Your Annual Tax Summary

Your Annual Tax Summary If you’re a taxpayer, your Annual Tax Summary is on its way to your letterbox very soon.

Millions of these Annual Tax Summary statements were issued from Monday, following their initial launch by the Chancellor all the way back in March 2012.

They will provide a visual illustration for around 24 million British taxpayers showing how much of their income tax and National Insurance is being spent on welfare, health, education and other areas of public spending.

George Osborne announced the initiative saying:

“I promised that taxpayers would know much more about how much direct tax they pay and how that money is spent,

“Now we’re delivering on that promise by giving 24m taxpayers a new personal tax summary. It is a revolution in transparency and it will show how hardworking taxpayers have to pay for what governments spend.”

Welfare spending represents by far the largest segment of tax revenue shown on the Annual Tax Summary breakdown, with around 24.5% of Treasury spending going on welfare payments.

However, the Annual Tax Summary breakdown does not categorise welfare spending beyond a single figure, leading to criticism that what should be ‘neutral information’ is indeed party political propaganda.

One of Annual Tax Summary breakdown examples published by the Treasury shows someone earning £30,000 a year will see their tax being spent as follows:

  • £1,663 on welfare
  • £1,280 to health
  • £892 on education
  • £822 to state pensions
  • £78 towards overseas aid
  • £51 to the EU budget

This is an example of an Annual Tax Summary for someone earning £45,000 a year:

Your Annual Tax Summary BreakdownIt’s costing an estimated £5m for the Treasury to send out these Annual Tax Statements each year. Is it really worth it?

In addition to the missing breakdown of welfare spending, the statements do not feature VAT or other indirect taxes, so only tell part of the picture. The Shadow Exchequer Secretary to the Treasury, Shabana Mahmood, has been critical of the Annual Tax Summary statements pointing out that VAT, fuel and alcohol duty does not feature.

One potential benefit is highlighting to each taxpayer how much they are paying in tax and motivating them to take action to ensure they are paying the right amount of tax. Not paying more than your fair share of tax should be a priority.

“Not paying more than your fair share of tax should be a priority.” [tweet this]

Tax planning is an important part of the Financial Planning process; making use of available tax allowances, staying up to date with changes to tax rules and providing accurate information to HM Revenue & Customs for your annual tax return, should all be a priority.

Do speak to us if you have received your Annual Tax Summary and want to make sure you paying a fair amount of tax. We offer a first meeting which is at our expense and without any obligation.

Call us on 01483 274566, email hello@icfp.co.uk, or complete our online enquiry form to find out more.

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Monthly Investment Update – November 2014

Monthly Investment Update - November 2014The FTSE 100 index of leading UK company shares finished October at 6,546.17, falling 76.55 points or 1.16% during the month.

Global equity markets finished the month on a more positive note, with news of further monetary policy easing from the Bank of Japan.

This announcement in Japan was combined with expectations interest rates will remain low in the UK, US and across Europe, resulting in investors likely to favour equities over cash for the medium term.

Banking stocks were the biggest gainers on the final day of the month, with Barclays rising by more than 8% in a day because new leverage ratio rules were not as strict as some had expected.

The FTSE 100 is now trading on an attractive dividend yield of 5.4%. Earlier in October it fell sharply as a result of weak economic data in Europe and continued geopolitical tensions in various parts of the world. The index is now down by around 3% since the start of the year, but could quickly rebound to challenge its peak of 6,904.86 points reached at the start of September.

The UK is back on track to be the fastest growing economy in the G7, following the publication of new GDP figures for the third quarter. Despite economic growth in the UK slowing down slightly in the third quarter – rising by 0.7% compared to 0.9% in the second quarter – the International Monetary Fund (IMF) expects UK GDP to increase by 3.2% in 2014. They forecast growth of 2.2% in the US this year, which puts it in second place.

Further afield, growth in Chinese manufacturing slowed in October, reinforcing concerns about a wider economic slowdown in the country. According to the Purchasing Managers Index (PMI) in China, activity fell from 51.1 in September to 50.8 in October. A score above 50 still represents expansion, but there is clearly some downward pressure on the economy.

