With our children living longer let alone our grandchildren Enable IFA’s of Bishops Stortford know we want to make the most of what we have to help them. Currently an individual can pass on an estate worth up to £325,000 without any inheritance tax applying. If an estate - including any assets held in trust and gifts made within seven years of death - is more than the threshold, inheritance tax will be due at 40% on the amount over the current £325,000 limit.
Gifts made to a child's pension however have the potential to qualify for a number of inheritance tax exemptions, including:
• Gifts of up to £3,000 each tax year are exempt from inheritance tax - making a gift of £2,880 (the maximum net pension contribution) to a child or grandchild's pension an ideal way of making use of this exemption
• Gifts of up to £250 to an individual in a tax year can qualify as inheritance tax exempt payments
• Regular gifts made from an individual's net income can qualify as inheritance tax exempt payments
If a parent or grandparent gifts any monies that are not covered by these exemptions IHT will only apply if the parent or grandparent dies within seven years of the gift being made.
By setting up a pension for a child, a parent or grandparent can help them on the road to a comfortable retirement and vitally may encourage the saving habit that their children will continue once they become an adult. Looking to the long term is something we as experience Independent Financial Advisors at Enable like to help with.
Wednesday, 27 June 2012
Pensions for Children?
Most people probably don't think of a pension when they think about saving for their children and they would not be able to take an income from their pension until they are 55 compared to a Junior ISA that gives access at age 18. But if a parent saves the maximum £3,600 each year, even without any growth they would have accumulated £64,800 by the time their child turns 18.
Statistics from the Department of Work and Pensions at the end of 2010 revealed that more than ten million people alive today will reach the age of 100. Of the ten million people set to become centenarians, over three million are currently under the age of 16.
Many of those under 16 are expected to live to 110 years of age. Assuming these individuals want to retire at 65 they may have to fund up to 45 years of retirement. Previous generations often did not live long enough to see their children reach retirement age but with these changes in life expectancy, more and more parents will see their children live into old age. The financial security of their children is unlikely to become less of a priority but, by this time, they may be less financially able to support them.
Non-earners including children can contribute £3,600 gross per year to a pension. This means a parent or grandparent could make a contribution of £2,880, which would be topped up by basic rate tax relief of 20% to £3,600. Experienced IFA’s Enable can help you consider your options.
Statistics from the Department of Work and Pensions at the end of 2010 revealed that more than ten million people alive today will reach the age of 100. Of the ten million people set to become centenarians, over three million are currently under the age of 16.
Many of those under 16 are expected to live to 110 years of age. Assuming these individuals want to retire at 65 they may have to fund up to 45 years of retirement. Previous generations often did not live long enough to see their children reach retirement age but with these changes in life expectancy, more and more parents will see their children live into old age. The financial security of their children is unlikely to become less of a priority but, by this time, they may be less financially able to support them.
Non-earners including children can contribute £3,600 gross per year to a pension. This means a parent or grandparent could make a contribution of £2,880, which would be topped up by basic rate tax relief of 20% to £3,600. Experienced IFA’s Enable can help you consider your options.
Tax efficiency with Pensions
Despite all the hoo-ha about Jimmy Carr this week there is really nothing wrong with making your pension contributions tax efficient even non-earners can receive basic rate tax relief on contributions up to £3,600, meaning a contribution of £3,600 would cost them £2,880.
As IFA’s at Enable it is our job to maximise tax relief achievable on a pension contribution. If you are in the 50%, tax bracket theoretically you could make a gross contribution of £50,000 at a net effective cost of £25,000 but from 2013-14, the additional rate of tax will fall to 45% from 50% meaning a £50,000 contribution will cost a higher earner £27,500.
