained that on both their eventual deaths the estate would be distributed evenly across the 4 trusts with loans made to the children repayable on death or on demand of the trustees. This protects the money if either son predeceases their spouse or gets divorced or bankrupt.
The wills also allocated a percentage of their estate to a separate trust with their grandchildren, but not the children, as beneficiaries. Andrew and Pauline wanted their grandchildren to get some money directly form them.
We sold some of the investments and moved the money into offshore bonds in 3 other trusts: £100,000 into a Capital retention plan and £325,000 into two fixed income plans which paid an income of £12,000 per year back to Andrew and Pauline.
Using the personal annual £3000 a year exemption and the gifts out of normal income rules we used some of the pension income to gift £15,000 a year into a separate fund for the grandchildren’s education in their joint names. This would stop on Andrew’s death as Pauline could decide on her income stream at that time. Obviously this regular giftt also reduced the estate value over the years or at least stopped it growing.
£300,000 was withdrawn from the house as an equity release and gifted to two of the lifetime trusts which then immediately loaned £150,000 to each of the children. They then each used this money to pay down their mortgages. There was a difference in the equity release mortgage rate and children’s rate of around 3% per year but this was more than nullified by the children contributing £6000 net per year each into their pensions and reclaiming higher rate tax on the contributions. This meant Andrew and Pauline did not simply improve their children’s lifestyles but ensured they save for the future.
Placing all the investments into lower risk funds and absolute return funds also ensured Andrew and Pauline did not have to worry about their investments going forward.
A small whole of life policy took care of the IHT liability investments that could not be gifted into trust.
We set up a regular fee to see Andrew and Pauline every two years to keep checks on the income streams and esatate values.
End result
The planning was complicated and took a few meetings between myself and Andrew and Pauline, with the children sitting in one of the meetings once decisions had been made. The children were also appointed as trustees and understood what was happening with the estate.
Result – the entire estate protected for the family bloodline and no IHT to pay. All parties were delighted.
Pensioners face significant reductions in their spending power
01/09/2011
PENSIONERS retiring this year on a fixed income could lose 60% of their spending power over the next 20 years.
That means an average annual income of £16,600 will be worth a pathetic £6,700 in today’s money – effectively a £10,000 pay cut over the course of a 20-year retirement.
Figures from Prudential show pensioner inflation, or the Silver RPI as Age UK have dubbed it, is higher than the rate for the rest of us because retired people spend a much greater proportion of their income on goods and services that are subject to the highest rates of inflation.
Assuming inflation remains at its current level, retirement incomes will need to more than double in the next 20 years just to allow people to maintain their current standard of living.
This comes on the back of research from Age UK showing that the over 55s have faced an additional £984.28 per year in living costs since 2008.
This has been caused by Silver RPI averaging 4.6%, almost 50% more than the 3.1% average annual inflation recorded by the Retail Prices Index over the same period.
The figures are frightening when you consider how much today’s pensioners are struggling to make ends meet as escalating food and energy prices show no sign of easing – and things are set to get tougher.
That’s why it’s crucial that anyone approaching retirement, especially those who have saved their hard earned cash into a private pension, makes sure they get the best deal when cashing in savings and turning them into an income.
You only get one chance to get this right – get it wrong and you are stuck with your decision for the rest of your life.
Vince Smith Hughes from Prudential says: “Pensioners on a fixed income are particularly vulnerable when it comes to rising living costs, and our figures demonstrate the true extent to which Silver RPI impacts on the spending power of pensioners.”
There are alternatives to choosing a fixed income in retirement, such as options that increase each year in line with inflation to help boost spending power.
And millions of pensioners lose out on vital cash because they simply stick with the lifetime income offered by the pension firm they have saved up with, rather than comparing deals.
And millions more lose out again because they are unaware of what are known as enhanced annuities.
These offer higher rates to those who smoke or have health conditions that affect life expectancy.
Joanne Segars, chief executive of the National Association of Pension Funds, says: “This report shows the importance of inflation and the crucial need to shop around for the right annuity.
“While getting an inflation-proofed annuity will be more expensive than a ‘no frills’ approach, it is a decision that demands serious consideration.”
Another pensions time bomb is about to explode as millions of pensioners head towards retirement with no savings in place, and with no option but to rely on state allowance.
Joanne Segars adds: “A much bigger problem is that theUKsimply isn’t saving enough for its old age.
“Fourteen million people are set to retire on an income which they will find inadequate.”
Getting proper fee based independent financial advice before or at retirement has never been more important
Interest rates to be held until 2013?
17/08/2011
The latest Monetary Policy Committee (MPC) minutes and the latest labour market data supports the view that interest rates will remain on hold for at least the next couple of years, think tank Capital Economics claimed.
The August minutes revealed that the MPC voted unanimously to keep interest rates on hold for the first time since May 2010. Spencer Dale and Martin Weale both switched their votes from a 25bp hike to votes for no change.
The think-tank highlighted that as the MPC’s meeting took place on 4 August, before most of the turmoil in the stock markets, “it seems unlikely that Dale and Weale will shift their votes back to higher rates any time soon”.
The minutes also revealed that some members considered whether there was a case for extending quantitative easing (QE), of which there was no such discussion last month.
Unlike Adam Posen, who maintained his vote for a £50bn increase in asset purchases, these members thought that the case was not quite strong enough.
But they conceded that “further asset purchases might nonetheless become warranted were some of the downside risks to materialise”.
Separately, new data published today showed a 37,100 monthly rise in the claimant count measure of unemployment in July, the largest rise since May 2009. The UK unemployment rate therefore rose from 4.8 per cent to 4.9 per cent.
Samuel Tombs, UK economist at Capital Economics, said: “All in all, then, today’s releases supported own long-held view that rates will remain on hold for a prolonged period – probably until at least the end of 2013.
“And while the continued rise in inflation this year may prevent the MPC from extending QE in 2011, we continue to think that further asset purchases are likely in 2012.”
Azad Zangana, European economist at Schroders, agreed that it was “now impossible to argue that now is the right time” to raise rates.
He said: “Though the committee has always stressed that the impact of higher rates comes with a lag, there is an immediate psychological effect that would damage consumer and business confidence.
“In our view, the likelihood of a rise in interest rates before 2013 is now very slim.”
Mr Zangana agreed with Capital Economics that there does seem to be some discussion of restarting the QE programme.
He said: “At this stage, only Adam Posen is voting in favour of such action amongst the MPC. However, that maybe because of the high rate of inflation the UK is experiencing
“The prospects of more QE could become more tangible in 2012 once the impact of the rise in VAT comes out of the inflation calculation, bringing inflation back down. For now, the Bank of England remains in ‘wait and see’ mode.”
