your pension Bloodline
G Lifestyle Protection G Creating Wealth
G Tax Rules G
– Independent Financial Advisers –
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Increase your pension Protect your income Income through investing
Pension holders have an opportunity There are many areas which need Understanding the value of shares
to double their payouts Page 2 payment protection Page 6 within a portfolio Page 10
The Budget 2012 Family survival
The best way to protect your
All the key announcements Good advice and product knowledge
children’s inheritance Page 7
Page 3 are the main criteria Page 11
ISA transfers Government siphon off millions The baby boomers
Questions & Answers to fund a new bank Page 8 Their rosy future looks in doubt
Page 4 Page 12
A growing trend Page 9
Bank of Mum & Dad Reader reply section
Parents are risking their retirement AIM Personalised reply section
plans Page 5 Tax-efficient share owning Page 10 Page 12
Need more information? Simply complete and return the information request on page 12
Increase your pension
Pension holders in the private sector have an opportunity to Ms Ros Altmann, a former government pensions adviser, who is
potentially double their annual payouts through a legal now director general of SAGA, has been ﬁghting for tougher
entitlement hidden in some policies. Financial Services Authority regulation on the sale of annuity rate
Pension managers are advising pension holders to re-examine ﬁxed pension payouts.
the terms of their original policy contract before agreeing rates for She says ‘Buying an annuity is probably the most important
their annuity. pensions decision you will make because it is for life and once
Over recent years, interest rates have dramatically fallen and you have bought an annuity rate it cannot be changed.’
increasing life expectancy has forced pension providers to cut The problem for policy holders is, if they fail to spot the set rate
back annual payouts to approximately 5.9 per cent of a total themselves and accept a lower offer, they will not be able to
pension pot. change it. However, had their advisor checked their policy on their
Guaranteed Annuity Rates on policies issued before 1988 have behalf and not spotted the GAR then pension holders may be
however been between 10 and 12 per cent. able to sue for professional negligence.
In effect, what this means is, that someone with a guaranteed GARs, are described in many ways within a policy, with some
return set in the Eighties could get an annual income of £11,000 companies referring to them as guaranteed annuity options and
from a £100,000 pension pot. This is much higher than the others referring to them as guaranteed minimum annuity rates,
£5,900 that would be paid out on an £100,000 annuity guaranteed rates, rates guaranteed in the policy or minimum
purchased on the open market today. annuity rates.
In these tough times pension providers are not likely to ensure Even though it is no longer to necessary for everyone who has
policy holders get the best deals. Private pension holders have to a private pension pot to buy an annuity by the time they reach
read the small print of their policies and use a professional 75, it is still vital that pensioners are well informed and well
ﬁnancial adviser, as there is no one to tell you how valuable your advised beforehand.
Guaranteed Annuity Rate actually is.
The articles featured in this publication are for your general information and use only and are not intended to address your particular requirements. They should not be relied
upon in their entirety. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the
date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without receiving appropriate professional
advice after a thorough examination of their particular situation. Will writing, buy-to-let mortgages, some forms of tax and estate planning are not regulated by the Financial
Services Authority. Levels, bases of and reliefs from taxation are subject to change and their value depends on the individual circumstances of the investor.
The Budget 2012
Chancellor George Osborne delivered his third budget speech in the
Commons. He is cutting the top 50p tax rate to 45p from April 2013. The
personal tax allowance is to rise to £9,205 in April 2013 as Osborne pledges
to “take low income earners out of tax altogether”. The chancellor is also
introducing a new rate of stamp duty on expensive homes. The corporate
tax rate is coming down to 24% in April and to 22% by 2014.
Economy • Plan to give taxpayers statements showing Infrastructure
• Ofﬁce for Budget Responsibility says UK will where their tax goes, such as on healthcare • Network Rail will upgrade lines in the north
avoid technical recession with positive growth and on interest payments on the national debt of England
in ﬁrst quarter of 2012 Business taxes • Need to address lack of airport capacity in
• OBR revises up growth forecast for this year • Corporation tax being cut to 24% in April, south-east
to 0.8% from 0.7% previously having already cut to 26% from 28% • Want to “look at the opportunities for
• OBR cuts 2013 growth forecast to 2.0% • Corporation tax will be 22% by 2014 increasing the role of private investment in the
from previous forecast of 2.1% • Need a simpler tax system which “businesses road network, learning lessons from the water
• OBR forecasts growth of 2.7% in 2014, 3% can easily navigate” industry.”
in 2015 and again in 2016 • Consulting on simplifying tax for ﬁrms with
Cigarettes, alcohol and gambling
• No change to OBR’s forecast unemployment turnover up to £77,000
• Introducing new gaming machines duty with
rate. In autumn it said rate would peak at
Child benefits standard rate of 20%
8.7% this year and ease back to 8.6% next
• Partly removing child beneﬁt from • Plan to tax online gambling based on
households where at least one person earns location of gambler not company
• Inﬂation is expected to fall from 2.8% this
over £50,000 - softened from previous plans • Duty on all tobacco products will rise by 5%
year to 1.9% next year
• Considering proposals to manage future above inﬂation, 37p on a packet of cigarettes.