Price inflation in the UK has fallen to its lowest level in five years, with the Consumer Prices Index (CPI) measure of price inflation at 1.2% for the year to September 2014. Inflation was driven lower by falling energy and food prices, according to the Office for National Statistics (ONS).

The Retail Prices Index (RPI) measure of price inflation, which includes mortgage interest and other housing costs, fell from 2.4% in the twelve months to August, to 2.3% for the year to September.

In the Eurozone, which has been facing the prospect of deflation, price inflation rose slightly in October. The latest ‘flash inflation’ figure showed price inflation in the Eurozone of 0.4% in October, up very slightly from 0.3% in September, according to the agency Eurostat.

The European Central Bank (ECB) also has an inflation target of 2%, similar to the UK. They have cut their benchmark interest rate to 0.05% and started an asset purchase programme in an attempt to stave off deflation.

Interest rates in the UK remain on hold at 0.5%, with no real prospect of a rate rise in the short term. Despite the UK economy showing some signs of a sustained recovery, monetary policy remains quite loose and markets have recently assumed the UK is the advanced economy where interest rates might rise the soonest.

We continue to believe that rates will remain low until the middle of next year at the earliest, and any subsequent rise is likely to be modest.

UK house price growth continues to slow, according to the latest figures from Nationwide. Prices rose 0.5% in October, following a fall of 0.1% the previous month. This brings the average house price to £189,333. Annual house price inflation fell to 9% in October from 9.4% in September.

Nationwide believes these recent figures indicate the housing market has lost momentum over the summer. According to the Building Society, “Some forward-looking indicators, such as new buyer inquiries, suggest that activity may soften further in the near term, especially in London.”

The yield on a benchmark 10 year gilt stood at 2.25% at the start of November, falling from 2.43% a month earlier.

Brent Crude Oil Futures are currently $85.83 a barrel, falling sharply during October on lower global demand. The Forex Gold Index is $1,164.25/ounce and the Silver Index is $16.20/ounce.

£1 will buy $1.6000 or €1.28070.

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7 things you should do right now

7 things you should do right nowWorking with clients approaching or in the early stages of retirement over the past decade, I’ve identified 7 things individuals and couples would benefit from doing right now.

These are essential personal finance steps, many of which don’t require the professional services of an Independent Financial Planner.

Each of the 7 steps described below involve a little work on your part, although the effort is tiny in comparison to the benefits of ticking each item off your list – or the consequences of failing to address them in time.

Here are my 7 things you should do right now if you’re approaching retirement or in the early stages of retirement.

1 – Put yourself first

Increasingly we find the post-war generation are also part of the ‘sandwich generation’. Trapped between the demands of adult children and elderly parents, it is easy to find a comfortable financial position placed under great pressure.

In retirement, you need to put yourself first and secure your own lifestyle, before committing to help children or parents secure their own. This can mean making some difficult decisions and sometimes saying ‘no’ to what might at first glance appear to be reasonable requests.

The best way to put yourself first is to get a comprehensive Financial Plan, quantify precisely what you need in terms of income and capital to secure your desired lifestyle in retirement, and then gift or loan money to family based on the knowledge you can afford to give it away.

2 – Diversify your investment portfolio

During your working life, it is entirely reasonable to have an investment portfolio consisting largely of equities. Exposing your money to equity risk makes sense over the long-term as history tells us company shares tend to outperform cash, bonds or property when time is on your side.

As you enter retirement, you should consider diversifying the contents of your investment portfolio. Rather than holding everything in a single investment asset class, invest broadly across a wider range.

This helps to reduce risk without adversely reducing the prospect for returns. It is likely to result in reduced volatility from your investments, which will result in fewer sleepless nights worrying about the vagaries of the stock markets.

3 – Consider the cost of long-term care

The area where I spend most of my working life is helping clients plan for the cost of residential care fees. In my experience as a care fees planner, most people massively underestimate how much this expense is going to be in the later stages of retirement.