Although the highest rate of income tax is currently 50%, some can actually achieve tax relief at a net effective rate of 60%. The personal allowance is reduced by £1 for every £2 of taxable income above £100,000. Using the current year's personal allowance of £8,105 this means that an individual's personal allowance is completely eroded once taxable income reaches £116,210. By making a pension contribution, however, an individual can reduce their taxable income and, as a result, reclaim their valuable personal allowance. This is particularly useful to those with a taxable income between £100,000 and £116,210 as they could reclaim their full personal allowance by making a pension contribution. As well as getting 40% tax relief on their pension contribution, by reclaiming their personal allowance their effective rate of tax relief is up to 60%.
Enable’s IFA’s can help you make the most of your tax bracket.
As IFA’s at Enable it is our job to maximise tax relief achievable on a pension contribution. If you are in the 50%, tax bracket theoretically you could make a gross contribution of £50,000 at a net effective cost of £25,000 but from 2013-14, the additional rate of tax will fall to 45% from 50% meaning a £50,000 contribution will cost a higher earner £27,500.
Although the highest rate of income tax is currently 50%, some can actually achieve tax relief at a net effective rate of 60%. The personal allowance is reduced by £1 for every £2 of taxable income above £100,000. Using the current year's personal allowance of £8,105 this means that an individual's personal allowance is completely eroded once taxable income reaches £116,210. By making a pension contribution, however, an individual can reduce their taxable income and, as a result, reclaim their valuable personal allowance. This is particularly useful to those with a taxable income between £100,000 and £116,210 as they could reclaim their full personal allowance by making a pension contribution. As well as getting 40% tax relief on their pension contribution, by reclaiming their personal allowance their effective rate of tax relief is up to 60%.
Enable’s IFA’s can help you make the most of your tax bracket.
Tuesday, 12 June 2012
Making your pension tax efficient
At Enable our independent Financial Advisors aim to help you make the most of your savings. Saving into a pension is the most tax-efficient method of putting money aside for retirement. There are three main reasons that make pensions tax efficient:
The first being investments in a pension are fully protected from potential capital gains tax charges and there is no additional income tax to pay on dividends or interest, secondly from the age of 55, an individual can normally take up to 25% of their pension fund as a tax-free lump sum, and thirdly tax relief is available on contributions at an individual's marginal rate of tax up to 100% of UK earnings or £50,000 (whatever amount is lower).
The tax efficient of a pension from a contributions perspective of course depends on an individual's personal circumstances. The basic rule is that individuals can receive tax relief at their marginal rate of income tax on contributions up to 100% of their earnings or £50,000. It is however possible to contribute in excess of the £50,000 annual allowance by using carry forward rules. The rules allow individuals to carry forward any unused annual allowance from the three previous tax years. This means some individuals could contribute up to £200,000 in the current tax year assuming they have the earnings to support it, importantly; contributions cannot exceed 100% of earnings in the year in which the contribution is made. Enable’s IFA’s can help you with the detail.
The first being investments in a pension are fully protected from potential capital gains tax charges and there is no additional income tax to pay on dividends or interest, secondly from the age of 55, an individual can normally take up to 25% of their pension fund as a tax-free lump sum, and thirdly tax relief is available on contributions at an individual's marginal rate of tax up to 100% of UK earnings or £50,000 (whatever amount is lower).
The tax efficient of a pension from a contributions perspective of course depends on an individual's personal circumstances. The basic rule is that individuals can receive tax relief at their marginal rate of income tax on contributions up to 100% of their earnings or £50,000. It is however possible to contribute in excess of the £50,000 annual allowance by using carry forward rules. The rules allow individuals to carry forward any unused annual allowance from the three previous tax years. This means some individuals could contribute up to £200,000 in the current tax year assuming they have the earnings to support it, importantly; contributions cannot exceed 100% of earnings in the year in which the contribution is made. Enable’s IFA’s can help you with the detail.
How to build your pension pot....
Less than half of us in the UK are saving enough to meet expectations for income later in life, according to data produced by Scottish Widows. Independent Financial Advisors like those at Enable can help you look at your overall financial situation and decide what you can do to prepare for a good retirement.
