Eastwood Financial Solutions http://www.eastwood-ifa.co.uk/wordpress Financial News from Eastwood Financial Solutions Wed, 01 May 2019 09:00:59 +0000 en-US hourly 1 https://wordpress.org/?v=4.7.11 Inheritance Tax http://www.eastwood-ifa.co.uk/wordpress/inheritance-tax-2-3/ Wed, 01 May 2019 09:00:59 +0000 http://www.newsfin.co.uk/news/?p=2694 No longer something that only affects the very wealthy

Inheritance Tax is no longer something that only affects the very wealthy, but the good news is that there are ways to limit the amount of Inheritance Tax your family may potentially face.
When someone dies Inheritance Tax a tax charged on their estate above a certain value. A persons estate is basically everything they own, including their main property, any other properties, cars, boats, life assurance policies not written in an appropriate trust and other investments, as well as personal effects such as jewellery.

Inheritance Tax is potentially charged at a rate of 40% on the value of everything you own above the Nil-Rate Band threshold. This is the value of your estate that is not chargeable to Inheritance Tax. The amount is set by the government and is currently £325,000 which is frozen until 2021. When you die your estate is not liable to tax on any assets up to this amount. However, anything over this amount may be taxed at a rate of 40%.

Since 6 April 2017, if you leave your home to direct lineal descendants which includes amongst others your children (adopted, fostered and stepchildren) and grandchildren, the value of your estate before tax is paid, will increase with the addition of the Residence Nil-Rate Band, currently £150,000 in 2019/20.

Inheritance Tax is an unpopular and controversial tax, coming as it does at a time of loss and mourning, and can impact on families with even quite modest assets. However, there are legitimate ways to mitigate against this tax. However, some of the most valuable exemptions must be used seven years before your death to be fully effective, so it makes sense to obtain professional financial advice and consider ways to tackle this issue sooner rather than later.

Making plans to mitigate against Inheritance Tax
Make a will

Dying intestate (without a will) means that you may not be making the most of the Inheritance Tax exemption which exists if you wish your estate to pass to your spouse or registered civil partner. For example, if you don’t make a will then relatives other than your spouse or registered civil partner may be entitled to a share of your estate and this might trigger an Inheritance Tax liability.

The facts:

Inheritance Tax is levied at a fixed rate of 40% on all assets worth more than £325,000 per person (0% under this amount) – or £650,000 per couple if other exemptions cannot be applied.

The Residence Nil-Rate Band is currently £150,000. This is an allowance that can be added to the basic tax-free £325,000 to allow people to leave property to direct descendants such as children and grandchildren – the allowance will be reduced by £1 for every £2 that the value of the estate exceeds £2m.

Make lifetime gifts
Gifts made more than seven years before the donor dies, to an individual or to a bare trust, are free of Inheritance Tax. So if appropriate you could pass on some of your wealth while you are still alive. This will reduce the value of your estate when it is assessed for Inheritance Tax purposes, and there is no limit on the sums you can pass on.

You can gift as much as you wish, and this is known as a Potentially Exempt Transfer (PET). However, you will need to live for seven years after making such a gift for it to be exempt from Inheritance Tax, but should you be unfortunate enough to die within seven years then it will still be counted as part of your estate if it is above the annual gift allowance.

You need to be particularly careful if you are giving away your home to your children with conditions attached to it, or if you give it away but continue to benefit from it. This is known as a Gift with Reservation of Benefit.

Leave a proportion to charity
Being generous to your favourite charity can reduce your Inheritance Tax bill. If you leave at least 10% of your estate to a charity or number of charities, then your Inheritance Tax liability on the taxable portion of the estate is reduced to 36% rather than 40%.

Set up a trust
Family trusts can be useful as a way of reducing Inheritance Tax, making provision for your children and spouse, and potentially protecting family businesses. Trusts enable the donor to control who benefits (the beneficiaries) and under what circumstances, sometimes long after the donor’s death.

Compare this with making a direct gift (for example to a child) which offers no control to the donor once given. When you set up a trust, it is a legal arrangement and you will need to appoint ‘trustees’ who are responsible for holding and managing the assets. Trustees have a responsibility to manage the trust on behalf of and in the best interest of the beneficiaries, in accordance with the trust terms. The terms will be set out in a legal document called ‘the trust deed’.




