Courtesy of the general election it looks highly likely that we will have two Budgets this year. If Labour were to be returned to power there may be some additional measures they would need to take while if the Conservatives were to win they would wish to implement their own policies as soon as possible. A hung Parliament would almost certainly mean a dilution of either party's plans to appease their power-sharing colleagues. It brings to mind Robert F Kennedy's speech - "There is a Chinese curse which says, '"May he live in interesting times." Like it or not, we live in interesting times..."

So where does all of the speculation leave us in terms of tax planning?

We know the tax rates for this year almost certainly - we are confident of this at least until Budget Day (24th March). For next year we know the likely income tax rates if Labour win the election and, as yet, there is no indication that the Conservatives would seek to reverse personal tax increases. On that basis the advice would still seem to be if you are planning a dividend or bonus over the next few months and can pay it before 5 April - it may well be sensible so to do.

Just a word of caution - remember the impact of higher income on pensions.

There seems to be widespread belief that capital gains tax will have to go up from the current 18%. Again if you have an asset for sale it may be worth bringing this forward to the current tax year if this is commercially possible.

To be honest - the only we can guarantee is that any new Government needs more money and spending cuts alone are unlikely to be enough so taxes look almost certain to go up. The next few months could prove very interesting!

We will be blogging on Tax Plus Blog and SME Plus Blog on Budget day. If you do not already subscribe to our blogs click here for Tax Plus Blog or here for SME Plus Blog to ensure you get our comment and analysis as and when it happens.

Cathy Corns is a tax adviser and a partner at Mercer & Hole. The views given in this blog are personal to the author, if you would like to discuss the contents of this post with Cathy you can call her on 01908 605552.

 

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As the end of the tax year approaches there are many issues to consider when it comes to pension planning. It is important to remember that although the end of the tax year may be 5 April, some providers will have deadlines prior to this. Therefore I would encourage you to complete your planning and contributions by the 31 March 2010.

Pensions – paying in

The key points to note are as follows:

• For those with earnings over £130,000 (don’t forget this includes everything – dividends, bank interest, rental income etc) ensure your special annual allowance contribution of £20,000 is paid (this is £30,000 in some cases – check with your adviser if unsure).
• If pension payments of up to £20,000 bring relevant income below the £130,000 threshold, consider higher pension contributions. 
• If gift aid payments can be combined with pension contributions to bring relevant income below the £130,000 threshold, consider a higher pension contribution. 
• If you pay a pension contribution of £3,600 gross (£2,880 net) for any non working spouses/civil partners, children, grandchildren. They will receive 20% tax relief. The following link can give you an estimate of the value of such a contribution. 
• If you have earned under £130,000 you can pay personal pension contributions of up to 100% of earned income. If you can benefit from an employer contribution, this could be up to £245,000. For example, I am currently dealing with a client who is contributing c£200,000 into a SIPP via their company. If you are interested in pursing this I would be happy to assist. This reduces the company’s liability to corporation tax as the employer would receive corporation tax relief on pensions contributions provided that payments are made ‘wholly and exclusively’ for the purposes of trade.
• If you have an investment bond that you have chargeable gains on, you can offset it with a pension contribution. 
• Consider using a salary sacrifice where employee and employer national insurance savings can be applied to pension contributions (check with your employer if offered) – particularly applicable for those earning above £40,040 in the current tax year.

Pensions – drawing benefits

It is worth considering the following points:

• If you are aged between 50 - 55 and wish to take benefits before the changes to the minimum pension age from April 6 2010, you need to make sure you’ve processed your decisions before the end of the tax year.
• Recycle excess income as a pension contribution. You can make further pension contributions and this will build a further tax free fund.  
• Look at withdrawal levels before the end of the tax year to take stock .

Anne McClean is a senior Financial Adviser at Nightingale Associates. The views given in this blog are personal to the author.  If you would like to discuss the contents of this post with Anne you can call her on 020 7353 1597.

M&H LLP trading as Nightingale Associates is authorised and regulated by the Financial Services Authority.