Public finances increases in the state pension age, beyond the
Fuel and vehicles
• Fiscal forecasts have “improved a little” from increases already announced
• No changes to fuel duty plans already set out
Pensions • Vehicle excise duty to rise by inﬂation, but
• Borrowing this year to come in at £126bn,
• State pension age to be automatically frozen for road hauliers
down from November forecast of £127bn
reviewed to ensure it keeps up with growing
• OBR has forecast government on course to Energy
eliminate structural current deﬁcit by 2016/17 • Introducing package of tax changes to
• Simpliﬁcation of tax system for pensioners
• “Public sector net debt is now set to peak at ensure get maximum from oil and gas
• Single-tier state pension to be introduced,
76.3% in 2014-15, almost 2% lower than extraction
estimated to be £140 p.w.
previously forecast, before falling the following • Introducing £3bn new oil ﬁeld allowance to
year.” Government bonds open up ﬁelds west of Shetland Islands
• Debt management ofﬁce consulting on • Energy Secretary will set out our new gas
Personal taxes issuing longer dated gilts beyond 50 years and generation strategy in the autumn to secure
• Personal tax allowance, the threshold at
case for perpetual gilts investment.
which workers start paying income tax will rise
to £9,205 in April 2013, up £1,100 from the Business Public sector
£8,105 level this April • Expanding enterprise ﬁnance guarantee • Looking at making public sector pay “more
• Top 50p tax rate being cut to 45p from April • Want to double UK exports to £1trn this responsive” to where workers are
• Clamping down on tax avoidance and • Expanding UK Export Finance and setting out
• Government spending in Afghanistan will be
evasion new plans to help smaller ﬁrms in new markets
£2.4bn lower than planned over remainder of
• The tax system will allow the lowest paid to • Review on how government can work better
be removed from tax altogether with private sector on growing economy to be
• Extra £100 million of improvements in the
• 7% stamp duty tax on properties over £2m conducted by Michael Heseltine
accommodation of our armed forces and their
• Eradicating anomalies in VAT such as on • Relaxing Sunday trading laws during
some foods and drinks Olympics and Paralympics
• Doubling the families welfare grant which is
• VAT exemptions remain for food, children’s • Exploring enterprise loans for young people
used to provide additional support to the
clothes, books and newspapers starting businesses
families left behind when people deploy
ISA transfers Why
Most of us are uncertain when it comes Existing rates may be
to the rules on transferring our savings superseded by better
alternatives and become less
to get the best rates. Here are some attractive or simply be
questions and answers to ISA transfers Every year, banks review and
reduce the returns they pay
so you can maximise your returns. out to loyal customers,
slashing rates as short-term
bonuses expire and ﬁxed
Your ISA transfer questions and answers It is not unknown for 90 per
cent to be shaved off a best
How do I set up a transfer? separate account, all in the same tax year,
buy rate overnight. With ﬁxed
Once you have found a suitable ISA rate, providing you do not contribute to both
deals, returns often fall to a
check the new provider accepts transfers. (i.e put new cash in both).
mere 0.5 per cent or less.
Next check any penalties that might If I have a fixed rate or easy Savers should get notiﬁed by
apply before transferring the money from access ISA, will transferring post that their rate is about to
the old provider. affect my interest rate? drop through the ﬂoor. Many
Arrange for the new provider to Best rate ISAs, whether ﬁxed deal or an are then surprised to ﬁnd you
organise the transfer. They will contact instant access account, normally have an cannot simply withdraw the
your old provider to transfer the funds. expiry date on them. cash and move it to another
How long does a transfer With ﬁxed rates, you need to wait until bank if you have used your ISA
take? the end of the term before moving your allowance for that particular
New rules introduced in January 2011 cash, as the penalties for early access can tax year, as you will lose the
state transfers should be completed within be harsh, sometimes as much as 365 tax status on your funds.
days’ worth of interest. Savers can get The big ISA no-no is to take
back less than they pay in if the are not out the cash, because you lose
Following a review of the industry by
careful. the tax-free interest status of
the Ofﬁce of Fair Trading, further
your money. Transfers are the
safeguards have also been introduced, With easy access ISAs, there is no
way to mitigate this problem.
