Eastwood Financial Solutions http://www.eastwood-ifa.co.uk/wordpress Financial News from Eastwood Financial Solutions Fri, 05 Jul 2019 09:49:55 +0000 en-US hourly 1 https://wordpress.org/?v=4.7.11 What’s your magic number? http://www.eastwood-ifa.co.uk/wordpress/whats-your-magic-number-3/ Fri, 05 Jul 2019 09:49:55 +0000 http://www.newsfin.co.uk/news/?p=2768 Your five-year plan to a comfortable retirement

Retiring is a huge life event. And the very concept of retirement is changing with phased retirement becoming more common. The way we access our pension is now a lot more flexible, and it’s no secret that in the UK we’re living longer than ever before which means we need to make the right choices.

So you’re now age 50 and you want to wave goodbye to the 9-to-5 grind and retire at age 55. You may think it seems like a pipe dream, but early retirement is achievable – and it’s not only reliant on you picking the winning lottery numbers.

Financially secure future
But with a longer retirement ahead of you than previous generations and a greater choice over how you take your pension, planning ahead will help ensure you’re on track to a financially secure future.

There’s a very rough rule of thumb to follow in order to find the magic number for a comfortable retirement. To do this, take the age you started saving into your pension and then divide it by two. This will give you an indication as to the percentage of your pre-tax salary you should be putting aside each year until you retire. Also don’t forget to include your employer’s contribution in that percentage.

We’ve provided our ten things to consider to boost your retirement finances during your final years in the workplace.

Countdown has commenced – your five-year plan to retirement

Firstly, it may seem obvious but decide the age you’re likely to retire.

Think about phasing your retirement and continuing to work part-time for your current or a new employer.

Boost your pension by increasing your contributions and/or adding lump sum payments – making sure to take advantage of any unused pension tax allowance.

Trace any lost pensions through the Pension Tracing Service.

Ask for up-to-date statements for all your pensions. You can also get a forecast of your State Pension at www.gov.uk.

Review your investments and savings to see if they still meet your attitude to risk as you approach retirement.

Consider whether you’d like to take an income from your pension or whether you want a pot of cash, including any tax-free allowance, to do something different in retirement.

Write a Will or review your existing Will – and plan what will happen to your pension and estate if you die, plus any of the tax implications.

Finally, discuss your plans with us and we’ll apply all of the above to your particular situation, where applicable – no matter what your vision of retirement is, we’ll provide the professional advice to help you calculate your magic number for a comfortable retirement.

Early retirement planning is identical to conventional retirement planning with one big exception – time. You have less time to achieve your financial goals and more time that your money must last after retiring. What this means is that you have a shortened, accelerated financial preparation phase and an extended, post-retirement spending phase when you retire early.

A PENSION IS A LONG-TERM INVESTMENT.

THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.

PENSIONS ARE NOT NORMALLY ACCESSIBLE UNTIL AGE 55. YOUR PENSION INCOME COULD ALSO BE AFFECTED BY INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS. THE TAX IMPLICATIONS OF PENSION WITHDRAWALS WILL BE BASED ON YOUR INDIVIDUAL CIRCUMSTANCES, TAX LEGISLATION AND REGULATION, WHICH ARE SUBJECT TO CHANGE IN THE FUTURE.

THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.

PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.

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Smart investments http://www.eastwood-ifa.co.uk/wordpress/smart-investments/ Fri, 05 Jul 2019 09:49:27 +0000 http://www.newsfin.co.uk/news/?p=2766 Should I invest into a pension or an ISA?

Investors looking for tax-efficient ways to build a nest egg for retirement often look to both Individual Savings Accounts (ISAs) and pensions. Tax-efficiency is a key consideration when investing because it can make a considerable difference to your wealth and quality of life.

However, the type of investment and tax-efficiency is a common dilemma faced by many people. Which is better – an ISA or a pension? In truth, there’s a place for both, and it’s easy to argue the case for each of them.

ISAs allow you to invest in the current 2019/20 tax year up to £20,000 each year, providing tax-efficient growth and income. Withdrawals are tax-free because the money paid in was from after-tax income.

Pensions are also very tax-efficient. All contributions within allowance limits receive tax relief from the Government payable at up to your highest rate of tax. For example, it would only cost a basic-rate taxpayer £80 to contribute £100 into their pension because they would receive tax relief at 20%. This is added to the £80, representing the 20% tax they would have paid if they had earned that £100.

For higher earners, it is even better, with higher-rate taxpayers only needing to contribute £60 in order to boost their pension fund by £100, and additional-rate taxpayers only needing to pay £25 (assuming they have at least £100 of income taxed at those rates).