UK pension savers are putting less into their pension than ever before, with fewer than half saving enough to meet their income expectations. According to the Scottish Widows report, only 46 per cent of savers are putting enough away for when they retire.
The drop in savings spans all age groups. Out of 5,200 UK adults, 22 per cent have put nothing aside for later life. In contrast, people’s expectations for earnings in retirement have increased from wanting an average of £24,300 in 2011 to £24,500 this year. Such low savings figures suggest the average saver retiring at 65 would receive just over half the amount they feel they need.
The total pot for an average saver is around £150,000 in today’s terms, which would only provide an annual pension of £5,700. With the addition of the state pension this would generate a yearly income of approximately £13,000. which falls drastically short of the £24,500 annual income people are looking for To match expectations, the report suggests an average saver needs to save an additional £4,500 a year or £375 per month to plug fill the gap. At Enable our IFA’s can help you look at your pension provision.
UK pension savers are putting less into their pension than ever before, with fewer than half saving enough to meet their income expectations. According to the Scottish Widows report, only 46 per cent of savers are putting enough away for when they retire.
The drop in savings spans all age groups. Out of 5,200 UK adults, 22 per cent have put nothing aside for later life. In contrast, people’s expectations for earnings in retirement have increased from wanting an average of £24,300 in 2011 to £24,500 this year. Such low savings figures suggest the average saver retiring at 65 would receive just over half the amount they feel they need.
The total pot for an average saver is around £150,000 in today’s terms, which would only provide an annual pension of £5,700. With the addition of the state pension this would generate a yearly income of approximately £13,000. which falls drastically short of the £24,500 annual income people are looking for To match expectations, the report suggests an average saver needs to save an additional £4,500 a year or £375 per month to plug fill the gap. At Enable our IFA’s can help you look at your pension provision.
Property investment.....what you need to know
In 2007, property investors had a roller-coaster ride. As a result, many surviving investors gravitated towards the high-end, prime or luxury market, particularly in coveted areas with low supply such as central London. But remember real wealth management can be global and long term. Most financial portfolios will contain some property and at reputable wealth management providers like Enable our IFA’s can advise.
Another part of the world where property is at a premium is Hong Kong which remains the world’s most expensive place to buy a home, and prices have gained more than 78 per cent since early 2009 on record low mortgage rates and an under-supply of new units.
Closer to home – and in spite of the fact that properties worth more than £2m are now subject to 7 per cent stamp duty, a rise of 2 per cent from the Budget in March – the number of transactions in the UK remains largely unaffected. There were 1,518 property sales worth at least £2m in 2011, a rise of 5 per cent from 1,442 sales in 2010 and the highest number in this price bracket since records began in 1995. Purchases of properties topping the £2m mark were also 2 per cent higher in 2011 than at the peak of the housing market in 2007. In addition, the number of properties selling for more than £5m rose by 22 per cent from 128 in 2010 to 156 in 2011, providing further evidence of strength at the top end.
Another part of the world where property is at a premium is Hong Kong which remains the world’s most expensive place to buy a home, and prices have gained more than 78 per cent since early 2009 on record low mortgage rates and an under-supply of new units.
Closer to home – and in spite of the fact that properties worth more than £2m are now subject to 7 per cent stamp duty, a rise of 2 per cent from the Budget in March – the number of transactions in the UK remains largely unaffected. There were 1,518 property sales worth at least £2m in 2011, a rise of 5 per cent from 1,442 sales in 2010 and the highest number in this price bracket since records began in 1995. Purchases of properties topping the £2m mark were also 2 per cent higher in 2011 than at the peak of the housing market in 2007. In addition, the number of properties selling for more than £5m rose by 22 per cent from 128 in 2010 to 156 in 2011, providing further evidence of strength at the top end.
Subscribe to:
Posts (Atom)