Viewpoint
I hope you find our Q3 Newsletter for
2015 of interest. If we can assist you
further with your financial planning
needs at this time, please contact the
office.
Issue 12 Summer 2015
Tony
028 9073 8550
[email protected]
Your latest newsletter from T Nixon Associates
Pension savers face
Lifetime Allowance cut
When the lifetime allowance was first introduced
in 2006, it only affected high earners in the UK who
could afford to grow seven-figure pension pots.
But as the limit has reduced in recent years, many more
thousands of people have been affected – especially
those in final-salary schemes who have built their
entitlement through many years’ work.
Tax charges
If your pension savings are worth more than the £1m lifetime
allowance when you take your benefits, you’ll have to pay the
lifetime allowance tax charge on the excess. The tax charge is
55% if you take the excess pension pot as a lump sum, or 25%
if you take the pension as a regular payment.
Annual allowance
The amount you can pay into your pension every year (the
annual allowance) is currently £40,000 . You usually pay tax
if savings in your pension pot exceed the annual allowance,
but you can top up your allowance for the current tax year
(6 April to 5 April) with any allowance you didn’t use from
the previous three tax years.
T Nixon Associates
[email protected]
Pensions savings allowances
Tax Year
2013/14
2014/15
2015/16
2016/17
Lifetime Allowance
£1.5m
£1.25m
£1.25m
£1m
Annual Allowance
£50,000
£40,000
£40,000
£40,000
Protecting your money
If you had a pension pot of more than £1.25m as at 5 April
2014 you may be able to claim Individual Protection 2014.
This will provide a protected lifetime allowance equal to the
value of your pension rights on 5 April 2014 (up to an overall
maximum of £1.5m).
You will not lose Individual Protection 2014 by making further
savings into your pension scheme, but any pension savings
in excess of your protected lifetime allowance will be subject
to the lifetime allowance charge.
Applying for Individual Protection 2014
You became eligible to apply for Individual Protection 2014 from
18 August 2014. Applications are still open but must be received
by HMRC no later than 5 April 2017.
We expect to see similar transitional protection regimes
announced ahead of the lifetime allowance cut.
If you are worried that your pension pot may be affected by this
change and would like more information, please get in touch.
HM Revenue and Customs practice, and the law relating to taxation
are complex and subject to individual circumstances and changes
which cannot be foreseen.
028 9073 8550
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From 5 April 2016, your tax-free
pensions savings limit will be cut
from £1.25m to £1m. This cap is
called the ‘lifetime allowance’ and
applies to your entire pension savings
(apart from the state pension).
Insuring your estate
against an IHT bill
Whole of Life policies can offer an
alternative to ‘gifting’, allowing you
to preserve your family home for the
next generation.
If you’re seeking to reduce or eliminate the burden
of Inheritance Tax (IHT) on your death, ‘gifting’
while still alive can often be the simplest and most
obvious solution.
An alternative solution
An alternative to gifting is to take out a Whole of Life
insurance policy. As the name suggests, rather than
covering your life for a fixed period of time, the policy
lasts until death, with a payment at the end.
The policy could be set up to pay an amount equivalent
to the IHT liability, thus preserving the estate.
Gifting involves giving away some or all of your estate
to your intended beneficiaries prior to your death.
Limitations of gifting
Given the huge rise in house prices in the last 20 years,
gifting can be invaluable in terms of reducing the tax
exposure of an estate. But there are limitations.
For instance, gifting your home may not be viable as
you may plan on living there well into your later life.
Even an informal arrangement with the beneficiaries that
allows you to continue living there indefinitely will remove
its ‘gift’ status and make the property liable
to IHT.
What's more, in normal circumstances, a life insurance
policy payout would itself add to the estate and be liable
to IHT. However, a policy ‘written in trust’ does not count
as part of the estate. This is because a trust is a distinct
entity that can keep assets in its own right, and needs no
human ‘owner’.
Other benefits
Whole of Life policies are often written on a ‘joint life,
second death’ basis. Given the estate will pass tax-free
to the surviving spouse, this potentially results in a lower
overall cost than a ‘joint life, first death’ plan would do.
Writing a Whole of Life policy in trust is a
reasonably simple process, but will require
professional guidance. If you’d like to discuss this
with us, please get in touch.
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HM Revenue and Customs practice and the law relating to
taxation are complex and subject to individual circumstances
and changes which cannot be foreseen.
T Nixon Associates
[email protected]
028 9073 8550
The matter of trusts
Taking out a life insurance policy gives you
valuable peace of mind: you know you’ve
protected your family against financial
hardship, should the worst happen.