He claimed that the unanimous MPC vote was driven by concern that markets in the eurozone had remained unsettled despite the second bail-out ofGreeceon the 21 of July, citing it as the main downside risk.
Teodor Todorov, economist at the Centre for Economics and Business Research (CEBR), claimed that in light of the weak Q2 GDP data and the rise in CPI inflation to 4.4 per cent, the MPC’s decision was the “obvious” one in view of the “weak recovery in theUKand market turmoil in the eurozone”.
Mr Todorov said: “With the eurozone still in the midst of a sovereign debt crisis and moves towards a fiscal union likely to be difficult to achieve politically, there is a likelihood of another slowdown in the Western economies, and possibly even a recession.
“If the next month carries as many bad news as the one we’ve just had, the case for further quantitative easing will grow stronger, even as CPI inflation is expected to rise further.”
Posted in Business Owners, Financial Planning, Investments, Retirement, Self Employed | No Comments »
Whay do many people fail to plan for inheritance tax?
17/08/2011
More than 3m people expect to exceed the inheritance tax threshold of £325,000, but 74 per cent have not set up any means of mitigating the charge, a survey by Investec Wealth & Investment has warned.
The survey found that 37 per cent did not want to lose access to their investments, 34 per cent were put off by the cost and 30 per cent were banking on the seven-year wait before their assets escaped IHT.
A third of respondents questioned why they should have to wait seven years at all.
The poll of 1460 adults aged 35 found that as a result; 2.5m face a potential IHT bill.
Barry Anysz, directorof Investec Wealth & Investment, said: “Trusts have traditionally been used to shelter assets from IHT but many investors rule them out because they do not want to lose access to their investments.
“On average, people only consider starting to make inheritance tax plans when they are aged 67. The older you get the more important it is to have access to your investments in case circumstances rapidly change. For example, people may end up having to use assets that had been earmarked for the next generation to pay for long-term care instead and extricating these from a trust can be complex and very expensive.”
“Everybody wants access to their capital and income and not to pay inheritance tax, it is difficult without financial planning, and any IHT solution is a compromise.”
As always experienced independent fee based financial advice is essential in this complicated planning area.
Will the new associated companies rules affect you?
17/08/2011
The ‘associated company’ rules are changing in Finance Act 2011. The rules are essentially an anti-avoidance measure, to prevent the creation of multiple, closely controlled companies to split a wider economic whole and take advantage of the small companies’ corporation tax rate. That rate reduced to 20% from 1 April 2011, but the main rate reduced to 26% from the same date and is gradually reducing to 23%. Whilst the associated company rules therefore assume less importance than in previous years, they remain a significant issue for many business owners.
New rules are expected to be introduced on how in the case of a close company you work out the number of its associates for tax purposes in calculating whether the small companies’ rate of tax applies.
Currently the associated company tests start by asking you work out which person (or group of persons) controls a company according to:
- Share ownership.
- Voting power.
- Any rights conferred in the Memorandum and Articles, or other rights.
- Attributable rights – of associates, of nominees, or beneficial entitlement.
- Entitlement to assets on winding up, with and without loan creditors.
The second step (which is going to be subject to change) is that in working out who controls a company you will look at the rights of the individual plus you will attribute to each individual the rights of his associates.
Your associates normally include:
- Blood relatives.
- Partner (subject to existing rules on interdependence).
- Settlements and will trust associates.
- Trustees are associates where the individual, or any living or dead relative is or was the settlor.
- Trustees are associates where the individual is interested in a settlement, as beneficiary or remainder man.
- Attributed company associates. One can also be attributed rights by reason of control of another company.
The proposed new rules correct this problem; there will no longer be any requirement to attribute the rights of associates if two companies are not “substantially interdependent”.
Substantial commercial interdependence is defined in regulations by considering the following:
Financial interdependence where:
- one company gives financial support one to another, or
- one company has a financial interest in the other.
Economic interdependence where:
- the companies have common customers; or
- the activities of one benefits the other; or
- they seek to realise the same economic objective.
Organisational interdependence where the companies share the same:
- management; or
- employees; or
- premises; or
- equipment.
So if companies are substantially commercially interdependent you must attribute the rights of associates, if they are not, no further attribution will be necessary.
By way of example it means that a husband and a wife could each control their own company and each company will no longer be associated. Practically speaking, this might be easier said than done, but each case will need to be considered (and continually monitored) according to its own circumstances.
Associated companies restrict the thresholds at which the lower and marginal rates of corporation tax apply to the individual companies. The threshold at which the annual allowance is available for capital expenditure on plant and machinery is also compromised where companies are associated.
The associated company rules will broadly continue to apply where companies are under common ‘control’, as defined. A participator’s own rights and powers are always taken into account for those purposes. In addition, an individual may still control one company through his shareholding, and control another company (even if all the shares are owned by (say) his wife) by making a loan which entitles him to the greater part of his wife’s company assets on a winding up. Companies can still be associated in such circumstances. Group companies will also generally be associated.
With the new legislation, HM Revenue and Customs are likely to take a closer interest in business structures to ensure that those companies that are associated are taxed accordingly.
Plans to scrap the 50% tax rate?
15/08/2011
Chancellor George Osborne wants to scrap the 50p income tax rate, branding it ‘uncompetitive’ and saying it does not raise enough money.
Speaking to the BBC’s Today program Osborne said the tax remained under review following criticism that tax avoidance measures meant the tax was raising less income than expected.
‘There’s not much point in having taxes that are very economically inefficient,’ said Osborne.
‘I’ve said with the 50p rate I don’t see that as a lasting tax rate for Britain because it’s very uncompetitive internationally, and people frankly can move.
‘What is it actually raising? It’s only been in operation for a year this tax, put in place by the last government. I’ve asked the Inland Revenue to assess what the revenues are actually from this 50p tax rate, whether it’s raising money or not.’
Osborne said the figure would not be known until the end of the year until people send their self-assessment tax forms back.
He added that the government had increased capital gains tax and introduced a bank tax to respond to calls for the wealthy to contribute sufficient amounts to society.
‘I’m taking very tough action on tax avoidance,’ said Osborne.
Over 30% of people have no pension in place
15/08/2011
Over a third of British adults, equating to 13.6m, do not have a pension, research from Baring Asset Management, claimed.
The investment management firm found that of this figure 1.4m people who are 55 and older do not have a pension in place.
While Barings is not surprised that a high proportion of people aged 18 to 24 do not have a pension, it found it worrying that 47 per cent of 25 to 34 year olds have not started saving into a pension.