which mean interest must be paid by the problem. These variable rate accounts give
new provider from the ﬁrst day that you freedom to move the money
interest is no longer paid by an old whenever you like, penalty-free.
provider. ISA transfer rules
The value of your investment and the
Do I transfer before or after You can transfer your money
income from it can go down as well as
the beginning of the tax year? up and you may not get back the from one cash ISA provider to
It really makes little difference when you original amount invested. Past another, as long as your
transfer cash from an existing ISA as you performance is not a reliable indicator chosen provider allows
are allowed to pay into one cash ISA per for future results. Please contact us for transfers in.
tax-year. Crucially, a transfer does not further information or if you are in any You can open a cash ISA
count as ‘paying in’. You can transfer as doubt as to the suitability of an (April 2012 to April 2013) and
many times as you like, whenever you like. investment. then transfer the whole
The value of any tax beneﬁts described amount to the new provider.
Is it possible to transfer one depends on your individual It is possible to switch your
ISA and then open another? circumstances. Tax rules may change in cash ISA to a stocks and shares
Yes, you can transfer previous years’ the future. Isa, but you cannot switch
savings to a better rate and open a from shares to cash.
Middle class parents are risking their retirement plans in order to The handful of providers which will lend mortgage sums to young
lend their children money and the “Bank of Mum and Dad” is adults, still require parents to use their own assets to back the
quickly becoming the main source of credit still available to loan.
young adults. Financial advisers say parents are jeopardising their own
Solicitors say these parents are writing an increasing number of retirement income in order to ﬁll the funding gap left by cautious
mortgage contracts in which the child’s parents, rather than a lenders. Aviva estimates that one-third of parents have dipped
bank or building society, act as the lender. Parents are becoming into their savings to provide ﬁnancial support for grown-up
their own micro-lending banks. children.
The number of ﬁrst-time buyers who received family help to The ﬁnancial services industry has become heavily focused on
buy a property has doubled since 2005, according to the Council serving older generations who have built up wealth and require
of Mortgage Lenders, highlighting the divergence in economic advice about retirement planning, while turning away indebted
fortunes between many in the afﬂuent baby boomer generation young people. It is considered by many to be a policy which may
and their often hard-pressed children. be fool hardy. Unless young people start to save and invest, the
Recent research by the Financial Times shows for the ﬁrst time ﬁnancial services industry is going to come up against demand
in half a century, that young Britons entering the workforce problems in the next few decades.
cannot expect to be better off than their parents, and that living Young people will have debts but no investments. Balancing
standards of people in their 60s have overtaken those of this out is the next big challenge for the ﬁnancial services
20-somethings for the ﬁrst time. industry.
Experts have said these events are putting pressure on parents The only products that advisers say are still actively marketed to
to continue supporting their children well into adulthood. More young people are expensive, short-term loans.
than a quarter of parents questioned in a survey by Legal & The Consumer Credit Counselling Service claims people in the
General say they expected to carry on ﬁnancially supporting their UK are now falling into debt earlier in life, and last year reported
offspring for the rest of their lives. a sharp rise in the number of individuals aged 25 and under
Wealthy older people are currently earning very little interest seeking help with their debts. This will undoubtedly put even
on their capital, and if they have adult children still living at home more strain on parents as we move forward.
they have a good incentive to loan them the money to move out.
Many solicitors now say they have seen a jump in large sums
gifted from parents to children.
Protect your income
There are many areas which need payment problems, which are the most common Such events could mean you need to
protection, for example your home, your car, causes of long-term absence. increase your IP cover, so make sure your
your travel and even your pets but more The insurance beneﬁts can be in some plan includes guaranteed insurability options.
importantly your income. However the cases as much as your net pay, and generally There are other providers of Payment
majority of working people fail to protect would be paid until you return to work or Protection Insurance (Short-Term Income
their income. retire. Premiums are based on age, sex and Protection) and other products designed to
Being totally unprotected is not occupation, however, from December 2012 protect you against loss of income.
particularly a nice feeling and if you are the European Court rules that Insurance For impartial information about insurance,
unable to work as a result of an injury or companies cannot calculate premiums based please visit the website at
long-term sickness, you might qualify for on gender. www.moneyadviceservice.org.uk
employment and support allowance at the
Comparing income protection Reducing the premiums
rate of up to £105.05 per week, which today
with ASU You could reduce the amount of beneﬁt on
(2012/13) does not go far.
