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ISSUE 1 n SPRING 2010

INDEPENDENTFINANCIAL ADVISOR LIMITED

Independent Financial Advisor Limited is Authorised and Regulated by the Financial Services Authority

Image right fees

50 per centtax rate

Investing in anew decade

Is the coming of a new tax regime on the horizon?

Mitigating the impact of the forthcoming rate increase

What opportunities could the future hold?

Tax factsWhat you need to know

Investment solutionsAchieving the most efficient mix of risk and return

Retirement planningTransferring pensions

InvestIng In a new decadeWhat opportunities could the

future hold?

RetIRement plannIngTransferring pensions

InheRItance tax plannIngYour questions answered

Investment solutIonsAchieving the most efficient

mix of risk and return

Image RIght feesIs the coming of a new tax

regime on the horizon?

pRotectIng key peRsonnel Managing the risk that could

ultimately threaten your

company’s profits

fInancIal Reasons to make a wIllPutting it off could mean that

your spouse receives less

InvestIng at a tIme of low InteRest RatesInvestment opportunities when

interest rates are low

tax factsWhat you need to know

50 peR cent tax Rate Mitigating the impact of the

forthcoming rate increase

Looking ahead to this new decade, what areas

could be seen as opportunities for investors?

emeRgIng maRkets It is estimated that the world’s population is set

to increase by 50 per cent in the next 40 years,

mostly from emerging markets, which include the

‘BRIC’ countries of Brazil, Russia, India and China.

While the proportion of people of retirement

age will increase in Western economies,

India should enjoy a demographic boost as a

large group of the populace enters the most

economically active part of their lives.

Although investing in a single country is a

high-risk strategy, diversification that includes

holdings within the BRIC countries and other areas

such as Mexico, Hong Kong, South Korea, South

Africa and Thailand could become an increasing

attraction to many investors.

healthcaRe An increase in an ageing population, particularly

in Western economies and Japan, will be seen as

positive for the healthcare sector over the next ten

years. Investors may be attracted by the potential

for higher returns driven by a need to spend

significantly more money by governments and the

private sector in the area of geriatrics.

agRIcultuRe It is forecast that, by the middle of this century, there

will be an additional 2.5 billion people in the world to

feed, leading to an increase in land and food prices.

With China’s shift to urbanisation and the emergence

of a powerful middle class in the developing world,

investors may be attracted to investment in soft

commodities such as cocoa, sugar, corn and wheat.

China’s evolutionary demographic shift,

when combined with the acute water shortages

that China and others may suffer during this

decade, could make for a highly rewarding

investment opportunity.

eneRgy Global urbanisation will also feed through

to growing demand for construction and

infrastructure and these projects should drive

demand for energy. The demand for uranium is

also set to continue this decade as a result of a

global resurgence of interest in nuclear power.

This is positive news for investors, with the

UK and other countries planning an aggressive

expansion programme for nuclear energy as it is

seen as one of the cleanest forms of producing

energy during this decade.

technology A greater exposure to the semi-conductor,

software, media and internet, communications and

computing industries means that investors are also

likely to be attracted to these areas this decade.

cuRRency Although currency is the most actively traded

asset class in the world, it still remains one that is

largely ignored by retail investors. Will this decade

see a change in investor sentiment?

ethIcalClimate change and water shortages could also

drive future investment returns for investors, turning

their attention to themes that include water, energy,

agriculture and forestry. n

These are specialised invesTmenTs and may noT be suiTable for everyone. They should only be considered as parT of a balanced porTfolio and professional financial advice should be soughT prior To invesTing. These could be high-risk invesTmenTs. if you would like To discuss how we could help you wiTh your invesTmenT requiremenTs, please conTacT us for furTher informaTion.

Investing in a new decadeWhat opportunities could the future hold?

In this issue

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INSIDE THIS ISSUE

02

WEALTH CREATION

There are a number of different

reasons why you may wish to consider

transferring your pension schemes,

whether this is the result of a change

of employment, poor investment

performance, high charges and issues

over the security of the pension scheme,

or a need to improve flexibility.

You might well have several different

types of pension. The gold standard is the

final-salary scheme, which pays a pension

based on your salary when you leave your

job and on years of service. Your past

employer might try to encourage you to

move your pension away by boosting your

fund with an ‘enhanced’ transfer value and

even a cash lump sum.

However, this still may not compensate

for the benefits you are giving up, and

you may need an exceptionally high rate

of investment return on the funds you are

given to match what you would get if you

stayed in the final-salary scheme.

Alternatively, you may have a money

purchase occupational scheme or a

personal pension. These pensions rely

on contributions and investment growth

to build up a fund.

If appropriate to your particular

situation, it may make sense to bring

these pensions under one roof to

benefit from lower charges, make fund

monitoring easier and aim to improve

fund performance. Transferring your

pension will not guarantee greater

benefits in retirement. n

effecTive reTiremenT planning requires an experT knowledge of The deTail of pension legislaTion and an abiliTy clearly To undersTand your individual long-Term objecTives and expecTaTions. we offer boTh. for more informaTion abouT The services we offer, please conTacT us.

