: Winter 2014/15
Stay on top of your mortgage As the UK economy continues to improve, an increase in interest rates is now widely expected at some point in 2015. Higher rates will be welcomed by savers, who have had a lean time over the past few years. Having reached a recent peak of 5.75% in July 2007, rates rapidly plummeted to an alltime low of 0.5% in March 2009, where they have remained ever since. Conversely, higher interest rates spell bad news for borrowers. A rate increase will drive up monthly repayments for those mortgage holders who do not have a fixed mortgage rate and, while those who have fixed their mortgages will not feel the initial impact of a rate rise, when their fixed period comes to an end, remortgaging is likely to result in a sizeable increase in monthly repayments. Anybody taking out a mortgage should always assess not only whether they can afford their repayments now, but also whether they would be able to afford them in an environment of higher interest rates. A rate rise is now seen as a foregone conclusion and, although rates are not expected to rise as far or as quickly as before the financial crisis, even a relatively small increase could have a relatively substantial effect on your monthly repayments. According to a recent survey published by mortgage lender Halifax, twofifths (41%) of mortgage holders are worried about the prospect of higher interest rates, with 13% concerned they might find themselves unable to meet their repayments if they were to rise by up to £50 a month. Meanwhile, if their monthly mortgage payments rose by as much as £100, 30% of mortgage holders fear they will have to cut spending on essential items such as food, energy and insurance. If the terms of your mortgage allow, it may be worth considering overpaying on your mortgage while rates remain low. It may also be worth negotiating a new mortgage now – perhaps moving from a standard variable rate to a fixed rate. That said, mortgage lenders are already poised to implement a rate increase once it takes effect and are therefore likely to take account of this when offering another deal. Make sure you check the terms of your current deal – you could incur penalties from your current lender if you switch to a new one – and, above all, do take expert advice.
Wells Financial is an independent financial advisor specialising in mortgage, insurance, pension and investment advice for individuals and small businesses.
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New flexibility on pension lump sums The tax rules are to be changed to allow individuals aged 55 and above to access their defined contribution pension as they wish from April 2015. As part of the Taxation of Pensions Bill 2014, which was published in midOctober, the government is proposing to change the rules on taking pensions as a lump sum so people will be able to take a series of lump sums instead of only one. Under the current tax rules, people who want to take their pension as a lump sum would take 25% of their pension pot free of tax and then place the other 75% in a drawdown account. Any money they take out of their drawdown account will be taxed at their marginal rate. Under the new rules, individuals will have the ability to take a series of lump sums from their pension fund, with 25% of each payment then free of tax and 75% taxed at their marginal rate, without having to enter into a drawdown policy. The March 2014 Budget introduced measures to allow retirees to spend their pension pot as they choose rather than having to buy an annuity while, six months later, it was announced people are to have the freedom to pass on their unused defined contribution pension to any nominated beneficiary when they die With pensions saving clearly now a major focus for politicians and thus in a state of some flux, it is well worth considering seeking expert advice on your individual circumstances.
Financial Success No. 5 Everyone has different goals and objectives. However, trying to accomplish everything at the same time could take you off track and leave you actually achieving nothing at all. Instead, therefore, consider which of your goals are most important and start with the top one first. For example, if you have a family and new house, protecting your children against the fallout from losing either your support, your income or the same from your partner, might take precedence over longer terms plans for, say, retirement at least until they are older and the value of your assets or equity in your house begins to accrue.
Make the most of your ISA allowance People often leave any thought of Individual Savings Accounts (ISAs) until the last minute, investing close to the 5 April endoftaxyear deadline. Although this date offers a useful marker, you can enjoy the tax advantages for longer by investing earlier. It is never too early to start considering the best home for this year's ISA allowance and how to make the most of the associated tax breaks either by investing a single lump sum or a series of smaller amounts via regular monthly savings. Your ISA allowance for 2014/15 is £15,000.
55% pensions tax to be abolished People are set to enjoy the freedom to pass on their unused defined contribution pension to any nominated beneficiary when they die, rather than having to pay the onerous 55% tax charge that currently applies to pensions passed on at death. Under the new proposals, which are set to take effect from April 2015, anyone who dies before they turn 75 will be able to pass on their remaining defined contribution pension to any nominated beneficiaries completely free of tax, whether it is in a drawdown account or untouched provided it is paid out in lump sums or taken through a 'flexi access drawdown account'. The new proposals do not apply to annuities or scheme pensions. Anyone who dies with a drawdown arrangement or with untouched pension funds at 75 or over will also be able to nominate a beneficiary to receive their pension. The nominated beneficiary will be able to access the pension funds flexibly, at any age, and pay tax at their marginal rate of income tax. There will also be an option to receive the pension as a lump sum payment, subject to a tax charge of 45%. The new proposals continue a major reshaping of the retirement landscape that began in the 2014 Budget, which, among other measures, removed the requirement to buy an annuity. With pensions saving clearly now a major focus for politicians and thus in a state of some flux, it is well worth considering seeking expert advice on your individual circumstances.
Allocating Your Wealth For many people, the prospect of retirement seems almost unreal: something that might happen in the distant future. Nevertheless, it is important to plan ahead, and time is your most valuable weapon. Building sufficient assets to fund your retirement will take a long time, and it's worth getting into the savings habit as early as possible. Even putting a small amount away on a regular basis can make a difference over the long term. Investors receive income tax relief on their contributions to occupational and personal pension schemes, subject to certain limits. You can contribute up to £3,600 or 100% of your net relevant earnings (whichever is the greater), subject to an overall maximum of £40,000 in the tax year 2014/15 . Your contributions to company pension schemes are deducted before income tax is calculated. For contributions to personal pension schemes, your pension provider will reclaim any tax that you paid before you made your contributions. If you have worked for more than one employer, always check your previous company schemes and work out your entitlements. It is also worth considering individual savings accounts (ISAs) which are taxefficient 'wrappers': all income and capital gains generated by the investments held within are paid out free of further tax. The amount of money you can invest in an ISA is subject to an annual limit (£15,000 during the tax year 2014/15), and this can be invested in stocks and shares or cash.
Precious assets: 'key man' insurance Insurance is a fundamental part of setting up and running a business. Business owners are likely to ensure that their buildings, stock and equipment are covered by appropriate insurance policies. However, for many companies, their greatest asset will be their people, and key person insurance (also known as “key man” insurance) helps businesses to protect themselves against the loss of their most precious resource. A key person within a company could be anybody who is regarded as crucial to the business, and whose loss is likely to lead to financial strain. An individual could be “key” to the business because of their role, expertise, knowledge or contacts. They could also be crucial because of their financial importance to the business; for example, if they own a significant proportion of shares in the company. Put simply, key person insurance is a life insurance policy that is taken out on the “key” person or people within a business. In the event of the key person’s death, serious illness or injury, the company receives a fixed amount of money to buy the business some time to recover. The money might be used to cover the cost of recruiting and training a new employee, to pay for temporary staff, or to compensate the business for lost revenues. Some lenders might stipulate that key person insurance is in place before they are prepared to lend money to a company; in this case, the company will pay the premiums, but the lender would receive any payout.
Considering protection Life assurance can be an important safeguard, but not everyone needs it: it pays out a lump sum on death so if you are a single person with no dependants then it may well be a waste of time. Afterall, unless you are in significant debt, you are leaving no financial burden. For the main breadwinner in a family with small children, however, the need is very obvious. Take away that main income unexpectedly and the financial stability of the family could be seriously affected, adding to the worries at an already stressful time. It is therefore important to carefully consider your own situation. And not just life cover but also what effect it might have if you were unable to work for a period of time.