Why do you want to invest? http://www.eastwood-ifa.co.uk/wordpress/why-do-you-want-to-invest/ Wed, 01 May 2019 09:00:58 +0000 http://www.newsfin.co.uk/news/?p=2678 Reaching specific life goals requires planning

If you don’t know where you want to go, you’ll find it tricky getting there! Investment goals cover everything from the old adage of saving for a rainy day to planning for a comfortable retirement.
Goal-based investing, which emphasises investing with the objective of reaching specific life goals – such as buying a house, saving for your child’s education, or building a nest egg for retirement – instead of comparing returns to a benchmark.

Whatever your personal investment goals may be, it is important to consider the time horizon at the outset, as this will impact the type of investments you should consider to help achieve your goals. It also makes sense to revisit your goals at regular intervals to account for any changes to your personal circumstances, for example the arrival of a new member to the family or salary increases.

Investment strategies should often include a combination of various fund types in order to obtain a balanced approach to investment risk. And maintaining a balanced approach is usually key to the chances of achieving your investment goals, while bearing in mind that at some point you will want access to your money.

Short Term
Lifestyle planning

Knowing you’re prepared for life’s surprises can take a burden off your mind – and your bank balance. An emergency fund is a pot of money set aside to help you cover the financial surprises that life throws at you. Surprises such as losing your job, needing to make unexpected home repairs, replacing your car or unplanned emergency travel. These events can be stressful and costly, but preparing in advance can be a big help.

Medium Term
School and university fees planning

School and university fees planning may involve the same idea of buying a mix of equities, bonds and other investments in order to build enough capital to pay for future fees. Most are geared to begin paying out after a fixed-term horizon, usually 10 years, with withdrawals allowed incrementally after that to meet the fees. In this way they need to be more flexible than pension plans that pay out on retirement.

For this reason, many parents and grand parents often start planning when a baby is born, which provides a better way to pay fees in monthly payments, making the cost of an independent education or university education more manageable.

Long Term
Retirement planning

The importance of shifting goals can be seen in pension plans, where it is quite common for funds to be more geared towards equities in it’s early stages to try to build capital growth. As the individual grows closer to retirement age, the pension plan will tend to lean more towards bonds to reduce volatility. Exposure to other riskier sectors may also be gradually reduced as the individual ages.

Factors to help you develop your investment goals
Your goal

What are you investing for and how much are you hoping to get back?

Your attitude to risk
How comfortable are you with taking risk with your money, as you may get back less than you invested?

Your time horizon
How long are you prepared to put your money away for?

Income, growth or both
Do you want to look at funds that aim to make regular payments through dividends or interest (like an income), or at those that aim to increase in value over time?



State pension http://www.eastwood-ifa.co.uk/wordpress/state-pension-8/ Wed, 01 May 2019 09:00:57 +0000 http://www.newsfin.co.uk/news/?p=2688 Half a million workers past pension age could be paying unnecessary tax

A significant number of people working past the state pension age could be paying unnecessary tax on their state pension, according to new research[1]. This is because they failed to take up the option of deferring their state pension until they stopped work. As a result, their entire state pension is being taxed, in some cases at 40%.
If they deferred taking their state pension they would also receive a higher pension when they do eventually retire, and their personal tax allowance would then cover all or most of their state pension, dramatically reducing the amount of tax they have to pay on their pension.

Those who defer their state pension can receive an extra 5.8% per year on their pension for the rest of their life for each year that they defer. Comparing someone who draws their state pension immediately whilst going on working, with someone who waits for a year until they have retired before drawing their state pension.

The research finds
A man who defers for a year and has an average life expectancy at 65 of 86 will be around £3,000 better off over retirement than someone who takes his state pension immediately and pays more tax.

A woman who defers for a year and has an average life expectancy at 65 of 88 will be around £4,000 better off, as well as the tax advantage, she also enjoys two extra years of pension at the higher rate.

All is not lost for those who have started to draw their state pension as they have the option of ‘un-retiring’ – they can tell the DWP to stop paying their state pension and then resume receiving it at a higher rate when they stop work.

There has been a significant increase in the number of people working past the age of 65, and the research identified that most of these people are claiming their state pension as soon as it is available. For around half a million workers, this means every penny of their state pension is being taxed, in some cases at the higher rate.

If an individuals earnings are enough to support them, it could make sense to consider deferring taking a state pension so that less of their pension disappears in tax. A typical woman could be around £4,000 better off over the course of her retirement by deferring for a year until she has stopped work, and a typical man could be £3,000 better off.

Source data:
[1] Royal London Policy Paper 33 – ‘Are half a million people paying unnecessary tax on their state pension?’ is available from www.royallondon.com/policy-papers. The analysis is based on the Family Resources Survey for 2016/17 which is a representative sample of nearly 20,000 households from across the United Kingdom.