Content of the articles featured in this publication is for your general information and use only and is not intended to address your particular requirements. They should not be relied upon in their entirety and shall not be deemed to be, or constitute, advice. 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. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of any articles. Thresholds, percentage rates and tax legislation may change in subsequent finance acts.

Welcome to the first edition of our wealth

management magazine.

Independent Financial Advisor Ltd was formed in

2006 with aspirations of providing financial planning

advice which covers all aspects of wealth, both in

creation and retention. We have created a network of

Chartered businesses with Chartered Financial Planners

working within these businesses, providing clients with

access to the highest qualifications in the profession.

Over the last couple of years the downturn in the

markets has highlighted the lack of service clients receive

from larger institutions and has provided IFA Group with

a rare window of opportunity to reshape the Financial

Services Sector.

We fully understand that our clients require the best

service; therefore we strive to fully understand their

needs and build long-standing relationships built on

mutual respect. We are a modern business at the

forefront of our industry with the latest systems and

technology and we maintain core traditional values of

honesty, integrity and trust.

We have recently opened our new office in

Southampton to cover the South of England, IFA (South)

LLP headed up by Malcolm Lay. Malcolm brings with

him 20 years of experience specialising in the group

pensions market, working previously at Director level

within a national benefit consultants practice and within

one of the big five accountants.

Along with this we have also added a specialist

division within the business to accommodate the growth

in specialist advice to professional sports people. Pro

Sport Wealth Management LLP is managed by Gareth

Griffiths who has 14 years experience of playing football

at professional level and 4 years as an IFA. Gareth is a

well respected figure within the PFA and is a trustee of

the PFA’s accident, benevolent and education fund.

I hope you enjoy this first issue of our magazine and find

it informative. If you require further information on any of

the subjects covered or on any other matter, please do not

hesitate to contact us.

Phillip Rose APFS

Chartered Financial Planner

Inside this issue

Retirement planningTransferring pensions

EDITORIALRETIREMENT

03

You don’t have to be seriously wealthy for

your estate to be subject to Inheritance Tax

(IHT) after you die. Currently, IHT is levied on

everything you leave over £325,000 (2009/10).

Inheritance tax planning is a complex subject

and it’s important to obtain professional

advice if you have any concerns about your

particular requirements, as this could save you

thousands of pounds of potential lost tax.

You might consider taking advice on IHT

planning to:

n Keep your assets within your family

n Protect your Nil Rate Band if you were to

die and your partner re-marry

n Protect assets passed to children or

grandchildren from the risk of them

becoming bankrupt or divorced

n Protect your assets from the need to fund

long-term care in later life

n Reduce an IHT liability

n Avoid an IHT liability

These are some of the typical questions

that we are asked by our clients:

Q: Should I write a will?

A: The simple answer is ‘yes’. It’s easy to put

off making a will. But if you die without one,

your assets may be distributed according to

the law rather than your wishes. This could

mean that your spouse or partner receives

less, or that the money goes to family

members who may not need it.

These are some of the financial reasons for

making a will:

n if you aren’t married or in a civil

partnership (whether or not it’s a same sex

relationship), your partner will not inherit

automatically. With a will, you can make

sure your partner is provided for

n if you’re divorced or if your civil partnership

has been dissolved, you can decide

whether to leave anything to an ex-partner

who’s living with someone else

n you can make sure you don’t pay more IHT

than necessary

Q: How can I minimise the value of my

estate for IHT purposes?

A: You cannot be taxed on money that was

never yours. It is sensible to ensure that as

much as possible is outside your estate.

Check that all current or new life insurance

plans are written under an appropriate trust.

Your existing life policies could be transferred

into such a trust. If your employer pays a

death benefit, complete a nomination form

and make sure any money goes directly to the

person you choose and not into your estate.

It is also worth thinking about legacies you

receive. Someone who benefits from a legacy

could divert that gift to another person. You

can apply for a ‘deed of variation’ within two

years of the death of the giver.

Q: What are the effects of getting married?

A: Anything you pass on to a spouse (the

same concession applies to same-sex

couples who register under civil partnership

laws) is free of IHT. However, legacies between

unmarried couples are not tax-free. This may

become a significant issue when a couple

jointly own their home, which could lead to

some people having to pay an IHT bill just to

continue living in their home.

Q: Can I gift my home to my children?

A: For many families, their homes are their

biggest asset. The government has clamped

down on schemes to get around the ‘gifts with

reservation’ rules. These allowed people to

give away homes, but still live in them. Now,

income tax can be charged for living rent-free

in a home you once owned. But there are still

ways to reduce IHT. Most couples who own a

home together are joint tenants. This means

that if one person dies, the other automatically

becomes the outright owner of the property.

The alternative is to register as ‘tenants in

common’, each owning half the property

absolutely. This means that on death, your

share may be left to someone else to keep

down the size of your estate.

