Inheritance tax to be removed on £1m homes

Inheritance tax to be removed on £1m homesWith less than a month to go before the General Election, more details are starting to emerge about manifesto promises from the various political parties.

It was the turn of the Conservatives this weekend, who announced their plans to remove family homes valued at up to £1m from inheritance tax.

Announcing the measure, Chancellor George Osborne said this “supports the basic human instinct to provide for your children”.

The policy would cost around £1bn and it would be funded by reducing the tax relief available on pension contributions for people earning over £150,000. The annual allowance would taper down from £40,000 to £10,000 by the time earnings reached £210,000.

Inheritance tax is currently charged at 40% on the value of your taxable estate over the nil rate band of £325,000. You can pass on any unused nil rate band to a spouse or civil partner, and assets transferred between spouses and civil partners on death are free of inheritance tax.

What the Conservatives are proposing is a further £175,000 “family home allowance”, so family homes worth up to £1m can be passed on free of inheritance tax to children when the parents have both died.

Even if one spouse or civil partner has died before the “family home allowance” is introduced, the full amount will still be transferable.

For people with properties worth over £2m, the “family home allowance” will be gradually reduced so those with homes valued in excess of £2.35m will not benefit from the extra nil-rate band at all.

The Tories plan to introduce this policy in April 2017, should they win at the General Election next month.

Critics of the policy have called it a “panicky promise” and said it addresses “the wrong priorities”.

It is however a policy in clear contrast to Labour plans for a mansion tax and follows previous Conservative policies of pension freedoms and tax-free savings, which are likely to appeal to older voters.

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Week in review: Friday 10th April 2015

weekinreviewHappy New Tax Year! Easter Monday on 6th April was the start of the 2015/16 tax year AND ‘pension freedom day’.

Nick shared five tips (plus a bonus tip) for pension freedom day and earlier today we published our latest podcast episode where Martin interviewed independent pensions consultant Rachel Vahey about the new pension regime.

For all this and more, read on!

Blogs

5 tips for Pension Freedom Day5 tips for pension freedom day

Nick shared five tips for people considering taking money out of their pension pots following the introduction of new pension freedom and choice rules. If in doubt, please speak to us with any questions.

Derek Paravicini Quartet at the Cranleigh Arts CentreDerek Paravicini Quartet at Cranleigh Arts Centre

Martin wrote about this Informed Choice sponsored event in aid of the Jigsaw Trust and World Autism Awareness Day. If you have a spare 20 minutes, please watch the TED Talk video in the blog; it’s incredible.

Your pension options explained in 3 minutesYour pension options explained in 3 minutes

Nick shares some love for an excellent three minute animation from Quietroom, explaining the new pension options in a very simple and effective format, in just 3 minutes!

Podcast

Podcast 18 - Pension reform winners & losersEpisode 18 – Pension reform winners & losers with Rachel Vahey

In the latest episode of the Informed Choice Podcast, Martin interviewed independent pensions consultant Rachel Vahey and talked to her about the potential winners and losers from the new pension reforms.

Video

Informed Choice-UThis week we soft-launched Informed Choice-U; short (2-3 minute) daily videos explaining key personal finance and investing principles. Here are the first two episodes for your viewing pleasure.

ICU001 – Pound Cost Averaging

ICU002 – Budgeting

Press

A better way of FSCS funding

Martin’s latest column for Money Marketing magazine looked at better funding options for the increasingly expensive and unfair Financial Services Compensation Scheme (FSCS).

Warning for pensioners in Surrey and Hampshire

Martin delivers a warning for pensioners in Surrey and Hampshire following the introduction of the new pension freedoms in this article for Eagle Radio. Don’t let the scammers get their hands on your pension cash!

Stocks and shares could now be a good deal for your ISA

Martin is quoted in this article in The Guardian suggesting an investment fund for a first time ISA investor.

 

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Podcast 18 – Pension reform winners & losers with Rachel Vahey

Podcast 18 - Pension reform winners & losersThis week in episode 18 of the Informed Choice Podcast, Martin interviews pension expert Rachel Vahey about the winners and losers from the new pension reforms.