The findings also show that an increasing number of men do not have any pension provision, as 30 per cent are currently without compared to 28 per cent in 2010. In contrast, more women this year have a pension as the number without has dropped from 47 per cent in 2010 to 44 per cent in 2011.
The annual study conducted amongst 1,589 non-retired adults in Great Britain also revealed people are increasingly reliant on their property to fund their retirement.
This year, 13 per cent of people said their property is their pension, compared to 12 per cent in 2010 and just eight per cent in 2009, which is a cause for concern given property prices have yet to recover fully from the lows during the recession.
Women are more dependent on property than men with 14 per cent saying their property is their pension compared to 12 per cent of men.
Marino Valensise, chief investment officer at Barings, warned with less people making pension provision, it was “highly likely” for those approaching retirement age, continuing to work indefinitely will be mandatory given they have no other income streams.
He said: “At the same time, it is concerning to learn that only half of people in their late twenties and early thirties are contributing into a pension scheme.
“Kick starting a pension around this time is absolutely paramount given the impact it has on the end sum. Investing into a pension little and often is a much better approach than not at all.”
Laith Khalaf, pensions analyst Hargreaves Lansdown, agreed it was worrying that a high proportion were still not saving for retirement but hoped the introduction of auto-enrolment would remedy this.
He said: “Auto-enrolment should improve matters although eight per cent contribution is just a start rather than the end of the matter.”
Mr Khalaf also warned against relying on the property you live in “for a number of reasons”.
He said: “You will get income from your home by either downsizing or from equity release. However, this won’t happen if the market crashes. Should you put all your hopes on one single asset? I don’t think so.
“In the short-term, there may be more people relying on their homes as a pension. However, five years ago, far more people would be relying on property as a pension but the credit crunch tempered people’s view of property and the realisation dawned that value can go down.”
Posted in Business Owners, Employed People, Financial Planning, Retirement, Self Employed | No Comments »
UK housing market update
15/08/2011
House prices in the three months to July were 0.5 per cent higher than in the previous three months.
This was the first increase in this key measure of underlying price movements for 14 months.
Prices rose for the third consecutive month, increasing by 0.3 per cent in July.
As a result, the average UK house price in July was marginally higher (0.7 per cent) than at the end of 2010 on a seasonally adjusted basis, at £163,981.
The number of mortgages approved to finance house purchase – a leading indicator of completed house sales – increased by four per cent between May and June to 48,421; the highest monthly total since May 2010.
Despite this encouraging rise, the industry-wide number of approvals remains within the range of 45,000-50,000 per month where it has been since the beginning of 2010.
Approvals in the second quarter were unchanged from the previous quarter on a seasonally adjusted basis.
Overall, there has been little change in either the level of house sales or the number of properties on the market for sale since late 2010.
These steady market conditions have helped to stabilise house prices in 2011 following last year’s modest decline.
This pattern is expected to continue over the rest of the year with little genuine direction in either house prices or sales.
Sustained low interest rates and a slowly improving economy should help to support demand in the face of pressures from weak earnings growth, relatively high inflation and higher taxes.
Expectations in the financial markets regarding future interest rate levels have changed dramatically in the last few months as increasing evidence of continuing economic fragility have reduced the likelihood of near-term rate hikes.
This has reduced “swap” rates – the benchmark used by lenders for pricing fixed term mortgages.
As a result, fixed term rates have been reduced and are now at the lowest levels on record with, for example, ten lenders now offering five year fixed rates below four per cent.
Such low rates are likely to stimulate greater remortgage activity.
When should I buy an annuity?
10/08/2011
All the major annuity providers recently cut their rates for guaranteed annuities as corporate bonds and gilts fell following the turmoil in the global financial markets, which has been caused by the European debt crises and concerns about the US economy.
The benchmark annuity rate has changed over the last 12 months. (The benchmark rate is male age 65, female 60, £100,000 purchase, joint life 2/3rds, guaranteed 5 years and level payments). Annuity and gilt yields fell at the end of last summer but picked up later in the year, but the ongoing economic turmoil is likely to have a further negative effect.
Enhanced annuity rates have also been cut because they too are priced in relation to the same yields.
In simple terms, this means an individual retiring now with a pension fund of £100,000 will secure a lifetime income £115 per year less than a few weeks ago.
The main reason for the sudden reduction in yields stems from the European and US debt problems. When investors are worried about global equities there is a strong demand for gilts. As the price of gilts rise, the yields fall – UK gilt yields are at their lowest level for many years.
What can be done about falling rates?
At times of falling annuity rates I am always asked, “Should I hold off buying an annuity until rates increase?” My stock answer is that individuals should take as much time as they need to decide which type of annuity to invest in and once that decision is made they should not necessarily delay because rates could fall even further.
Although it’s impossible to second guess the financial markets and accurately forecast future annuity trends, professional advisers and their clients can maximum the amount of lifetime annuity income by taking a few simple strategic and tactical steps in the right direction.
And remember, it’s important to separate the strategy from the tactics.
Strategy
It’s important to have a plan. And, strategically there are two important questions:
When is the best time to take tax free cash and income?
What type of annuity or drawdown?
The timing is important because two factors come into play; what is the trend for annuity rates and what are the income requirements?
If an annuity is a long term investment then investors should think about their longer term income requirements and, in particular the issue of inflation.
Many advisers and their clients are taking decisions about a long term commitment based on short term considerations e.g. who is paying the highest income? A more sensible approach is to consider investment linked annuities which provide the potential for future income growth and flexibility.
Tactics
In order to execute the plan it’s necessary to make the right tactical decisions. These include shopping around using the open market option to find the best highest paying annuity and, where appropriate, applying for enhanced annuities which take health into consideration.
Other tactical decisions include the timing of annuity purchase to try and strike when rates are at their highest. If there is concern about purchasing annuities when rates / yields are low, another possible consideration is an investment-linked annuity where the initial income is not pegged to gilt yields.
With conventional annuities, income is set for life at the point of annuitising, with no potential for future income growth. An investment-linked annuity has the opportunity to benefit from the highs and lows of the markets over a 20 year period, not just at a single point in time when rates and markets could be low.
My view
I have been following annuity rates for long enough to know that getting the timing right is difficult, if not impossible. My view is that our clients should take as much time as they need in order to decide on the strategy, but once a decision has been made it makes sense to arrange the annuity sooner rather than later because in my experience few people gain from deferring their annuity purchase.