Q: Are there any investments that will

enable me to reduce an IHT liability?

A: Some investments are given favourable

treatment for IHT purposes, including shares

in unquoted businesses, woodlands, farms

and farmland. Many shares on the Alternative

ESTATE PRESERvATION

Inheritance tax planningYour questions answered

04

WEALTH CREATION

Inheritance tax planning

Investment solutionsAchieving the most efficient mix of risk and return

Investment Market (AIM) also qualify for relief. Investing

in AIM shares is one way of reducing an IHT liability on

an estate. Qualifying AIM shares offer more IHT relief

than some other assets and qualify as ‘business property

investments’. If property is held as AIM shares in certain

trading companies for a period of at least two years, it

becomes eligible for Inheritance Tax Business Property

Relief at 100 per cent and will fall out of the estate for IHT

purposes. This relief is a relief by value, the shares being

treated as having no value for IHT purposes. Not all AIM

companies are eligible for Business Property Relief. Please

note that AIM shares may be more volatile than shares

listed on the main market, the London Stock Exchange.

There may also be a more limited market for AIM shares,

which are generally higher risk investments in smaller

company shares.

Q: Should I consider trusts to minimise an IHT liability?

A: When writing a will, there are several kinds of

trusts that can be used to help minimise an IHT

liability. On 22 March 2006, the government changed

some of the rules regarding trusts and introduced

some transitional rules for trusts set up before this

date. This is a very complex area of IHT planning and

professional advice should always be obtained.

Q: Could I use a life insurance policy to pay for a

future IHT bill?

A: A whole-of-life insurance written under an appropriate

trust could be used to provide a lump sum on death

that falls outside your estate. On death, the proceeds of

the policy would be used to settle the IHT liability. The

premiums are treated for tax purposes as a gift from

regular income. The advantage is that you retain your

wealth through your lifetime and so have the funds if, for

example, you need to go into long-term care.

Q: In which other ways can I reduce the value of

my estate?

A: Giving away money will reduce your estate, but will not

cut the tax liability immediately. You have to survive for

seven years for most gifts to escape the IHT net. However,

within that last seven years, the HM Revenue & Customs

(HMRC) allow gifts of up to £3,000 each tax year. Unlimited

gifts up to £250 per person per tax year are exempt, as

are payments of up to £5,000 for wedding gifts. The most

powerful concession is that regular gifts made from normal

income can be exempt from IHT. You must show you

have been giving regularly and are not materially reducing

your standard of living or running down savings. This

concession allows parents or grandparents to help children

without fear of IHT tax problems in the future. n

Timely decisions on how joinTly owned asseTs are held, The miTigaTion of ihT Tax, The preparaTion of a will and The creaTion of TrusTs can all help ensure your dependenTs are lefT financially secure. if you would like To discuss your parTicular siTuaTion, please conTacT us. don’T leave iT unTil iT’s Too laTe.

Do you currently have the most suitable

method of holding and structuring your

investments to achieve an efficient mix

of risk and return that is specific to your

particular objectives? And are you fully

utilising the income, capital gains and

inheritance tax advantages of these

investments, particularly as the taxation

regime governing them may be subject to

change in the future? We have provided

a selection of tax-efficient solutions you

may wish to discuss with us.

The over-50s were able to shelter

more of their money from the taxman

on 6 October last year when Individual

Savings Account (ISA) limits rose by

£3,000 to £10,200, or £20,400 for a

couple. Everyone aged 18 and over will

be given the new limit from 6 April 2010.

venture Capital Trusts (vCTs) enable

individuals to invest in unquoted and AIM-

listed firms, and give tax-free capital gains

as well as income (usually taxed at 32.5

per cent for 40 per cent taxpayers). They

also attract initial tax relief at 30 per cent,

which is an income tax relief that is given

as a tax reducer, as long as they are held

for five years. The maximum investment is

£200,000 a year. This type of investment

does come with a high degree of risk.

Enterprise Investment Schemes (EISs)

invest in firms typically involved in a

particular sector or project, and give

income tax relief of 20 per cent on up to

£500,000 a year, if held for three years.

Gains are tax-free, but not income, and

investments fall outside your estate for

inheritance tax purposes after two years.

This type of investment does come with a

high degree of risk.

EISs also allow you to defer Capital

Gains Tax (CGT) incurred in the previous

three years or the subsequent 12 months,

which is attractive if you paid at the old rate

of 40 per cent (in force until 6 April 2008).

While you still have to pay CGT on EIS

shares bought with tax-deferred funds, you

could save 22 per cent on past gains.

Onshore investment bonds are taxed

internally at the 20 per cent basic rate.

However, up to 5 per cent a year of the

original investment (a minimum of £5,000, but

no maximum) can be withdrawn for 20 years

without any immediate tax liability. And you

can ‘roll up’, taking 3 per cent income in one

year and 7 per cent the next. If you become

a basic rate or non-taxpayer when the bond

matures, there is no further tax to pay.