He also talks about a surprise fall in life expectancy for retired women and why economic reform is working so well in Japan.

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Here are links to everything Martin talks about in episode 18 of the Informed Choice Podcast:

Derek Paravicini Quartet blog

Cranleigh Parish Boundary Challenge

The Humans by Matt Haig (book)

Talk Like TED by Carmine Gallo (book)

the parkrun show (podcast)

This Is Your Life with Michael Hyatt (podcast)

The Unbeatable Mind (podcast)

Rachel Vahey Independent Pension Consultant

Alarm over sudden drop in female life expectancy

If you enjoy listening to the Informed Choice Podcast, please take a minute to leave a review on iTunes here. When you write your review, leave a note of your full name and website address, and Martin will read these out in a future episode of the podcast.

If there is anything you would like to see featured in a future episode of the Informed Choice Podcast, please leave a comment below, email Martin at martin@icfp.co.uk or contact him on Twitter @martinbamford.

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Your pension options explained in 3 minutes

Your pension options explained in 3 minutesI sat with a client this morning and we spoke about pensions.

I have a confession to make; I love the subject of pensions but I fully appreciate that it is not everyone’s cup of tea.

The eyes of normal human beings tend to glaze over however hard we try to translate “pensions speak” into plain English.

Now and again we come across some examples of really clear communication. Usually they involve trying to visualise the words.

This in my opinion is an extremely good example of some one going to heroic lengths to try to explain the choices that are available to the pension pot owner who wants to take their benefits.

It can, of course, never replace professional independent financial planning advice but it is a great start.

Well done, Quietroom for producing this very informative and well presented short animation.

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Derek Paravicini Quartet at the Cranleigh Arts Centre

Derek Paravicini Quartet at the Cranleigh Arts CentreOn Thursday evening, I joined Nick and Andy at the Cranleigh Arts Centre to watch a performance by the Derek Paravicini Quartet.

This was an event Informed Choice sponsored for Jigsaw Trust, in aid of World Autism Awareness Day.

Yet he is blind, autistic and has severe learning difficulties.

His unique musical abilities are recognised all over the world.

Derek was joined on Thursday evening by three exceptional musicians to form the Derek Paravicini Quartet. This quartet features Derek along with Hannah Davey (vocals), Ben Holder (violin) and Ollie Howell (drums).

Nick, Andy and I were all extremely moved by Derek’s performance, impressed by the talents of Hannah, Ben and Ollie, and brought to tears by the appearance on stage of two young autistic children with musical abilities beyond our comprehension.

We were incredibly proud to have played a small part in bringing a performance of the Derek Paravicini Quartet to the Cranleigh Arts Centre and helping to raise awareness of the important work done by the Jigsaw Trust.

If you have a spare 20 minutes, please watch Derek’s TED talk from TEDxWarwick in 2013 which will give you a flavour of this magical musician:

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5 tips for Pension Freedom Day

5 tips for Pension Freedom DayIt’s Pension Freedom Day! Here are 5 tips that we hope will help you make good decisions with your pension pot in light of the new freedom and choices.

If you have a pension pot that needs to last you all your life and you don’t know how long that is going to be;

1 – seriously consider buying an annuity (a very effective insurance against longevity);

If you have some debt to pay off, maybe credit cards;

2 – take your tax free cash from the pension pot without taking any taxable benefits;

If you seriously want to access the whole of your pension pot;

3 – take the tax free cash and enough of the balance of your pension pot with the least tax take possible. Maybe take your pension pot in stages over a number of income tax years;

If you want to give your pension pot away to children or grandchildren;;

4 – question whether you can make that gift from other assets because your pension pot is highly inheritance tax efficient;

If you want to “blow” your pension pot;

5 – do it with purpose – don’t fritter it away on stuff that you will have forgotten about in three years time.

And a final bonus tip;

6 – please don’t get scammed!! If an investment sounds too good to be true it’s because it is, too good to be true!!

Do get in touch if you have any questions about pension freedom.

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Week in review – Friday 3rd April 2015

Week in review - Friday 3rd April 2015Wow, what a week!

