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SUMMER 2017SUMMER 2017

Welcome Snap, crackle & pop?

Our modern western civilisation is based on the important democratic process that has been created over the centuries. This was never more clearly demonstrated than the night of the General Election 2017. Many had hoped that the outcome would create a period of stability,

especially as we start the divorce process, and its many twists and turns, from the European Union. The result proved not to be the case and I am sure the summer and autumn months will see further change ahead. The numerous elections over the last year or so remind me a little of the mid 1970s and the positions in UK leadership at the time. I am sure the history books will record the events of 2016 and 2017 with as much vigour as those of yesteryear.

With this snap General Election now behind us, we should remember that much legislation that was planned was somewhat ‘shelved’ to dissolve Parliament in time and I am sure many of these plans will be revisited in the autumn of 2017. It will be interesting to see if plans, such as those for pension contribution changes, return and are evolved. In the meantime and as a snapshot of the current economy thus far, both the UK and American equity markets and business sentiment remain largely positive as examples, with the value of Sterling and the price of oil rather lagging. Good for fi lling the car up, as long as it’s not abroad!

In recent client review meetings, it has been a pleasure to report largely positive, fi rm returns on investment and pension funds. As you will be aware, past performance is not a guarantee of future performance and as we share your investment journey, we will see rises and falls in values into the future. I often extol the virtues of reading our regularly updated website blog page in our newsletter and this edition is no different. We have many great notes pertinent to the points above on these pages and I hope you get the chance to read a few over the coming weeks.

Our fi nancial planning world remains as busy as ever, with many clients seeking to improve investment returns from cash funds, looking to use capital gains, making pension contributions, protecting against inheritance tax, and expressing concern about the infl ation-busting costs of long term care. You will see that some of these topical issues have been addressed in this newsletter.

Whatever your fi nancial planning needs, the team in Guildford are here to help and I and my colleagues look forward to working with you.

Keith Churchouse

Inheritance Tax PlanningInheritance Tax was once described as a largely voluntary tax by former Chancellor of the Exchequer, Roy Jenkins, a Labour MP, stating in 1986 that “it is, broadly speaking a voluntary levy paid by those who distrust their heirs more than they dislike the Inland Revenue”. This view might be rather sweeping; however, there are some sensible fi nancial planning opportunities that can be considered to reduce the effects of inheritance tax.

One of the cornerstones of fi nancial planning is to have an up-to-date Will in place. We also advocate the establishment of Power of Attorney arrangements for those over the age of 60, to ensure that your affairs are handled as you would wish should this become necessary. Speak to your legal adviser on these points, or alternatively we would be pleased to provide a local recommendation.

Each individual has a nil rate inheritance tax band of £325,000. Spouses can pass this to the surviving spouse/civil partner on death, affording a joint estate protection normally to £650,000. Thereafter, inheritance tax is usually charged at 40% on any balance above this level.

From the start of this tax year, 2017/2018, an additional residence nil-rate band of £100,000 per qualifying individual has been introduced when a residence is passed on death to a direct descendant. This band is scheduled to increase yearly by £25,000 until the tax year 2020/2021. It will then increase in line with the Consumer Prices Index (CPI) from 2021/2022 onwards. Any unused nil-rate band will be able to be transferred to a surviving spouse or civil partner. It should be stressed that discretionary trusts are excluded from this because the assets are technically owned by the trust and controlled by the trustees and not the benefi ciaries.

It is also of note that there will be a tapered withdrawal of the residence nil-rate band for estates with a net value of more than £2 million. This will be at a withdrawal rate of £1 for every £2 over this threshold.

Many people have adjusted their Wills some years back (before a rule change to allow the above), by moving property ownership from ‘joint tenants’ to ‘tenants in common’. This now has limited value for inheritance tax purposes, but can still have some advantages for long term care planning.

There are some confl icts in inheritance tax planning, including the important issue of ensuring that there are enough funds available after any gifting achieved, if long term care is required. We can provide full advice on this issue but some of the points to consider are as follows:

Annual Gift Allowance: £3,000 per donor per annum•

Gifts from surplus income: if after applicable tax, you have surplus income over • and above what is needed to maintain your standard of living, this can be given away and should usually fall outside the estate immediately.

Potentially Exempt Transfers (PETs): If you want to make lump sum gifts away • from your estate, either to a recipient or to a trust, you can do this (although the gift only falls fully outside your estate after seven years). There are benefi cial tapering factors applicable from HMRC. Any gift (PET) made above the nil rate band of £325,000 can still be made, but it should be noted that any inheritance tax charge that may become due would fall on the recipient, rather than the estate.

Pension funds: These do not normally attract inheritance tax, but do attract a • tax charge to benefi ciaries when the plan holder dies after the age of 75.

Gifts to charities: These are not subject to inheritance tax and if you make • signifi cant gifts to charities from your estate, the inheritance tax charge can fall.

As you can see, solutions to inheritance planning are numerous and invariably use annual allowances. Using a combination of these options is not uncommon. It is important that any planning is reviewed regularly to ensure that it still meets its objectives, that annual gift allowances are used, and that the donor’s needs are still protected. It is very important that you make sure any gifts are well documented. Giving money away can be rewarding, but only on terms that suit you and your circumstances. If you would like to fi nd out more, the team at Chapters Financial is qualifi ed to help clients and enquirers manage their objectives for making gifts and we are more than happy to work with your legal advisers in order to meet your ongoing needs.

State Pension UpdateThe fi rst year of change has passed, but what did it mean to you?

It is just over a year ago since the State Pension was overhauled at the beginning of the tax year 2016/2017. The ‘fanfare’ headline was that the equalised State Pension would be fairer and more importantly at a higher level than previously. The headline at the outset was about £150.00 per week, and in this tax year has settled out at a level of £159.55 per week. That’s £8,296 per annum.