If you decide on the broader cover offered by your policy by restricting cover to key bills
Options income protection insurance, there are a such as your mortgage, utility bills, food and
There are options available to protect so that number of product features you need to long ﬁnance agreements.
your income is secure if the unexpected does consider when comparing these products. Also by increasing the length of time
happen. An accident sickness and The deﬁnition of occupation is very before beneﬁt is paid, which is known as the
unemployment policy (ASU) will cover you if important. Own occupation is the key deferred period, this can signiﬁcantly reduce
you are unable to work due to sickness or deﬁnition, as this means the policy will pay your premiums and most insurers offer
injury or you are made redundant. out if you are unable to do your own job. deferred periods ranging from four weeks to
Cover typically costs between £4 and £10 Some policies have “any occupation” two years. Other ﬁnancial arrangements you
a month per £100 of monthly beneﬁt but deﬁnitions, but this is much more restrictive, have in place might make this possible.
there are many aspects that need to be in effect saying that you will only receive Investigate the sick pay you get from your
considered so your premium may fall outside beneﬁt if you cannot do any job. employer. While some offer IP most only pay
of this range. Inﬂation-prooﬁng your beneﬁt is a clever for up to six months.
ASU is also available under a number of step, especially if you are intending to take Consider your savings. If you could live on
different names, including payment the plan out to cover a career spanning 20 these for a few months you will beneﬁt from
protection insurance, which is commonly years or more. If you do this, your premium lower premiums.
sold alongside a credit card or loan, and and your beneﬁt will increase by the rate of You could also reduce the length of time
mortgage payment protection insurance, inﬂation every year. your beneﬁt is paid, with several of the
when it is sold in connection with a Flexibility is also important. Remember you insurers offering beneﬁt terms of two, three
mortgage. There are exclusions on policies in may advance up the ladder a number of or ﬁve years.
some cases, such as pre-existing medical times throughout your career, get married,
conditions, depression and back buy a bigger house and have children. Due to the complexities of the
protection insurance it is essential
to get professional ﬁnancial
With correct “Bloodline Planning” the assets
you leave for your children will not be lost
What is the best way to protect as adding value to the recipients estate, it consider other scenarios such as care costs,
my Children’s inheritance? would be wise to consider gifting with the where property assets are particularly at
Bloodline Planning is ensuring that your aid of Discretionary Trusts. risk, also family circumstances can also be
assets reach your children, grandchildren When you gift to your children and of concern. There may be some family
and other relatives, as you desire. grandchildren, the asset need not enter members you would wish to beneﬁt and
When assets are distributed to their own estate which protects these some that you would not. Family disputes
beneﬁciaries “absolutely”, they receive the assets from any possible claims on them in do occur and divorce and / or remarriage
assets in total, like property and cash or the future. By Gifting to a Trust, the donor can greatly inﬂuence who inherits and by
other assets, as a direct lump sum payment retains full control but cannot gain access how much.
so much can be lost. These assets are then to the funds. Even if the donor never Choosing the correct Trusts can provide
considered to be part of the beneﬁciary’s received any beneﬁt, but potentially could, the protection and control for all assets
estate and would be at risk of attack from the Gift is classed as “With Reservation of from those risks previously mentioned.
any future divorce settlements, creditors Beneﬁt” and the full value is deemed to be
and taxation. in the donor’s estate at death for Inheritance Trust advice and some aspects of
With the strategic use of Trusts, you can tax purposes, not just the initial Gift. The Inheritance Tax Planning are not
ensure that your children and Gift Trust ensures that all beneﬁciaries regulated by the Financial Services
grandchildren are able to beneﬁt named can beneﬁt at the Trustees Authority.
completely from the inheritance you want discretion.
them to receive and at the same time, Access To Protected Assets
protect the family home and other assets A Discretionary Trust often referred to as a
from being lost to the costs of Long Term Probate Trust is proving very popular Assets which are not
Care. because whilst still protecting assets from protected by a Trust
Other considerations could be if your attack from care costs, it allows the Settlor
surviving spouse were to remarry? How access to the assets held in the Trust. The
could face problems
would this affect your own children if Trust has a memorandum of wishes where arising from –
he/she later changed their will in favour of the Settlor is also a beneﬁciary. The purpose
the new spouse and any subsequent for utilising this trust will be for bloodline The Divorce or
children? There is a possibility that you had planning and not Inheritance Tax Planning,
children from a previous marriage how as a transfer of asset by the settlor would separation settlements
would they gain their fair share? be a Gift With Reservation of beneﬁt of future generations
There may also be a business you have (GWR).
