Pensions for stay at home parents

Could you survive on £8,000 a year or less, in retirement?

If you’ve given up work to look after your family, you’ll be among those least likely to save for retirement simply because you have no income.

And when it comes to the State Pension, you’ll usually need at least 10 qualifying years on your National Insurance to qualify. In other words, for 10 years and more, one or more of the following applied to you:

  • you were working and paid National Insurance contributions
  • you were in receipt of National Insurance credits, for example if you were unemployed, ill or a parent or carer
  • you were paying voluntary National Insurance contributions

If you have between 10 and 35 qualifying years you’ll receive a proportion of the new State Pension. You’ll need 35 qualifying years to get the full new State Pension of £159.55 per week. If you have 10 qualifying years you’ll get £44.50 and for 20 qualifying years you’ll get £89 per week.

So, as a full-time parent, you need to ask yourself ‘could I survive on £8,000 a year, or less in retirement?’

If you answered ‘no’ there are some practical things you can do now to save for your future retirement:

Child Benefit

Your years as a parent still qualify towards your state pension. As long as you are registered for child benefit, and your eldest child is under 12, you will get National Insurance (NI) credits for the time at home.

Workplace pension

If you were working and have taken maternity leave or paternity leave (by taking advantage of shared parental leave) and were enrolled in the workplace pension scheme you should stay in it. Your employer will continue to make contributions into your fund for the duration of your parental leave and in some cases you can continue making contributions if you can afford to do so.

Private personal pension

If you don’t have a workplace pension you could open a private personal pension and if you are a basic rate tax payer you will have your contributions topped up by 20% for a Basic Rate tax payer. So, if you invest £800 in to a pension you will have it topped up to £1,000.

If you are a full-time parent and your partner works you may want to consider asking them to pay in to a pension for you. If your partner pays into your pension, you automatically get tax relief at 20% if your pension provider claims it for you.

The value of your investment and any income from it may fall as well as rise. You may not get back the amount you originally invested.

HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen. 

To find out more about your or your partner’s pension options please get in touch.

Protecting your employees and assets

Whatever business you’re in, having the right insurance in place is essential to protect your assets and responsibilities.

We’ve put together a short description of the most common types of cover for small businesses, along with a brief checklist to get you thinking about your current arrangements.

Common types of business insurance 

Employer’s Liability insurance is a legal requirement. It protects you should a member of your staff be injured or become ill as a result of the work they do.

Public Liability insurance protects you should a member of the public suffer an injury or damage their possessions whilst visiting your office or premises. It also covers you when you carry out work away from your premises.

Professional indemnity insurance covers the costs of legal action taken against you, should a client feel they suffered financial loss as a result of your professional opinion.

Depending on your circumstances, you may also need to consider things like buildings insurance, business interruption, business fleet insurance and insurance cover for tools.

Your business insurance checklist

  1. Take the time to understand your policy/s

Whether taking out new cover, or renewing your business insurance, take the time to understand your policy. Look at exactly what it does – and doesn’t – cover you and your business for.

  1. Check your cover levels and limits

Check and double-check the levels of cover you have. Are your liability limits appropriate? Are there any exclusions that might apply in the event of a claim? You may find it useful to seek professional advice if you’re unsure.

  1. Ask questions when things seem unclear

Don’t be afraid to ask questions. Do you know what Business Interruption or Goods in Transit really means for your business? If your policy is heavy on jargon and hard to understand, ask your provider for help. A good insurance provider will be happy to explain what you are paying for.

  1. Tell your insurer if your circumstances change

Make sure you tell your insurance provider if something changes in your business. If you’ve taken on staff, diversified, grown or downsized, it’s important to let your insurer know. If you don’t, you could find yourself under-insured – or find your policy is no longer valid.

  1. Seek professional advice

Buying insurance can sometimes appear simple, but it’s easy to overlook policy features that could make a big difference if you ever need to make a claim. Seeking professional advice will help ensure you’re fully informed about your policy.