We’ve seen retirement plans severely compromised by the cost of care; it costs on average £563 a week to provide residential care in England, with big regional variations in these costs which can easily see £3-4,000 a month spent on quality residential care in Surrey.

It is never too early to start thinking about the cost of care in later life, along with your preferences for how this care is provided. You might want a family member to provide care when you can no longer look after yourself, bring care services to your own home or move to a residential care home.

Plan ahead and even consider choosing your preferred residential care home before you reach the stage in life where you actually need it.

Download our free care fees planning guide

4 – Make a will and get a Lasting Power of Attorney

By the time you reach retirement, there is no excuse for not having a valid will. Without one you will die ‘intestate’ and the government will take care of the distribution of your assets; not a particularly pleasant surprise for a grieving family.

At the same time as making a will, get yourself a Lasting Power of Attorney. These allow others to make financial or welfare decisions on your behalf should you lose mental capacity in the future.

The alternative is your family having to apply to the Court of Protection, which can be a lengthy and expensive process, when you no longer have the ability to make your own decisions. With cases of dementia on the rise in the UK and forecast to exceed one million by 2025, it is a sensible and inexpensive planning step to get a power of attorney before you need one.

Download our free estate planning guide

5 – Insure or repay all of your debts

More people are entering retirement with debts, often as a consequence of starting families or getting on the property ladder at a later stage in life. There is absolutely nothing wrong with having debts in retirement, as long as they are affordable and properly managed.

In the first instance, you should make sure all of your debts are insured so they can be readily repaid in the event of your death. Term assurance is relatively inexpensive even in retirement, as it covers debts for a known length of time which is likely to be shorter than your own life expectancy.

As well as insuring debts, put in place a plan to repay all of your debts so you can focus that money instead on achieving more important financial goals – even just so you can stop stressing about the burden of debt and start to enjoy retirement to its full.

6 – Chat to your family about death 

As you enter retirement, death can still feel like a very long way in the future. With rising life expectancies, it probably is. But talking openly about death is a very important thing to do as you approach or enter your retirement.

This is not only about thinking about the cost of funerals or how your assets will be distributed when you die, but communicating your preferences for end of life care and burial or cremation.

Death has long been seen as a taboo topic, not something we openly discuss around the dinner table. With the advent of Dying Awareness Week and even Death Cafes (where people go to drink tea, eat cake and talk about death), dying is being embraced as something worthy of discussion.

7 – Have a plan for the next thirty years

Retirement today is very different to retirement of a generation ago. Rising life expectancies mean we can expect an average retirement to last twenty or thirty years (or longer).

More time spent in retirement means higher costs to fund that period in life, especially as price inflation has a bigger impact over longer periods of time. Inflation of 2-3% a year has little impact over a decade, but try compounding it over 20-30 years and most fixed income will struggle to keep up.

Longer retirements are not only about incomes and investment, but considering how you will actually spend that time.

The clients we work with tell us that sitting at home watching TV or reading books is not very appealing as a way to spend a retirement after a lifetime of productive employment or business ownership. Look at options for volunteering, charity work or membership of local activity groups including U3A.


I hope you found this post useful and these 7 things you should do right now have given you some practical ideas for action.

If you would like to plan for a meaningful and affordable retirement, please do get in touch and arrange a meeting which is at our expense and with no obligation. You can call us on 01483 274566, email hello@icl-ifa.co.uk or complete our online enquiry form.

Retirement presents a great opportunity to fulfil all those things you want to do with your life, and with proper Financial Planning this is usually possible with the support of the necessary finances.

We look forward to hearing from you soon and helping you plan for a successful life in retirement.

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40 questions to answer before taking pension benefits

40 questions to answer before taking pension benefitsWe have described before the difference between Guidance and Advice.

It has now been confirmed at a recent Treasury Select Committee hearing that the Financial Conduct Authority (FCA) and one provider of the Guidance Guarantee service, The Pensions Advisory Service (TPAS), both agree that the proposed service is about making sure that pension plan owners ‘ask the right questions’.

