The 8 most important points from the 2014 Budget

The Chancellor may have gone for the popular phrase from Chancellors of yore by taking ‘a penny off a pint’, but what were the real big announcements during The Budget 2014? We summarise the 8 main points:

1. Changes to pensions mean many more options than just buying an annuity

In measures to be introduced in April 2015, pensioners will have complete flexibility on how much of their pension they want to take at retirement, effectively eliminating the need to buy an annuity. This opens up many more options for what to do with your pension in your retirement years.

2. ISA revisions are great for savers

The ISA limit was increased to £15,000 a year and it was announced that Stocks & Shares ISAs and Cash ISAs would be merged into a New ISA. Again, this gives savers much more flexibility and potentially allows more of their income to be shielded within the tax free accounts.

3. New additions to the bonds market

A new Pensioners Bond will be introduced at the start of 2015 with what were described as ‘market leading rates’, thus giving pensioners another option for what to do with their newly released pension savings! There were also changes to Premium Bonds, with an increase in winners promised.

4. Personal tax allowance increase

The personal tax allowance was confirmed as increasing to £10,500 in April 2015, with the increase at the start of the tax year in April going to £10,000. Good news in that a little more of our money is saved away from taxation!

5. Small pension limits increased

For any small pension pots currently held, there was an increase in the total amount of individual pot that can be taken as a lump sum to £10,000. The Chancellor also announced an increase in the total number of pots, up to this size, that could be taken to three, meaning £30,000 could be taken in total.

6. Flexible drawdown limits reduced

In yet another pensions related matter for what was a busy Budget for the industry, savers now only need to have £12,000 (as opposed to £20,000) in their pot in order to access flexible drawdown.

7. Small measures for individuals and businesses; fuel duty, minimum wage and apprenticeships

Whilst these might not be the headline grabbers in overall cost terms, they will have an impact for many individuals and business owners. Fuel duty has been frozen in another attempt to get the current high costs down, whilst both the minimum wage and the number of apprenticeships were increased, with the Chancellor promising to ‘double’ the latter.

8. The new pound coin!

Perhaps it’s not actually one of the most important points from The Budget (though the Chancellor would point to the increased percentage of forged pound coins, which cost the economy) but it will certainly be one of the more visible ones when the new coin starts to enter circulation at some point around 2017.

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Sources: gov.uk

HK Wealth Budget Summary 2014

"A Budget for makers, doers and savers". George Osborne delivered the 2014 Budget to Parliament yesterday and with it the customary outlook on the UK’s financial and economic situation. There were a number of surprises in the Budget for savers and pensioners with significant financial planning considerations.  The Budget has wide-ranging implications for both individuals and businesses and so, to help put the Chancellor's announcement in to context, I've produced an easy to read guide, providing context to many of The Budget's details and examining their likely impact.

I think it's important to keep you updated on a variety of financial matters, including The Budget and I hope you find the guide helpful. If you have any questions about The Budget or any other topic please do not hesitate to get in touch: I'll be happy to assist you in any way I can.

VCTs and EIS compared

Both are high risk investments – but both have the potential of high reward…

Let’s start with some facts. A Venture Capital Trust (VCT) is an investment vehicle quoted on the stock market, like an investment trust. The VCT scheme is designed to encourage investment in smaller, normally higher risk companies, often including start-up companies. The VCT therefore has to hold at least 70 per cent of its portfolio in these qualifying companies with a range of rules defining what is and isn’t a qualifying company. For example, no company it invests in can have gross assets in excess of £15m and none may comprise more than 15 per cent of the entire portfolio.

An Enterprise Investment Scheme (EIS) is an investment in a single unquoted, privately held company. With such an investment, there’s also an opportunity to participate in the running of the business – and to get paid for doing so.

Both investments come with substantial tax breaks. With a VCT, you can invest up to £200,000 per tax year in ordinary shares and qualify for 30 per cent income tax relief, provided you hold the shares for at least five years. There’s no CGT on disposal (but also no CGT relief on losses). Dividends are exempt from income tax.

With an EIS, you can invest up to £1,000,000 and receive 30 per cent income tax relief if you hold the investment for three years. Gains are CGT free, and you can defer CGT gains on other assets by investing them into an EIS. The charges on both VCTs and EIS are higher than on unit trusts and investment trusts.

So, which is better? For many of us, the answer would be “neither”. Both are high risk investments – due to the inherent fragility of start-up companies, in which both vehicles invest. According to the Times 100, one in three UK start-ups don’t last three years. The reasons are many: lack of experience, over-borrowing and under-capitalisation, poor business models, and so on. It’s possible to lose all your money invested in a VCT or an EIS.

However, this means that two-thirds of start-ups do survive: and some of these inevitably go on to become very successful.

So, while unsuitable for novice investors, more experienced and wealthier investors might want to consider these as part of their portfolio.