Gifting income-producing assets to

your spouse, where he or she is a lower

rate or non-taxpayer, could save high

earners a considerable sum. Say you had

a portfolio of investment properties worth

£500,000, which produced an income of

5 per cent or £25,000 a year. If you were

a high earner and held the investments in

your own name, you would be liable for

tax on the income of £12,500 from the

2010/11 tax year. However, if you gifted

the assets to a spouse who had no other

income, the first £6,475 would be tax-free

and the remainder taxed at 20 per cent,

so just £3,705, which equates to a £8,795

tax saving. This example is based on the

original owner having total taxable income

above £150,000 (hence the liability on the

£25,000 rental income would be 50 per

cent rather than 40 per cent). n

if you would like To arrange a review To discuss how we could help you save and invesT more Tax-efficienTly, please conTacT us.

05

The future relationship between the tax

authorities and Premier League clubs is set to

intensify even further following recent reports

that they are unlikely to reach an agreement

on a collective deal over image rights. This

topic which goes back more than a decade

has intensified in recent years as public

finances have come under more pressure.

The Premier League’s finance director

Javed Khan has conducted discussions

between representatives from the top 20

clubs, the objective to explore whether

they could agree a structure of payments

to satisfy demands from HM Revenue &

Customs (HMRC) over claims for up to

£60m in unpaid taxes and devise a workable

ongoing solution.

Rugby Union has already agreed with

HMRC officials to an arrangement whereby

the professional game will pay a percentage

of their image right fees directly to the tax

authorities. However, due to the complexities

involved in the professional football game it

is believed that a similar deal is unlikely to be

workable within football.

Within Manchester United’s recent

£504m bond issue prospectus, it states the

Revenue’s view is that “image rights may be

a form of remuneration and, as such, should

be taxed as income”.

HMRC is looking at players that receive

separate payments in order to license their

individual image rights, which would typically

be free of PAYE and national insurance and is

often channelled through an offshore company.

Today most Premier League contracts will

have an image rights clause. Experienced

agents say that the concept was invented

for good reason, and remained legitimate,

but conceded it had been exploited by some

clubs and players.

This has become a standard part of

contract negotiations, with many players

claiming that the club will benefit from their

image in some way - whether their name

appears on replica shirts or other merchandise

the club markets.

The clubs argue that the payments are

wholly legitimate licensing payments. But

HMRC suspects that in some cases image

rights contracts have simply become a

standard top-up to an employment contract.

With Spain, Italy and France all having

more advantageous tax regimes for overseas

players particularly since the announcement

of the new 50 per cent tax rate commencing

6 April 2010, many UK clubs are looking at

different ways to maximise their appeal.

A spokesman for HMRC said it could not

comment on individual cases but added: “The

government remains committed to ensuring

that everyone pays their fair share of tax and

that the minority who seek not to do so should

not succeed.” It said the onus was on any

business to clear any transactions over which

there was any “uncertainty” with HMRC.

Rather than going after individual contracts,

in 2006 the Revenue decided to take a more

structured approach. It discovered that many

image rights deals were based on games

played or goals scored, clearly linking them

with the players’ employment contracts.

Investigators examine correspondence

between players, agents, clubs and

accountants in order to try to prove the link.

HMRC set up a specific unit to investigate

and negotiate settlements with clubs. The

onus is now on clubs to prove that image

rights are of real value and are exploited as

such. That could leave smaller Premier League

clubs more exposed than those at the top

end. At least half of Premier League clubs are

now thought to be under investigation.

A Premier League spokesman confirmed

that it was continuing to try to broker a deal.

“Discussions are ongoing with HMRC to try to

reach a mutually acceptable position. Both sides

agree that it is acceptable for the assignment of

a proportion of income to image rights however,

the question is how best to decide what is a

reasonable level across a multitude of varying

contracts and levels of player.”

There is a precedent that a club can acquire

the image rights of a player through an image

rights contract for the purpose of exploiting

that image. But it’s got to be for commercial

reasons and you’ve got to look at each

specific one to make sure it’s commercial and

the club has tried to exploit it. n

TAx MATTERS

Image right feesIs the coming of a new tax regime on the horizon?

The onus is now on clubs to prove that image rights are of real value and are exploited as such.

06

A vital part of any business is the people who

work there. But what if something happened to

one of the key personnel in your business, for

example, if an important member of staff died

unexpectedly or became unable to work due to

a serious illness. This could have a considerable

impact on the core operations, sales and profit

of your business.

Key person insurance is cover that pays

out for loss in the event of either death or

disability of the important individuals within

a business and is designed to protect or

compensate the business.

Is youR busIness at RIsk?Small and medium-sized businesses could

be particularly at risk. However, there is a

solution – insurance that would replace the

lost profits caused by the loss of a key person.

