Our short guide to ISAs

‘ISA’ stands for Individual Savings Account, a tax-efficient wrapper offered under Government legislation as a way of encouraging you to save. An ISA sits over your choice of a number of different investments to shelter them from further tax on any income or gains earned.

There are now just two types of ISA – the Cash ISA and the Stocks and Shares ISA – and the combined allowance for both in 2012/13 is £11,280.

Within this, the limit for Cash ISAs – or for the cash element within a Stocks and Shares ISA – is £5,640.

However, there is flexibility over how these limits can be used – you can, for example, put the maximum £5,640 in a cash account and £5,640 in a stocks and shares account. Alternatively, though, if you place just £2,000 in cash, you can use the entire remaining balance – £9,280 in this case – to invest in stocks and shares. If you wish, you may put the full £11,280 into a Stocks and Shares ISA.

In addition, you can transfer existing Cash ISA holdings to a Stocks and Shares ISA without impacting on your current tax year allowance. So, if you have £10,000 already sitting in existing cash ISA plans then this amount can be moved to a Stocks and Shares ISA, yet leave your entire current tax year allowance.

Finally, if you already have an ISA, you are permitted to transfer it to a new plan manager, without using any of your annual allowance.

Please feel free to download the ‘Guide to ISAs‘ brochure*. It contains plenty of information on what you should consider when considering investing in an ISA.

Alternatively, if you require independent financial advice on ISAs, feel free to call on 01554 770022 and we can arrange a no obligation appointment.

*Guide provided courtesy of http://www.adviser-hub.co.uk

Investing for children

No parent will need reminding children cost money.

Many parents or grandparents are in the fortunate position to be able to save for their family and so often need advice on what may be the most suitable route.

With so many options available, where do you start?  A bank account, Junior ISA, Child Trust Fund or shares, to name a few?  Protection from inflation also needs to be considered.

Your timeline is very important.  A savings account for a toddler has a longer time horizon, and maybe you could afford to take more risk.  On the other hand, putting money aside for a teenager will probably need more security, and may be better suited to a deposit account.  Your attitude to risk will probably drive the most suitable investment.

Here are some considerations:

  1. Use personal allowances – the child will be able to earn £8,105 free of tax (2012/13).
  2. Are Junior ISAs or Child Trust Funds suitable?
  3. Trusts – these may provide the saver with more control over the investment.
  4. A pension contribution for the child may be desired.
  5. Friendly Society savings bonds may offer a suitable solution.
Please feel free to download the ‘Investing for Children‘ guide.  It contains plenty of information on what you should consider when investing for a child.
If you require advice on savings for a child, feel free to call on 01554 770022 and we can arrange a no obligation appointment.

Trivial pension lump sum – take care!

When you reach age 60, it may be possible to withdraw your pension as a trivial lump sum.  That is, you can take the whole lot out in one go.

However, care needs to be exercised with this, as you need to be sure you are allowed to take the pension in one lump sum.

Here’s a specific example of a client who I met this week….

My client visited me to get my advice on how to fill in the forms to take out the pension in one go.  They had read that if you have a pension pot of less than £18,000 that you could withdraw the whole sum, having 25% paid as tax free cash, and the rest is added to other income for the tax year and taxed at your highest marginal tax rate.

All the paperwork was in hand, some of it filled out already before we met.  We started discussing their circumstances and I quickly identified that my client was already in receipt of an occupational pension of £8,000 per annum.

Unfortunately for my client, I advised they were not allowed to withdraw the pension under triviality rules, due to having other pension funds which also need to be included when calculating eligibility for a trivial lump sum.  The £8,000 pension must also be valued and included in the calculation (the £8,000 pension was valued at £200,000 for the purposes of the calculation!) .  For this client, we have to look at an alternative way of drawing the pension income, but they are still able to take 25% of the fund as tax free cash.

Had my client not taken my advice, they may have faced a HMRC penalty of up to £3,000 for negligently or fraudulently obtaining an unauthorised pension payment.

Therefore, it pays to take expert financial advice.

Jeremy Phelps is a Chartered Financial Planner at Financial Solutions Wales.  If you would like advice on taking your pension as a trivial lump sum, we can assist and take care of all the paperwork on your behalf.  Our fee for this is usually £199.