The tax year is effectively over, with the 5th of April falling on Easter Sunday and our office now closed until Tuesday 7th April, when we welcome the start of 2015/16.

Earlier this week we played a trick our on website visitors for April Fools’ Day, launching an autonomous robo-adviser with artificial intelligence (not really).

Nick was a guest on BBC Radio 4 Money Box Live on Wednesday afternoon, answering listener questions about pension freedom, and last night we attended a performance of the Derek Paravicini Quartet at the Cranleigh Arts Centre, in aid of The Jigsaw Trust and World Autism Awareness Day.

Whatever you get up to over the long Easter weekend, we hope you have a great time.

Blogs

Client stories: Dee Searle standing for parliamentClient stories: Dee Searle standing for parliament

Nick interviewed his client Dee Searle, who is hoping to become the first Green Party MP in Tottenham at the General Election next month. We plan to conduct more of these ‘client stories’ interviews in the future, sharing interesting tales from our interesting clients.

Is your pension data safe?Is your pension data safe?

On the eve of pension freedom day, the Daily Mail published the results of an investigation which found confidential financial data about pensions has been acquired by scammers. Find out how to keep your pension pot safe here.

Informed Choice aims to fill advice gap with innovative Robo-Adviser solutionInformed Choice aims to fill advice gap with innovative Robo-Adviser solution

Not really, but we had a lot of fun making and sharing this short film for April Fools’ Day.

Investment update - April 2015Investment update – April 2015

With the start of the second quarter, we share our investment update for April 2015. Read this to learn everything you need to know right now about investment markets, economies and interest rates.

Money Box Live on Pension FreedomMoney Box Live on Pension Freedom

Nick was a guest expert on BBC Radio 4 Money Box Live earlier this week, along with Michelle Cracknell from The Pensions Advisory Service and Tom McPhail from Hargreaves Lansdowne. Here is our summary of the listener questions and the answers the guest experts provided.

Podcast

Podcast 17 - Carl Richards & Dee SearleEpisode 17 – Carl Richards & Dee Searle

This week on episode 17 of the Informed Choice Podcast, Martin spoke to Carl Richards, a Certified Financial Planner and financial sketch artist. Martin chatted with Carl about how he got started in Financial Planning and about his new book, The One-Page Financial Plan.

Articles

Make the most of your new lump sum

Martin comments for The Times in an article about options for your pension lump sum once the new pension freedom rules are introduced on 6th April.

Once upon a time there was an ISA

Martin features in The Sunday Times in this article about teaching children the language of money.

Aegon to remove misleading Retiready promotional video

A quote from Nick in this Money Marketing article about a promotional video from a pension provider which contained misleading information in the build-up to the new pension freedom rules.

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Podcast 17 – Carl Richards & Dee Searle

Podcast 17 - Carl Richards & Dee SearleThis week in episode 17 of the Informed Choice Podcast, Martin interviews Certified Financial Planner and financial sketch artist Carl Richards about his new book, The One Page Financial Plan.

There’s also a short interview with Dee Searle; a client of Informed Choice who is hoping to become Tottenham’s first Green Party MP.

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Here are links to everything Martin talks about in episode 17 of the Informed Choice Podcast:

AdviserBot3000 April Fools’ Day video

Nick on Money Box Live talking about pension freedom

Informed Choice-U (coming soon)

Non-Obvious by Rohit Bhargava

Hell and High Water by Sean Conway

The Humans by Matt Haig

Planner Pulse Podcast

Dee Searle – Green Party parliamentary candidate for Tottenham

Carl Richards

The One Page Financial Plan

The Greensand Marathon

If you enjoy listening to the Informed Choice Podcast, please take a minute to leave a review on iTunes here. When you write your review, leave a note of your full name and website address, and Martin will read these out in a future episode of the podcast.

If there is anything you would like to see featured in a future episode of the Informed Choice Podcast, please leave a comment below, email Martin at martin@icfp.co.uk or contact him on Twitter @martinbamford.

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Money Box Live on Pension Freedom

Money Box Live on Pension FreedomInformed Choice chartered financial planner Nick Bamford was a guest expert on Money Box Live this afternoon, answering listener questions about Pension Freedom.