Typically, the liability of any such insurance is

the estimated cost of the loss, for example,

in business or revenue lost, and/or the

replacement of that individual.

key peRsonnel to consIdeRn The people who create the business and

steer it in the right direction

n The people without whom your business

would lose sales and profits

n Directors, partners and shareholders

n Integral managers, or key IT development

specialists or development operators

types of coveRThere are various types of insurance policy

that can be used for this purpose. There might

be a short-term need for cover, for example,

during an important project. In this situation

a term assurance policy may be the most

appropriate solution. However, if the key

person is likely to remain with the business

for an indefinite period of time, whole-of-life

assurance may be more appropriate.

paRtneRshIpsCompanies and sole traders can affect

policies on employees. But partnerships in

England and Wales are not a separate legal

entity, so where the key person cover is for

an individual partner, the policy can either

be taken out jointly by all the partners, in

which case it becomes a partnership asset or,

alternatively, the key partner could take out a

policy and place it in an appropriate trust for

the other partners.

InsuRIng a key peRson The required level of insurance

taken out has to be justifiable. Factors to

be taken into account when estimating

the required level of cover will include the

profits that will be lost if the services of

the key individual are no longer available,

the expected cost of recruiting and

training a new person and the length of

time before that replacement is likely to be

fully established.

In the event that a loan may be called in on

the death of the key person, the amount of

the loan and the effect this would have on the

profitability of the business will also need to

be assessed.

To calculate the sum insured, it is generally

acceptable to use the individual’s earnings,

including bonuses and company perks,

multiplied by a factor of five to ten times

earnings. Alternatively, a multiple of profits

may be used, which would not typically

exceed two years’ gross profits or five times

annual net profit, divided by the number of key

people being insured.

tax ImplIcatIonsThe tax implications of this type of insurance

vary. Often, the premiums for key person

insurance will be allowed as a business

expense for corporation tax purposes, but

certain conditions will need to be met.

Where the policy proceeds are taxable,

the tax payable will be linked to the type

of underlying policy. Payments under a

key person term assurance policy will be

treated as a trading receipt and subject to

corporation tax. Bearing in mind that the

policy has been taken out to replace lost

profits and those profits would have been

liable to tax, this approach makes sense.

However, the payout from a whole-of-life

policy is treated differently, as it is considered a

capital item. As these policies are deemed ‘non-

qualifying’ for life assurance purposes, they will

be taxed as the company’s income. n

if you would like To arrange a review of your currenT corporaTe requiremenTs and discuss The opTions available To you, please conTacT us.

CORPORATE MATTERS

Protecting key personnelManaging the risk that could ultimately threaten your company’s profits

Key person insurance is cover that pays out for loss in the event of either death or disability of the important individuals within a business and is designed to protect or compensate the business.

07

ESTATE PRESERvATION

Financial reasons to make a willPutting it off could mean that your spouse receives less

08

ESTATE PRESERvATION

It’s easy to put off making a will. But if you die

without one, your assets may be distributed

according to the law rather than your wishes.

This could mean that your spouse receives

less, or that the money goes to family members

who may not need it.

There are lots of good financial reasons for

making a will:

n you can decide how your assets are shared

out - if you don’t make a will, the law says

who gets what

n if you aren’t married or in a civil partnership

(whether or not it’s a same sex relationship)

your partner will not inherit automatically,

so you can make sure your partner is

provided for

n if you’re divorced or if your civil partnership

has been dissolved you can decide

whether to leave anything to an ex-partner

who is living with someone else

n you can make sure you don’t pay more

Inheritance Tax than necessary

If you and your spouse or civil partner own

your home as ‘joint tenants,’ then the surviving

spouse or civil partner automatically inherits

all of the property.

If you are ‘tenants in common’ you each own

a proportion (normally half) of the property and

can pass that half on as you want.

A solicitor will be able to help you should

you want to change the way you own your

property.

Planning to give your home away to your

children while you’re still alive.

You also need to bear in mind, if you are

planning to give your home away to your

children while you’re still alive, that:

n gifts to your children, unlike gifts to your

spouse or civil partner, aren’t exempt from

Inheritance Tax unless you live for seven

years after making them

n if you keep living in your home without

paying a full market rent (which your

children pay tax on) it’s not an ‘outright

gift’ but a ‘gift with reservation,’ so it’s

still treated as part of your estate, and so

liable for Inheritance Tax

n following a change of rules on April 6,

2005, you may be liable to pay an Income

Tax charge on the ‘benefit’ you get from

having free or low cost use of property you

formerly owned (or provided the funds to

purchase)

n once you have given your home away,

your children own it and it becomes part of

their assets. So if they are bankrupted or

divorced, your home may have to be sold

to pay creditors or to fund part of a divorce

settlement

n if your children sell your home, and it is not

their main home, they will have to pay Capital

Gains Tax on any increase in its value

If you don’t have a will there are rules for

deciding who inherits your assets, depending

on your personal circumstances. The following

rules are for deaths on or after July 1, 2009 in

England and Wales; the law differs if you

die intestate (without a will) in Scotland or

Northern Ireland. The rates that applied before

that date are shown in brackets.