Tax relief is given on personal contributions up to 100% of your earnings (or £3,600 if greater). If total contributions from all sources, including your employer if applicable, exceed the annual allowance (£40,000 for most people but can be less for higher earners or those who have flexibly accessed a pension), you will suffer a tax charge on the excess funding if it can’t be covered by unused allowances from the previous three years.
So, pensions give you tax relief on money going in, but when it comes to drawing on your pension, tax will be payable at your marginal rate apart from the tax-free lump sum (normally 25% of your benefits).

ISA investments don’t allow for tax relief on the money being invested, but they do give you total tax exemption on any gains made within the ISA. So with an ISA, when you come to withdraw funds, you will not pay a penny of income or Capital Gains Tax.

Put simply, the right option will be different for different people. There will be some for whom the right answer is a pension, others for whom the right answer is an ISA. If it was clearly one or the other, it would be far simpler.

An important point to remember is that you cannot normally access your pension until age 55, whereas your ISA is accessible any time.

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS.

ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.

A PENSION IS A LONG-TERM INVESTMENT.

THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.

YOUR PENSION INCOME COULD BE AFFECTED BY INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS. THE TAX IMPLICATIONS OF PENSION WITHDRAWALS WILL BE BASED ON YOUR INDIVIDUAL CIRCUMSTANCES, TAX LEGISLATION AND REGULATION, WHICH ARE SUBJECT TO CHANGE IN THE FUTURE.

THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.

PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.

INVESTORS DO NOT PAY ANY PERSONAL TAX ON INCOME OR GAINS, BUT ISAS DO PAY UNRECOVERABLE TAX ON INCOME FROM STOCKS AND SHARES RECEIVED BY THE ISA.

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Goldilocks economy http://www.eastwood-ifa.co.uk/wordpress/goldilocks-economy/ Fri, 05 Jul 2019 09:49:05 +0000 http://www.newsfin.co.uk/news/?p=2764 How to prepare your portfolio for inflation

Very low or very high inflation is damaging to the economy. The aim is usually to try and keep the Consumer Prices Index (CPI) at 2% in order to maintain a ‘Goldilocks Economy’ – not too hot, not too cold.

Over time, inflation can reduce the value of your savings because prices typically go up in the future. This is most noticeable with cash. Inflation is bad news for savers, as it erodes the purchasing power of their money. Low interest rates also don’t help, as this makes it even harder to find returns that can keep pace with rising living costs. Higher inflation can also drive down the price of bonds. These become less attractive because you’re locked in at interest rates that may not keep up with the cost of living in years to come.

Offset inflation loss
When you keep your money in the bank, you may earn interest, which balances out some of the effects of inflation. When inflation is high, banks typically pay higher interest rates. But once again, your savings may not grow fast enough to completely offset the inflation loss.
The UK’s CPI measure of inflation tracks how the prices of hundreds of household items change over time, and there are several different factors that may create inflationary pressure in an economy.

Stronger economic growth
Rising commodity prices can have a major impact, particularly higher oil prices, as this translates into steeper petrol costs for consumers. Stronger economic growth also pushes up inflation, as increasing demand for goods and services places pressure on supplies, which may in turn lead to companies raising their prices.

Detrimental performance impact
The falling pound since Britain’s vote to leave the EU contributes to higher inflation in the UK, as it makes the cost of importing goods from overseas more expensive.

The impact of inflation on investments depends on the investment type. For investments with a set annual return, such as regular bonds, inflation can have a detrimental impact on performance – since you earn the same interest payment each year, it can cut into your earnings.

Impact on stocks and shares
For stocks and shares, or equities, inflation can have a mixed impact. Inflation is typically high when the economy is strong. Companies may be selling more, which could help their share price. However, companies will also pay more for wages and raw materials, which will impact on their value. Whether inflation will help or impact on a stock can depend on the performance of the company behind it.

On the other hand, precious metals like gold historically do well when inflation is high. As the value of the pound goes down, it costs more pounds to buy the same amount of gold.

Inflation risk indexation
There are some investments that are indexed for inflation risk. They earn more when inflation goes up and less when inflation goes down, so your total earnings are more stable. Some bonds and annuities offer this feature for an additional cost.

Index-linked gilts are government bonds whose interest payments and value at redemption are adjusted for inflation. However, if they’re sold before their maturity date, their market value can fall as well as rise and so may be more or less than the redemption value paid at the end of their terms.

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS.

ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.

THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.

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Healthy, wealthy and well advised http://www.eastwood-ifa.co.uk/wordpress/healthy-wealthy-and-well-advised/ Fri, 05 Jul 2019 09:48:42 +0000 http://www.newsfin.co.uk/news/?p=2762 Financial complexities of passing on wealth

Passing on wealth is a sensitive subject, not just because of the financial complexities of it all, but also the emotion and family politics involved.