Making plans for your retirement http://www.eastwood-ifa.co.uk/wordpress/making-plans-for-your-retirement/ Wed, 01 May 2019 09:00:56 +0000 http://www.newsfin.co.uk/news/?p=2668 Tailored to match your particular needs and aspirations

One of the most important stages in life which everybody has to save for is retirement. We work hard to enjoy our current lifestyle but are we doing enough to ensure that we can continue to enjoy it in our retirement? Many of us live for today, but saving into a private pension plan can help us retire sooner rather than later.
Pension plans are as individual as the people who invest in them. There is no one-size-fits-all, tax-efficient solution for private pensions. Instead they should be tailored to match your particular needs and aspirations.

Enjoy the lifestyle you want in later years
Private pensions are a tax-efficient way of saving money during your working life so that you have an income when you want to retire. With proper planning, your private pension will allow you to enjoy the lifestyle you want in later years. A private pension plan, also known as a personal pension, is a good option if you’re self-employed, as you won’t have the option to be automatically enrolled in a workplace pension.
The term private pension covers both workplace pensions (also known as occupational or company schemes), arranged by your employer, and personal pensions, which you manage yourself. There is no restriction on how many pensions you can have, and some people will have both.

Cap on the amount you can save every year
A personal pension operates in a similar way to a workplace scheme, except that you make the contributions yourself into a plan of your choosing. You can make monthly payments, one-off payments or a combination of the two. But the government places a cap on the amount you can save every year, upon which you can earn tax relief. This cap is known as the annual allowance, which is currently £40,000 in the 2019/20 tax year.
In addition, the lifetime allowance is a limit on the value of payouts from your pension schemes – whether lump sums or retirement income. The lifetime allowance currently for most people is £1,055,000 and applies to the total of all the pensions you have, including the value of pensions promised through any defined benefit schemes you belong to, but excluding your State Pension. The standard lifetime allowance is indexed annually in line with the Consumer Prices Index (CPI).

Radical reform gives people greater pension flexibility
To take advantage of your available allowances, typically you should contribute as much as you can into your pension, as early as you can and for as long as you can. This will allow you to take advantage of any compounding effects and long-term rises in the market. You should also consider increasing your payments in line with your earnings to help make maximum use of your annual and lifetime allowances.
In March 2014 the then Chancellor of the Exchequer announced a radical reform of the pensions system to give people greater flexibility to access their pension savings. The new pensions freedoms took full effect from 6 April 2015. To access your pension pot you must have reached the normal minimum pension age – currently 55 (or earlier if you’re in ill health or if you have a protected retirement age). Up to 25% of your accumulated fund can be withdrawn as a tax-free cash lump sum with the balance used to provide an income.
There are different types of pension scheme.

Defined Contribution (DC) – also known as a money purchase scheme
This is the most common type of pension today and works like a tax-efficient, long-term savings scheme. The idea is to build up your savings over your working life. When you come to retire, as early as 55 years old, you can take up to 25% of the total pot out as a tax-free lump sum. The remaining amount can be left to build up further until you decide what to do depending on your scheme.

Stakeholder Pension
This is a simplified form of the defined contribution scheme, which allows you to pay low minimum contributions and is very flexible. Charges are capped and providers offer default investment strategies.

Self-invested Personal Pension (SIPP)
A SIPP is a specialist type of personal pension that allows you to invest in a wider range of assets than a standard personal pension, which is limited to a restricted list of funds. A SIPP can hold individual shares, commercial property and exchange traded funds, for example. As the name suggests, it is self-invested, meaning that you can have the flexibility for managing your own investment portfolio. This approach in particular requires professional financial advice, unless you are an experienced investor

Defined Benefit (DC) Scheme
Defined Benefit pensions (also known as Final Salary schemes) are a type of workplace pension that guarantees a generous, index-linked fixed pension income for life. Nearly all of these schemes are now closed to new members. The amount of pension received is calculated as a percentage of the members salary typically in the last year of employment, usually the highest earning year though some schemes use other calculations such as the average career earnings.






