2012 Budget

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The main things to be concerned about in the March 21st 2012 Budget are:

  • From April 2013, the 50% additional rate of income tax will be cut to 45% and to 37.5% from 42.5% for dividends.
  • The personal income tax allowance will rise to £8,105 from April 2012 and to £9,205 from April 2013. There will also be a freeze on existing age-related allowances from 6 April 2013.
  • The basic rate tax limit reduces from £35,000 to £34,370 for 2012/2013 and £32,245 for 2013/2014.
  • The State Pension will reform into a single tier pension for future pensioners and future increases in State Pension Age will take account of increases in longevity.
  • The main rate of corporation tax will be cut to 24% from next month. By 2014 it will fall to 22%.
  • Qualifying policy investments will be restricted to an annual premium limit of £3,600 from 6 April 2013, with transitional rules applying from 21 March 2012.
  • The capital gains tax exemption remains frozen for 2012/2013 at £10,600.
  • On the inheritance tax front, the Government is consulting on a range of topics. They include increasing the exempt amount that someone living permanently in the UK can transfer to a spouse or civil partner living permanently outside the UK.

A good concise summary of everything can be downloaded here:  budget 2012

 

Tax Year-end Planning: ISA allowances in 2012/13

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ISAs and JISAs current and new allowances 2011/12 and 2012/13: Current ISA allowance is 10,680 and will be £11,280 after April 5th. You can invest £21,960 right now for both tax years – please call 0845 013 6525 for details. Don’t forget JISAs are now available to all children born after January 2, 2011, or before September 1, 2002 who are aged under 18. Allowance is £3,600 p.a., so £7,200 can be invested in aggregate over next couple of weeks

Tax Year End Planning: Pensions 2

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  • If you are in the process of arranging an annuity with a pension fund containing Protected Rights and you are married or in a civil partnership, you are currently obliged to provide for a 50% dependent’s pension. From April 6th 2012 the requirement to include this requirement is being removed. 
  • The threshold for payment of trivial commutation lump sums is being fixed at £18,000 rather than 1% of the Standard Lifetime Allowance (which falls from £1.8million to £1.5 million). This applies to the aggregate pension holdings (or deferred rights) of an individual excluding State pensions.

Tax Year End Planning: Pensions

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Higher Rate (50%) Tax Payers: Tax Relief on Pension Contributions could be at risk. 

Recently, there has been much comment regarding the potential alteration to Higher Rate Pension Tax Relief.

To be on the safe side it might be an idea to ensure all top-up pension contributions for this tax year are processed before the next Budget is announced on Wednesday 21st March 2012.

So, if you typically make a year-end top-up contribution to your pension and you are a higher rate taxpayer (gross income over £150k)…………

***** Make Tuesday 20th March 2012 your Tax Year End *****  

 

Carry forward pension rules change – use your 2008/2009 allowance now.
5th April 2012 marks the last chance to pick-up any unused 2008/2009 allowance. If you wish to make aggregate gross  contributions (including employers’) into your pension of more than £50,000 this tax year, then utilise carry forward. Don’t lose the past allowance from  2008/2009 pension annual allowance in your carry forward calculations. 

 

Lifetime Allowance (LTA) and Fixed protection
If you believe your pension may be greater than the new reduced £1.5m LTA value coming April 6, 2012 when you come to take benefits, you should act now. By applying for fixed protection by 5th April 2012 you can retain an LTA of £1.8 million, and protect your pension from future excess tax charges.  Final Salary pensioners would multiply their expected pension figure by 20 and add any cash lump sum in calculating whether they risk breaking the limit. The LTA is not due to be increased for some time, it is rumoured.

 

Self Assessment Deadline and penalties – 2 days grace

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HMRC have announced that they won’t impose late filing penalties on taxpayers who file their Self Assessment up to February 2nd this year, i.e. up to two days late. The announcement has been made amongst fears that some taxpayers would not be able to get through to HMRC’s call centres on 31 January 2012 where strike action by some employees has been threatened. People who need to call in for last minute help or advice could be disadvantaged without this deadline extension.

In HMRC’s words:

‘The Self Assessment deadline remains midnight on 31 January. But HMRC will treat all returns that come in by midnight on 2 February as though they were submitted by 31 January. No customer will have to pay interest on payments due on 31 January that are paid on 1 or 2 February.‘

This gives a welcome respite to those who habitually leave things to the last minute and then struggle to file online on the evening of the 31st – while the HMRC system creaks and groans and freezes up, leaving one wondering if the Return actually got fully uploaded or not. Not that I leave it that late of course – I fully intend to file mine by late afternoon at the latest.