Having built up their business or wealth, many families often wish to enjoy it whilst also ensuring that it is passed on to the next generation in their families. Passing on what you have accrued in the most efficient way is of paramount importance. But some people find the idea of discussing passing on wealth uncomfortable.

Making decisions on your behalf
It is often said about those people who are healthy, wealthy and well advised that they rarely pay Inheritance Tax – or rather, their estates do not. As part of the planning process, it is essential to make certain that you have a current Will in place. Your Will ensures that when you die, your wishes are clear.

Also, give consideration to arranging a Lasting Power of Attorney, a legal document that lets you appoint one or more people to help you make decisions or to make decisions on your behalf.

Your wealth over the years
Dying without a Will could leave your partner without any rights or protection if you’re not married. If you don’t have close family, your estate could pass to a distant relative you do not wish to benefit or do not know, or even to the Crown. If you already have a Will, you should consider reviewing it at least every five years.

It might be the case that you have built up your wealth over the years, or perhaps you have had a windfall or inherited a sum of money. Whatever your individual circumstances, setting up a trust could be the right decision for the future, with the added flexibility of tax-efficiency.

Potential Inheritance Tax liability
With our help, you can work out if you have a potential Inheritance Tax liability. Once we have this information, we’ll make recommendations about how you could reduce your Inheritance Tax by reviewing all the different allowances and options available. Funding your expenses from assets that are subject to Inheritance Tax will also help reduce your taxable estate.

A trust may also help you protect your wealth, making sure that the people who matter to you most are the ones who benefit in a way that you want them to at the right time. Even though the current climate is less favourable, following major Inheritance Tax reform in 2006, there are still a number of instances where trusts can be created without an immediate Inheritance Tax charge.

Significant degree of asset protection
Putting taxation to one side for the moment, the separation of legal ownership of an asset from its beneficial ownership creates great flexibility and offers a significant degree of asset protection. This can be valuable in a range of situations, such as providing for children or grandchildren, dealing with assets on death and on marriage breakdown.

In thinking about passing wealth down the generations, another concern is whether your property may have to be sold to pay for nursing home fees. If a couple, whether or not married, own their home jointly, then it is normally possible to ensure that if the longer-lived member of the couple eventually has to go into a home, the share of the house which was owned by the other member of the couple is ring-fenced by means of a trust, so at least that part of the value of the house does not end up going on home fees.

Tax legislation and allowances constantly evolve
If you are a farmer, you are probably aware that agricultural property relief on agricultural property, including the farmhouse, can be claimed to reduce or avoid an Inheritance Tax bill after death. You should also be aware, though, that if before your death you retire, in the sense that you are no longer actively farming the land yourself, then the relief may be lost, particularly on the farmhouse.

Making sure that you can pass on your wealth to the right people, at the right time, will be one of the most valuable things you can do for yourself and your family. Tax legislation and allowances are constantly evolving, so it is essential to review your financial and investment arrangements to ensure unexpected tax bills won’t jeopardise any wealth intended for your family.

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS AND DEPEND ON YOUR INDIVIDUAL CIRCUMSTANCES.

ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.

THE RULES AROUND TRUSTS ARE COMPLICATED, SO YOU SHOULD ALWAYS OBTAIN PROFESSIONAL ADVICE.

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Choppy waters, not full-on gale http://www.eastwood-ifa.co.uk/wordpress/choppy-waters-not-full-on-gale/ Fri, 05 Jul 2019 09:48:21 +0000 http://www.newsfin.co.uk/news/?p=2760 Wait for the bad weather to pass and stay the course

Volatility fluctuates based on where we are in the economic cycle, but it is a normal feature of markets that investors should expect. When stock markets start correcting, daily injections of bad news may sound as though it will never end. This can spark anxiety, fuel uncertainty and trigger radical decisions in even the most seasoned investors.

From the unfathomable Brexit playbook and the continued prominence of populist ideology, to unconventional US foreign policy and the retirement of Draghi, the highly respected European Central Bank president, uncertainty prevails. But it’s essential not to panic and to keep perspective when markets are turbulent.

Whether it’s rough seas or a volatile stock market, the same rules apply. When storms rock the boat, don’t jump ship. Wait for the bad weather to pass and stay the course.

Here are some strategies to consider when volatility strikes.

Keep calm – short-term volatility is part and parcel of the investment journey
Markets can fluctuate depending on the news flow or expectations on valuations and corporate earnings. It is important to remember that volatility is to be expected from time to time in financial markets.

