Frequently Asked Questions

A personal pension is a type of defined contribution pension. You choose the provider and make arrangements for your contributions to be paid. If you haven’t got a workplace pension, getting a personal pension could be a good way of saving for retirement.

Stakeholder pensions are a form of defined contribution personal pension. They have low and flexible minimum contributions, capped charges and a default investment strategy if you don’t want too much choice. Some employers offer them, but you can start one yourself.

Click HERE to learn about state pensions.

A self-invested personal pension (SIPP) is a pension ‘wrapper’ that holds investments until you retire and start to draw a retirement income. It is a type of personal pension and works in a similar way to a standard personal pension. The main difference is that with a SIPP, you have more flexibility with the investments you can choose.

A small self-administered pension scheme is a type of employer-sponsored defined contribution workplace pension that can give the employer additional investment flexibility.

This is a loan from the pension fund to the connected limited company. "Business funding's best kept secret."

The basic information:

The first key point here is that every SSAS loanback is different.  Advisers and accountants need to establish:

1.   The value of the client(s) existing pensions

2.   The value of any new contributions

3.   How much of a SSAS Loanback does the company require?

4.   What “fixed assets” the company (or the member personally) have to offer as first-charge security?

This information is used by SSAS providers as part of a more detailed review and discussion.

SSAS Loanbacks – the nuts and bolts

To protect the scheme, the SSAS provider will be looking to ensure the company can repay the loan under the SSAS Loanback rules.  There are five key tests that any SSAS loan must meet to avoid tax charges:

·  A 5-year maximum term

·  Capital and interest repayments in equal instalments at least annually

·  Maximum loan limit of 50% of the SSAS net assets

·   Interest rate is at least 1% above current base rate (can be agreed at a higher rate as long as this is on commercial terms)

·   Security must be in place

A defined benefit pension (also known as final salary or career average) is a type of workplace pension. It gives you an income based on your salary, length of service, and a calculation made under the rules of your pension scheme. With this type of pension, your employer guarantees a certain amount each year when you retire.

A defined contribution scheme is a personal or workplace pension based on how much money has been paid into your pot. They are sometimes referred to as ‘money purchase’ schemes. When you take money from a defined contribution pension it comes from the money you (and sometimes your employer) saved into it over the years, plus any investment returns your money may have earned. With defined contribution pensions, you can decide how you take your money out.

From age 55, there are a number of options available to you - please click on the following document to help you. CLICK HERE.

READ BLOG

Annual Allowance

You can get tax relief on pension contributions up to £40,000 a year or 100% of your taxable salary. But if you start taking money from a defined contribution pension scheme, the amount you can pay into a pension and still get tax relief reduces. Read on to find out more.

Currently you can pay up to £40,000 a year (or 100% of your salary) into a pension scheme and get tax relief on your contributions. This is known as your Annual Allowance. However, if you start to take money from a defined contribution pension, the amount you can pay into a pension and still get tax relief reduces. This is known as the Money Purchase Annual Allowance or MPAA.

Lifetime Allowance

The lifetime allowance is a limit on the value of payouts from your pension schemes – whether lump sums or retirement income – that can be made without triggering an extra tax charge. This guide explains the rules and how to protect your allowance.

The lifetime allowance for most people is £1,055,000 in the tax year 2019-20.

It applies to the total of all the pensions you have, including the value of pensions promised through any defined benefit schemes you belong to, but excluding your State Pension.

The standard Lifetime Allowance is indexed annually in line with the Consumer Prices Index (CPI).

It can be highly tax-efficient to buy commercial property through a pension fund. This is increasingly popular amongst small business owners who choose to purchase their business premises through their pension scheme to take advantage of the tax breaks that are on offer.

Self-administered pension schemes are used as the pension vehicle for the purchase of the property. There are two types of self-administered scheme – self-invested personal pension plans (SIPPs) which are for individuals, and small self-administered schemes (SSAS), which are for companies. These are known collectively as investment regulated pension schemes.

A SIPP is permitted to own a commercial property outright, but not a residential property. While it is possible for a SIPP to invest in a residential property, this can only be done as a small part-owner where the property is not for personal use and via a genuinely diverse commercial vehicle, such as a real estate investment trust (REIT). The restrictions on residential property mean that in most cases SIPP property investment is restricted to commercial property.