Updates on VCT and EIS Investments 2011-12 and 2012-13

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The regulations on Venture Capital Trusts (VCTs) and Enterprise Investment Schemes (EISs) are changing according to the Finance Bill 2012:

VCT
Concerning the size of qualifying enterprise, The employee limit will change from fewer than 50 to fewer than 250 and a size threshold to gross assets of no more than £15m before investment and £16m after. The maximum annual amount that can be invested in an individual company will be £10m (from £1m).

These changes mean that VCTs can invest in larger, more established companies and with larger stakes.

However HMRC are taking a stronger line with “limited life” VCTs which have been popular lately. These VCTs tended to invest into target companies by way of loans as well as equity. Now the rules for investments, from April 6, 2012, require at least 70% to be into equity shares. This is more in keeping with the “spirit” of VCTs and the purpose of the tax breaks afforded such schemes – to reward investors for taking a risk on smaller companies.

So in a nutshell, qualifying investments are being tightened up. The result is I think that we may see fewer “limited life” VCTs after April 2012: it depends on how well the provider are able to re-arrange their investment strategies. However it is understood that the current VCT limited life offerings can still be approved, providing that they are invested before the end of the current tax year. So, for some VCTs we can expect to see closing dates brought forward and no more straddling both tax years this time around.

EIS

There is good news for EIS in that the increase in tax relief to 30% is not only confirmed but it will apply retroactively to any investments already made this tax year. Remember to put the correct numbers on your tax return – don’t expect HMRC to point this out for you.

This increase in the tax relief for EISs is very welcome and when combined with their other tax breaks (e.g. CGT free after 3 years, ability to receive rolled-over CGT gains,  and IHT exemption make them very useful tax-wise.

SEIS

The Treasury said it would create baby EISs –  “seed enterprise investment schemes” which would apply to smaller companies: with 25 or fewer employees and assets of up to £200,000, which are carrying on or preparing to carry on a new business.

Income tax relief worth 50 per cent of the amount invested wouldn be available to individual investors with a stake of less than 30 per cent in such companies, including directors who invest in their companies.

The Treasury stated there would be an exemption from CGT tax on gains on shares within the scope of the SEIS and an exemption from CGT on gains realised from disposals of assets in 2012-13, where the gains are reinvested through the new SEIS in the same year. 

So, between now and the end of March, anyone interested in EISs and VCTs should get in touch with their IFA (or preferably me if you are not an existing client!) to go through the current offerings and sort out a tax-efficient strategy that suits you.

Contracting Out to end after 2011/2012 on Defined Contribution Pensions

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The Government has confirmed that from 6 April 2012, contracting out of the State Second Pension (S2P) through defined contribution schemes will be abolished. That includes all money purchase arrangments such as “COMP” occupational schemes, group personal (& stakeholder & SIPP) pension schemes, and all individual plans. However, customers can still stay contracted out for the 2011/12 tax year.

Protected rights will in future become ordinary benefits and customers will no longer have to provide a pension for their spouse/civil partner when they retire – although they can if they still want to. So, a nice bit of simplification there.

If you are contracted out and are not sure if that is still appropriate for you for this current tax year, you can review this useful q & a document: contracting-out

Fair Weather Fishing

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Well the cooler weather has set in now and the carp are changing their tastes a bit. I am reliably informed I should ditch the sweetcorn and look to using punched bread on the hook – particularly for float fishing, or maybe bread paste. Fishermen have a tool for everything so now I need to go find a bread punch. Apparently it stays on the hook better than bread paste, which I used almost exclusively as a lad. Also I should use fresh white long-life “wonderloaf”, cut off the crusts, microwave it for about 20 secs to make it pappy, then then roll with a rolling pin. Then cling-film the slices separately and punch as needed. Uh-huh…

Alternatively I could just stick a lump of crusty bread on the hook and hope. We shall see.

Also maggots! (yuk) are apparently favoured by carp in the cooler weather. I think I’ll try the bread. Meanwhile it looks like the smelly mix is still working for the ledger rod – I tend to use a small feeder packed with a mix of marine halibut with a 3″ hair rig holding a 8mm pellet (the same bait but more solid). The fish practically catch themselves on this rig so I wonder if it’s cheating a little.  