Short-term volatility can occur at any time. Historically, significant recoveries occur following major setbacks, including economic downturns and geopolitical events.

While headline-grabbing news can affect short-term market sentiment and lead to reductions in asset valuations, share prices should ultimately be driven by fundamentals over the long run. Therefore, investors should avoid panic-selling during volatile periods so that they don’t miss out on any potential market recovery.

Remain invested – long-term investing increases the chance of positive returns
When markets get rocky, it is tempting to exit the market to avoid further losses. However, those who focus on short-term market volatility may end up buying high and selling low. History has shown that financial markets go up in the long run despite short-term fluctuations.

Though markets do not always follow the same recovery paths, periods after corrections are often critical times to be exposed to the markets. Staying invested for longer periods tends to offer higher return potential.

Stay diversified – diversification can help achieve a smoother ride
Diversification basically means ‘don’t put all your eggs in one basket’. Different asset classes often perform differently under various market conditions.

By combining assets with different characteristics, the risks and performance of different investments are combined, thus lowering overall portfolio risk. That means a lower return in one type of asset may be compensated by a gain in another.

Stay alert – market downturns may create opportunities
Don’t be passive in the face of market declines. When market sentiment is low, valuations tend to be driven down, which provides investment opportunities. In rising markets, people tend to invest as they chase returns, while in declining markets people tend to sell. When investors overreact to market conditions, they may miss out on some of the best-performing days.

Although no one can predict market movements, the times when everyone is overwhelmingly negative often turn out to be the best times to invest.

Invest regularly – despite volatility
Investing regularly means continuous investment regardless of what is happening in the markets.

When investors make fixed regular investments, they buy more units when prices are low and fewer when prices are high. This will smooth out the investment journey and average out the price at which units are bought. It thus reduces the risk of investing a lump sum at the wrong time, particularly amid market volatility.

The longer the time frame for investment, the better, because it allows more time for investments to grow, known as the ‘compounding effect’.

THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED. INVESTMENT SHOULD BE REGARDED AS LONG TERM AND FIT IN WITH YOUR OVERALL ATTITUDE TO INVESTMENT RISK AND FINANCIAL CIRCUMSTANCES.

THIS CONTENT IS FOR YOUR GENERAL INFORMATION AND USE ONLY AND IS NOT INTENDED TO ADDRESS YOUR PARTICULAR REQUIREMENTS OR CONSTITUTE ADVICE.

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Retirement longevity http://www.eastwood-ifa.co.uk/wordpress/retirement-longevity/ Fri, 05 Jul 2019 09:48:00 +0000 http://www.newsfin.co.uk/news/?p=2758 Your destiny is now in your own hands

If you are in your 50s or 60s, your thoughts are probably turning towards retirement. When should you retire? How much money do you need?

In trying to answer these questions, you face a problem. Because of longevity trends, we are on average living longer. With longevity increasing, your wealth may have to provide you and your spouse or partner with an adequate income for 30 or even 40 years.
Britons aged 30 today have a 50% chance of living to more than 100, while 50-year-olds have an even chance of reaching 95[1]. Longer lifespans, however, raise financial challenges – for individuals as well as for families and society.

The idea of a retirement lasting many decades may seem appealing, but longer retirements mean more years of living off your pension and savings. Will yours be enough?

Extra benefit of compound interest
How much money you need to save depends on when you actually start saving and how much you want to save in total. The earlier you and potentially your employer (if they match your contributions) start adding to your pension pot, the less you will need to save each month because the cost is spread over a longer period.

Moreover, if you start saving earlier, your funds will accrue the extra benefit of compound interest throughout the duration of your savings. Making money from the interest means you can actively save less but still end up with the same amount.

Much more freedom and flexibility
The good news is that changes to pensions also now mean you have much more freedom and flexibility over how to take your benefits – whether as tax-free cash, buying an income for life, leaving your pension fund invested while drawing an income, or a combination of all these options.
Unless you believe the Government is likely to become more generous with the State Pension and other retirement benefits, individuals will almost certainly need to save more to enjoy the standard of living they would like in retirement.

Building a retirement nest egg
Over the last few decades, employer pensions have become generally less generous. Today, people starting a new job in the private sector are very rarely offered a traditional defined benefit pension – where the employer guarantees you a certain level of pension based on your salary and length of service.

Most employer-based pensions now depend on how much you and your employer have contributed and the investment returns achieved by that money. That said, for most people, saving via a workplace pension still remains the correct approach to take for building a retirement nest egg – not least because the employer contributions are effectively free money.