worked hard to build up. You would not The main use of a Probate Trust is for the
assignment of Investment Bonds to ensure
want to see this unprotected for your
family? they pass to those intended without the liabilities
Asset Planning In Your Lifetime need to wait for Probate. In addition, for a
Some estate planning can be made whilst single/widowed client, a proportion of the Creditors or Bankruptcy
you are alive. Assets could potentially be main residence can be conveyed into a
gifted to beneﬁciaries before your death. Probate Trust which can protect the house
This could prove extremely tax efﬁcient in from care. Individual advice would be
terms of Inheritance Tax, as assets gifted required as to whether this is an Distributing assets
away are fully outside of the donor’s estate appropriate course of action. absolutely to
7 years after the gift is made. Utilising Trusts for Bloodline
Rather than gifting assets absolutely, as Planning. beneﬁciaries exposes
this would mean that these assets will Your children /grandchildren’s future those assets to risk.
again be potentially at risk from divorce, inheritance can be at risk from a number of
creditors and long term care costs, as well issues. Taxation being one, you need to
Millions of pounds of ‘dormant’ cash held in High Street banks
across the country has been siphoned off by the Government to
fund a new bank that will lend to charities and social schemes.
The £600m rich Big Society 1,500 building societies that have million due to be paid out on life “vanished”, usually because they
Capital bank has been launched been around in the past 100 or so policies. moved and never supplied
as part of David Cameron’s Big years but have since been taken You can trace your claim by forwarding addresses.
Society project. over or merged into others. using the unclaimed assets PREMIUM BONDS
The new bank is funded by NATIONAL SAVINGS & register, which may be able to Many Premium Bond prizes are
£400m worth of cash lingering in INVESTMENTS ACCOUNTS help at unclaimed and range all the way
ordinary Britons’ bank accounts. There are hundreds of millions of www.uar.co.uk/beneﬁt.htm but up to £100,000 from £25.
The money must have been left pounds of unclaimed money in they do charge a fee and the If you think you may have left it
unused for at least 15 years dormant NS&I accounts but if you place to begin your pension too long to claim a prize, there is
before it is co-opted by the also consider other NS&I search is at the Pension Tracing good news. There is no time limit
Government. products like unclaimed premium Service. You can call 0845 6002 for claiming these forgotten
Bank customers will still be bond prizes, the ﬁgure is around 537, visit www.direct.gov.uk or winnings.
able to claim back money given £1 billion. write to Pension Tracing Service, National Savings &
to the Government if they can Some £400 million of Tyneview Park, Whitley Road, Investments (NS&I) say the most
prove it is rightfully theirs. unclaimed money is in ﬁxed Newcastle upon Tyne, NE98 1BA common reason for winners
Vast sums of money lie interest savings certiﬁcates with UNIT TRUSTS, STOCKS AND failing to claim was forgetting to
unclaimed, when you include a further £80 million in index SHARES pass on their new address when
shares, National Savings and linked savings certiﬁcates. Research by specialists Mintel they moved. More than a third of
insurance plans lying dormant Another £260 million of the suggested that there was at least people lost touch with their
and it amounts to billions of forgotten money is tied up in £12 billion of shares from savings when they moved and
pounds, so check through your investment accounts. privatised companies which had failed to tell all their ﬁnancial
old paperwork to see if you have A good place to start looking never been claimed. That means providers their new address,
any forgotten money. for money tied up in NS&I the dividends on these shares according to a survey for NS&I.
BANK AND BUILDING products is have never been paid. Many people said they found it
SOCIETY ACCOUNTS www.nsandi.com/help/tracing Registrars admit the old system difﬁcult to remember all of the
Banks have between £250 and _service or through the of share certiﬁcates, rather than accounts they had opened over
£350 million waiting to be mylostaccount website. holding shares through nominees, the years.
collected, which includes money LIFE INSURANCE AND meant that shareholders simply Others had forgotten about
left in accounts with around 500 PENSIONS bonds that they had been given
banks over the past 100 or so Large insurance companies have as children. Additionally prizes
years. It is thought that between said that they have life policies could also go unclaimed if the
£130 and £150 million is lying which have never been claimed winners had died and their
unclaimed in building society on and pensions savings which executors were unaware that
accounts. All building societies have never been paid out. It is they owned any bonds.
have signed up to the thought that there could be over You can check whether you
mylostaccount.org.uk service. £300 million of pension money have won any of the unclaimed
That means you should be able to unclaimed and another £100 prizes, by visiting NS&I’s website
trace money left in any of the (nsandi.com) and entering your
Premium Bond holder’s number.