Permitted investments include business premises, factories, offices, shops etc., as well as hotels, care homes and prisons. Investment in student halls of residence is also permitted, but not flats or houses let to students.

It’s common for investors to use a SIPP to fund a commercial land purchase.

You can acquire many different types of land within your SIPP. You can acquire land for development, or to simply buy and hold. Pensions have also been used to purchase more exotic pieces of land, such as access roads to quarries, the land to develop sports stadia and the land for a clay pigeon shooting site.

Whatever your ambitions, you can expect your SIPP provider to scrutinise the financial viability of your investment. They will also help you ensure that the land is allowable under pension legislation, and check that any development plans meet the rules. They will also most likely ask you to instruct an independent expert to value the land and ensure it’s acquired at market value. This is not a case of needless red tape. It’s about bringing more security and tax compliance to your investment and helping to protect your pension from unnecessary risk.

If you save with a Cash ISA, set up a reminder for when the introductory rate ends and shop around.

ISAs (sometimes called NISAs) are tax-efficient savings and investment accounts.

You can use them to save cash or invest in stocks and shares.

You can pay your whole allowance of £20,000 into a Stocks and shares ISA, or into a Cash ISA or any combination of these.

You pay no Income Tax on the interest or dividends you receive from an ISA and any profits from investments are free of Capital Gains Tax.

Flexible ISAs

ISA providers now offer a flexible facility which will let you withdraw and replace money from your ISA, provided it is done within the same tax year.

Not all ISAs will let you do this and you should check with your ISA provider that your ISA has this function.

This flexibility is currently not available for Junior ISAs or the Help to Buy ISAs.

Don’t forget ISA transfers are still required to move money from previous years’ ISA subscriptions.

Help To Buy ISA

A Help to Buy ISA was introduced to help first-time buyers save towards the cost of buying their first home.

You can make an initial deposit of £1,000 when you open a Help to Buy ISA and then receive £50 for every £200 saved up to a maximum of £12,000.

The tax break is capped at £3,000.

You also earn tax-free interest on your savings as with a standard ISA. These ISAs are limited to one per person rather than one per house.

You can’t contribute to a Cash ISA in the same tax year.

The Help to Buy: ISA scheme closes on 30 November 2019but you can still claim the Government bonus and save in to a Help to Buy: ISA until 1 December 2030.

Innovative Finance ISA

An innovative finance ISA (IFISA) lets you use your tax free ISA allowance while investing in peer to peer (P2P) lending. They work by lending your money to borrowers and in return you receive interest based on the length of time and the risk of your investment.

Lifetime ISA

The Lifetime ISA is a longer-term tax-free savings account that will let you save up to £4,000 per year and get a government bonus of 25% (up to £1,000). As with other ISAs, you won’t pay tax on any interest, income or capital gains from cash or investments held within a Lifetime ISA.

It’s designed for first-time buyers between the ages of 18 and 40 to use towards a deposit for their first home or towards future retirement savings once they hit 60 years of age.

Unit trusts and Open-Ended Investment Companies (OEICs) are professionally managed collective investment funds. A fund manager pools money from many investors and buys shares, bonds, property or cash assets and other investments. This guide covers on-shore, that means UK-based, OEICs and unit trusts.

Investment bonds are life insurance policies where you invest a lump sum in a variety of available funds. Some investment bonds run for a fixed term, others have no set investment term. When you cash investment bonds in, how much you get back depends on how well – or how badly – the investment has done.

For UK tax purposes, an offshore single premium investment bond is a non-qualifying policy which can be written on either a life (whole of life) assurance or a capital redemption basis.

Where a policy is written on a life assurance basis, the policy will come to the end on the death of the sole or last surviving life assured.  Of course, the policy can be surrendered at any time, but may be subject to the deduction of early surrender fees over a specific period.

Where a policy is written on a capital redemption basis, it has a fixed term and a guaranteed surrender value at the end of that term.

As with a life assurance policy, a capital redemption policy can be surrendered at any time, subject to any early surrender fees that may apply.

Fund Platform

Fund platform or Investment platform is an online service that allows investments to be bought online, such platforms usually simplify the process of investing in investment funds and may provide them at a discounted rate.