A number of attractive tax breaks
Importantly, pension savers benefit from a number of attractive tax breaks, including Income Tax relief on contributions and up to 25% of the proceeds being tax-free. For 2019/20, the annual limit on tax-relievable personal contributions is 100% of your salary (or £3,600 if more). In addition, there is a limit on tax-efficient pension funding called the ‘annual allowance’ (£40,000 for most people) – this applies to both contributions paid by you and contributions paid by your employer and, if exceeded, means you will pay tax on the excess (an annual allowance charge).

We’ll help keep track of your pension contributions so that you know if you’re getting close to your annual limits.

Maximum tax-free retirement savings
In some cases, we may be able to ask your pension provider to pay the charge from your pension benefits. You may not be subject to an annual allowance charge (or a lower charge may apply) if you have unused annual allowances from the previous three tax years that can be carried forward.

Increasingly, more people are also being caught by the ‘lifetime allowance’, which puts a limit on the total value of their pension funds that can be accumulated without suffering a tax charge. From 6 April this year, the pensions lifetime allowance increased to £1,055,000. The pension lifetime allowance is the maximum amount that you can accumulate in your pension plans without suffering a tax charge (lifetime allowance charge).

Source data:
[1] The 100 Year Life: Living and Working in an Age of Longevity, by Andrew Scott and Lynda Gratton, September 2018

A PENSION IS A LONG-TERM INVESTMENT.

THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.

ACCESSING PENSION BENEFITS EARLY MAY IMPACT ON LEVELS OF RETIREMENT INCOME AND YOUR ENTITLEMENT TO CERTAIN MEANS TESTED BENEFITS AND IS NOT SUITABLE FOR EVERYONE. YOU SHOULD SEEK ADVICE TO UNDERSTAND YOUR OPTIONS AT RETIREMENT.

PENSIONS ARE NOT NORMALLY ACCESSIBLE UNTIL AGE 55. YOUR PENSION INCOME COULD ALSO BE AFFECTED BY INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS. THE TAX IMPLICATIONS OF PENSION WITHDRAWALS WILL BE BASED ON YOUR INDIVIDUAL CIRCUMSTANCES, TAX LEGISLATION AND REGULATION, WHICH ARE SUBJECT TO CHANGE IN THE FUTURE.

THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.

PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.

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Taxing times http://www.eastwood-ifa.co.uk/wordpress/taxing-times-4/ Fri, 05 Jul 2019 09:47:36 +0000 http://www.newsfin.co.uk/news/?p=2756 ‘Top 5’ list of planning areas

Making sure you use up any allowances you are entitled to is the first step to reducing the amount of tax you may be liable to pay. We’ve provided our ‘Top 5’ list of planning areas to consider before 5 April 2020, the end of the 2019/20 tax year. The rates given are correct for the 2019/20 tax year.

1. Your ISA allowance: don’t wait to use it
There are many different types of Individual Savings Account (ISA), including Lifetime ISAs, Junior ISAs and Innovative Finance ISAs, although the best known are Cash ISAs and Stocks & Shares ISAs.

If you invest your full allowance early on during each tax year rather than at the end, your money will have a longer time to potentially grow tax-efficiently. This can add up to extra money in your ISA if you invest the maximum £20,000 allowance. Of course, not everyone will be in a position to invest £20,000 every April – but the more you put in, and the earlier you do it, the better off you can be.

2. Top up your pension, but watch out for the lifetime allowance
Generally, the maximum amount that can be contributed tax-efficiently in total from all sources (for example, from you and your employer) each tax year is £40,000. Remember, to receive tax relief, your personal contributions can’t be any higher than your earnings (or £3,600 if more).
The lifetime allowance for most people is £1,055,000 in the tax year 2019/20. It 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. If you take any excess amount above the lifetime allowance as a lump sum, it will be taxed at 55% (or 25% if taken as income or placed in drawdown).

3. Make use of gift allowances
If you have a potential Inheritance Tax liability, there are ways of reducing this by making exempt gifts that are immediately outside of your estate. You can give up to £250 a year to as many people as you like. You can also give away up to £3,000 tax-free a year (but not to those who have had the £250 gift). If you don’t use this annual exemption, it can be carried over for the following year, but only up to a maximum of £6,000. Gifts made at the time of a wedding or registered civil partnership are given tax-free allowances: £5,000 can be given to a child; £2,500 can be given to a grandchild or great grandchild; £1,000 can be given to anyone.

If you can show that regular gifts were funded out of surplus income, not savings, you won’t pay Inheritance Tax. But it’s a complicated matter to prove, and on your death your personal representatives will need to provide evidence of your incomings and outgoings to demonstrate that the gifts were paid for out of surplus income, not from savings or investments.