The great holiday money ripoff
28/07/2011
With British holidaymakers set to spend more than £4billion on their plastic this summer, this exchange rate trick could see cash-strapped families having to pay hundreds of pounds more while they are away.
Bob Atkinson, travel expert from holiday comparison site Travelsupermarket, says: ‘Sneaky shops and restaurants are increasingly charging tourists in sterling, knowing that people feel more comfortable with transactions in their own currency. But this is a huge rip-off.
‘The golden rule when abroad is always pay in the local currency, never pay in pounds and pence.’
Card giant Visa Europe estimates 2per cent of all overseas transactions made by Britons were converted by retailers into pounds.
Industry insiders believe the vast majority of these would have been in large tourist resorts.When you pay for a meal or shopping overseas using a credit or debit card, you’re supposed to be given the bill in the local currency.
On occasions, you may be given the choice of paying in sterling. This is where overseas retailers and restaurants make their mark-up.
They will add 5per cent or even more to the bill — usually without telling the customer. The retailer pockets the entire 5per cent.
Frequently, this mark-up will not even appear on the bill. Instead, it may appear on the card receipt in small print, by which stage it is too late to complain.
Some cash machines run by overseas banks also use the same trick, known as ‘dynamic currency conversion.’
Instead of offering the cheaper Visa or MasterCard rate, the transaction is converted into sterling there and then, using a poor exchange rate set by the bank.
There is no limit to how much banks or retailers can charge, and no consumer protection for people who later realise they have been ripped off.
Mark Bowerman, spokesman for trade body the UK Cards Association, says: ‘Paying in sterling may be appealing because you know exactly how much will appear on your bank statement.
Action to take
Insist on all payments being in local currency.
There are credit cards which do not charge a fee for withdrawing cash, but you will be charged interest from the moment you make the transaction.
The best fee-free cards are Halifax Clarity, which typically charges 12.9 per cent interest, and Santander Zero, which charges 27.9 per cent.
Nationwide, Post Office, Saga, Santander Zero and Halifax Clarity, don’t have fees for purchases.
Alternatively, you can use a pre-paid credit card. You load up a plastic card with a currency of your choice at a set exchange rate. You can then use the card to pay or withdraw cash wherever you see the MasterCard or Visa logo.
The Caxton FX and FairFX card are among the cheapest. These, unlike many others, do not charge a fee for purchases.
Prepaid cards sold by travel agents may be expensive. You can compare the best deals on a comparison site, such as Moneysupermarket.com
Interst rate increase not likely in the near future
27/07/2011
Expectations of an increase in the official interest rate, or Bank Rate, from its 0.50 per cent level were pushed back last week.
The minutes from the Bank of England’s Monetary Policy Committee meeting in July, published on 20 July, showed the risks that economic activity would remain subdued through the rest of 2011 had increased.
The minutes said: “Expectations implied by market prices of the point at which Bank Rate would begin to rise had been pushed back further during the month, partly because economic data, both at home and overseas, had been softer than anticipated.”
The current balance of risks to the economy and of rising inflation led the majority of committee members to conclude that ‘recent developments had reduced the likelihood that a tightening in policy would be warranted in the near term.’
Weak economy
A variety of factors have adjusted the position of the MPC slightly, pointing to the fragility of the recovery in the UK. This includes ongoing restrictions on the supply of credit to businesses and weaker consumer spending.
In an interview with the Financial Times on 25 July 2011, Vince Cable said there wasn’t a ‘strong recovery’ in the UK at the moment, suggesting the Bank of England could consider further quantitative easing.
Quantitative easing was a programme of asset purchases the Bank began in 2009. The measure designed to boost the financial system has remained at the £200billion level since the end of 2009. One member of the MPC is calling for this to be increased to £250billion.
Inflation
The MPC minutes said price increases such as rising electricity and gas bills were likely to push the Consumer Prices Index (CPI) measure of inflation to five per cent ‘in the coming months’.
“In the light of recent developments in utility and food prices, the peak in inflation was likely to be a little higher and come sooner than the Committee had previously expected,” the minutes said.
Despite this the Committee broadly expects this spike in inflation to be temporary and over the longer term, into 2012, inflation will fall back due to the fact the economy is not running at full capacity.
One concern about inflation above the two per cent target is that it will become embedded in wages and prices. However, the MPC has seen no evidence yet of wages spiralling upwards.
“There appeared to be a significant degree of slack in the labour market and that was likely to bear down on earnings growth for some time.”
Support for a flat rate pension
27/07/2011
The introduction of a £140-a-week flat rate state pension has moved a step further after more than three-quarters of the pensions industry backed the government proposal.
Over three-quarters of organisations who responded to the government’s consultation backed the move.
In April pensions minister Steve Webb unveiled two potential reforms to the state pension:
• Option one: a two-tier state pension where the means-tested second state pension (S2P) becomes flat rate by 2020. Proposals already exist to create a flat-rate S2P by 2030.
• Option two: a £140-a-week flat rate, single-tier pension set above the level of the pension credit standard minimum guarantee, effective from 2015.
Respondents overwhelmingly backed option two. Pensions minister Steve Webb said: ‘A simple, decent state pension, that is easy to understand would give people more clarity and certainty about what they will get from the state. It is this clarity and firm foundation that will help people make decisions about saving for retirement – a crucial step as we prepare to enroll 10 million people into workplace savings from 2012.’
Option one was an unexpected addition to flat rate state pension reform proposals, which had been trailed since October 2010.
Respondents included businesses, defined benefit schemes, pension’s administrators and trustees, the voluntary sector and the public.
However as with all pension planning presume nothing – it’s never as simple as you think – get proper unbiased advice from a fee based independent financial adviser
Changes to french property tax
22/07/2011
UK residents owning property in France are likely to see an increase in the French taxes they pay from 1 January 2012, according to KPMG in the UK as a result of two key changes.
The first of these changes is the introduction of a new annual tax levied on non-French residents owning property in France that is not rented out.
The second change to potentially affect French property owning residents comes as a result of a number of amendments to the French wealth tax rules. Within these changes are proposals that would bring properties worth more than €1.3 million owned via a company into the scope of the French wealth tax regime.
A KPMG spokesperson, said: “These are significant changes and Britons with property in France need to look at them carefully to see how they are affected. Although the new rules are set to come in from January 1st next year, we do not yet have full details of how they will work. It does seem though that some people will see their annual tax bills double and they could also face paying wealth tax as well.
“The changes to the wealth tax regime are a double edged sword in the extent to which they affect Britons with properties in France. Those who own valuable (€1.3m+) properties via a company are likely to find themselves drawn into the wealth tax net and thus paying an extra tax. But those who are already subject to French wealth tax rules because they don’t own their properties in this way may see their tax bills fall as the actual rates of wealth tax are reducing.”