That being said, which is best? That will depend on your circumstances. However, the VCT spreads risk by investing in a number of companies, not just one like the EIS. Also, because VCTs are traded, you can sell them after five years (or earlier, if you’re prepared to forego the tax breaks). An EIS is highly illiquid, and usually the only way to realise your investment is through flotation.

As always, taking expert, independent financial advice is suggested before indulging in this form of investment. But if you’re happy to take on extra risk for the potential of greater gain, they might be worth considering.

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Sources: hmrc.gov.uk

More over-55’s now seek financial advice but there are still plenty who could benefit from talking to an adviser

More over-55s are turning to financial advisers than did so four years ago, new research from Aviva into the shape of financial advice for retirement in 2014, shows. But with 77% of over-55s having no relationship with an adviser – and no plans to establish one – Aviva’s findings reveal a worrying lack of understanding about the nature of financial issues in later life.

• Almost one in five (18%) of over-55s have spoken to an adviser in the last year.
• Sadly, 77% are entirely out of the loop with no plans to seek advice.
• Growing numbers are being surprised by the reality of retirement incomes.
• When seeking advice, getting the most from their pensions is the over-55s’ number one concern.
• Transparency has improved post-RDR – but many are still unsure on costs.

Almost one in five of over-55s (18%) now have an active relationship with a financial adviser, compared with 14% in February 2010. The biggest change has been among over-75s, with 17% now having a financial adviser compared with 11% four years ago.

Those aged 65-74 remain the most likely to use a financial adviser, with 19% having done so in the last year. Just 16% had done the same in February 2010. A further 3% of all over-55s are currently looking to establish a relationship with a financial adviser. However, with 3% unsure, this leaves more than three quarters (77%) with no active relationship with a financial adviser and no plans to establish one.

The advice gap is especially worrying in light of the widening gulf between expectations and reality when it comes to retirement incomes. The percentage of retired over-55s who are disappointed by their retirement income has increased from 10% to 15% since February 2010.

Encouragingly, more retired over-55s have incomes beyond their expectations than was the case four years ago (19% in January 2014 from 15% in February 2010). Over-55s are also more likely to underestimate than overestimate their retirement income (19% v 15%).

Getting the most from their pensions (52%) is the most pressing retirement issue over-55s would discuss with a financial adviser, which is a good sign, given the recent review of the annuities market and the potential to select a bad pension deal without proper financial advice.

Other priorities for over-55s include tax efficiency, budgeting for care costs and other major expenses, and options for drawing on their total wealth to cover the costs of retirement. 11%, sadly, were seeking advice on how to manage the debts they had.

Sitting down with an adviser can help to answer many of these questions for over-55s and can help to uncover alternative plans and opportunities in retirement. Getting financial advice can also help you to plan for the unexpected, giving you a full picture of how you are likely to be able to live your retirement.

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Sources: aviva.co.uk

10 New Year’s Resolutions for your Financial Planning

The economies on both sides of the Atlantic might be showing clear signs of an upturn as we start the New Year, but that doesn’t mean we can suddenly afford to ignore our personal financial planning. So in the best traditions of New Year here are ten financial planning resolutions that will hopefully help make 2014 a prosperous and secure year for you.

1. I will save some money on a regular basis. It might be your daughter getting married, it might be one or more of your children going to university – or it might be a more sombre reason. But at some stage in all our lives we are going to need savings to fall back on: so make a resolution to save on a regular basis in the New Year. Better to save first and spend what you have left than spend first and then save – because as we all know, there probably won’t be anything left!
2. I will admit I’m going to get old. We don’t just mean feeling old after one Xmas party too many – we mean you should make 2014 the year when you have a thorough review of your pension planning. Taking some action now could well save you a lot of heartache later on. The message from the Government (and any subsequent Government) will be simple: if you want a prosperous retirement it’ll be up to you to provide it.
3. I will check what I’m paying on my mortgage. Interest rates have been very low for some time now, but 2014 may well be the year when they start to creep up. If that happens mortgage rates will go up as well. So review your mortgage to make sure that it’s competitive and that you’re paying as little as possible.
4. I will review my life cover and protection policies. It’s always worth keeping these policies under review, both to make sure that you have adequate cover and to make sure that you are still paying a competitive rate for the cover you have in place. The cost of protection can and does fluctuate and as with your mortgage, it will cost you nothing to ask us to review the arrangements you have in place.
5. I won’t pay the taxman more than I need to. Couldn’t we all agree with this one? If you’re saving on a regular basis make sure you use your ISA allowances and look at the tax efficient ways in which a pension can be used. Far too many of us are inadvertently paying tax that we simply don’t need to.
6. I will use all my tax allowances. Even sophisticated investors often forget to make use of allowances such as the annual Capital Gains Tax allowance (don’t forget that a married couple can both use the individual CGT allowance). And despite the threshold going up, Inheritance Tax is another area where a small amount of planning can pay significant dividends. If you’d like further details on either of these two areas of tax planning don’t hesitate to contact us.
7. I won’t forget about my investments. How often do we see new clients with a portfolio of investments that hasn’t been looked at for years? If you do have investments, make sure you keep them under regular review.
8. I won’t obsess about my investments. The other side of the coin – the investor who is constantly tinkering with his investments, so that whatever gains he might have made are wiped out by dealing costs. Remember that investments are for the long term: they need to be regularly reviewed – as we do with all our clients’ portfolios – but as the old wealth warning reminds us, they can and do fluctuate in value.
9. I won’t get sentimental. We’re not talking about your personal relationships here, but about investments you might have held for a long time. One of the best things a regular review from your professional adviser does is highlight areas of your portfolio which are underperforming. And irrespective of how much money a particular holding might have made you ten years ago, if it is underperforming now it may well need to be changed.
10. I will keep in touch with my professional advisers on a regular basis. Everyone’s personal circumstances change, and their financial planning needs change accordingly. That’s why we’re so keen on regular reviews and regular meetings and, as all our clients know, we’re always available should you have any questions.