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The 50% rate of tax on income over £150,000 being introduced on 6 April 2010 is encouraging employers to consider bringing forward bonus payments into this tax year. This reduces the income tax that high earning employees will be required to pay on all or part of these bonuses from 50% down to 40%, which seems like a good plan.

This can, however, raise other issues where this advanced bonus – potentially their second bonus paid in a single tax year - would take employees over the £130,000 threshold. If this were to be the case, employees could be subjected to the anti-forestalling tax measures in relation to their pension contributions. If these applied the tax cost, potentially 20% on lump sum contributions could outweigh the other saving.

Cathy Corns is a tax adviser and a partner at Mercer & Hole. If you would like to discuss the contents of this post with Cathy you can call her on 01908 605552. 
 

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Some clients aged over 55 may wish to draw their tax free cash sum from their pension plans - maybe for a one-off expense. However, they might not need any regular taxable income - they might still have employment income sufficient for day-to-day living, could be are taxpayers and do not want to pay tax on any pension income.

Pension plans generally provide the entitlement to a tax free cash sum of 25% of fund value when the benefits are drawn. Usually, if the tax free cash sum is drawn directly from the pension plan that the benefits are currently held under, you also need to start to receive a taxable annuity income from it.

As an alternative, in some circumstances I suggest that Income Drawdown be considered. The pension fund would be transferred to an Income Drawdown plan, before the tax free cash sum is paid out. Under an Income Drawdown contract it is possible to take the tax free cash from the pension fund and not draw income from the remainder of the fund until a later date.

However, Income Drawdown is not for everyone, as many people will prefer a guaranteed level of income provided by annuities and there is a need to review the investment funds regularly under Income Drawdown, but it may suit some of those who do need just their tax free cash sum now.

Garry Picker is a Financial Advisor at Nightingale Associates. The views given in this blog are personal to the author.

M&H LLP trading as Nightingale Associates is authorised and regulated by the Financial Services Authority.

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It's a common concern that individuals, often the younger generation, put off arranging their financial future and Nightingale Associates are encouraging not only individuals to plan for their pensions now, but businesses as well.

In October 2012 'personal accounts' will be introduced as part of the Government's reform of pension provision in the UK, with the onus transferred to employers to encourage their employees to save via their pensions. The Government's drive to encourage individuals to save for their future will result in increased costs for employers. This is due to all employees earning at least £5,035* (including temporary and contract workers) aged between 22 years of age and the state pension age being enrolled automatically into the personal accounts system at the time of introduction.

It is highly probable that business owners will incur significant additional pension costs from 2012. For those who do not currently offer a scheme or those who do not currently contribute to a pension scheme, the costs are likely to be significantly higher.

Under the personal accounts scheme compulsory contributions will be 3% for the employer and 5% for the employee from October 2016 onwards. The contributions levels will be phased in over four years. Employees will be able to opt out of the system, but will be required to do so every three years.

Employers who already offer a pension scheme may be able to avoid setting up a personal account, if an existing scheme qualifies as an alternative and this is very likely to involve a significant uplift in members and increased costs. Even so, this is worth considering as a preferable option, as these schemes will most probably provide more investment choice and allow for higher contributions. Of late, many businesses have been offering group SIPP arrangements to senior staff, which offer a range of investment flexibility.  Business owners  should consider how running their own scheme could offer a more attractive recruitment, benefit and retention tool for staff.

Personal accounts are designed to be low cost (requiring an annual management charge of only 0.35%) and they will have a limited investment choice. It is anticipated that contributions will be collected alongside PAYE administration. Personal accounts do not provide allowances for advice and it should be noted that some of the most successful group pension schemes hold work place education sessions and face-to-face enrolment.

Employers should plan for their pension future now, as although legislation is yet to be passed, principal elements are unlikely to change. Failing to comply with personal account requirements could result in fines of up to £50,000 and ongoing, daily fines for continuing non compliance.

* In 2006/07 earnings terms

Michael Lockyer is managing partner of Mercer & Hole LLP, trading as Nightingale Associates financial advisers. You can contact Michael at mlockyer@ngale.co.uk or call 0845 828 1000.