If you’d like help understanding or reviewing your business insurance, please get in touch.

First Time Savers

The news is always full of stats about first-time buyers:

  • in 2016 there were an estimated 335,750 first-time buyers – the highest figure since 359,900 in 2007
  • the average first-time deposit has more than doubled since 2007 to more than £32,000 • the average price of a first home broke through the £200,000 barrier for the first time in 2016
  • those buying their first homes have an average age of 30 across the UK

And then there are the schemes to help people get a foot on the property ladder:

  • Help to Buy ISAs let first-time buyers save for a deposit tax-free
  • Help to Buy Equity schemes provide a government loan of up to 20 per cent to first-time buyers
  • Shared ownership offers the chance to buy a share of between 25 and 75 per cent of a home, typically a new-build, and pay rent on the remaining share.

With all this news about borrowers we rarely hear about first time savers. Whatever stage you are at in your life, whether you are saving for yourself or others, there are many options for your near, mid and long-term plans. 

You’re never too young

Kids aged 4-14 received an average of £180.44 in pocket money over the last year. An important lesson to instil from a young age is not to spend more than you have. Dividing money into different pots labelled “spend now” and “save for later” is a great way to help your child visualise where their money is going – and how valuable saving can be.

Investing for children

The arrival of a new baby may make parents, grandparents, aunts and uncles think about saving for the child’s future. When thinking of investing for children you may consider putting a little away each month to provide a lump sum at 18. With higher education, marriage and getting on to the property ladder all becoming increasingly expensive, it’s a good idea to make investment plans beyond 18 or even beyond 21. When it comes to a child’s pension plan it doesn’t matter what relation you are to them you can start to put money aside until they take their benefits, which can be any time from age 55. You can contribute a maximum of £2,880 year and get 20% tax relief which means the government tops it up to £3,600.

Help to Buy

Whether saving for your own home or helping a child with their first home, the Help to Buy ISA is available until 30 November 2019. If you open your Help to Buy ISA before that date you can keep saving into your account until 30 November 2029 but must claim your bonus by 1 December 2030. There is no minimum monthly deposit but you can save up to £200 a month and the government will boost your savings by 25%. That’s a £50 bonus for every £200 you save.

Personal pensions

If you don’t have your own pension, the sooner you start saving the better; there’s no minimum age. There are different types of personal pension, including:

  • stakeholder pensions – these must meet specific government requirements, for example limits on charges
  • self-invested personal pensions (SIPPs) – these allow you to control the specific investments that make up your pension fund

You can either make regular or individual lump sum payments to a pension provider and you usually get tax relief on money you pay into a pension. You usually pay tax if savings in your pension pots go above:

  • 100% of your earnings in a year – this is the limit on tax relief you get; or
  • £40,000 a year – the ‘annual allowance’, if lower.

HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.

The tax efficiency of ISAs is based on current rules. The current tax situation may not be maintained. The benefit of the tax treatment depends on the individual circumstances. Although no fixed term you should consider stocks and shares ISAs to be a medium to long term investment of ideally 5 years or more.

The value of your investment and any income from it may fall as well as rise. You may not get back the amount you originally invested. 

There are a range of different ways to invest for yourself or your family. If you want any more information on investments please get in touch.

Are your contents underinsured?

When it comes to insuring your home and contents, many people take out far less cover than they need, risking potential upset when it comes to making a claim.
The average UK home contains around £55,000 worth of possessions, but an average insurance policy covers just £35,000, potentially leaving £20,000 worth of uninsured valuables per household.

Why do we undervalue our possessions?

One reason could simply be a lack of awareness – both in terms of the real value of possessions and the items we should be insuring. When you’re reviewing your contents insurance, don’t just think about your jewellery and electronic equipment or other high-value items. Make sure you consider everything, including clothes, shoes, books, furniture – and contents in your garage, garden shed or other outbuildings.