One of only 1,000 Certified Financial Planner's in the UK!

HK Wealth is delighted to announce that after many months of hard work last year Garry Hale was delighted to find out that he has passed the Institute of Financial Planning's CFP assessment entitling him to use the prestigious Certified Financial Planner designation!

A globally recognised mark of excellence in Financial Planning and a financial planning qualification only held by around 1,000 individuals in the UK!

Great start to 2014 and next stop Chartered and onwards and upwards for HK Wealth!

Some other exciting news coming from HK Wealth soon...

Autumn Statement 2013 - Need to Know:

Key points

“Britain’s economic plan is working, but the job is not done,” the chancellor George Osborne said in one of the most leaked statements in history.

“Responsible” was the key word from the chancellor’s 50 minute speech.

£100m of Libor fines will be made available to military charities and to extend support in the police, fire and ambulance services.

April 2014 will see the state pension rise by £2.95 per week, meaning pensioners will be £800 better off every year.

Based on the latest life expectancy figures, it was announced that the government plans to increase the state pension age earlier than originally planned. It will be increased from 68 in the mid-2030s to 69 by the late-2040s.

The fall in GDP from peak to trough between 2008 and 2009 was not 6.3 per cent as previously thought. It was 7.2 per cent instead.

From April 2015, a new transferable tax allowance will be made available for married couples. Available to all basic rate taxpayers, it enables people to transfer £1,000 of their personal allowance to their wife, husband, or civil partner.

big numbers

0.4 per cent - The percentage the OBR predicts the eurozone will shrink by in 2014.

7.2 per cent - The revised decline in GDP in 2008-09, increased from the original 6.3 per cent originally predicted.

43 - The number months the coalition has been in charge of government.

400,000 - The number total new jobs is expected to rise by December 2014.

1.5m - The amount of jobs for young people under 21 that National Insurance contributions will be removed from.

£300m - The amount the housing revenue account borrowing limit will be increased by.

£111bn - The amount the government will borrow this year, falling in 2014-15 to £96bn, falling to £79bn in 2015-16, £51bn the year after and £23bn the year after that.

Need to know:

The statement in brief

•           From next year, the government will introduce   a new cap on total welfare spending.   However, state pension will be excluded. The   chancellor said this is “better controlled over a   longer period”.

•           In line with the move on Aim shares last year,   exchange-traded fund stamp duty will be   abolished. This is a drive to encourage funds to   locate in the UK.

•           From April 2014, the UK will be one of the   first countries to introduce a tax relief for   investment in social enterprises and new social   impact bonds.

•           The two Help to Buy schemes have already   helped many new home owners. It was   announced Aldermore and Virgin are   expected to join the scheme in December   2013.

•           The business rate relief scheme for small   businesses, which was due to end in April   2014, will be extended for a further year.   Additionally, inflation increase for all business   premises will be capped at 2 per cent from   2014.

•           KPMG’s report last week confirmed for the   second year running, Britain has the most   competitive business tax system.

•           Fuel duty will be frozen instead of going up by   2p a litre.

OBR figures

Figures from the Office of Budget Responsibility (OBR) shows:

•           It has “reassessed the depth of the great   recession”.

•           It has revised its UK growth forecast for 2013   from 0.6 per cent to 1.4 per cent. It has also   increased for 2014 from 1.8 per cent to 2.4 per   cent. For the next four years, it sees growth at   2.2 per cent, 2.6 per cent, 2.7 per cent and 2.7   per cent.

•           The OBR still forecasts the eurozone will

  shrink by 0.4 per cent this year.