If you’Re maRRIed oR In a cIvIl paRtneRshIp and theRe aRe no chIldRenThe husband, wife or civil partner won’t

automatically get everything, although they

will receive:

n personal items, such as household articles and

cars, but nothing used for business purposes

n £400,000 (£200,000) free of tax – or the

whole estate if it was less than £400,000

(£200,000)

n half of the rest of the estate

The other half of the rest of the estate will

be shared by the following:

n surviving parents

n if there are no surviving parents, any

brothers and sisters (who shared the same

two parents as the deceased) will get a

share (or their children if they died while the

deceased was still alive)

n if the deceased has none of the above, the

husband, wife or registered civil partner will

get everything

If you’Re maRRIed oR In a cIvIl paRtneRshIp and theRe weRe chIldRenYour husband, wife or civil partner won’t

automatically get everything, although they

will receive:

n personal items, such as household articles and

cars, but nothing used for business purposes

n £250,000 (£125,000) free of tax, or the

whole of the estate if it was less than

£250,000 (£125,000)

n a life interest in half of the rest of the estate (on

his or her death this will pass to the children)

The rest of the estate will be shared by

the children.

If you aRe paRtneRs but aRen’t maRRIed oR In a cIvIl paRtneRshIpIf you aren’t married or registered civil

partners, you won’t automatically get a share

of your partner’s estate if they die without

making a will.

If they haven’t provided for you in some

other way, your only option is to make a claim

under the Inheritance (Provision for Family and

Dependants) Act 1975.

If theRe Is no suRvIvIng spouse/cIvIl paRtneR

The estate is distributed as follows:

n to surviving children in equal shares (or

to their children if they died while the

deceased was still alive)

n if there are no children, to parents (equally,

if both alive)

n if there are no surviving parents, to brothers

and sisters (who shared the same two

parents as the deceased), or to their

children if they died while the deceased

was still alive

n if there are no brothers or sisters then to

half brothers or sisters (or to their children if

they died while the deceased was still alive)

n if none of the above then to grandparents

(equally if more than one)

n if there are no grandparents to aunts and

uncles (or their children if they died while

the deceased was still alive)

n if none of the above, then to half uncles or

aunts (or their children if they died while the

deceased was still alive)

n to the Crown if there are none of

the above

It’ll take longer to sort out your affairs if

you don’t have a will. This could mean extra

distress for your relatives and dependants

until they can draw money from your estate.

If you feel that you have not received

reasonable financial provision from the

estate, you may be able to make a claim

under the Inheritance (Provision for Family

and Dependants) Act 1975, applicable in

England and Wales. To make a claim you

must have a particular type of relationship

with the deceased, such as child, spouse,

civil partner, dependant or cohabitee.

Bear in mind that if you were living

with the deceased as a partner but

weren’t married or in a civil partnership,

you’ll need to show that you’ve been

‘maintained either wholly or partly by the

deceased.’ This can be difficult to prove

if you’ve both contributed to your life

together. You need to make a claim within

six months of the date of the Grant of

Letters of Administration. n

09

If you are an income-seeking saver in search

of good returns from your savings in this low

interest rate environment, we can provide

you with the professional advice you need

to enable you to consider all the options

available. In addition, we can help you

determine what levels of income you may

need and work with you to review this as

your requirements change. Another major

consideration is your attitude towards risk

for return and availability. This will help to

determine which asset classes you are

comfortable investing in.

Cash, especially in the current climate, is

an important element for any income investor.

One option you may wish to discuss with

us is cash funds, dubbed ‘money market’

portfolios. These use the pooled savings of

many investors to benefit from higher rates not

available to individuals. They can invest in the

most liquid, high-quality cash deposits and

‘near-cash’ instruments such as bonds. But,

unlike a normal deposit account, the value of

a cash fund can fall as well as rise, although

in theory, at least, it should not experience

volatile swings.

Bonds are a form of debt, an ‘IOU’ issued

by either governments or firms looking to raise

capital. As an investor, when you purchase a

bond you are essentially lending the money to

the government or company for a set period

of time, which varies according to the issuer.

In return you will receive interest, typically paid

twice a year, and when the bond reaches

maturity you usually get back your initial

investment. But you don’t have to keep a bond

until maturity. You can, if you wish, sell it on.

Much of the government’s debt, including

the additional money being used to aid the

economy and refinance the banks, is in the

form of bonds it issues. Gilts are bonds issued

by the British government. The advantage of

gilts is that the government is unlikely to fail

to pay interest or repay its debt, so they are

generally the safest investments. Government

bonds pay a known and regular income (called

the coupon) and a lump sum at maturity

(called the par). They typically perform well as

the economy slows and inflation falls.

Corporate bonds operate under the same

principle as gilts, in other words companies issue

debt (bonds) to fund their activities. High-quality,

well-established companies that generate lots of

cash are the safest corporate bond issuers and

their bonds are known as ‘investment grade’.