The changes are set to be adopted by the French parliament by mid-July this year and are still subject to change. But in KPMG’s view most UK residents with property in France are set to pay increased French taxes from next year.
Tax avoidance campaigns continue
22/07/2011
New campaigns targeting VAT defaulters, private tutors and e-marketplaces will be launched by HM Revenue & Customs (HMRC) over the next year.
HMRC will use cutting-edge tools such as “web robot” software to search the Internet and find targeted information about specified people and companies. Using the software, the department can pinpoint more accurately people who have failed to pay the right tax. The “web robot”, used with the department’s Connect computer system, also helps find people who are trading without telling HMRC.
Connect alerts HMRC to previously invisible tax evasion by matching a vast amount of HMRC and third-party data, enabling a fast and focused response to tax evasion. It shines a light onto previously hidden relationships, uncovering anomalies between such elements as bank interest, property income and lifestyle indicators before homing in on unexplained inconsistencies.
Before designing and launching the campaigns, the department will seek input from interested parties.
HMRC announced last month that a campaign targeting VAT rule-breakers trading above the £73,000 turnover threshold but who have not registered for VAT will be launched in the summer.
Other campaigns that will be launched in 2011/12 will focus on:
- Those who provide private tuition and coaching. This addresses the risk posed by all professionals who, because of their field of expertise, are able to earn money from providing tuition and coaching – either as a main or a secondary income. It covers people providing private lessons, regardless of whether they have a teaching qualification, and could include, for example, fitness/dance/lifestyle coaches through to national curriculum subject tutors and others.
- E-marketplaces. This will cover those who are using e-marketplaces to buy and sell goods as a trade or business and who fail to pay the tax owed. People who only sell a few items and who are not traders are unlikely to be liable to tax and will not be targeted by this campaign.
- Trades. This will build on HMRC’s plumbers’ campaign and give an opportunity to another group of tradespeople to come forward and declare unpaid tax.
Mike Wells, HMRC’s Director of Risk and Intelligence, said:
“We want to make sure HMRC listens to as many informed views as possible for our future campaigns. We want the views and experience of people and organisations outside the department to play a fuller part in the campaigns that we design for customers.
By being open about our areas of interest for the coming year we hope to maximise that exchange of information and ensure we reduce the tax gap and help customers pay what they owe.
We will use the information we gather to pursue people who choose not to use the opportunities we provide for them to put their affairs in order on the best possible terms. It will be more expensive if we come and find people, so I urge them to come forward and disclose voluntarily.”
So far, more than £500m has been raised by HMRC from voluntary disclosures and a further £100m from follow-up activity. Previous campaigns have targeted offshore investments, medical professionals and people working in the plumbing industry.
Information on campaigns for 2011, including how people can work with HMRC to influence their development, will appear on the HMRC campaigns pages shortly.
Those who believe the coming campaign activity may apply to them and who want to come forward now and voluntarily disclose can call 0845 601 5041.
FSA crackdown on VCT and EIS promotion schemes
22/07/2011
The FSA is cracking down on Venture Capital Trusts and Enterprise Investment Schemes that are being marketed primarily on the tax incentives offered and not highlighting the risks involved.
In a financial promotions update, the regulator says the increase in tax relief and the wider reform of the VCT and EIS sector, is likely to result in an increased demand for the products.
The changes in the 2011 Budget saw EIS receive more favourable treatment with Chancellor George Osborne increasing the level of income tax relief from 20 per cent to 30 per cent from April 2011.
From April 2012, the Government will double the annual EIS investment limit for individuals to £1m. It will also increase the qualifying company limits from 50 to 250 employees and gross assets from £7m to £15m for both VCTs and EIS. The Government will also raise the annual investment limit for qualifying companies by 400 per cent to £10m for both vehicles.
The FSA says both vehicles should promote the tax benefits in a balanced way and that firm’s must take responsibility for what appears. It says key drawbacks of the promotion to be highlighted.
It says: “We have noted EIS/VCT investments are often highly promoted on their preferential tax status. Where this is the case, the promotion must include a prominent reference that the tax treatment depends on the individual circumstances of each client and may be subject to change in future.”
“In addition, the availability of tax reliefs depends on the companies invested in maintaining their qualifying status
As always good independent fee based financial planning advice is essential
Uk inflation rate still above target
22/07/2011
The UK’s annual inflation rate has fallen slightly over the past month but remains above the government’s target measure, the latest official data reveals.
Figures published by the Office for National Statistics shows that the consumer price index rose by 4.2 per cent on an annual basis in June, down from the 4.5 per cent recorded in the previous month.
However, this is still over the 2 per cent target measure. The last time inflation came in below the official target was November 2009, when it stood at 1.9 per cent.
The ONS says that food and non-alcoholic beverages placed the largest upward pressure on consumer prices in June, with bread and cereals, meat, and milk, cheese and eggs producing the most notable rises. Fuels and lubricants also drove the consumer price increases.
Downward pressure on the UK’s inflation came from falls in recreation and culture prices, especially from games, toys and hobbies, particularly computer games, and audio-visual equipment and related products.
Review of the pension tax system
22/07/2011
The Office of Tax Simplification will review the pensioner tax system as the Treasury looks to simplify the pensions tax regime.
In a letter to Treasury exchequer secretary David Gauke last month, OTS chairman Michael Jack said: “For the estimated 5.6m people of pensionable age paying tax, this area is widely acknowledged as causing too many problems for a group, some of whom are the least able to cope with them.
“The OTS will be looking for ways in which pensioners’ tax affairs can be dealt with in a much more straightforward way – especially for those with multiple sources of income.”
Gauke has now ordered the OTS to carry out a review of pensioner taxation. However, this will not include inheritance tax or tax relief on pension contributions.
In a letter to Jack, Gauke says: “I would like the OTS to carry out a review which identifies and examines which parts of the tax system cause the most complexity for pensioners, looks at how this varies across the pensioner population, and proposes ways to make their tax affairs simpler.
“I look forward to an interim report on these issues ahead of the Budget 2012, and a final report with policy recommendations later in the year.”
The review will look at the areas of the tax system which cause the most complexity and uncertainty for pensioners; identify how these issues vary within the pensioner population; and explore what changes could achieve simplification and what the wider implications of these might be.
The OTS will also look into complexities around employee share schemes.
Posted in Employed People, Financial Planning, Retirement, Self Employed, Tax Planning | No Comments »
Are Markets predicting a rate rise in August 2012?