In the past ‘going green’ and fair trade were of UK adults with investments want to make There are many other SRI opportunities across
viewed as passing fads, now though they have money and make a difference. the globe, from forestry protection investments
gained momentum, and the same can be said in Brazil, which aim to eradicate illegal logging,
Ethical and responsible
for Socially Responsible Investment (SRI), to overseas eco resorts which target water
Ethical investing allows you to invest in a
which is having signiﬁcant importance to the recycling and energy efﬁciency.
socially responsible way. This can be simply
avoiding companies which engage in activities Growth in investors
Since the banking crisis and rapid decline in
you would not want to support, like tobacco During the last year or so there has been
the global stock markets, there has been
ﬁrms, gambling institutions, or companies signiﬁcant growth in ‘ordinary’ investors who
increasing levels of concern over the stability of
investing in areas such as arms manufacture or have found that SRI ﬁts their ﬁnancial
traditional investments which people relied
nuclear energy. Other areas are supporting requirements. These are the people who may
upon. There is little doubt that from those
companies which have positive social and have invested in property previously or, at a
events a better awareness of how ﬁnancial
environmental policies in place, such as lower level, invested in the stock market and
institutions use their customers’ money has
renewable energy, carbon offsetting, or are now looking for something different.
prevailed. In addition, as the global economy
sustainable timber. But while they are more aware of the
has struggled, awareness of climate change
environmental and social impact their choices
has increased, the world’s population has
continued to grow at a rapid pace, people are The days where ethical could make, they want and expect no
compromise on returns, and they should never
becoming more concerned about human rights,
and the nation is becoming increasingly aware
investment was seen as a niche think that it is a choice between ethics or
of the impact of their choices. market are long gone; today it Many people still feel that they cannot
With more exposure of such events, more
and more people are making an effort to have is seen as a growing market afford ethical investments because they would
be accepting poorer returns in return for a
a socially responsible outlook to their trend. clear conscience. This is a misconception;
investments. This is reﬂected in ﬁgures from
research from Emerald Knight shows that 16
EIRIS, the non-proﬁt sustainable investment
At the moment carbon offsetting is one of per cent of British people would only ever
research ﬁrm, which shows that the amount of
the most popular forms of SRI. When you buy a invest for personal proﬁts but 30 per cent think
money invested in Britain’s green and ethical
carbon credit from a third party, you are that you can have both proﬁts and principles
retail funds has recently reached a record
helping to fund a project which will reduce or when it comes to a socially responsible
height of £11.3bn. Moreover, in the last
remove a metric tonne of carbon emissions approach to investment.
decade, the number of ethical investors has
from the atmosphere, at the same time, you Choosing to invest ethically actually means
tripled, from 250,000 to three-quarters of a
are able to offset some or all of your own that the two can go hand in hand. SRI typically
carbon emissions. The company will package involves investment in the few industries which
As part of National Ethical Investment Week
carbon dioxide emission reduction units into have managed to remain in positive growth
Research, YouGov announced that 42 per cent
credit bundles that can be purchased as carbon through the global recession.
The value of your investment and the income from it can go down as well as up and you may not get back the original amount invested. Past performance
is not a reliable indicator for future results. Please contact us for further information or if you are in any doubt as to the suitability of an investment.
Income through investing
AIM As interest rates are at all time lows, getting any income
from your savings seems almost impossible. Could investing
be the solution? We look at the main income-producing
The Alternative investments, to understand their value within a portfolio.
offers a tax-efﬁcient GOVERNMENT BONDS very good year in 2011. According to Capita
If you are a cautious investor that does not Registrar’s latest dividend monitor, the amount
way to own shares. want to take on too much risk, UK Government paid out by UK companies reached its highest
bonds, known as gilts, could be a good starting level since summer 2008, growing by 16%
With the Chancellor cracking over the third quarter of 2011. These funds
point. A Government bond is an IOU to a
down on tax avoidance, being Government in exchange for a ﬁxed rate of have always been a core holding for people in
tax efﬁcient should be an interest over a set time. need of an income.
essential part of your wealth The amount of interest bonds pay is linked to If your high income needs are less immediate
plan. Unquoted shares are not how risky the loan is considered to be. In the then you may be better off looking for a fund
counted as part of your estate past, Government bonds have been regarded that aims to deliver capital growth and a rising
when it comes to inheritance as the safest type of bonds because dividend payout over the years, ideally one that
tax, this includes companies Governments are very likely to be able to repay will keep pace with inﬂation.