High-yield bonds are issued by companies

that are judged more likely to default. To attract

investors, higher interest is offered. These are

known as ‘sub-investment grade’ bonds.

The risks related to investing in bonds can

be reduced if you invest through a bond fund.

The fund manager selects a range of bonds, so

you are less reliant on the performance of one

company or government. The ‘distribution yield’

gives a simple indication of what returns are likely

to be over the next 12 months. The ‘underlying

yield’ gives an indication of returns after expenses

if all bonds in the fund are held to maturity.

An alternative route to generating income is

by investing in stocks that pay a dividend. If

a firm is making good profits it can decide to

share this with investors rather than reinvest

it in the business, so essentially dividends

are the investors’ share of company profits.

Share prices of companies that regularly pay

dividends tend to be less volatile than other

companies, but remember that company

shares can fall in value. In addition, dividends

can be cut if a company finds itself in need of

extra cash.

Another way to invest in equities for the

purpose of obtaining a better income is via an

equity income fund. The fund manager running

the portfolio selects a wide range of equities, so

you are less reliant on the performance of any

one particular company, and will try to select

companies that pay regular dividends. n

There are many differenT ways To generaTe more income. we can help you make informed decisions abouT The invesTmenT choices ThaT are righT for you. any number of changing circumsTances could cause your income To diminish, some ineviTable and some unpredicTable – new Taxes and legislaTion, volaTile markeTs, inflaTion and changes in your personal life. To discuss sTrucTuring your income requiremenTs in a way ThaT minimises The impacT of These changes, please conTacT us.

INvESTING

Investing at a time of low interest ratesInvestment opportunities when interest rates are low

10

check youR paye code You should check that you are on the correct

code. Don’t just assume that if tax is being

deducted at source it must be right. If you

have been paying too much tax, you can claim

back the excess for up to six previous years.

If you have been paying too little, the Revenue

can claim it back.

make full use of youR peRsonal allowances We all have a personal allowance, currently

£6,475 (under 65) a year, which is the

amount you are allowed to earn before you

start paying tax. If appropriate, couples

should consider maximising their personal

allowances by channelling savings and

investments towards the person who pays

the least amount of tax.

consIdeR caRRyIng out a salaRy sacRIfIce Salary sacrifice means giving up the right to

part of your salary in exchange for a benefit,

such as an employer pension contribution.

Both you and your employer will save money

on National Insurance and the employer also

saves on Corporation Tax.

make the most of tax RelIef at youR hIghest maRgInal Rate on pensIon contRIbutIons You should make the most of tax relief

at your highest marginal rate on pension

contributions. This tax break is particularly

valuable if you are a higher rate taxpayer and

so potentially receive relief at 40 per cent

(2009/10) on your pension contributions that

fall within the higher rate band.

bRIng foRwaRd dIvIdend payouts to thIs tax yeaR If you are a high earner and work for a

family company or have your own company,

you may wish to consider bringing forward

income distribution from future years to this

tax year. If you pay yourself a dividend this

year, and assuming you are a higher rate

taxpayer, you would currently be paying an

effective rate of 25 per cent on dividends. But

from the next tax year you would, as a top

rate taxpayer, be paying an effective rate of

36.1 per cent on your dividends.

make suRe you ReceIve youR age allowance If you aRe oveR 65 Make sure you receive your age allowance if

you are over 65. This allowance is currently

worth £3,015 on top of the normal personal

allowance for those aged 65 to 74 and £3,165

for those over 75, taking their total personal

allowance to £9,490 and £9,640 respectively.

Those entitled to it should make sure they

claim it, as it is sometimes not included

automatically in an individual’s tax coding.

bRIng foRwaRd IncomeShareholders in their own businesses who take

money as dividends will be taxed at 32.5 per

cent until 5 April, rising to 42.5 per cent the

following day. On £10,000-worth of dividends,

you could save £1,000 in tax by bringing the

payment forward. Bear in mind, though, that

you would also have to pay the tax via your self-

assessment form a year earlier.

shaRe IncentIve schemesHigh earners could ask their employer to set up a

share incentive scheme ahead of the changes so

that, instead of taking cash bonuses, they would

receive shares in the firm. This converts income

taxed at up to 40 per cent today (or 50 per cent

from 6 April 2010) into gains taxed at the flat rate

of Capital Gains Tax (CGT) of 18 per cent.

defeR tax RelIefConsider deferring claims for tax relief until

the 2009/10 tax year has ended on 5 April,

boosting potential tax relief to 50 per cent

from 40 per cent.

RevIew famIly tRustsIt may be worth drawing income arising in a

family trust. This is taxed at 20 per cent on

up to £1,000 and 40 per cent thereafter, rising

to 50 per cent from 6 April 2010. However,

this will depend on the type of income, as

dividends would be taxed at either 10 per cent

(if within the £1,000 band) or 32.5 per cent

(42.5 per cent from 6 April 2010).