24/06/2011
The UK money market is pricing in a first UK interest rate hike for August 2012, says Mike Riddell, the manager of the M&G international sovereign bond fund.
Back in January the money market was pricing in three rate hikes of 0.25 per cent in 2011 alone, with the first fully priced in for June.
“Earlier this year the market was almost pricing in five rate hikes, now it’s just one,” says Riddell. “Anyone who’s been betting on a gilt sell-off or rate hikes will be in a world of pain.”
Riddell notes that the pound sterling is now the weakest currency in the world today, while 10-year gilts yields have rallied seven basis points to 3.1 per cent, the lowest yield in seven months.
“The trigger was the minutes from the last Monetary Policy Committee meeting, where the crucial sentences were ’current weakness of demand growth to persist for longer than previously thought’ and ’further asset purchases might become warranted if the downside risks to medium-term inflation materialised’,” he says.
Posted in Employed People, Financial Planning, Investments, Retirement, Self Employed | No Comments »
Small firms could benefit from simpler accounting rules
14/06/2011
Up to 1.5 million small UK firms could benefit from proposed changes to the accounting rules after EU ministers reached a new agreement earlier this week.
During a meeting in Brussels, business ministers from across the EU agreed that simpler accounting rules were needed to reduce the amount of red tape for small businesses.
It is thought that the proposals, which include simplifying the profit and loss account and balance sheet reporting requirements, could potentially save firms between £150 million and £300 million per year in reduced administrative costs.
Under the agreement a new category of companies called ‘micro-entities’ will be introduced.
To be defined as a ‘micro-entity’ the company must not exceed the limits of two of the following three criteria: a balance sheet total of €250,000, a net turnover of €500,000 and an average number of 10 employees during the financial year in question.
Business Minister Ed Davey welcomed the decision, describing small firms as the ‘backbone of the British economy.’
‘This is a significant step in reducing red tape and a clear signal that we will take action to stop our smallest companies being held back by excessive regulation,’ he said.
‘I believe this shows what can be achieved by a positive and constructive engagement with the European Union – the first ever exemption for micro-entities from an existing EU directive. We now need to build on this breakthrough and I hope that further improvements can be agreed before the proposal becomes law.’
Take care on your private medical insurance
10/06/2011
Thousands of people are being forced to pay unexpected hospital bills because of gaping holes in their medical insurance.
Campaigners are worried that policyholders expecting the best treatment are facing:
- Restrictions on which doctors and hospitals they can choose;
- Top-up bills of thousands of pounds;
- Being stuck with the same insurer because pre-existing medical conditions will not be covered elsewhere.
Bupa and Axa PPP have imposed strict limits on the amount many policies will pay out for surgeons and anaesthetists. They have their preferred network of hospitals to keep costs down.
The insurers say this is necessary to prevent doctors from overcharging — but some patients argue that cost limits are stopping them from accessing the best treatment.
Almost six million people have private medical insurance and it can be expensive, especially for older people. A 30-year-old male can expect to pay around £57 a month for comprehensive medical insurance with Bupa, with a £100 excess.
This rises to almost £85 a month for a 50yearold and £116 a month for a 60yearold.
Derek Machin, chairman of the BMA Private Practice Committee, says: ‘Insurers make out they give customers total peace of mind, but in most cases customers will find there are exclusions and treatments they can’t get.’
‘Policies are restrictive, complex and difficult to compare. There needs to be clearer information for customers at the point of sale.’
The Financial Ombudsman Service, which settles disputes between consumers and insurers, upheld 48 pc of the 561 complaints it received about private medical insurance last year.
Many of the cases involved customers being asked to pay additional costs, such as a shortfall for an operation or out patient visits for which they were charged unexpectedly.
Another annoyance for people taking out medical insurance is that pre-existing medical conditions are not covered, which deters people from switching providers. Axa PPP, for example, will generally not cover policyholders for two years (from when they take out the policy) for any condition they have even asked their GP for advice on in the previous five years.
However, these conditions will be covered if the policyholder does not seek further medical treatment for two years after the plan is taken out.
Bupa and Axa PPP say policy holders should contact their insurer before arranging treatment and no one will have to pay a shortfall if treated within their network.
This all goes to prove do not buy a policy without proper independent financial advice
Posted in Business Owners, Employed People, Financial Planning, Retirement, Self Employed | No Comments »
Are you claiming the new higher mileage rate?
10/06/2011
Don’t forget that from 6 April 2011 the HMRC approved amount you can claim for the business use of your own car is 45p per mile (previously 40p per mile).
The 45p rate applies to the first 10,000 business miles claimed in a tax year, after that the rate reduces to 25p per mile.
Employers are not obliged to pay at this rate but any rate paid up to 45p per mile will be effectively tax free to the recipient. Any payments made in excess of 45p would need to be declared as a taxable benefit.
If employers pay, or have paid, less than 45p per mile (40p before 6 April 2011) employees can make a claim. For instance if an employer pays 25p per mile after 6 April 2011, the employees could claim 20p per mile on their tax return as an expense of their employment for which they have not been reimbursed.
Base rate remains unchanged
10/06/2011
The Bank of England bank rate has been held at 0.5 per cent for the 27th month in a row and quantitative easing stays at £200bn.
The last rate change was on March 5, 2009, when it was reduced from 1 per cent to 0.5 per cent.
On the same day, the Bank of England initiated a £75bn QE programme. The most recent change to the size of the programme, on November 5, 2009, was an increase of £25bn, bringing the total to £200bn.
Minutes from the Monetary Policy Committee’s May meeting show a split over a rate increase, with six voting in favour of keeping it the same and three voting for an increase.
Inflation currently stands at 4.5 per cent, well above the Government’s target of 2 per cent, putting pressure on the BoE to raise interest rates.
Former MPC member Andrew Sentance warned the Bank of England earlier this month that it is in danger of losing its credibility with the UK public due to its failure to tackle soaring inflation.
The Bank remains in the thick of it. On the one hand needing to ensure that a sustainable economic recovery is baked in, on the other hand ensuring it does not lose its credibility as an independent rate setter that is capable of maintaining a controlled and low inflation economy.
It is a tough one that, but the recovery has to come first.
FSA issues a warning on pension loans
10/06/2011
The FSA is warning investors to seek independent advice before entering into “expensive” agreements with companies offering loans against their pension fund as a form of early access to their savings.
The FSA warning note, which is due to be published this week, is expected to raise concerns over schemes which offer the loans without explicitly detailing their fees or charges in their promotional
It will also caution investors that stockmarket volatility could reduce the value of their pension pot but not the loan amount.