4. The personal allowance: how not to lose it
Everyone has a basic personal tax-free allowance. This is the amount of income you can receive tax-free each year. You do not normally need to do anything in order to receive this, as it should automatically be applied when you are paying tax. If you earn over £100,000, this will be reduced, but otherwise it is £12,500 (2019/20 tax year).

If you are married and have used up your personal allowance, but your partner has not, it may be beneficial to transfer some savings or other assets into their name, but you need to bear in mind they will then legally own those assets. Or you can make use of the Marriage Allowance, which allows 10% of a non-taxpayer’s personal allowance to be transferred to their basic-rate taxpaying spouse.

5. Don’t forget capital gains
The annual exemption is £12,000 for 2019/20. If you have unrealised gains, you may decide to dispose of some before the end of the tax year to use up your annual exemption. Married couples are taxed individually on capital gains, so transferring an asset from one spouse to another before realising a gain can be tax-efficient as long as the transfer represents a genuine gift from one to the other. As far as possible, it is important to use the annual exemption each tax year because, if unused, it cannot be carried forward.

When you sell a property that qualifies for the main residence tax relief, you do not have to pay Capital Gains Tax (CGT) on it. This main residence relief is extended for 18 months after you vacate the property. What this means is that you can sell your family home within a year-and-a-half of moving out of it and still qualify for the main residence relief (that is, pay no CGT)..

A PENSION IS A LONG-TERM INVESTMENT.

THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.

PENSIONS ARE NOT NORMALLY ACCESSIBLE UNTIL AGE 55. YOUR PENSION INCOME COULD ALSO BE AFFECTED BY INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS. THE TAX IMPLICATIONS OF PENSION WITHDRAWALS WILL BE BASED ON YOUR INDIVIDUAL CIRCUMSTANCES, TAX LEGISLATION AND REGULATION, WHICH ARE SUBJECT TO CHANGE IN THE FUTURE.

THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.

PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.

ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.

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Show me the money http://www.eastwood-ifa.co.uk/wordpress/show-me-the-money/ Fri, 05 Jul 2019 09:47:15 +0000 http://www.newsfin.co.uk/news/?p=2754 Turning pensions into money you can use

Today, you’ve got a number of options and permutations available when it comes to what to do with your pension in retirement. But lots of choice can also mean increased confusion.

Your retirement might seem like a far-off prospect, but knowing how you can access your pension pot can help you understand how best to build for the future you want.

You must have reached a certain minimum pension age set by your pension fund provider to access your pension pot – usually 55 years if you have a defined contribution pension – at which point you have the choice of how to take your pension.

In some instances, you may be able to withdraw your pension earlier if you’re retiring because of poor health or disability, but the rules depend on your pension scheme.

When you take your pension, some will be tax-free, but the rest is taxed. Please be aware that tax depends on your circumstances, and the tax rules can also change in the future.

Whatever approach you take, each option has its own upsides, downsides and tax implications. It depends on what you want out of life, how you choose to live and how much you want to leave behind.

With all of the options, you can normally take up to 25% of your pension pot as a tax-free lump sum if you wish to do so. The rest is then taxed as income at the point you receive it. We can make sure that you fully understand the tax implications of each option available to you so that you are fully informed.

Time to consider your options?
How long your pension pot lasts will depend on the choices you make. You’ll be able to access the money within your pension pot in a number of different ways. We’ve provided some of the options to help you think your pension strategy through. You don’t have to stick to just one option, as you could combine several. Some products may not offer the full range of options.

We’re not recommending one over the other, but we can support you when the time comes to make your decision.

Guaranteed income for life (also known as an ‘annuity’)
You can use your pension pot to buy an income for life. It pays you an income and is guaranteed for life. These payments may be subject to Income Tax.

In most cases, you can take up to 25% of the money you move into your guaranteed income for life, in cash, tax-free. You’ll need to do this at the start, and you need to take the rest as an income.

Take flexible cash or income (also known as ‘drawdown’)
In most cases, you can take out up to 25% of the money moved into your flexible cash or income plan, in cash, tax-free. You can either move your total fund into drawdown and take all of your tax-free lump sum at the start, or you can move portions of your fund into drawdown at different times and take 25% of each portion as tax-free cash over time. You can then make future withdrawals from the drawdown pot as and when you like.
You can also set up a regular income with this option. Any money you take after the first 25% may be subject to Income Tax. You can invest the rest in whichever fund or funds you choose, giving your money the chance to grow. Although as with all investments, it could go down in value too, and you could get back less than you put in.

Take your money as cash
You can do this all in one go, or as a series of smaller lump sums, while the rest remains in your pension fund. Once you receive your money after tax, you’re completely responsible for it and can use it as you want.