which are listed on the the debt when the bond matures; they The majority of UK companies yielding more
Alternative Investment Market therefore pay investors a lower rate of interest. than 5 per cent are outside the top 100 listed
(AIM). Bond yields are the rate of interest paid as a companies. Many of these smaller companies
The stocks must be owned proportion of the price paid in the market, have not historically paid out much in the way
for at least two years to these go down when bonds are in demand, as of dividends because they reinvest the money
qualify, but after this AIM they have been with the Eurozone crisis. This to expand the company, but the best ones are
stocks are IHT free and certain means these ‘safe haven’ yields are now well likely to grow rapidly and become the key
AIM stocks can also qualify for below inﬂation, so investors are losing money dividend payers of the future.
a reduced rate of capital gains in real terms. GLOBAL EQUITY INCOME FUNDS
tax. CORPORATE BONDS There has been over the past years a growing
AIM is the most successful Moving up the ladder, the next range of bonds interest in income funds with a global
growth market in the world, are corporate bonds, where you loan money to perspective as ﬁrms around the world start to
according to the London Stock a business. Businesses are generally in a better focus on paying dividends. These funds are very
Exchange, and since its launch position than Governments and these pay ﬂexible. Investors can move away from
in 1995 with just 10 stocks, different rates of interest depending on how struggling regions, like Europe in favour of Asia
more than 3,000 companies secure the issuing company is. But, while and emerging markets, where good growth is
from all over the world have riskier, both investment grade bonds, those expected.
joined. issued by blue chip companies and high yield DISTRIBUTION FUNDS
AIM shares can be a useful bonds, those issued by less established, riskier Distribution funds are income focused funds
part of inheritance tax companies are currently a better bet than gilts. that hold both corporate bonds and equities.
planning, particularly where a High yield corporate bonds are riskier than These can work well for income seekers who
person wishes to tax-plan investment grade bonds but they can be also want some capital growth.
without giving away their appropriate for longer term investing. Distribution funds are not as widely used
assets or where they are STRATEGIC BOND FUNDS now as they once were but they are still useful,
A sensible option for bond investors is a especially for smaller investors.
elderly and may not survive
the requisite seven years for strategic bond fund that moves between bond STRUCTURED PRODUCTS
classes as events change. A strategic bond fund Structured products give some capital
gifts to fall out of inheritance
is particularly advantageous as it is not limited protection and a set level of income, provided
tax. Holdings of AIM-listed
by geography or types of bonds: it can hold the index in question does not fall below a
shares qualify for 100 per cent
corporate bonds from UK blue chips alongside certain level.
business property relief from
Government bonds from emerging market For people who need income and can tie up
inheritance tax, assuming that
economies, which are attractive at present as their capital for that length of time and are
the relevant criteria are met. aware of the risks, these products are better
emerging market bonds are expected to deliver
The holding must have been used as a small part of a mixed income
impressive growth in coming years.
owned for at least two years, UK EQUITY INCOME FUNDS portfolio. Structured products can be high risk
the company must not be used Equity income funds hold companies that pay and complex and there are no guarantees you
solely as an investment vehicle regular dividends. Investors in this sector had a will get all your money back.
and if the company holds
assets that are not used in its The value of your investment and the income from it can go down as well as up and you may not
business, their value may not get back the original amount invested. Past performance is not a reliable indicator for future results.
qualify for the relief. Please contact us for further information or if you are in any doubt as to the suitability of an
Receiving good advice and knowing which • Moving up the property ladder Another type of protection available is a
products to choose is the main criteria when • Getting married or entering into a civil whole-of-life assurance policy designed to
ensuring you have the correct amount of life partnership provide you with cover throughout your
assurance. This will enable you to protect • Having children entire lifetime. The policy only pays out once
your loved ones from having to deal with • Becoming a stay-at-home parent the policyholder dies, providing the
ﬁnancial hardship. Knowing which products • Changing your job, promotion with salary policyholder’s dependants with a lump sum,
to choose, including the most suitable sum increase usually tax-free. Depending on the individual
assured, premium, terms and payment • Personal guarantee for business loans policy, policyholders may be able to stop
provisions, is essential. • Reaching retirement paying once they reach a certain age or
Life assurance helps your dependants to • Relying on care more likely contribute right up until death.
cope ﬁnancially in the event of your Your life assurance premiums vary
premature death. When you take out life according to a number of different factors,
The proceeds from life assurance policies are
assurance, you decide the amount you want which include the sum assured, the length
tax-free, but they could form part of your
the policy to cover should you die, this is (term) of your policy, your individual lifestyle
estate and become liable to Inheritance Tax
called the ‘sum assured’. If you do not factors such as your age, occupation, gender,
(IHT). The easiest way to avoid IHT on the
update your policy as key events happen health and whether you smoke or not.
proceeds is to place your policy into an
throughout your life, you may risk being If you are married, or have a partner or
appropriate trust, which enables any payout
seriously under-insured. children, maybe you should ensure you have
to be made directly to your dependants.