An FSA spokesman says there are a variety of different schemes offering “pension loan” deals.
He says: “These schemes can be an expensive way to free up extra cash and will affect your income for the rest of your life. Anybody thinking about using one should consider professional advice and carefully weigh up the long-term impact before signing on the dotted line.”
Investors should treat any pension loan scheme with “extreme caution”.
It is very dangerous for an investor to use up their retirement benefit before they reach retirement.
If people are considering taking a loan on the back of their pension, it has to be the very last resort. We would actively advise people not to do this unless they were in a desperate situation.
As always get good independent fee based advice
Tax evaders better watch out
10/06/2011
HM Revenue & Customs says it has uncovered 500,000 people with money in offshore tax havens who could face severe financial penalties if they have used them to evade tax.
The Revenue is using enforced data-sharing with banks, information from whistleblowers and a new IT system which looks at anomalies between where people live, their financial assets and how much tax they pay to flag up potential tax dodgers.
It says it is confident it will raise billions of pounds in unpaid tax, interest and penalties. An HMRC spokesman says: “We are not out to victimise people but we are determined to ensure we receive what we are owed. This is not just about the very wealthy, we have found chip shop owners, taxi drivers and landladies with offshore accounts.”
Last month, HMRC launched a consultation on plans to blacklist high-risk tax avoidance schemes and force users to tell HMRC that they are in a listed scheme
If you have undeclared money offshore get advice on how to use the amnesty to avoid paying back taxes
House prices set to rise?
06/06/2011
The UK property market has hit the bottom and will begin to turn around ahead of Christmas, it is claimed .
But the recovery will be slow rather than a return to boom and bust, according to the Centre for Economics and Business Research.
A separate study published by the Institute for Public Policy Research calls for measures to prevent house price bubbles.
Mortgages should be capped at 90% of property value, it says, with loans limited to 3.5 times household salary.
Reckless lending in the past by banks and building societies, with loans of up to 125% and five times salary, triggered the property surges that have been disastrous for the economy.
CEBR chief executive Douglas McWilliams said: ‘We still believe house prices will fall this year, although there are signs that prices will stabilise over the second half of the year.
‘We think the market is currently close to the bottom for the UK as a whole and there are signs that prices will stabilise over the second half of the year.
‘The main factor driving up prices is the shortage of available housing which has already pushed up rents.
‘Housing completions fell to only 130,000 in 2010, well below the level required to keep pace with demographic change.’
Mr McWilliams suggested London prices rises will remain ahead of the rest of the UK.
‘With the pound forecast to remain low, and London likely to remain internationally attractive, this is likely to continue to boost house prices in the capital, which are forecast to rise about 2% a year faster than for the UK as a whole,’ he said.
‘But the factors that will ultimately drive up house prices again are the loose monetary policy that will accompany the Government’s deficit reduction and the ability of banks to lend again on consumer-friendly terms as their own underlying financial position improves.’
He added: ‘This should not be confused with boom and bust. We are forecasting a gradual four-year recovery at an annual rate of about 4%.’
HMRC set up task force for tax dodgers
06/06/2011
A new task force to tackle tax dodgers was announced recently by HM Revenue & Customs (HMRC).
The first task force will focus on the restaurant trade, targeting businesses in London over the coming weeks.
The task forces, which bring together various HMRC compliance and enforcement teams, will undertake intensive bursts of compliance activity in specific trade sectors and locations across the UK, where there is evidence of high risk of tax evasion. The restaurant trade in Scotland and the North West will be the next areas targeted.
They come as a result of the Government’s £900m spending review investment to tackle tax evasion, avoidance and fraud from 2011/12, which aims to raise an additional £7bn each year by 2014/15.
Mike Eland, Director General Enforcement and Compliance, said:
“These task forces are a new approach which uses HMRC’s resources to identify and tackle rule-breakers and evaders swiftly and effectively.
Only those who choose to break the rules, or deliberately evade the tax they should be paying, will be targeted. Honest businesses have absolutely nothing to worry about.
But the message is clear – if you deliberately seek to evade tax HMRC can and will track you down, and you’ll face not only a heavy fine, but possibly a criminal prosecution as well.”
HMRC is planning a further nine task forces in 2011/12, with more to follow in 2012/13. Compliance activity through task forces will be 1:1 and target the highest-risk cases in that sector and location, typically focusing on groups of up to around 600 customers in specific locations.
HMRC crackdown on offshore accounts
06/06/2011
HM Revenue and Customs (HMRC) has discovered half a million UK residents with offshore bank accounts as part of a crackdown on tax avoidance.
According to Treasury minister David Gauke, HMRC is seeking out money ‘hidden’ offshore. He said time was running out for people with offshore accounts to come forward voluntarily and negotiate a tax payment that could be lower than if they waited for HMRC to take action.
Gauke (pictured) said: ‘The options for hiding money offshore to evade UK tax are narrowing all the time and I would strongly urge anyone who is at all concerned that they may not have been paying the right tax on their offshore investments to talk to HMRC.
‘The Government has made £917 million available to HMRC to tackle tax cheats and some of this money is already being very effectively deployed against offshore tax evaders.’
HMRC has run a number of amnesties for those with undisclosed earnings in offshore accounts. The most recent, the Liechtenstein Disclosure Facilities (LDF) began in September 2009 and will run until 31 March 2015. HMRC expects to net £3 billion from the LDF.
If you have an offshore bank account you wish to come clean on it is possible to utilize the LDF to obtain an amnesty depending on the case.
Please contact us in this event
Big brother is watching property purchases
02/06/2011
Later this year your solicitor, or property conveyance person, will be required to file new forms with the Stamp Duty Land Tax Office when you buy a property.
The regulations allow old forms to be used, or the new forms, from 1 April 2011 to 3 July 2011. After 4 July 2011 only new forms can be filed.
No cause for alarm thus far. Unfortunately like all these things the devil is in the detail!
The new forms require that each lead purchaser provide the following unique identifier when completing the forms:
Individuals – their National Insurance number, or Companies and Partnerships – their Unique Tax Reference (UTR) or VAT registration number.
Wonder what HMRC will do with this additional information?
No doubt they already have, or will be, setting up tracking processes that link property purchases to the lead purchaser’s tax file.
Big brother is watching – So don’t do something foolish – Tax liabilities can be mitigated with good advice and planning.
Don’t be late with your tax return
02/06/2011
The old £100 penalty has not proved to be the deterrent it was intended to be – too many tax payers are still filing late returns.
Late filing of your self assessment tax return for 2010-11 will now be subject to a new penalty regime.