Wrap Platform

A wrap account (also known as wrap service or tax wrapper) is a means of consolidating and managing an investor's investment portfolio and financial plans. Wrap fee services are offered by many financial institutions. Often wrap services are offered for a fee or a series of charges. These charges cover all administrative and management costs. This type of service is also sometimes known as an investment platform or financial platform service.

The Enterprise Investment Scheme is a series of UK Tax reliefs launched in 1994 in succession to the Business Expansion Scheme. It is designed to encourage investments in small unquoted companies carrying on a qualifying trade in the United Kingdom.

Venture Capital Trusts (VCTs) are listed companies that are run by a fund manager and which, in turn, invest mainly in smaller companies that are not quoted on stock exchanges.

A Venture Capital Trust might be for you if:

• you would like to get tax relief by investing in these higher risk funds
• you understand that you might get back less than you invested and you’re comfortable with that risk
• you’re interested in potentially earning higher returns by investing in higher risk funds that invest in smaller companies not listed on the Stock Exchange.

Saving for a child today is a wonderful gift for their future. Not only can they start their adult lives with some savings in hand, but getting kids involved early with saving also helps them learn important lessons about money. Here are some of the savings options for children that can help you start saving.

• Children’s savings accounts and savings options for children
• Piggy bank
• Junior Cash or Stocks and Shares ISAs (sometimes called NISAs)
• Friendly Society tax-exempt plan
• Child Trust Fund accounts
• NS&I Premium bonds
• NS&I Children’s Bonds
• Child pensions

All investments involve some degree of risk. In finance, risk refers to the degree of uncertainty and/or potential financial loss inherent in an investment decision. In general, as investment risks rise, investors seek higher returns to compensate themselves for taking such risks.

Life insurance can pay your dependents money as a lump sum or as regular payments if you die.

It’s designed to provide you with the reassurance that your dependents will be looked after if you’re no longer there to provide.

The amount of money paid out depends on the level of cover you buy.You decide how it is paid out and whether it will cover specific payments, such as mortgage or rent.

You may need to think about whether receiving a payout will affect any means tested benefits your dependents might otherwise be eligible for.

There are two main types of life insurance:

·   Term life insurance policies: run for a fixed period of time (known as the ‘term’ of your policy) – such as 5, 10 or 25 years.

These kinds of policies only pay out if you die during the policy. There’s no lump sum payable at the end of the policy term.

·   A whole-of-life policy: will pay out no matter when you die, as long as you keep up with your premium payments.

What is critical illness cover?

Critical illness insurance will pay out if you get one of the specific medical conditions or injuries listed in the policy.

But be aware that not all conditions are covered and policy will also state how serious the condition must be.

Don’t confuse critical illness cover with life insurance, although they are sometimes sold together.

?

Every year, 1m workers in the UK unexpectedly find themselves unable to work because of injury or illness, according to the ABI (2015).

Examples of critical illnesses that might be covered include:

·        stroke

·        heart attack

·        certain types and stages of cancer

·        conditions such as multiple sclerosis.

Most policies will also consider permanent disabilities as a result of injury or illness.

It only pays out once and then the policy ends.

Some policies will make a smaller payment for less severe conditions, or if one of your children has one of the specified conditions.

What isn’t covered?

Not sure what something means? Have a look at our Protection insurance glossaryopens in new window.

Some serious illnesses might not be covered, for example, some cancers and conditions not listed in the policy.

You probably won’t be covered for health problems you knew you had before you took out the insurance, and this type of insurance doesn’t pay out if you die.

What’s covered and what’s not, will be set out in the policy details so make sure you’re fully aware of them and that they cover your needs.

Read more to learn about Critical illness insurance – choose the right policy.

Do you need critical illness cover?

State benefits might not be enough to replace your income if something goes wrong and you can’t work because of long-term sickness or disability.

If you’re eligible, Employment and Support Allowance ranges from around £70 to just over £100 a week, depending on your circumstances and the seriousness of your illness or disability.

You should look at getting critical illness cover if:

·        you don’t have enough savings to tide you over if you become seriously ill or disabled

·        you don’t have an employee benefits package to cover a longer time off work due to sickness.

Income protection insurance (sometimes known as permanent health insurance) is a long-term insurance policy designed to help you if you can’t work because you’re ill or injured.