Meanwhile I was out again the other weekend although my usual fishing buddy Andy didn’t come. It was pretty quiet until I switched swim.  It’s weird – I began fishing about 15 ft to the left of where I’d been and started getting lots of action.   

As usual nothing massive but this fed-up looking 3 1/2 to 4 pounder was the best of several similar sized common and mirror.

It was pretty quiet out there but at least I had Val the water vole  to keep me company. Here he/she is taking a dip.

 Water vole Oct 2011

Kudos for JISAs (Junior Investment Savings Accounts)

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Finally! –  a simple, straightforward attractive savings vehicle for children. The new JISA is the junior version of an ISA, with all the same tax breaks. Most of the large institutions which offer ISA investments will soon be offering JISAs too.

The annual investment limit will be £3,600 initially, as compared to £10,680 for a full ISA. There are a couple of key differences, notably that the funds in a JISA will not be accessible by the child until they reach the age of 18, except in special circumstances.

The JISA is a replacement for the rather clunky, quite complicated and mostly dull Child Trust Fund (CTF) arrangment which kicked off a little under a decade ago. Unfortunately it seems that children who qualify for CTFs won’t qualify for JISAs: the JISA is available to children born after January 2, 2011, or before September 1, 2002 who are aged under 18.

Perhaps the most exciting thing about JISAs is that parents and grandparents (or benevolent uncles and aunts for that matter) won’t need to understand a whole load of new rules or products. If you want your special little one to have a cash JISA you can have it, or if you want an investment JISA there are no particular restrictions on the funds choice, so you can go ahead and invest in your favourite unit trusts and other funds.

So, people who are already familiar with investing and funds, and perhaps already have an investment portfolio of their own will be able to make sensible decisions for the money they would like to invest for little Johnny or Jill. Or indeed they can just ask their independent financial adviser to advise on a suitable plan and combination of investments.

It looks like the high street banks and building societies will be gearing up for a sales offensive on JISAs. I would caution you not to be drawn in too quickly: before signing up based on a beautifully drawn and marketed pamphlet, please consider whether each investment you are looking at has any track record, and if so how it compares to its sector average. You see, it is frequently surprising to consumers to find out that the best sounding stuff actually has disappointing performance, coupled with high ongoing charges.

For example, an IFA can probably introduce you to equity tracker funds with annual charges less than 0.5% per annum. Alternatively, you might choose to invest in some sexier funds based on the economies of, say, Russia, China, India, Brazil or other emerging markets, or the Pacific rim including Australasia. You couldn’t access those markets with the boring old CTF!

Remember – a JISA is a tax wrapper, not a product. Make it into what you want it to be. And give a leg-up for that special little-un who may need help with a car, university fees or a house deposit one day. 🙂

Commercial Property – a safe haven or to be avoided?

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City of London at twilight- Photo by Lars P. Mathiassen

City of London at twilight- Photo by Lars P. Mathiassen

Financial markets have endured a great deal of volatility recently, reflecting growing global economic uncertainty and fears of another recession. Heightened risk aversion has translated into heavy selling of equities, with investors favouring assets perceived as safe havens, such as gold, some currency markets such as the Swiss Franc, and AAA-rated corporate bonds. Highest-quality commercial real estate has also benefited somewhat from this hasty retreat from risky assets.

Take note though that commercial real estate is by no means immune to an economic slowdown and it is important that investors remember that property investment returns are a function of economic activity. For example, if manufacturing slows down, the industrial real estate sector is hit. Alternatively, if consumer spending slows, then retail property asset returns may suffer. Consequently, valuations on these assets can fall and rents decline.

However, commercial real estate has proven to be more robust than some other asset classes in recent challenging economic conditions, supported by investors seeking income in a low growth, low interest rate environment. In the UK, for example, the income yield margin that commercial real estate offers over government and high-quality corporate bonds is close to record levels. In international markets too, property yields generally offer healthy margins over bonds, with regions as diverse as Japan and some Scandinavian markets offering the most attractive income prospects.

Property holdings should, like most asset classes, be for the long-term. The majority of my clients will have a portion of their wealth invested in property funds. Fund selection is as always the key and we can assist in recommending several property funds, both UK and Global, which can form part of your portfolio. These can include REITs (investment trusts holding and managing property) as well as Unit Trusts and OEICs) some of which invest in REITs). Right now many REITs show attractive discounts (the difference between their price and the (higher) net asset value).

As ever, make sure you get good independent advice when deciding where to put your investment wealth.