Income protection insurance http://www.eastwood-ifa.co.uk/wordpress/income-protection-insurance-8/ Wed, 01 May 2019 09:00:52 +0000 http://www.newsfin.co.uk/news/?p=2652 Cover for you and your family finances

It’s important to be able to keep your finances healthy as you recover from an illness or injury. Being unable to work can quickly turn your world upside down. No one likes to think that something bad will happen to them, but if you couldn’t work due to a serious illness, how would you manage financially? Could you survive on savings or sick pay from work? If not, you may need some other way to keep paying the bills – and you might want to consider income protection insurance.
You might think this may not happen to you, and of course we hope it doesn’t, but it’s important to recognise that no one is immune to the risk of illness and accidents. No one can guarantee that they will not be the victim of an unfortunate accident or be diagnosed with a serious illness. This won’t stop the bills arriving or the mortgage payments from being deducted from your bank account, so going without income protection insurance could be tempting fate.

Providing monthly payments
Income protection insurance is a long-term insurance policy that provides a monthly payment if you can’t work because you’re ill or injured, and typically pays out until you can start working again, or until you retire, die or the end of the policy term – whichever is sooner.

Keep your finances healthy as you recover from illness or injury:

Replaces part of your income if you become ill or disabled

It pays out until you can start working again, or until you retire, die or the end of the policy term – whichever is sooner

There’s a waiting period before the payments start, so you generally set payments to start after your sick pay ends, or after any other insurance stops covering you. The longer you wait, the lower the monthly payments

It covers most illnesses that leave you unable to work, either in the short or long term (depending on the type of policy and its definition of incapacity)

You can claim as many times as you need to while the policy is in force

Generous sickness benefits
When you suffer a serious illness or injury, the last thing you should worry about is how you’ll pay the bills while you’re off work. After all, what if your sick pay should run out while you’re still recovering?

Some people may receive generous sickness benefits through their workplace, and these can extend right up until the date upon which they had intended to retire. However, some employees with long-term health problems could, on the other hand, find themselves having to rely on the state, which is likely to prove hard.

Tax-free monthly income
Without a regular income, you may find it a struggle financially, even if you were ill for only a short period, and you could end up using your savings to pay the bills. In the event that you suffered from a serious illness, medical condition or accident, you could even find that you are never able to return to work.

Few of us could cope financially if we were off work for more than six to nine months. Income protection insurance provides a tax-free monthly income for as long as required, up to retirement age, should you be unable to work due to long-term sickness or injury.

Profiting from misfortune
Income protection insurance aims to put you back to the position you were in before you were unable to work. It does not allow you to make a profit out of your misfortune. So the maximum amount of income you can replace through insurance is broadly the after-tax earnings you have lost, less an adjustment for state benefits you can claim.

This is typically translated into a percentage of your salary before tax, but the actual amount will depend on the company that provides your cover. It is advisable to talk to your employer about whether they provide this company benefit and to understand the support services available to you.

If you are self-employed, then no work is also likely to mean no income. However, depending on what you do, you may have income coming in from earlier work, even if you are ill for several months. The self-employed can take out individual policies rather than business ones, but you need to ascertain on what basis the insurer will pay out.

A typical basis for payment is your pre-tax share of the gross profit, after deduction of trading expenses, in the 12 months immediately prior to the date of your incapacity. Some policies operate an average over the last three years, as they understand that self-employed people often have a fluctuating income.

Cost of cover
The cost of your cover will depend on your gender, occupation, age, state of health and whether or not you smoke. The ‘occupation class’ is used by insurers to decide whether a policyholder is able to return to work. If a policy will pay out only if a policyholder is unable to work in ‘any occupation’, it might not pay benefits for long – or indeed at all. The most comprehensive definitions are ‘Own Occupation’ or ‘Suited Occupation’. ‘Own Occupation’ means you can make a claim if you are unable to perform your own job. However, being covered under ‘Any Occupation’ means that you have to be unable to perform any job, with equivalent earnings to the job you were doing before not taken into account.

You can also usually choose for your cover to remain the same (level cover) or increase in line with inflation (inflation-linked cover):

Level cover – with this cover, if you made a claim, the monthly income would be fixed at the start of your plan and does not change in the future. You should remember that this means if inflation eventually starts to rise, the buying power of your monthly income payments may be reduced over time

Inflation-linked cover – with this cover, if you made a claim, the monthly income would go up in line with the Retail Prices Index (RPI)

When you take out cover, you usually have the choice of:

Guaranteed premiums – the premiums remain the same all the way throughout the term of your plan. If you have chosen inflation-linked cover, your premiums and cover will automatically go up each year in line with RPI

Reviewable premiums – this means the premiums you pay can increase or decrease in the future. The premiums will not typically increase or decrease for the first five years of your plan, but they may do so at any time after that. If your premiums do go up or down, they will not change again for the next 12 months

Making a claim
How long you have to wait after making a claim will depend on the waiting period. You can typically choose from between 1, 2, 3, 6, 12 or 24 months. The longer the waiting period you choose, the lower the premium for your cover will be, but you’ll have to wait longer after you become unable to work before the payments from the policy are paid to you. Premiums must be paid for the entire term of the plan, including the waiting period.