From October 2011, the last date for filing a paper return for 2010-11, four penalties now apply.
- From day one: you will be charged a £100 penalty even if you have no tax to pay or you have paid any tax due.
- From 3 months late: you will be charged an automatic daily penalty of £10 per day up to a £900 maximum.
- From 6 months late: you will be charged additional penalties which are the greater of 5% of tax due or £300.
- Over 12 months late: again additional penalties based on greater of 5% of tax due or £300. In serious cases this penalty may be increased up to 100% of tax due.
Don’t forget these penalties will be applied after 31 January 2012.
HMRC will assume that you are going to file online if you miss the paper filing deadline of 31 October 2011. Under no circumstances should you post a paper return after 31 October 2011.
This will trigger the new penalties.
Seek advice and file your return online before 31 January 2012.
Three reasons for paying your tax on time
Penalties for paying tax late are:
- 30 days late: initial penalty of 5% of tax outstanding.
- 6 months late: further penalty of 5% of tax still outstanding.
- 12 months late: further penalty of 5% of tax outstanding.
And on top of all this:
Interest will be added to any tax paid late including interest on unpaid penalties.
If you feel that you had a reasonable excuse for not filing on time it is possible to appeal.
Interest rates to rise next year?
02/06/2011
Stuart Thomson the Ignis chief economist believes that UK interest rates won’t rise until 2013 despite the “window of opportunity” for a change in February next year.
Thomson said raising interest rates in February 2012 would be a good move given that next year is going to be a difficult time for global economic growth, however, he believes that doing so now would be like “kicking an economy when it is down.”
Thomson also believes that there is likely another round of quantitative easing in both the UK and the US, as this is the clear plan B for the nations’ governments.
He said: “Inflation will come down rapidly in February 2012 and for a brief period, there will be real income growth – so that will be the time to do it.”
“In the second half of 2012, there will be more quantitative easing and in 2013 there will be a surge in activity and the potential opportunity to increase interest rates,” he added
Bank of England governor Mervyn King has warned that a rise in rates would undermine an already weak economy and curtail a much-needed rebalancing towards exports.
King and a majority of the MPC have stressed to critics of their decision to keep interest rates at the record low level of 0.5% that prices would decline next year to the target level.
George Buckley, chief UK economist at Deutsche Bank, said Wednesday’s GDP figures, which showed the economy was flat over the last six months with several key areas in decline, was a “deal-breaker for an early rate hike”.
He said the “extremely weak” figures gave little reason to raise rates before November.
Is Inheritance tax back on the political agenda?
02/06/2011
Few taxes attract the level of irritation that inheritance tax does. Maybe it is the element of double taxation or maybe it is the 40 per cent charge on assets over the nil-rate band.
The fact the threshold for IHT has increased at a much slower rate than house prices has added to the dislike of the tax. While house prices have grown by 98 per cent in the last 10 years, the IHT threshold has increased by 38.8 per cent.
There is still a feeling that IHT is a tax designed for the super-wealthy but that the Government is benefiting by allowing more people with few assets outside a large house, to be caught by the tax.
For this reason, IHT takes on real political significance. One of the Tories pre-election pledges was to increase the individual threshold to £1m, with their 2010 general election manifesto
IHT reform was one of the Tory casualties of the coalition agreement last May, being ditched to make way for the LibDem policy of increasing the income tax personal allowance towards £10,000 to lift the lowest paid out of the reach of income tax.
It looked like the question of IHT reform had been taken off the political agenda. However, there is a chance that it might sneak back in.
The Mirrlees review of tax carried out and published in November 2010 recommended that IHT be overhauled and the current system be replaced with a more straightforward tax on the transfer of assets.
The report says: “The current UK inheritance tax is unfair in many ways – and leads to some asset classes, such as agricultural and business assets, being tax favored for no clear reason except, presumably, the influence of the agricultural and family business lobbies.”
There have been further calls for an overhaul of the current IHT rules following the publication of the Office of Tax Simplification review of tax reliefs earlier this year.
The Office of Tax Simplification was set up by the Treasury specifically to review the numerous tax exemptions that have built up over the years and draw up a list of recommendations of which could be scrapped. One of the five key themes’ of the tax simplification report was that the Government should look again at the IHT regime.
The report said as the system of reliefs is inextricably linked to the tax itself, and due to the unfairness of who ends up paying IHT, the whole tax needs a thorough review.
The report concludes: “In the light of all this, our conclusion is that there should be a proper review of inheritance tax, whether by HMRC, HM Treasury or the OTS. This would clearly be a longer-term project. In short, this is a tax that needs a top-down review.”
For a tax that attaches so much dislike, it affects a surprisingly small number of people. According to figures from the Office of Tax Simplification, just over 2 per cent of all estates paid IHT in 2009. Still, it seems that many people still pay some form of death duty needlessly.
Figures from unbiased.co.uk suggest that £1.3bn is paid every year needlessly by people who do not take relatively straightforward action to militate against the tax.
Vast sums are being paid unnecessarily in inheritance tax every year because the deceased had not made adequate provision. With the IHT threshold frozen for another three years, it is important to make sure your financial affairs are in order to protect your family and loved ones.”
Until the system is overhauled, it seems that there is plenty of scope for specialist Estate and Inheritance tax adviser like Bluebond to help clients cut down on their bills for what is described as an optional tax.
Index-linked savings are back!
31/05/2011
National Savings and Investments (NS&I) index-linked savings certificates are back on sale, offering a lifeline to savers who have seen their nest-eggs eroded by inflation – currently running at 5.3% as measured by the retail prices index.
The five-year bonds allow savers to invest up to £15,000 and pay RPI plus 0.5 percentage points – making a current return of 5.8% based on the current inflation figure.
According to Moneynet.co.uk, the new wave of NS&I certificates beats anything on the market, with no other providers offering five-year bonds that will match or beat inflation. The best alternative is Birmingham Midshires’s five-year fixed-rate bond paying 5.05%.
The inflation-proofed bonds were withdrawn from sale in July 2010 because of excessive demand, but the government said the chancellor’s decision at the 2011 budget to increase the net financing target by £2bn for NS&I has allowed NS&I to re-introduce the savings certificates.
“The government’s policy is to encourage saving in the medium and long term. The chancellor wants to reward savers and this move does that,” said a government spokesman.
The NS&I savings certificates cannot come soon enough for older savers, who have suffered in the current low interest-rate environment. The real rate of inflation for older people has meant Britons aged over 55 faced average additional costs of £918 in each of the last three years, while consumers aged between 65 and 69 have paid an extra £1,054 a year since 2008.
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