But you don’t need to wait for these organisations to get their collective acts together. We can arm you with those questions, right now.

We believe that there are 40 questions to which you need to have the answers before you make any decisions about taking your pension benefits.

Some of those questions you need to ask yourself to ensure what you do is suitable for you.

Some of the questions you need to ask the provider of your pension plan.

And some of the questions you need to ask your adviser, if you decide to take advice.

Click here to access the 40 questions

The French philosopher Voltaire said “you should judge a man by his questions, not by his answers” but when it comes to choosing your pension benefits you need both questions and answers to make an informed choice.

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Advice is what we do

Advice is what we do I wrote recently about the difference between guidance (as proposed by the government) and advice.

I make no apologies for presenting in full the contents of an email I received this morning from an Informed Choice client – reproduced with his kind permission.

He has made our day because, as he explains in the email below, his life has changed positively as a result of him engaging with us for financial planning advice

As you may recall, we had some interesting and imaginative conversations about what I might do with my money and as I presented you with my thoughts you helpfully made me aware of the implications of my sometimes ‘off the wall’ ideas.

This was reflected in the report which I used to extrapolate how I might make my retirement more fruitful and comfortable.

This to me epitomises the difference between advice and guidance, the core issue of your post.

So now I have pleasure in informing you that using the advice you and your excellent team gave to me, I have signed a contract on a beautiful apartment in the centre of historic Pisa in Tuscany, and have rented out my home in Banstead,  which will mean I can live quite comfortably in a lovely (sunny!) part of the world, whilst retaining my savings at around their current levels until my pensions mature in a few years time.

Whilst the specific advice you give may not include such things as ‘you can live in a tree lined Villa in Tuscany with a small medieval castle at the end of your road’ (the enclosed pictures are a few meters from my front door) this was how I interpreted it! 

Guidance as to whether I should simply take income draw down or an annuity simply would not cut it for a person like me.

We can’t promise Tuscan sunshine to all of our clients but we can promise imaginative thinking where possible.

Do get in touch to arrange an initial meeting which is at our expense and without any obligation.

You can call me on 01483 274566, email nick@icl-ifa.co.uk or complete our online enquiry form. We look forward to hearing from you.

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Stressed European Banks

Stressed European BanksIt’s been a bad day if you’re a European bank in a vulnerable financial position.

The European Banking Authority has announced the results of its financial stress tests, with a whopping 24 European banks failing.

This means the banks which failed the stress tests need to improve their financial positions within the next nine months or face being shut down.

The good news is no UK banks failed the stress test.

Of the four UK banks which were subjected to the stress test, Lloyds Banking Group passed by the narrowest margin, with capital under adverse scenarios of 6.2%. This is pretty close to the 5.5% benchmark used by the European Banking Authority.

Across the rest of Europe, the position of the banking scenario is less rosy.

Four Italian banks, two Greek banks, two Belgian banks and two Slovenian banks failed the stress test, which was based on their balance sheet positions at the end of 2013.

Worst affected was Monte dei Paschi, an Italian bank, with a capital shortfall of €2.1bn (£1.65bn).

Quick off the blocks with fund manager commentary was Paras Anand, Head of European Equities at Fidelity Worldwide Investment:

“Arguably the most remarkable aspect of the recent in-depth review of the capital adequacy of the European banking system is how little commentary the event garnered before the publication if the results.

“That 25 of Europe’s 130 largest banks would require more capital in a stressed economic scenario is truthfully a much more robust place to be in than many would have anticipated two years ago where concerns around the fragility of the Eurozone was at its peak.

“Since then we have seen a collapse in funding costs, an improvement in net interest margins and in some economies, indications that historic provisions on ‘toxic’ assets may, in the end be shown to be overly prudent.

“Several quarters of deleveraging means that the system is less tightly coupled than it was in the period around the crisis and certainly the chance of cross-border contagion is reduced as a result of how ECB liquidity has been used to by local central banks to shore up their domestic sectors.