Innovative new products
Depending on your circumstances, it is possible that the payments from the plan may affect any state benefits due to you. This will depend on your individual situation and what state benefits you are claiming or intending to claim. This market is subject to constant change in terms of the innovative new products that are being launched. If you are unsure whether any state benefits you are receiving will be affected, you should seek professional financial advice.

Whole-of-life insurance http://www.eastwood-ifa.co.uk/wordpress/whole-of-life-insurance-6/ Wed, 01 May 2019 09:00:47 +0000 http://www.newsfin.co.uk/news/?p=2656 Guaranteed tax-free payment whenever you die

Whole-of-life policies tend to offer the policyholder lifelong protection and are designed to give you a specified amount of cover for the whole of your life and pays out when you die.
Because it’s guaranteed that you’ll die at some point (and therefore that the policy will have to pay out), these policies are more expensive than term insurance policies, which only pay out if you die within a certain time frame.

Paying Inheritance Tax
Whole-of-life insurance policies can be a useful way to cover a future Inheritance Tax bill. If you think your estate will have to pay Inheritance Tax when you die, you could set up a whole-of-life insurance policy to cover the tax due, meaning that more is passed to your beneficiaries. To ensure the proceeds of the life insurance policy are not included in your estate, though, it is vital that the policy be written in an appropriate trust. This is a very specialist area of estate planning, and you should obtain professional financial advice.

A whole-of-life insurance policy has a double benefit: not only are the proceeds of the policy outside your estate for Inheritance Tax purposes, but the premium paid for the policy will reduce the value of your estate while you’re alive, further reducing your estate’s future Inheritance Tax bill.

Different types of policy
There are different types of whole-of-life insurance – some offer a set payout from the outset, others are linked to investments, and the payout will depend on performance. Investment-linked policies are either unit-linked policies, linked to funds or with-profits policies which offer bonuses.
Some whole-of-life policies require that premiums are paid all the way up to your death. Others become paid-up at a certain age and waive premiums from that point onwards.

Whole-of-life policies (but not all) have an investment element and therefore a surrender value. If, however, you cancel the policy and cash it in, you will lose your cover. Where there is an investment element, your premiums are usually reviewed after ten years, and then every five years.
Whole-of-life policies are also available without an investment element and with guaranteed or investment-linked premiums from some providers.

The level of protection selected will normally be guaranteed for the first ten years, at which point it will be reviewed to see how much protection can be provided in the future. If the review shows that the same level of protection can be carried on, it will be guaranteed to the next review date.

If the review reveals that the same level of protection can’t continue, you’ll have two choices:

Increase your payments
Keep your payments the same and reduce your level of protection

Maximum cover
Maximum cover offers a high initial level of cover for a lower premium until the first plan review, which is normally after ten years. The low premium is achieved because very little of your premium is kept back for investment, as most of it is used to pay for the life insurance.
After a review, you may have to increase your premiums significantly to keep the same level of cover, as this depends on how well the cash in the investment reserve (underlying fund) has performed.

Standard cover
This cover balances the level of life insurance with adequate investment to support the policy in later years. This maintains the original premium throughout the life of the policy. However, it relies on the value of units invested in the underlying fund growing at a certain level each year. Increased charges or poor performance of the fund could mean you’ll have to increase your monthly premium to keep the same level of cover.

Bank of Mum and Dad http://www.eastwood-ifa.co.uk/wordpress/bank-of-mum-and-dad-2/ Wed, 01 May 2019 09:00:46 +0000 http://www.newsfin.co.uk/news/?p=2682 Innovative products to be created for would-be home owners

The Building Societies Association (BSA) have recently published a raft of recommendations as to how the mortgage industry can support the Bank of Mum and Dad in their endeavours to help first-time buyers onto the property ladder.
They have called for more innovative products to be created to enable parents and grandparents to loan or gift money to family members who are would-be home owners. The BSA also wants building societies to provide clearer communication to help explain all the options, and it wants regulatory and tax barriers to be broken down.

Helping younger homebuyers climb onto the housing ladder
The BSA’s report recognises the contributions of the Bank of Mum and Dad to date, highlighting the billions of pounds that have been gifted and lent to help younger homebuyers climb onto the housing ladder.