Your individual need for protection will sufﬁcient protection to pay off your mortgage
But, they cannot be used for life assurance
inevitably change. Here are some common and any other liabilities. You may also need
policies that are assigned to your mortgage
events which, when reached, you should life assurance to replace at least some of
review your life assurance requirements: your income. Ultimately, you will need to
The ﬁrst step is to understand what you
• Jointly buying a property decide how much money you would like to
want the life assurance to protect. If you
• Having debts, other than a mortgage and leave your family which enables them to
simply want to cover your mortgage, then an
dependants maintain their current living standards.
amount equal to the outstanding mortgage
The cheapest and simplest form of life
debt can achieve this. However, if you want
assurance is term assurance. It is
to secure your family from being ﬁnancially
straightforward protection, there is no
disadvantaged by your premature death,
investment element and it pays out a
there are a few more areas you should
lump sum if you die within a
• Your current family expenses and how
would they change if you died?
• Childcare costs, if you were to die?
• How much does your family income
decrease if you die?
• How long would your existing savings and
investments really last?
• What existing policies do you have and
how far do they go to help?
• How much cover do you receive from your
employer or company pension?
• How would inﬂation and the economy
affect the available funds over time?
Baby boomers were born just after the end of World War II, when there was the
feeling of a better and more secure future. But today, in difﬁcult economic times,
as the baby boomers approach their 65th birthdays their rosy future looks in doubt.
Their pensions are being undermined as the higher personal allowance is reduced by £1 Anyone turning 65 after April 5, 2013 will
Treasury and the Bank of England push to for every £2 earned above the limit. This now lose this tax perk. Instead of beneﬁting
get the UK economy back on track. means that after a pensioner’s income from the planned higher allowance of
The 2012 Budget was yet another reaches £30,190, the amount they can earn £10,500, they will now qualify for the same
hammer blow as Chancellor George free of tax is the same as it is for ordinary one as workers of all ages, £9,205 from
Osborne reduced the higher personal taxpayers. April 2013. If you are already 65 or older
allowance for the over-65s, leaving many as It is estimated that approximately ﬁve and retired, your allowance will be frozen at
much as £323 a year worse off. But what million pensioners qualify for the extra £10,500.
does that really mean? allowance, leaving them more money to If you are 75 or over, the allowance will
Back in 1925 the UK tax system stretch further, which can be a lifeline when, be frozen at £10,660 from April 2013, those
recognised that pensioners often live on as a pensioner, income is quite often ﬁxed. rates will stay frozen until they match up
small ﬁxed incomes and so required more This additional allowance when compared with everybody else’s personal allowance as
help than most. with a worker on exactly the same income it is raised, as expected, by the Chancellor
As a result, the elderly currently enjoy a to a 65 to 74-year-old, shows a pensioner over the next couple of years.
higher tax-free personal allowance than can end up paying up to £479 a year less An estimated 4 million pensioners with
everyday workers. Anyone aged from 65 to tax. Anyone aged 75 or older has a slightly incomes between £10,500 and £30,190 and
74 currently has a personal allowance of higher allowance again, meaning they pay who are turning 65 next year would be
£10,500. It is even higher for those older £511 less tax than a worker on the same £323 worse off thanks to the Budget,
than 75: £10,660. This is much higher than income. according to ﬁgures from The Institute of
the current £8,105 allowed for everyone In his Budget speech, Mr Osborne moved Fiscal Studies. Around half of all pensioners
else. However, wealthier pensioners with to get rid of higher allowances altogether, do not have sufﬁciently large incomes to be
incomes over £25,400 do not qualify from rather than reviewing the levels at which taxed, so they will be unaffected and
this higher allowance at the moment. tax was taken, which many pensioners had wealthier pensioners will also avoid the
For over-65s, the extra allowance applies been calling for. However, he did announce changes, as their income is taxed at upper
up to a total income of £25,400 in the increases to the basic State Pension. rates and do not beneﬁt.
2012-13 tax year. Above this threshold, the
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please tick the appropriate box or boxes, include your personal details and return this section to us.
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This magazine is for general guidance only and represents our understanding of the current law and HM Revenue and Customs practice.
We cannot assume legal responsibility for any errors or omissions it might contain. Level and bases of, and reliefs from taxation are those
currently applying but are subject to change and their value depends on the individual circumstances of the investor. The value of
M8trix Media Limited, Basepoint Business & Innovation Centre,
investments can go down as well as up, as can the income derived from them. You should remember that past performance does not
Great Marlings, Luton, Bedfordshire, LU2 8DL guarantee future growth or income and you may not get back the full amount invested.