There are huge profits being made by the banks at the moment, easily explained when you look at the current bank base rate and the rates charged on lending – that’s when they do get round to lending. I was reminded the other day about a community lending/borrowing organisation called Zopa (
Notes: Levels, bases of, and reliefs from taxation are subject to change. Past performance is not a guide to future performance and the value of investments can go down as well as up. Tax Planning is not regulated by the FSA. This article is written in general terms and you are strongly recommended to seek specific advice before taking any action on the information it contains. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this article.
We have the new Evolve Financial Planning website up and running (link in list in right hand column) and it has a nice refreshed look about it.
The next stage is to make it Google and Yahoo friendly which, you will know if you have ever looked into this, is a bit of a black art.
We want the site to be picked up by Google and Yahoo when someone is searching for financial planning or investment advice and give us a prominent position on page one of the landing page.
My own page will be set up so as to be picked up by anyone searching for financial planning or investment advice in the Milton Keynes, Oxford, Cambridge and St Albans area. We will be looking at seeing that we are also picked up by people who need financial planning or investment advice in London and Manchester.
As with all projects like this, we had in our mind at the outset just how the Evolve Financial Planning website should look and what content should be included but we are always open to suggestions as to what improvements could be made.
The accumulated pension fund in a personal pension is outside of the estate of the policyholder should that person die having not taken any benefits from that arrangement. It can be passed on to nominated beneficiaries without being included in the calculations for determining what amount of inheritance tax is due on the estate.
If however the tax free cash is taken from an arrangement a whole new set of rules come into play. The residual fund will have been used to either;
buy an annuity, or
start an unsecured pension (USP)
An annuity will be taxed at the marginal tax rate of the policyholder and will cease on the death of the policy holder, or at the end of the guaranteed period if later, or on the death of the second life if later if was a joint life annuity.
A USP has a minimum level and maximum level of income that can be taken once the tax free cash has been paid. The minimum level is zero income and it is this feature that attracts many to take the tax free cash early and leave the residual fund invested to take the income later in life. It all looks to be very attractive but the rules on death benefits are too often overlooked.
On death after the tax free cash has been taken, the residual fund in a USP arrangement can be paid out as a lump sum, but only after tax at the rate of 35% has been paid. Take the example of an individual with a £400,000 pension fund. On death before taking benefits, the full £400,000 can be paid out and should not attract inheritance tax. If this same individual took the tax free cash and died immediately afterwards with the £100,000 not yet spent and assuming the estate was already large enough to attract IHT, the tax position would be;
Inheritance tax on £100,000 @ 40%= £40,000
Tax on residual USP fund £300,000 @ 35% = £105,000
Total tax payable £145,000
Balance available = £255,000
I fear that many individuals will be steered towards taking the tax free cash and a relatively expensive USP arrangement without having been given all the facts.
This month’s copy of Financial Planner magazine dropped on the doormat this morning. The magazine is always full of positive articles on how practitioners are creating a true financial planning profession. Two particular items stood out. One was a letter from Nick Cann, Chief Executive of the Institute of Financial Planning (IFP) thanking members for recognising the contribution over his first ten years in office, but more importantly, looking towards his next ten years. Nick is passionate about raising standards and promoting true financial planning so reading that he intends to carry on his role is most heartening.
The second item was the announcement that a register of Financial Planning firms is envisaged for 2010 and will be restricted to genuine Financial Planner firms. The IFP President Barry Horner said "Too often we have people calling themselves Financial Planners in the UK who are not Financial Planners and that has to change". Too true - I cringe when I hear financial advisers who are doing nothing other than selling products for commission describing themselves as financial planners. Hopefully the register will help people to identify just who is carrying out true Financial Planning.
It is an interesting press release from HSBC today announcing a reduction in the Annual Management Charges (AMCs) on its index tracker funds to just 0.25%.
We are strong believers in using index tracker and other passive funds as they capture the market returns at minimal cost. Trying to find managed funds that will out-perform the market is an expensive and risky pastime but one that most financial advisers pursue. But then managed funds pay commission whereas index tracker funds often don’t.
There has been very little competition in the index tracking world with most fund managers happy to concentrate on higher margin, "actively managed" funds
The introduction of Vanguard funds earlier this year threatens to put the cat amongst the pigeons and I’m surprised that it has taken so long for another fund house to respond. Vanguard funds really do drive down the cost of investing and it surely can’t be long before others also react to the Vanguard pricing structure. Having said that, the Virgin UK index tracker fund held a whopping £1,310m at the end of March this year according to Morningstar, yet the AMC on that fund is high at 1%.
Hopefully the publicity from HSBC and possibly others in future will give investors cause to look more closely at charges and the merits of index tracker funds, and less of their money will be swallowed up paying big bonuses to the gamblers in the City.