They also confirmed that 90% of all building societies expect this form of financing to play an increasing role in helping first-time buyers over the next five to ten years. Their priority now is to help create an environment whereby the financial well-being of the older generation is not put at jeopardy due to their generosity in helping younger family members achieve their housing objectives.

86% of people surveyed wanted to own their own home, but the financial challenges facing first-time buyers meant many thought they would never achieve this aspiration.

In 2017 there were 360,000 first time buyers – but the minimum should be nearer 450,000. The ability to buy was increasingly concentrated on dual-earning households and those with higher incomes.

More than half of aspiring first-time buyers expected the Bank of Mum and Dad to support them onto the housing ladder.

Support between generations remains a fundamental ambition
The report also highlighted how the Bank of Mum and Dad wasn’t just about family members handing over cash in the form of gifts and loans – many customers wanted support between generations through guarantees or using their property or savings as security. Indeed, it also identified Equity Release or downsizing from larger properties as ways to support the younger generation.

Robin Fieth, Chief Executive of the BSA said: “Home ownership remains a fundamental ambition for the majority of people…against the challenging backdrop of high prices, a woefully inadequate supply of homes and a growing intergenerational divide, new ideas and strong debate are essential. Family help – the so-called ‘Bank of Mum and Dad’ – is great for those fortunate enough to have this option, but innovations in underwriting could help all potential first-time buyers.”

Mums and Dads – are you planning to lend money to your children?
It goes without saying that lending money to your loved ones shouldn’t endanger your own financial status. But if this is your plan then it requires professional financial advice to assess all of your options. If you would like to discuss this subject with us , please contact us.



Preparing for your upcoming retirement http://www.eastwood-ifa.co.uk/wordpress/preparing-for-your-upcoming-retirement/ Wed, 01 May 2019 09:00:46 +0000 http://www.newsfin.co.uk/news/?p=2672 Considering the practicalities of fulfilling your desired lifestyle

If you are aiming to retire within the next five years, its time to get into the mindset of considering the practicalities of fulfilling your desired lifestyle and making plans.
You now have just 60 pay packets left until you retire. This is a time when you’ll need to obtain up-to-date pension forecasts and obtain professional financial advice to make sure your retirement plans are on track.

Are you ready to retire?
The first step is to ask yourself if you are ready to retire. There are many factors to consider. Your financial affairs is the big factor to begin with. Your ability to afford retirement depends on your lifestyle, your family situation, and home ownership. If you have dependent children, or have 15 years left on your mortgage, the time might not be quite right.

You have to ensure retirement is the right move for you. Work can be stressful, but it can be rewarding and give you a sense of achievement. People may miss the routine of working life, and the day-to-day interaction with people.

Taking a different path
What you need might not be retirement, it could be change. A chance to get out from behind your desk to do something meaningful. Perhaps retirement is your ticket to achieving this. Taking a different path where money is no longer the prime motivation.
If you are afraid about having time on your hands after retirement, explore options for filling it well before you take the leap.

Major change in lifestyle
Retirement means a major change in lifestyle. You need a clear mind of what you want your life to look like and how to spend your time. Then you can work on arranging your finances to suit.

Decide on your priorities for retired life. Do you want to travel, or split your time between home and somewhere hot and exotic? Is there a particular hobby you want to immerse yourself in? What kind of leisure and social activities matter to you?

Later years in your retirement
Try not to get caught up in what happens right after you end work – also consider the later years in your retirement. Will long-term travel continue to be feasible as you get older? Will you need such a large house, or will it become a burden? And what about in the latter stages of life, should you need to fund care?

You must also have a clear picture of what kind of life you would like to lead in retirement and what it will cost. Then you can start to dig a little deeper into what you might be able to afford. This means getting to grips with your sources of income once your earnings stop.

Request up-to-date forecasts
Your first port of call is your pension – or pensions. Contact previous pension trustees to request up-to-date forecasts. If you’ve lost details of a pension scheme and need help, the Pension Tracing Service (0800 731 0193) may be able to help.

You should also find out what your likely state pension entitlement would be – you can do this by completing a BR19 form or by visiting www.direct.gov.uk.

Consolidate existing pensions
If you have personal pensions, you need to find out where they are invested and how they have performed. Also check if there are any valuable guarantees built into the contracts. It may make sense to consolidate existing pensions, making it easier for you to keep track of everything and reduce the amount of correspondence you receive.