If you do opt for smaller lump sums without taking your tax-free cash up front, then each payment will be 25% tax-free. The remainder will be added to your income for the year and taxed accordingly, which may result in you paying a higher rate of tax.

A combination of options
You don’t have to choose one option – you can take a combination of some or all of them over time, even if you’ve only got one pension pot.
Before combining any options, though, take time to think about the benefits and considerations of each option on its own. We’ll check with your providers to see that you’re not losing out on any guarantees on your plan by combining options.

Leave it where it is
If you don’t need to take any money out, you can leave it in your pension pot to give you more time to decide what to do with it, or give your pot a chance to keep growing – but while it’s invested, it could go down as well as up in value, and you might get back less than you put in.
And if you’re still paying into your plan, you can keep paying into it and potentially benefit from tax relief. You can then choose how to access your money when the time is right for you.

Once you’ve made a decision
When deciding what to do with your pension pot, it’s important to remember that each option might have different tax implications, and that pension providers offer different products with alternative options or features including the product terms, rates, funds or charges that might be more appropriate for your individual needs and circumstances.

If you’re like most people, the money in your pension pot will need to last for the rest of your life. Once you’ve made a decision, you might not be able to change your mind. So it’s important to get all the information you need to feel confident that you’re making the right decision for you.

A PENSION IS A LONG-TERM INVESTMENT.

THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.

ACCESSING PENSION BENEFITS EARLY MAY IMPACT ON LEVELS OF RETIREMENT INCOME AND YOUR ENTITLEMENT TO CERTAIN MEANS TESTED BENEFITS AND IS NOT SUITABLE FOR EVERYONE. YOU SHOULD SEEK ADVICE TO UNDERSTAND YOUR OPTIONS AT RETIREMENT.

PENSIONS ARE NOT NORMALLY ACCESSIBLE UNTIL AGE 55. YOUR PENSION INCOME COULD ALSO BE AFFECTED BY INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS. THE TAX IMPLICATIONS OF PENSION WITHDRAWALS WILL BE BASED ON YOUR INDIVIDUAL CIRCUMSTANCES, TAX LEGISLATION AND REGULATION, WHICH ARE SUBJECT TO CHANGE IN THE FUTURE.

THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.

PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.

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Investing for income, growth or both in retirement http://www.eastwood-ifa.co.uk/wordpress/investing-for-income-growth-or-both-in-retirement/ Fri, 05 Jul 2019 09:46:54 +0000 http://www.newsfin.co.uk/news/?p=2752 Turning on the taps for an extra income stream to help you realise your ambitions

The best time to start investing was 20 years ago. The second best time to start investing is now. But as you have been building up your investment wealth over the decades, in all likelihood you’ve probably pursued growth above all else, looking to maximising the value of your savings.

Your priority in retirement may well be to generate an income from your investments, rather than to pursue further capital growth. After all, turning on the taps for an extra income stream could help you realise your ambitions.

Pursuit of growth
Structuring a well-thought-out blend of investments should be at the heart of your wealth strategy. So even if you are now prioritising income, it could make sense to keep a portion of your investments working in pursuit of growth. This might seem counterintuitive, but here are some ways to do this.

Inflation is the enemy of all savers, but especially of those who depend on their savings and investments to deliver an income. If returns don’t keep pace with the rising price of goods and services, they will be worth less in real terms.

Effects of inflation
By investing some of your portfolio for growth, you can offset the erosive effects of inflation if you are successful. After all, asset values normally rise if they perform well or their prospects improve, although there are never any guarantees when it comes to investing.

Different investment approaches can often perform differently under the same circumstances. For instance, more ambitious growth-focused strategies tend to perform more cyclically than certain income strategies, in the sense that they tend to outperform when markets are buoyant but underperform when investors are more pessimistic.

Growth-focused strategies
Allocating some of your portfolio to higher growth-focused strategies could therefore be a counterbalance to more sober income-generating assets, so long as you can accept the risks, which are often greater when you are pursuing growth. In general, the more risk you take, the more your investment could rise or fall in value.

However, those people who invested solely for income would have likely missed out entirely on this growth. This is because emerging companies – and not just in the technology sector – seldom deliver income to their shareholders in the form of dividends, as they are reinvesting their profits, and that’s if they have any, for future growth.

Longer-term approach
By investing some of your portfolio in companies with longer-term growth prospects, you might avoid the fear of missing out on the next opportunities.

If you have the next generation in mind for some of your investments, it might make more sense to adopt a longer-term approach and give those savings more chance for growth.