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The minimum pension age is due to change on 6 April 2010. The change means the earliest you’ll be able to take your pension benefits will increase from age 50 to age 55. If you’re 50 on 5 April 2010, you’ll be able to take these benefits, but if you don’t manage to take them by midnight, you won’t be able to access your pension for up to five years.

This change won’t just affect you if you want to retire early, it will affect you if you want to take your 25% tax-free lump sum early and keep the rest invested. If you're thinking of early retirement its perhaps time to get your house in order

Anne McClean is a senior Financial Adviser at Nightingale Associates. The views given in this blog are personal to the author.

M&H LLP trading as Nightingale Associates is authorised and regulated by the Financial Services Authority.

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With effect from 6 April 2009 employers with 50 or more employees must send their employee starter and leaver information – P45s, P46s and P46(Pen) for pensions – online. Failure to do so could result in a penalty. Forms are filed online using HMRC’s PAYE Online for Employers service, with which employers must first register at www.hmrc.gov.uk. 

Comment on PAYE penalties in the space provided below, or visit my profile for details of how to contact me.

Cathy Corns is a Corporate Tax partner at Mercer & Hole. 

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There seems to be a lack of knowledge about the proposed Pensions Act 2008 and the new requirements it will impose on employers from 2012.

I know this is not an immediate problem but there are a few things that may need to be considered in advance:-

• Not all employers currently pay into pension schemes for their employees.
• Not all employees have joined the pension schemes provided.
• From 2012 all employees aged 22 and over earning more than £5,035 (in 2006/07 values) who are not in a workplace pension scheme with compulsory contributions from their employer will be ‘auto-enrolled’ into one.
• The responsibility for making this happen will rest with the employer.
• If an employer does not have a ‘Qualifying Workplace Pension’ scheme in place by 2012 they will have to ensure their employees are auto-enrolled into a default scheme that the Government is setting up.
• Employers who do not comply will be subject to ‘compliance notices’, ‘penalty notices’ and, quite possibly, fines.
• Employers will be compulsorily required to pay contributions of 3% of their employees’ earnings (between a lower and upper threshold) towards their pensions while they are members of ‘Qualifying Workplace Pension’ schemes.

 

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There appear to be no dramatic new announcements relating to pension planning in this budget. As previously announced the annual allowance increases to £235,000 for 2008/09. The lifetime allowance becomes £1,650,000.

Individuals who have not reviewed their pension arrangements since the 2006 'Pension Simplification' should do so now. In particular transitional protection against the effects of the lifetime allowance can be applied for. The deadline for applying for this protection is 5th April 2009.

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The tax benefits of personal pension funding are compelling.

However when the time comes for pension benefits to be realised many people are put off by the perceived lack of flexible options available. In particular the apparent lack of value available for other family members in the event of premature death can cause particular angst.
A desire to make sure that the pension fund is available for a spouse and children after death is a common objective for those for whom a pension fund is either wholly or partially surplus to income needs.

Meeting this objective can be difficult and many people opt to delay drawing benefits for as long as possible in order to try to provide protection for their family. Indeed the best way to pass pension benefits to ones family is normally to die before drawing on them. Of course this is of no personal benefit and aspects of this strategy should not be actively pursued! Having said this it is legitimate to delay drawing benefits for as long as possible in order to try to provide protection for your family.

The downside of this strategy is that some pension vesting action must be taken by age 75 and passing pension assets on death after age 75 is more difficult.

In some instances an alternative strategy of taking as high an income as possible, so depleting your pension fund, and gifting this income as it arises can be better than delaying taking any income This is because money passed outside of a pension scheme can be used freely by the recipient whereas money passed within a pension scheme still needs to be extracted by the recipient.

You should note that all circumstances are different and there is no guarantee that a particular strategy will prove to be the most advantageous. In particular whether death occurs before or after pension vesting has a major impact on the success or otherwise of legacy planning. It is also essential that this type of legacy planning is done in conjunction with your other assets and investments.

Gordon Bowden has recently joined Mercer and Hole as Financial Services Manager. He has extensive experience in all aspects of investment and financial planning having previously operated in the Private Banking Sector.

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