With investments in general, it is important to review your strategy before you take the leap into retirement. You don’t need to suddenly become an ultra-conservative investor – you still want your portfolio to grow over the next few decades. Should the investment markets make a correction, you may want to limit your downside. Don’t forget, there may be another 30 years ahead.

Don’t put off confronting the truth
If your investments don’t look on course to give you the income you’d hoped for in retirement, don’t put off confronting the truth. You may need to revise your projected living costs. Alternatively, there’s still time to change your investments and you could also cut back on spending while you are still earning to generate more savings.

Your income can be used in other ways besides topping up your savings as you prepare for retirement. Clearing debts, including your mortgage, should be a priority before you retire. Whatever you owe on credit cards and loans, focus on paying off the debt that charges the most interest first. Debt will be the biggest burden once you do not have a regular working income.

Consider re-adjusting your finances
Having no mortgage to pay is a major step towards re-adjusting your finances for a post-salary life. You might also decide you want to sell up, whether to downsize, to give you a lump sum of cash to live off, or to fund your dreams of moving abroad. Either way, use your working income while you can to improve your home, maximising potential revenue when you come to sell it.

Finally, retirement is a huge change, both personally and financially – so big it might be too much to take in all at once. It makes good sense to practice at being retired before it becomes a reality, especially if you will have to make certain adjustments and sacrifices to compensate for a reduced income. You might even consider a phased retirement, cutting back on your hours gradually. This will not only soften the financial effect, it will also get you used to having more spare time to fill.






New tax year http://www.eastwood-ifa.co.uk/wordpress/new-tax-year/ Wed, 01 May 2019 09:00:44 +0000 http://www.newsfin.co.uk/news/?p=2698 The key changes you need to know

You want to pay the minimum amount of tax legally possible. We want that for you, too. The 2019/20 tax year started on 6 April and in general taxpayers will have more money in their pocket after increases to allowances came into force, but there are a few losers, in particular those selling shares and buy-to-let landlords.
Increases to the tax-free personal allowance announced in last year’s Budget have now also come into effect, alongside a number of other proposals. We’ve provided our summary of the key changes.

Income Tax
The tax-free personal allowance increased from £11,850 to £12,500, after Chancellor Philip Hammond announced in the 2018 Budget that he was bringing the rise forward by a year. The higher-rate tax band increased from £46,350 to £50,000 in England, Wales and Northern Ireland. But in Scotland, where income tax rates are devolved, the higher-rate tax band remains at £43,430 – £6,570 lower than the rest of the UK.

National Insurance contributions across the UK have also increased to 12% on earnings between £46,350 and £50,000. In line with the rest of the UK, however someone in Scotland pays National Insurance at a rate of 12% on earnings up to £50,000, before this reduces to 2% on earnings above this level.

The threshold at which the 40% Inheritance Tax rate applies on an estate remains at £325,000. However the Residence Nil-Rate Band increased to £150,000. This is an allowance that can be added to the basic tax-free £325,000 to allow people to leave property to direct descendants such as children and grandchildren – taking the combined tax-free allowance to £475,000 in the current tax year. However, the allowance is reduced by £1 for every £2 that the value of the estate exceeds £2m.

When you pass on assets to your spouse they are Inheritance Tax free and your spouse can then make use of both allowances. This means the amount which can be passed on by a married couple is currently £950,000.

The state pension increased by 2.6% – with the old basic state pension rising to £129.20 a week, and the new state pension rising to £168.60 a week.
The amount employees now pay into their pensions has increased to a minimum total of 8% under the Government’s auto-enrolment scheme. The increase means employers now pay in a minimum 3% of a saver’s salary while the individual pays in a minimum 5%.

The level of the state pension rises every year by the highest of 2.5%, growth in earnings or Consumer Price Index (CPI) inflation. This is due to the ‘triple lock’ guarantee, which was first introduced in 2010.

The pension lifetime allowance increased to £1,055,000 on pension contributions, in line with consumer price index inflation. This is the limit on the amount retirees can amass in a pension without incurring additional taxes. Anything above this level can be taxed at a rate of 55% upon withdrawal.

The overall annual allowance has remained the same at £40,000, along with the annual allowance taper which reduces pension relief for those with a yearly income above £150,000.

The Junior Individual Savings Account (ISA) limit increased to £4,368. All other ISA limits remain the same. The annual amount that can be sheltered across adult ISAs stays at £20,000 for the 2019/20 tax year.