“The challenge faced by the sector going forward is the same as we see across developed markets. Until the overlap between the customers that require credit and those to whom the banks are willing to lend grows materially, it will be challenging for the financial system to play the role that it has done historically in supporting economic recovery.

“Greater credibility in terms of capital adequacy is a step in the right direction, as may be establishing a consistent regulatory framework, but both the management of banks and those that regulate them need to stop looking back and start looking forward in order to push the Eurozone economy in the right direction.”

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Book review – Abundance: The Future Is Better Than You Think

Book review - Abundance: The Future Is Better Than You ThinkWith some much bad news in the world – or at least in the newspapers and featured on rolling 24 hour news coverage – it is easy to think it is all doom and gloom out there.

The world undoubtedly faces some significant challenges.

A growing population and growing demand for natural resources, combined with massive inequality between developed and developing economies, means we will have to face up to these challenges before (as dramatic as this sounds) the inevitable collapse of human civilisation.

I first heard about a book called Abundance: The Future Is Better Than You Think by Steven Kotler and Peter Diamandis whilst listening to a podcast recently.

Kotler is a well known journalist and author (I’ve heard another of his books, The Rise of Superman: Decoding the Science of Ultimate Human Performance, reviewed on a podcast as well recently) and Diamandis is best known as founder of the X PRIZE Foundation.

Abundance takes a contrarian stance and makes the case that technology means we will soon be able to meet and exceed the basic needs of every man, woman and child on the planet. The book makes a convincing argument for this, with detailed research and references backing up every claim.

Kotler and Diamandis explain in the book how four forces—exponential technologies, the DIY innovator, the Technophilanthropist, and the Rising Billion—are all conspiring to solve our biggest problems.

As I read Abundance on my Kindle, I highlighted several passages with important messages:

Humanity is now entering a period of radical transformation in which technology has the potential to significantly raise the basic standards of living for every man, woman, and child on the planet. Within a generation, we will be able to provide goods and services, once reserved for the wealthy few, to any and all who need them. Or desire them. Abundance for all is actually within our grasp.

The negativity bias—the tendency to give more weight to negative information and experiences than positive ones—sure isn’t helping matters.

One concept lately gaining momentum is “impact investing” or “triple-bottom-line investing,” whereby investors back businesses that generate financial returns and meet measurable social or environmental goals. The practice often gives investors a further reach than traditional philanthropy—and this practice is growing. According to the research firm the Monitor Group, what was $50 billion in impact investments in 2009 is on pace to reach $500 billion within the decade.

“Right now,” says Joy, “we’re fixated on having too much of everything: thousands of friends, vacation homes, cars, all this crazy stuff. But we’re also seeing the tip of the dematerialization wave, like when a phone dematerializes a camera. It just disappears.”

“What if healthy and wealthy means you don’t need all those things because, instead, you’ve got these really simple devices that are low maintenance and encapsulate everything you need?”

If an idea is truly a breakthrough, then the day before it was discovered, it must have been considered crazy or nonsense or both—otherwise it wouldn’t be a breakthrough.”

If you’ve read Abundance, please use the comments below to let us know what you think.

You can find reviews of some of the other books we’ve been reading at icl-ifa.co.uk/book-club/

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Cranleigh parkrun & volunteering

Cranleigh parkrun & volunteeringFor the past few Saturdays I’ve been doing something rather uncharacteristic and getting out of bed quite early.

Even with a household of young children and penchant for running ridiculously long distances, I like to have a few extra minutes under the duvet at the weekends when I can.

But a new event in the village has seen me throwing off the blankets, kissing Becky goodbye and heading to a field with a car boot full of traffic cones.

Earlier this year I became Event Director of the new Cranleigh parkrun.

parkrun is a series of free, weekly, 5km timed runs which take place across UK and in fact across the world.

Since they started in 2004, they now take place at 297 different locations in the UK every Saturday morning at 9am. Runners of all abilities have completed a total of 5,284,872 runs, covering a total distance of 26,424,360 km. Wow!