But how can you make sure your policy will pay out
quickly, to those who’ll need it most, should you die?
The answer might be to write your policy in trust.
What is a ‘trust’?
A trust is a legal document that allows you to specify
what will happen to your money after your death. If your
life insurance policy is written in trust, any payout will go
to the trustees you’ve chosen, who will then ensure the
funds are distributed to the people you’d like to benefit
from the policy (the beneficiaries).
Why is a trust so important?
Putting your life insurance policy in trust gives you
control over who the beneficiaries are, helps them
avoid Inheritance Tax penalties and helps ensure
they receive the money quickly.
A life insurance policy that has been written in trust
does not form part of your legal estate and is not
subject to Inheritance Tax. This allows the entire policy
payout to pass to the people you intended to benefit
from it. Even if your partner is the named beneficiary
of your policy (and therefore the claims payout would
be exempt from Inheritance Tax under the current rules),
it can still be worth putting your cover in trust to speed
up the policy payout.
Faster payment
Using a trust should help ensure that your life
insurance payout is passed to the people of your
choice more quickly without waiting for lengthy legal
processes, such as probate. This can be a welcome
relief for those left behind during what is likely to be
a very stressful time.
Setting up a trust
Trusts are usually simple to set up, but it’s important
to select the right type of trust and complete the
documentation carefully.
If you're thinking of putting a life policy in trust,
please talk to us first. We can tell you if it’s the
right choice for you, which type of trust is most
appropriate for your circumstances - and help you
put the trust in place.
HM Revenue and Customs practice and the law relating to taxation
are complex and subject to individual circumstances and changes
which cannot be foreseen.
The Financial Conduct Authority does not regulate Trust Advice.
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Control
Every year, many people die without having put
their life insurance policy in trust. As a consequence,
the payouts become subject to the delays caused
by the processing of a Will and, where there is no
Will, the complex laws of intestacy come into play.
This could mean the benefits of the policy will form
part of your estate, and may not go to the people
of your choosing. With your life insurance in trust,
you can specify who you want the beneficiaries
to be. This is especially important if you are not
married or in a civil partnership.
Inheritance Tax
T Nixon Associates
[email protected]
028 9073 8550
How tax efficient is
your pension?
The main purpose of a pension is to
build funds for your retirement in the
most tax-efficient way possible.
You may contribute regularly to your pension, but do you take
full advantage of the tax benefits it offers you? For instance,
did you know your pension could help you reclaim valuable
personal tax allowance - and even Child Benefit?
Over the lifetime of your pension, these potential benefits
could contribute significantly to the funds available to you
at retirement.
Here are four examples of how your pension could work
harder for you.
allowance for high
1Personal
earners (over £100,000)
Nearly everyone who lives in the UK is entitled to
an Income Tax Personal Allowance (the amount of
income you can receive each year without having
to pay tax on it).
This Personal Allowance is reduced by £1 for
every £2 of adjusted net income over £100,000.
By making a pension contribution, you could reduce
your taxable income, and reclaim your allowance.
This is particularly valuable if you have a taxable
income of between £100,000 and £121,200.
2Erosion of Child Benefit
tax relief on contributions
3Maximise
/ minimise tax on pension income
The government encourages you to save for your
retirement by offering tax relief on your pension fund
up to a certain amount.
Through efficient planning, you may be able to receive
tax relief at a rate higher than the Income Tax rate you’d
pay on your retirement income.
in more than your
4Paying
annual allowance
You are allowed to pay up to £40,000 annually into your
pension. Contributions above this amount are subject
to tax penalties.
However, in certain circumstances, you can exceed
your annual allowance without penal tax charges
applying. This is because you can carry forward three
years’ worth of unused annual allowance meaning,
subject to earnings, you may be able to claim valuable
tax relief.
If you’d like to explore your pension in more detail,
please get in touch.
HM Revenue and Customs practice and the law
relating to taxation are complex and subject to
individual circumstances and changes, which
cannot be foreseen.
Since 7 January 2013, if you’re a parent earning more
than £50,000 the amount of Child Benefit you receive is
taxed at 1% of the Child Benefit received for every £100
that your individual income is over £50,000.
A pension contribution can help you reduce your earnings
and therefore allow you to reclaim Child Benefit.
028 9073 8550
[email protected]
www.tn-associates.co.uk
COPEN1049 Exp. 31/03/2016
T Nixon Associates
Unit 1, First Floor
75b Sydenham Road
BELFAST
BT3 9DJ