It ensures you continue to receive a regular income until you retire or are able to return to work.

·        It replaces part of your income - if you can’t work because you become ill or disabled.

·        It pays out until you can start working again - or until you retire, die or the end of the policy term - whichever is sooner.

·        There’s often a waiting period before the payments start - you generally set payments to start after your sick pay ends, or after any other insurance stops covering you. The longer you wait, the lower the monthly premiums.

·        It covers most illnesses that leave you unable to work - either in the short or long term (depending on the type of policy and its definition of incapacity).

·        You can claim as many times as you need to - while the policy lasts.

With income protection insurance, everything depends on getting the right policy – so it’s best to get advice from an independent financial adviser or broker.

It’s not the same as critical illness insurance, which pays out a one-off lump sum if you have a specific serious illness.

It’s not the same as short-term income protection, which also pays out a monthly sum related to your income, but only for a limited period of time (normally between two and five years) and can cover fewer illnesses or situations.

You should review all of your insurance needs at least once a year. If you have a major life change, you should contact your insurance agent or company representative. The change in your life may have a significant impact on your insurance needs. READ BLOG

You should review all of your insurance needs at least once a year. If you have a major life change, you should contact your insurance agent or company representative. The change in your life may have a significant impact on your insurance needs. READ BLOG

You should review all of your insurance needs at least once a year. If you have a major life change, you should contact your insurance agent or company representative. The change in your life may have a significant impact on your insurance needs.

Relevant Life Cover (RLC) allows employers to offer a death-in-service benefit to their employees. It's a tax-efficient life insurance policy, set up by the employer and pays out a tax-free lump sum on the death (or diagnosis of a terminal illness) of the person insured.

In general, it can be described as an insurance policy taken out by a business to compensate that business for financial losses that would arise from the death or extended incapacity of an important member of the business. To put it simply, key person insurance is a standard life insurance or trauma insurance policy that is used for business succession or business protection purposes.

The business pays for the policy and it is also the beneficiary (and/or owner) while the employee is the insured. The life insurance proceeds could be used to help offset the financial loss that may occur in the event of the death of a key employee. This coverage offers peace of mind to business owners.

Shareholders' protection is a contingency process detailing what will happen to a shareholder's shares if the shareholder dies or becomes seriously ill.

In the interests of financial security, business stability, and continuity – particularly for private limited companies where there may only be a small number of principal shareholders – it is essential to provide a safety net following the loss of a shareholder:

• Shares may go to the deceased’s family, which has no interest in the business and would prefer a cash sum
• The company or other shareholders will want to retain control by buying lost shares – but may not have the resources to do so
• The shares may be taken over by someone who does not share the company’s objectives – and may even be a competitor

Shareholder protection is vital for any business, no matter how big or small. Without this form of protection in place, shares can be tied up in probate, potentially to paralysing a business and prevent it trading. With this in mind, it is staggering to see that Legal & General’s research has shown that nearly one in ten businesses would grind to a halt if a shareholder passed away.

Unfortunately, many business owners are not aware of the risks they take by not taking out life cover to buy shares in the event of another owner’s death. In addition, many directors do not leave any instruction in their will on what should happen to their shares should they pass away. It’s not an easy conversation to have, but it need only happen once and then the set procedures will be in place to ensure the business has the best chance of remaining afloat in the event of such a crisis.

Business Loan Protection is either life assurance or life assurance with critical illness cover included. A policy is taken out on the life of a key individual or individuals so that any money due from a claim can be used to help pay towards any outstanding debt or loan.

Many businesses take out loans to start up a company or to expand their operation. And their ability to repay will often rest with a few key people. Businesses need to make sure they have enough insurance in place to pay an outstanding loan if something happens to those people.

Relevant Life Plans allow you to provide employees (including directors) with tax efficient death in service benefits without the need for, or alongside, a pension scheme.

Relevant Life Plans can be particularly beneficial for small businesses that don’t have enough eligible employees to warrant a group life scheme. They can also be attractive for high-earning employees or directors who have substantial pension funds and don’t want their benefits to form part of their lifetime allowance, and for members of group life schemes who want to top up their benefits.

It can be arranged to provide a lump sum if the employee dies or is diagnosed with a terminal illness.

Inheritance Tax (IHT) is a tax on the estate of someone who has died, including all property, possessions and money.