Even trusts with a small amount of income will

be subject to tax at 50 per cent. Alternatively,

beneficiaries could draw the income if their other

earnings are below £150,000 – beneficiaries

of a discretionary trust have no entitlement to

income. The trustees could choose to distribute

the income but it would have to come with a

40 per cent (50 per cent from 6 April 2010) tax

credit. The increase in tax rate will only affect

‘non-Income In Procession’ trusts which pay

RAT (‘Rate Applicable to Trusts’).

cRystallIse pensIon benefItsPeople in their early fifties who want to retire early

or release tax-free cash from their pensions may

wish to consider doing so before 5 April, when

the minimum retirement age goes up from 50 to

55. However, there are many instances where it

is not advisable to take the cash. For example,

if your pension has a guaranteed annuity rate,

you may be better off using your entire fund to

buy an annuity. If you are in a final-salary scheme

you could choose to take extra tax-free cash

and a reduced pension, although take care as

the income you would give up is guaranteed, is

inflation-proofed and has a widow’s or widower’s

benefit. However, in other cases it may be

worth crystallising benefits. Equally, it may be

worthwhile if you want to free up cash to make

gifts for Inheritance Tax planning or make other

tax-efficient investments. n

This arTicle does noT consTiTuTe advice and you should seek professional financial advice wiTh regards To The mosT appropriaTe ways of sTrucTuring your affairs To maximise Tax efficiency. for furTher informaTion or To discuss your requiremenTs, please conTacT us and we’ll provide you wiTh a compleTe financial wealTh check.

WEALTH PROTECTION

tax factsWhat you need to know

11

An increase in the top rate of personal income

tax for all income above £150,000 was

announced in the 2009 Budget. The new 50

per cent rate will come into force from 6 April

2010. This is a significant increase (and an

increase in the original figure announced in the

Pre-Budget Report in November 2008, which

stated that the rate would be 45 per cent as

of April 2011) and also represents a structural

change to the tax planning landscape.

The 50 per cent income tax rate (42.5 per cent

on dividends) requires a structural change to

tax planning to ensure that robust, practical and

sensible planning is put in place, sooner rather

than later, to ensure maximum tax-efficiency.

The new rate, and other changes

announced in the 2009 Budget, mean that it

is paramount that employees and investors

carefully consider their tax position to explore

what planning can be effectively put in place

now to help mitigate or defer the upcoming

increased income tax liabilities.

There is a range of sensible and effective

options that will mitigate the impact of the

forthcoming rate increase. Planning now rather

than later is, as ever, the best approach and

planning for both employment and investment

income is essential. A bespoke approach

will typically provide the best solution, since

planning should always be appropriate to your

particular tax and personal profile. Key factors

will include your long-term residence plans,

your various sources of income and your

anticipated expenditure. Tax planning should

be perfectly integrated with your commercial

objectives, so your succession planning and

business strategies will be relevant.

In addition, the gradual withdrawal of the

personal allowance for those with incomes

of £100,000 or more, and the restriction

of higher rate tax relief for pension

contributions for those with incomes of

more than £150,000 (from April 2011) will

increase the tax burden on higher income

earners, giving a marginal rate of tax for

some of 60 per cent. The transitional

provisions on pension relief have immediate

effect, particularly for those who usually

pay significant annual contributions,

such as senior executives and partners in

professional partnerships.

Now is an appropriate time to review

strategies to ensure they are consistent with

your personal objectives.

One approach could be to maximise income

so that it is subject to the current top rate of 40

per cent (32.5 per cent for dividends). Bonus

payments, realisation of gains on unapproved

share schemes, dividend payments or

remittances of income, for those not domiciled

in the UK, might be brought forward so that the

income falls to be taxed before 6 April 2010.

Where a company is planning to purchase

its own shares, with the shareholders taxed

on the proceeds as income rather than

gains, the value to shareholders would be

increased by completing the exercise before

the change in tax rates.

Of course, the timing cost of any action that

accelerates the date for the payment of tax

should be borne in mind.

For the self-employed and those in

partnership, strategies to maximise profits

taxable at 40 per cent rather than 50 per cent,

for example, by changing the accounting date,

could be considered.

Given the current differential of 32 per cent

between the income tax and capital gains tax

rates, from 6 April 2010 onwards capital returns

will have a significant tax advantage over

income returns. Various investment vehicles for

trading, property holding or wider investment

activities alongside tax-efficient profit extraction

techniques could be considered.

Changing an investment structure could

also be explored at a time when asset values

are relatively low, so that any future returns

deliver your longer-term objectives. How

investments are held across the family should

be reviewed to ensure holdings are efficient.

Another approach could be to plan to minimise

exposure to the 50 per cent rate before it arrives.

Strategies that allow income to accumulate in

tax-efficient ways should be considered. n

TAXATION

50 per cent tax rate Mitigating the impact of the forthcoming rate increase

This arTicle does noT consTiTuTe advice and you should seek professional financial advice. if you would like To discuss how we could help you wiTh your financial planning requiremenTs, please conTacT us for furTher informaTion.