Another reason why people underinsure could be a desire to keep insurance premiums down – but this really misses the point of taking out cover in the first place. If you’re in the unfortunate situation where you need to claim and you haven’t included certain items in your policy, you won’t be covered and this could leave you even more out of pocket.

Ask us to review your cover

By seeking our professional guidance, you may find you’re able to reduce your outgoings, identify instances where your protection could be improved or uncover gaps in your insurance.

We can help you understand what you’re covered for – and what you aren’t. While buying home insurance may feel like an expensive chore, it’s critical to ensure it meets your needs and expectations. If you don’t fully understand your policy excesses (the contribution you are required to pay towards a claim) and policy exclusions (such as accidental damage), your insurance could end up letting you down when you need it most.

Alternatively, you may not even realise you require specialist insurance. If your home is classed as a ‘non-standard construction’, or you have high-value contents in the home, it may be appropriate to call in a specialist insurance provider that can meet your needs.

It can be easy to question the value of insurance – until the day you need it most. If you’ve ever had to make an insurance claim, you’ll know just how valuable it can be.

For more information about protecting your home and contents, please get in touch.

Jargon Busting

Assets: anything an individual, company or fund owns which has economic (tradable) value.

Asset classes: Groups of securities or investments with similar characteristics that behave in a similar fashion and are subject to the same laws and regulations. The most common ones are Cash, Shares, Property & Fixed Interest Securities. 

Bond: is an IOU for a loan to a government or company. Usually for a fixed term and with a fixed rate of return paid to the investor at fixed intervals until the loan is repaid. Sometimes called Fixed Interest Securities.

Commodities: bulk goods traded on an exchange. Examples include gold, silver and platinum; iron, steel and tin; grain, coffee and sugar.

Consumer Price Index (CPI): periodically measures the price of a basket of goods and services purchased by households, used to give an indication of UK inflation.

Default risk: the risk that the bond issuer will not be able to repay the interest or initial investment to the investor. 

Developed market: an established market economy, with sound, well-established economies and are therefore thought to offer safer, more stable investment opportunities than developing markets. 

Diversification: a policy of reducing your exposure to any one particular asset or risk. This usually involves selecting a range of asset classes which do not move in perfect synchronisation with each other.

Dividend: a distribution of profits to shareholders. Each share is allocated a percentage of the distribution. 

Emerging markets: less developed economies generally characterised as transitioning from a restricted or controlled economy to a free-market economy, with increasing economic freedom, and gradual integration into the global economy. 

Equity: a share in the ownership of a company

Fiscal policy: government policies that seek to influence the domestic economy including tax rates, interest rates and spending policies. 

Fixed Income Security: a loan to a government or company, usually for a fixed term and with a fixed rate of return paid to the investor at fixed intervals until the loan is repaid. 

Investment trust: Set up as companies with a fixed number of shares and like any listed company the shares trade. Allows you to pool your money with other investors to get access to range of assets through a single investment. 

Mutual fund: allows you to pool money with other investors to purchase stocks, bonds and other securities.

OEIC (Open Ended Investment Company): this is a collective investment fund. Managers pool investors’ money to buy shares, bonds cash, property and other investments. The number of shares in circulation varies depending on demand from investors. 

Retail Price Index (RPI): Like the CPI, this tracks changes in the cost of a fixed basket of goods over time. However, the RPI also includes housing costs, such as mortgage interest payments and council tax, as well as TV licence and road tax costs. 

Risk: the chance that an investment will lose value or that its return will be less than expected. 

Structured deposit: a portfolio that offers a degree of protection to capital whilst offering the potential for higher returns. The higher the risk to capital, the greater the potential return. 

Volatility: a risk measure that describes the degree to which performance varies over time and thus an indication of one’s ability to predict whether performance is going to be positive or negative.

Looking After Your Pennies

Most of us would like to reduce our outgoings and put a bit more money away each month, so here are our tips to help cut out unnecessary spending. 