There is normally no tax to be paid if:

• The value of your estate is below the Nill Rate Band (NRB) of £325,000, or
• You leave everything above the threshold to your spouse or civil partner, or
• You leave everything above the threshold to an exempt beneficiary such as a charity

If the value of your estate is above the NRB, then the part of your estate above the threshold might be liable for tax at the rate of 40%.

So, if your estate is worth £525,000 and your IHT threshold is £325,000, the tax charged will be on £200,000 (£525,000 - £325,000). The tax would be £80,000 (40% of £200,000).

The NRB is fixed at £325,000 until 2021, but your NRB might be increased if you’re widowed or a surviving civil partner. Couples can transfer any unused NRB when the first person died to the survivor.

This can double the amount of NRB available up to £650.000. This extra transferable element is known as Transferable Nil Rate Band (TNRB).

The Residence Nil Rate Band (RNRB) – also known as the home allowance -has been introduced recently.

The RNRB is on top of the NRB and the TNRB. To be eligible you must pass your home or a share of it to your children or grandchildren. This includes step-children, adopted children, foster children but not nieces, nephews or siblings.

There is tapered withdrawal of the home allowance if the overall value of your estate exceeds £2 million.

Provided certain conditions are met, the home allowance gives you an additional allowance to be used to reduce any IHT liability against your home.

The RNRB allowance is currently £125,000, but it will rise incrementally to reach £175,000 in 2020/21 and in line with the Consumer Price Index thereafter.

You may also be able to use any unused RNRB from your spouse or civil partner’s estate if you’re widowed or a surviving civil partner. This can double the amount of RNRB available.

A trust is a "legal entity created by a party (the trustor) through which a second party (the trustee) holds the right to manage the trustor's assets or property for the benefit of a third party (the beneficiary)." Basically, a trust is a financial arrangement between three parties that hold assets for a beneficiary.

There are many different kinds of trusts, but the general idea is a three-party ownership system wherein one party gives another party the rights to hold property or assets for yet another party (who benefits from the arrangement).

A discounted gift trust (DGT) is a trust-based inheritance tax (IHT) planning arrangement for those individuals who wish to undertake IHT planning but who are unable to lose full access to their investment. In a DGT access is typically provided by means of a series of preset capital payments to the investor who will be the settlor of the trust.

Business Property Relief (BPR) has been an established part of inheritance tax legislation since 1976. And as an investment incentive, it’s relatively straightforward. Once BPR-qualifying shares have been owned for at least two years, they can be passed on free from inheritance tax on the death of the shareholder.

BPR is a well-established relief dating back 40 years, however, you should keep in mind that the value of an investment may go down as well as up and you may not get back what you originally put in.

A will or testament is a legal document by which a person, the testator, expresses their wishes as to how their property is to be distributed at death, and names one or more persons, the executor, to manage the estate until its final distribution.

If you die with no valid Will in England or Wales the law will decide who gets what. If you have no living family members, all your property and possessions (including your pets) will go to the Crown.

It’s easy to assume that our property and possessions will automatically go to loved ones when we die, however, this is sadly not always the case.

When someone dies without a valid Will there are strict inheritance laws, often referred to as the Rules of Intestacy, which apply in England and Wales.

The Rules of Intestacy can be harsh as they often don’t allow for modern family relationships - for example:

The Rules of Intestacy make no provision for unmarried and unregistered partners. This means that on Intestacy, the surviving partner will not automatically inherit any of the property and possessions owned in the sole name of the deceased. However, a partner can often make a valid inheritance claim instead, or the family can legally vary the distribution on intestacy to provide for the partner.

The Rules of Intestacy only recognise natural and adopted children for the purpose of inheritance; they do not acknowledge step children. However, in many cases step children can often have a valid claim.

The only way to make it absolutely clear who should inherit your property and possessions after you pass away is by making a Will.

If you want someone to act on your behalf in financial or medical decisions, you'll need to give them Power of Attorney over your affairs.

Power of Attorney is a legal document where one person (the donor) gives others (their attorneys) the right to make decisions on their behalf. 

You can only set up a Power of Attorney while you still have the ability to weigh up information and make decisions for yourself, known as 'mental capacity' - so it's worth putting a plan in place early on.