Attitude towards risk
When investing for someone younger, their investment horizon is probably more likely to be measured in decades than months. You should therefore be able to take a truly longer-term view and prioritise growing the value of the pot for the future, ignoring the inevitable short-term fluctuations in the value of assets or any income considerations.

Depending on your time horizon and your attitude towards risk, investment strategies that target capital growth could therefore make a valuable contribution towards your longer-term financial security – and possibly that of your family.

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS.

ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.

THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.

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Give a triple boost to your children http://www.eastwood-ifa.co.uk/wordpress/give-a-triple-boost-to-your-children/ Fri, 05 Jul 2019 09:46:23 +0000 http://www.newsfin.co.uk/news/?p=2749 Don’t miss out on this little-known tax rule

For those parents who have spare cash, putting money into their children’s pension will boost the retirement prospects of their offspring. The money will be topped up by the addition of tax relief and could also earn their children a tax refund if they are higher-rate taxpayers and reduce the penalty they face if they are a higher earner receiving child benefit.

Under current rules, there is nothing to stop a parent making a contribution into the pension of an adult child. With millions of younger workers having been newly enrolled into a workplace pension, many now have a pension for the first time but are only making very modest contributions.

Building a more meaningful retirement pot
An additional contribution from parents early in their working life, benefiting from compound interest as it grows, could help them to build a more meaningful retirement pot and is money that cannot be touched until later in life.

A campaign has been launched by Royal London to make parents aware of the ‘hidden advantages’ of paying into the pension pot of their adult children. It is a little known fact that a parent who puts money into their child’s pension could be doing them a favour three times over.

Improving long-term financial security
First, the recipient will get a boost to their retirement pot, including tax relief at the basic rate. Second, recipients who are higher-rate taxpayers can claim higher-rate tax relief on their parents’ contributions, which will increase their disposable income. And third, recipients affected by the high income child benefit charge can see this penalty reduced because of their parents’ generosity.

Not every parent has spare cash to pay in to their children’s pensions, but many will be in a better financial position than their children can expect to enjoy. By paying in to their children’s pension, they can give them a triple boost and improve their long-term financial security.

Recipient receives basic-rate tax relief
A little-known feature of the pensions system, however, is that the contribution by the parent is treated as if it had been made by the recipient. So, for example, if a parent pays £800 into their child’s personal pension, the recipient will get basic-rate tax relief on the contribution, taking the amount in the pot up to £1,000.

In addition, there are two further benefits to the recipient:

If the recipient is a higher-rate taxpayer, he or she can claim higher-rate relief on the contribution made by the parent; this would be done through the annual tax return process and would reduce the tax bill of the recipient.

If the recipient is affected by the ‘high income child benefit charge’ and is earning in the £50,000-£60,000 bracket or slightly above, the money contributed by the parent is deducted from their income before the high income child benefit charge is worked out, thereby reducing their tax charge; for example, if the recipient is earning £60,000 and therefore faces a child benefit tax charge of 100% of their child benefit amount, a pension contribution by the parent of £8,000 grossed up to £10,000 by tax relief would reduce the recipient’s income to £50,000 for purposes of the child benefit charge and would completely eliminate the tax charge.

Reducing a future inheritance tax bill
Apart from generally wanting to help their children, parents may be interested in this idea particularly because they may be up against their own annual limits for pension contributions and may therefore have spare cash. Contributions may reduce future Inheritance Tax bills if they qualify for one of the standard exemptions, such as regular gifts made from regular income.

The amount that the parent can contribute with the benefit of pension tax relief is not limited by the parent’s pension tax relief limit but by the limit that their children face – which in many cases will be up to their annual salary or £40,000, whichever is the lower.

Contributing money into a child’s pension
Parents can also contribute money into a child’s pension, which will reduce the size of their estate for Inheritance Tax purposes on death if a valid Inheritance Tax exemption applies or after seven years if there isn’t a valid exemption.

For example, the ‘normal expenditure from income exemption’, which is unlimited, would apply if the contributions are not at such a level so as to reduce the current standard of living of the parents and are made on a regular basis, such as an annual contribution from the parents’ regular income.

A PENSION IS A LONG-TERM INVESTMENT.

THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.

PENSIONS ARE NOT NORMALLY ACCESSIBLE UNTIL AGE 55. YOUR PENSION INCOME COULD ALSO BE AFFECTED BY INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS. THE TAX IMPLICATIONS OF PENSION WITHDRAWALS WILL BE BASED ON YOUR INDIVIDUAL CIRCUMSTANCES, TAX LEGISLATION AND REGULATION, WHICH ARE SUBJECT TO CHANGE IN THE FUTURE.

THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.

PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.

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