The Capital Gains Tax annual exemption, that everyone has, increased to £12,000. Above this amount, lower-rate taxpayers pay 10% on capital gains, while higher and additional rate taxpayers pay 20%. However people selling second properties, including buy-to-let landlords, pay capital gains tax at 18% if they are a basic rate taxpayer or 28% if a higher or additional rate taxpayer.

Capital Gains Tax for non-UK residents has been extended to include all disposals of UK property.

Entrepreneur’s Relief gives a Capital Gains Tax break to those who sell shares in an unlisted company, provided they own at least 5% of the shares and up to a lifetime value of £10m. The holding period to qualify for the relief is 24 months.

This is also the first tax year where claims can be made for investors’ relief, which in a similar way, gives Capital Gains Tax breaks to those who sell shares in unlisted firms. While the former is aimed at company directors, the latter is geared to encourage outside investment in firms.

There is no minimum shareholding to be eligible but investors must have held the shares for at least three years. As the relief was introduced in 2016, this is the first tax year when it can be used.

Buy-To-Let Landlords
On April 6 the next stage of the phased removal of mortgage interest relief came into effect. Buy-to-let landlords used to be able to claim the interest paid on their mortgages as a business expense to reduce their tax bill. Now they will only be able to claim a quarter of this amount as tax deductible ahead of the complete removal of the relief in the 2020/21 tax year.



Long-term care insurance http://www.eastwood-ifa.co.uk/wordpress/long-term-care-insurance/ Wed, 01 May 2019 09:00:44 +0000 http://www.newsfin.co.uk/news/?p=2642 Meeting the cost of residential and nursing care in old age

Long-term care insurance provides the financial support you need if you have to pay for care assistance for yourself or a loved one. It involves a variety of services designed to meet a person’s health or personal care needs during a short or long period of time. These services help people live as independently and safely as possible when they can no longer perform everyday activities on their own.
As we get older, it becomes more likely that we may need day-to-day help with activities such as washing and dressing, or help with household activities such as cleaning and cooking. This type of support, along with some types of medical care, is what is called ‘long-term care’.

Cover the cost of assistance
Long-term care insurance provides the financial support you need if you have to pay for care assistance for yourself or a loved one. Long-term care insurance can cover the cost of assistance for those who need help to perform the basic activities of daily life such as getting out of bed, dressing, washing and going to the toilet.

You can receive long-term care in your own home or in residential or nursing homes.

Government state benefits can provide some help, but they may not be enough or may not pay for the full cost of long-term care. The level of state support you receive can be different depending on whether you live in England, Wales, Scotland or Northern Ireland.

Types of long-term care plans
Immediate needs annuities – pay a guaranteed income for life to help cover the cost of care fees in exchange for a one-off lump sum payment, if you have care needs now.

Pre-funded care plans – give you the option of insuring your future care needs before they develop (these plans are no longer available to purchase)

Other options
Enhanced annuities – you can use your pension to buy an enhanced annuity (also known as an ‘impaired life annuity’) if you have a health problem, a long-term illness, if you are overweight or if you smoke. Annuity providers use full medical underwriting to get a more accurate individual price. People with medical conditions including Parkinson’s disease and multiple sclerosis, or those who have had a major organ transplant, are likely to be eligible for an enhanced annuity.

Equity release plans – give you the ability to get a cash lump sum as a loan secured on your home – these can be used if you are looking to fund a care plan now or in the near future.

Savings and investments – give you the opportunity to plan ahead and ensure your savings and assets are in place for your care needs.
If you are already retired, or nearing retirement, it makes good sense to take professional financial advice to ensure that your affairs are in order – for example, arranging your Will or a power of attorney. It also makes sense to ensure your savings, investments and other assets are in order in case you or your spouse or registered civil partner may need long-term care in the future.

When planning for your future care needs, think about: 

Who (in your family) most needs long-term care and for how long
Whether you need a care plan now
Whether you should be planning ahead for yourself or a loved one
Whether you have the money to pay for long-term care
How long you might need to pay for a care plan
Whether home care or a nursing home is required
What kinds of things would be required of the help – for example, help with dressing, using the toilet, feeding or mobility
Whether you find that your home requires additional features such as a stair lift, an opening and closing bath or a bath chair, and/or home help

Making decisions at what can be an emotional time
Life expectancy has increased, which in turn puts a greater strain on the standard of care that state support can provide. Many people don’t consider the issue of care at all, and it falls to their families to make long-term decisions (and often very expensive ones) at what can be an emotional time.
However, when an individual reaches the stage that they require long-term care, this does not necessarily mean that their life expectancy becomes reduced. The required care could last for 15 years or more, and therefore incurs considerable costs.