Nick was joined by Michelle Cracknell from The Pensions Advisory Service and Tom McPhail from Hargreaves Lansdown. The episode was hosted by Paul Lewis.

With only days to go until ‘pension freedom day’ on 6th April, Nick was able to answer listener questions about the new rules and flexibility to access pension funds.

You can listen again to the episode on BBC iPlayer at www.bbc.co.uk/programmes/b05nvjb2.

Michelle Cracknell pointed out that your pension fund is often your biggest or second biggest asset, so people will need to take care not to be taken in my fraudsters who want to get their hands on the money.

Tom McPhail cautioned people to shop around and consider all of the options.

Nick urged listeners to use their pension funds with purpose, not just taking action because you can.

The first caller was Nick from Bristol, who initially got excited about accessing his Stakeholder pension when he reaches his 55th birthday later this month. He received conflicting advice from a number of people and was unsure about what action to take.

Our Nick counseled him to consider whether he needed to take money out of his pension pot, before taking any action. Using his 25% tax-free cash to fund his fallow period during self-employment and then leaving the rest of pension fund available seemed to make the most sense.

Wendy called from Bristol. Her husband has a final salary pension and she has a State pension; income they live on. They also have money invested in stocks and shares, although admitted to being risk averse. She also had a pension pot and asked about the tax consequences, as a non-taxpayer, of withdrawing the money.

Nick answered her question, explaining that the first 25% of the pension pot would be tax-free and she would need to be careful about her withdrawal strategy for the balance, as an emergency tax code could be applied, assuming 1/12th of a personal allowance and basic rate tax band was available. By staggering the withdrawals over a number of tax years, it would be possible to pay less tax overall.

Isobel emailed asking about where to get information about finding the best annuity, if you have a modest pension pot. Michelle explained that the new pension choices do not negate the old pension choices, including annuities. She told Isobel that a regulated financial adviser can often provide advice about the best annuity rate and you end up paying the same as you would by buying direct.

April from Bletchingly asked about the inheritance tax treatment on a pension pot if you die after your 75th birthday, as a result of the new rules. If you die before 75, any pension pot left over is paid free of tax with the whole pension pot passed to your beneficiaries. After age 75, the beneficiaries would pay income tax at their marginal rates.

An email from Mike asked about his three personal pension pot with three different firms. One had enhanced tax-free cash, but the provider does not offer a drawdown facility.

Nick explained that some people historically were able to build up tax-free cash of greater than 25%. He told Mike to avoid doing anything which could result in him losing this higher tax-free cash entitlement.

A related email from Steven, who had two pension pots, asked whether he needed to take 25% tax-free cash from each fund or could take his total tax-free cash entitlement from one, preserving the value from the other. Tom said he could take 25% from each or merge the two before withdrawing cash.

Jane from Carlisle called and asked about her eligibility with a defined benefits (final salary) scheme. Nick explained that she was absolutely right about the new rules applying primarily to defined contribution pension schemes. But you need to be very careful before giving up what can be very valuable benefits.

Non-public sector defined benefit schemes and funded public sector defined benefit schemes offer the option to transfer to a defined contribution pension scheme first, to access the pension freedom rules. If your transfer value exceeds £30,000, you need to take regulated financial advice first.

Robin is 70 years old and was drawing from three pension funds, subject to GAD limits. He asked whether these limits still applied. Nick explained Robin could move into the new flexi-access regime which would remove these limits, but the annual allowance would fall significantly and there could be higher costs involved.

Paul Lewis asked Nick to give listeners an idea of how much financial advice would cost, to which Nick responded typically in the range of £1,200 to £1,500. An alternative would be to call The Pensions Advisory Service, although of course they can only offer guidance, not specific advice.

Mike from Norfolk reaches his 55th birthday in 18 months time and has a pension pot of between £400-500,000. He has a mortgage left of £100,000 and asked about how to make the decision to repay the mortgage with his tax-free cash. Nick said he likes the idea of repaying debt, but his decision would depend on the degree of risk he is prepared to take with his pension pot.