We recommend that you apply online for a forecast and check that your National Insurance Contribution record is suffi cient to allow you the maximum State Pension when you reach State Pension age. You can check here: https://www.tax.service.gov.uk/check-your-state-pension

Any individual who does not have a National Insurance record before 06 April 2016 will need 35 qualifying years to get the full new State Pension (an increase of fi ve years on the old State Pension system).

A signifi cant concern, as noted in a recent newspaper article (http://www.express.co.uk/news/uk/792707/full-fl atrate-state-pension-warning-millions-face-missing-out), is that it is estimated that only around 41% of those reaching the age at which they can draw State Pension benefi ts will be entitled to the full amount and there are also concerns for the future of the Government’s ‘triple lock’ guarantee and its ongoing affordability. A few headline reminders about the State Pension when you get close to receiving it:

The income is taxable but paid gross. Therefore, if you have income from • another source, such as another pension, HMRC is likely to increase the tax on this more to compensate for the State Pension you receive.

Under the current ‘triple lock’ guarantee, the increase in the State Pension • is based each year on the highest of the increase in the Consumer Prices Index (CPI), the average growth in wages or 2.5%. This year the increase is 2.5%.

If your State Pension is paid under the new system (i.e. you became eligible • for your State Pension after 04/2016), if you choose to defer taking your State Pension, you can no longer take any deferred income as a taxable lump sum.

If you defer your State Pension after the normal date it is due, you will • receive an uplift of 5.8% gross pa for a full year (the increase used to be at a rate of 10.4% gross pa before the changes).

The age you receive the pension benefi t (and your free bus pass) is • increasing and you can check what age yours is due here: https://www.gov.uk/state-pension-age

Summary

You can see that although the State Pension was intended to get simpler, for many it will actually be later in payment, more complicated and for some who do not have the full qualifying contribution record, more frustrating. This is the reason that we advocate an early check to see where you are and possibly if any changes can be made to maximise this valuable increasing income.

Are you protected in 2017?Chapters Financial has noted an increase in enquiries about providing protection in the event of ill health or death. These range from family protection, protecting company assets in the event of the death of a key person, protecting against the effects of inheritance tax, to protecting maintenance payments in the event of a divorce.

In reviewing your fi nancial planning, it is important to look at what protection you currently have and to review what is needed.

Points you may want to consider fi rst

Are your existing protection policies nominated to the correct benefi ciaries • and written in trust? Writing a policy in trust is valuable in placing the funds outside your estate for inheritance tax purposes and also means that the benefi ciaries will receive the funds directly, without recourse to probate. If your spouse/partner also has benefi ts, do they know where they are nominated to?

Does your employer offer Death-in-Service benefi ts and to what level? If so, • would they know where you would want your benefi ts paid in the event of your death?

Does your employer protect your income in the event of ill health, and do you • know how this works?

Make a Will to ensure that your wishes are detailed. •

Existing Cover

What type of cover do you have and how long will it protect you for? • Are your existing policies still suited to your needs? •

Is the life policy you have written in trust? •

New Cover

As examples, there are various types of life cover you might want to consider to meet your needs, such as:

Level Term Assurance: pays a single lump sum in the event of death within a • set term.

Decreasing Term Assurance: pays a single lump sum (decreasing in value each • year) in the event of death within a set term. This would usually be used for an outstanding repayment mortgage.

Gift Inter Vivos policy: usually applied for to cover an Inheritance Tax liability • on a Potentially Exempt Transfer made from an estate, e.g. to match the tapering liability over 7 years.

Family Protection plan: pays an agreed lump sum each year for a set period. •

This is not an exhaustive list; however, it does provide a fl avour of the varying covers that might be considered, to suit circumstances and budgets.

Medical details

Medical underwriting is usually applicable when cover is applied for. This means that the provider of the policy may write to your doctor to obtain your health records or may ask your doctor to provide a written report following a medical examination. This is not always the case, and some applications will be accepted without the need for medical underwriting. However, it is worth bearing in mind that the majority of cases will require medical underwriting and to be aware that this can take some weeks to achieve.

Summary

Each protection enquiry is different and specifi c to a client’s needs so if you would like advice on the ways in which you can protect your family in the event of death or ill health then please contact the team at Chapters Financial, who will be able to help you further.

Cyber Security & ProtectionChapters Financial has always treated the security of clients’ data and funds as the fi rst priority in everything we do. We invest, and continue to invest, in our computer systems to ensure this ongoing position. The recent international cyber-attack brought into sharp focus the vulnerability of systems that may not have been maintained as they should have been.

In addition, I am sure you are aware that there have been many fraudulent scams in recent times. If you request funds from your investments, for security and verifi cation, we are likely to call you to confi rm your request and to ask a few security questions to

ensure that any request is correct. I am sure you will understand that this extra step is sensible and prudent. Thank you in advance for your patience.

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ensure that any request is correct. is sensible and prudent Thank you

Hadleigh House, 232 High Street,

Guildford, GU1 3JF.

Tel: 01483 578800Fax: 01483 578864

email: info@chaptersfi nancial.com

This Newsletter provides general information and should not be used as individual advice.

If you would like to receive this information in email format

please let us know.

Summary & ReviewAs always, the team at Chapters Financial are here to help you and work with you in providing independent fi nancial advice. Reviewing your fi nances and existing arrangements regularly is recommended.

Please contact the Chapters team: Keith, Vicky, Esther, Julia, Suzanne, on 01483 578800 or by email at

info@chaptersfi nancial.com to discuss your requirements and to book a meeting or fi nancial planning review.

Chapters Financial Limited is authorised and regulated by the Financial Conduct AuthorityRegistration number: 402899

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