When the local parkrun ambassador approached me looking for help, I was already familiar with the parkrun community, having taken part at Guildford parkrun (running and volunteering) and Medina IOW parkun, in Newport on the Isle of Wight (running whilst on holiday there).

The prospect of a Cranleigh parkrun was very exciting and something I was keen to see come to life, as the parkrun movement is such a great way to bring running to villages and towns.

parkrun is entirely organised by volunteers, so the first step was to form a core volunteer team who would take it in turns to be Run Director on a Saturday morning, coordinating the other volunteers and ensuring the safety of runners at the venue.

Once volunteers were in place, land use permission had been negotiated and funding for the event kindly secured from Waverley Borough Council, we held a test event for a select group of runners and volunteers in September, before our official launch on Saturday 4th October.

At our first event we had an amazing 111 runners, with representatives from 30 different athletics clubs taking part.

The following weekend, without numbers being boosted by parkrun ‘tourists’ visiting an inaugural event, we had 33 finishers.

And then last weekend, with word gradually spreading about the new local parkrun, we had 53 finishers.

I was reminded in the latest parkrun newsletter this afternoon about some of the benefits of volunteering.

As well as improving the health and well-being of the volunteer themselves, each additional volunteer increases the capacity for an event to accommodate participants, with a corresponding improvement to the health and well-being of each participant. I’d call that a win-win situation.

Volunteering at events such as parkrun also leads to an improvement in community cohesion, reductions in crime and also increases in feelings of pride and connection that people have with their surroundings.

Even the pennies spent by the volunteers and participants in the local cafes or other businesses, when added up week after week and year after year, represent significant value to the local community.

As I discovered when filming my documentary about retirement, and interviewing volunteers with the Surrey Wildlife Trust, volunteering is a great thing to consider in retirement.

It is a way of making new friends, giving something back to the local community and sharing valuable skills and experience you have gained from a lifetime of work, as well as keeping fit and active, both mentally and physically.

I’m looking forward to another early start this Saturday morning, when I’ll be marshalling at Cranleigh parkrun as another member of the core volunteer team is taking the role of Run Director for the first time.

Nick and Andy will also be there, in their now usual roles as marshals.

If you would like to get involved, either running or volunteering, do check out parkrun.org.uk/cranleigh for all the details.

 

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No stress retirement

No stress retirementAs Financial Planners we often focus on the financial consequences of a client taking a particular course of action.

Is it the right thing to do or is a an alternative likely to produce a better result?

But as well as the financial consequences of a course of action we are always very mindful of the non-financially quantifiable benefits.

In the Moneywise Guide – How to Retire in Style (available from WH Smith) one of our clients has some kind words to say about how we took away the stress of him having to make a choice of what to do with his pension plans on retirement.

It is easy for us, as professional advisers, to forget how stressful the pensions subject is.

Not only are the choices something of a minefield but the consequences of getting it wrong are potentially very damaging for a long period of time.

Bespoke advice is in our view a very valuable commodity.

It can enhance your financial position as well as your emotional well-being.

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Dinosaur IFA on guidance & advice

Dinosaur IFA on guidance & adviceMost people (including George Osborne, it seems) struggle to understand the difference between guidance and advice.

In the regulated world of financial services there is a very big difference indeed.

This week the Treasury has announced that Citizens Advice and The Pensions Advisory Service will be the first two providers of the Guidance Guarantee service, announced in this year’s Budget statement.

Anyone over age 55 with a money purchase pension plan, typically a personal pension plan, will be directed by their plan provider to a guidance provider to receive, unsurprisingly, guidance about their at retirement choices and options.

In our latest film, Dinosaur the IFA explains to a client the difference between guidance and advice.

The client is astonished to learn that she cannot get free advice and that despite all the Treasury promotional material, it is, in fact, the financial services sector that is paying for the delivery of the guidance service.

The government sure likes to pretend that they have paid to set up these non-advisory organisations and then disingenuously sticks the advice label on them.

Do take a look at the short video below because as you can imagine the last thing we want is for consumers to be confused about the difference between advice and guidance.

Or is it guidance and advice? Confusing eh?!

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