Peter in Hampshire, aged 70, asked about cashing in his annuities, as he might benefit from receiving a lump sum rather than a small income each year. This refers to a recent Budget proposal which is going through consultation, so is not currently possible.

If you have any questions about the new pension freedom rules, the experts here at Informed Choice would be very happy to answer them.

You can post a question in the comments below, email us at hello@icfp.co.uk or call us on 01483 274566.

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Investment update – April 2015

Investment update - April 2015The FTSE 100 index of leading UK companies finished March at 6,773.04, falling by 173.62 points or 2.5% during the month. The index did however set a new record high during March, reaching as high as 7,065.10 points at one stage before slipping back.

European stock markets started the second quarter on a positive note, with strong manufacturing data in China and the Eurozone. Manufacturing activity in the Eurozone accelerated sharply during March, suggesting a fresh economic recovery.

Markit Economics published its Purchasing Managers Output Index (PMI) for the Eurozone at a level of 52.2 points in March, up from 51 in February. The initial estimate for March was 51.9 points. An index reading above 50 indicates expansion.

In China, the official Purchasing Managers Index (PMI) was announced at 50.1 for March, up from 49.9 in February and the first result since December 2014 to show expansion in manufacturing activity, above the crucial level of 50 points. This data in China follows fears about an economic slowdown and two interest rate cuts by China’s central bank.

In the US, stock markets have been more volatile recently as investors think about the outlook for US monetary policy, whether Greece will exit the Eurozone and recent big falls in the price of oil. Greece continue to hold talks with their creditors over a disputed list of reforms, although EU Council president Donald Tusk has said that a Greek bailout deal is still possible before the end of April.

Oil has rallied slightly in recent days as talks continue about Iran’s nuclear programme. Expectations about Iran pumping millions of barrels of oil into the market have been lowered as a result of negotiations in Switzerland dragging on. Iran is insisting that financial, oil and banking sanctions currently in place on their country are lifted. They produce around 2.8 million barrels of crude oil a day, according to Reuters, but Western sanctions on Iran limit output to 1 million barrels.

The Bank of England interest rate remains at 0.5%, with recent suggestions that it could be cut further to combat the threat of deflation quickly dismissed by senior monetary policy makers. Bank chief Mark Carney recently made it clear that the next move will be up, despite the official measure of price inflation falling to zero last month, and an expectation of deflation in the short-term. The Bank commented that it would be “extremely foolish” for them to “lean against” this current spell of low inflation by cutting interest rates further.

Deflation tends to be bad news for an economy, as consumers delay their purchases of goods and services in the expectation that prices will continue to fall and bargains can be found at a later date. If the Bank of England is confident any deflation will only be short-lived, then we believe that the next rise in interest rates is likely to take place in early 2016 at the earliest, and be modest in nature.

Price inflation in the UK reached a new record low of zero in March, as measured by the Consumer Prices Index (CPI). This is the first time inflation has been zero since records began in 1989, although the country has experienced periods of deflation in the past.

Prices for goods and services are being pushed lower by the falling oil price, a bit of a price war breaking out at the supermarkets, and falling prices for books, toys and games. Economists had expected a very modest inflation figure of 0.1% for the year to February, so the announcement of ‘noflation’ took the markets slightly by surprise.

John Hawksworth, chief economist at PwC, has been quoted in response to these inflation figures as saying: “We think this would represent a good form of deflation in which lower global food and energy prices provide a much needed boost to household real income levels, helping to end the real wage squeeze of the past six years,”

Annual house price growth in the UK fell to 5.1% in March, according to the latest index figures from Nationwide Building Society. It was 5.7% in February. Prices rose by just 0.1% month-on-month and the average value of a property is now £189,454. House prices are now around 2% higher than their pre-financial crisis levels.

Robert Gardner, Nationwide’s chief economist, commented “Economic conditions have remained supportive, with labour market conditions continuing to improve and mortgage interest rates close to all-time lows,”

The benchmark 10 year UK Gilt yield currently stands at 1.56%, falling during March. £1 buys $1.47830 or € 1.37260. The Forex Gold Index is $1,187.00/oz and the Silver Index is $16.60/oz.

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