Increased ISA allowance - Why we should be thanking George!

Since the age of austerity started, no budget has really given the UK population a reason to want to say “Thank you George Osborne”, as of 1 July the savers amongst us should be saying exactly that.

From 1 July, the ISA allowance will be increased to £15,000.  For the first time, the full allowance can be used for cash, not just stocks and shares.  In another change, Stocks and Shares ISAs can now be transferred into Cash ISAs, helping those with spending plans coming up be able to budget more effectively.

 

At a time when interest rates remain firmly in the doldrums, the ability to save a little tax and therefore boost overall returns is a welcome relief.

 

I am frequently asked, “Should I bother with an ISA?”  Although ISAs aren’t racy financial planning, they are - in my opinion - essential housekeeping for all of us.  A married couple fully utilising their ISA allowance each year for 10 years, earning 3%, could have a tax-free lump sum of c.£384,000 at the end of the period.

 

Pay off the mortgage? House deposit for the kids? Second property? Early retirement? Spend it how you want, but when you do, remember to say thank you to George.

 

Stuart Moss

Senior Consultant

Telephone: +44 (0)20 7893 3456
Email:  getintouch [at] broadstoneltd.co.uk

BROADSTONE’s Matthew Phillips’ reaction to the Budget 2014

Actually two major announcements for everyone to be aware of, and really important from a financial planning point of view.

Firstly, the ISA has (finally) been made simple and more relevant.  Rather than worrying about whether you go to a cash ISA or a stocks and shares and becoming confused about the different levels, this has been done away with so that you can either hold cash, or investment in the same account.  This will make it simpler, more straight forward and encourage people to save and not be put off by perceived complexity.  The additional increase to a nice round allowance of £15,000 means that a couple can now shelter up to £30,000 of savings and investments each year and not pay tax.  Again this is really welcome news and as I will point out later makes our savings system much more straight forward.

Secondly, the changes to Defined Contribution Pensions.  This is a really significant change.  Most people now through auto enrolment will be being placed into a defined contribution pension scheme.  The Chancellor has announced that these will become much more flexible.  You will not have to purchase an annuity, you will be able to draw out income when you want and to the amount you want.  

This means that short and medium term savings could be carried out through ISAs and long term retirement saving into what is beginning to look like a “big ISA with tax breaks”, your defined contribution scheme. This is a much simpler set of affairs for everyone going forward and actually runs the risk of looking joined up.

Over the longer term, I suspect (and hope) that this simplification will lead to greater pension take up, now that some of the perceived inflexibility has been done away with. And while I welcome the simplicity, people will still need to have a comprehensive financial plan because this additional flexibility means that the need to take advice is greater.

Matthew Phillips

Managing Director

Telephone: +44 (0)20 7893 3456
Email: getintouch [@] broadstoneltd.co.uk

 

Will your tax diversification be in the right shape when you retire?

No, this isn’t another Blog about pensions - this Blog is about tax risk.

Over the last 35 years Income Tax has fallen from a breath-taking 98% (1978/79) to 45% and Capital Gains Tax has bounced from 30% up to 40% and down to 28%.

As a result, tax risk is a serious consideration in your retirement planning strategy especially when you need to retain as much of your net wealth as possible.

In managing tax risk, diversification across the various tax regimes is as important as diversification across the various investment sectors and asset classes.

With ISA Millionaires becoming more prevalent those who took full advantage of their annual allowances are laughing all the way to the bank. Likewise, those with investment strategies that take full advantage of the annual capital gains tax allowance are rubbing their hands with glee.

Tax exemption, Tax deferment and Tax relief are a starting point in all financial planning scenarios.

Transferring assets to your spouse/partner or assigning investments to beneficiaries can reduce, or defer, the ultimate tax point further; whilst sheltering your capital from inheritance tax (without giving it away) not only reduces your inheritance tax risk but allows your family to retain 100% of your tax-sheltered assets.

If you have ‘planned for life’ without ‘life-planning’ what gaps might you have in your tax risk?

At BROADSTONE we specialise in Life Planning – why not give us a call.


Helen Wilson
Consultant

Telephone:  +44 (0)20 7893 3456
Email:  getintouch [@] broadstoneltd.co.uk