Write a budget

Creating a monthly budget plan can seem like a hassle at first, but it is the most effective tool to track your spending. Once you know exactly what you’ve got coming in and what’s going out you’ll be able to start to control your finances. There are plenty of templates you can use to document your income and expenditure – let us know if you’d like us to send you one.

Reduce unnecessary spending

Once you’ve got a handle on your budget you can start to identify where you could reduce your spending. For instance, making up a packed lunch each day to take to work, rather than nipping to the local shop to buy sandwiches, will add up to quite a saving over a month.

You might also be able to save money on transport costs – and improve your health at the same time. It is reported that, on average, we spend £3,500 a year to run a car, whereas cycling would cost considerably less and walking would cost nothing.

Holidays can also vary wildly in price depending on the time of year you book. For example, in 2017, if you were to go to Miami in October rather than peak summer season, you could save on average £804.

Save more each month

Cutting out unnecessary expenses will free up some additional cash that you could use to boost your savings. If you don’t trust yourself to put money aside each month, make sure you set up (or increase) automatic deposits from your salary to go directly into savings.

When it comes to longer-term investments you’ll need to think about your attitude to risk. Investments with higher risk have the potential for a better return, but if you’re a cautious investor you may prefer to accept a potentially lower return for less risk to you capital. Then there’s the issue of tax-efficient financial planning. If you’re able to contribute more into your pension, either through your employer’s scheme or via a private pension, this will help boost the pot available to you at retirement and you’ll benefit from the tax relief.

The value of your investment and any income from it may fall as well as rise. You may not get back the amount you originally invested. 

HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.


The new £1m Inheritance Tax allowance

In the wake of the 2015 General Election, the Conservative Party confirmed it would deliver on its Manifesto promise that parents

could pass their property up to the value of £1m to their children free of Inheritance Tax, thanks to a new ‘family home allowance’.

The allowance is called the Resident’s Nil Rate Band (RNRB) and takes effect in April 2017. By 2020/21 it effectively adds

£175,000 to each parent’s nil-rate band (currently £325,000) in respect of their main residence, bringing the total that may be

transferred IHT-free on the second death to £1m.

Basic rules

An estate will be entitled to the RNRB if:

  • the individual dies on or after 6 April 2017
  • they own a home, or a share of one, so that it is included in their estate for Inheritance Tax
  • their direct descendants, such as children or grandchildren, inherit the home or a share of it
  • the value of the estate is not more than £2m (estates valued at more than £2m the RNRB (and any

transferred RNRB) will reduce by £1 for every £2 over the £2m taper threshold. This means that in the tax year 2020 to 2021, an individual would not be entitled to the RNRB if their estate is worth more than £2,350,000.) 

An estate will also be entitled to the RNRB when an individual has downsized to a less valuable home or sold or given away their home after 7 July 2015, provided the deceased left the smaller residence or assets of equivalent value to direct descendants.

The RNRB allowance

The maximum amount of RNRB will increase every tax year as follows:

  • 2017/18 £100,000
  • 2018/19 £125,000
  • 2019/20 £150,000
  • 2020/21 £175,000

For later years, the amount of the RNRB will increase in line with the Consumer Prices Index. Any unused RNRB can be transferred to the deceased’s spouse / civil partner’s estate. This can also take place if the first of the couple died before 6 April 2017(even though the RNRB wasn’t available at that time).

The definition of direct descendant

For RNRB purposes, a direct descendant of a person is:

  • a child, grandchild or other lineal descendant of that person
  • a spouse or civil partner of a lineal descendant (including their widow, widower or surviving civil partner)
  • a child who is, or was at any time, that person’s step-child
  • an adopted child of that person
  • a child who was fostered at any time by that person
  • a child where that person is appointed as a guardian or special guardian for that child when they’re under 18

Example case studies 

Mr A dies in the tax year 2020 to 2021 and leaves a home worth £300,000 and other assets worth £190,000 to his children.

  • The maximum available RNRB in tax year 2020 to 2021 is £175,000.
  • The RNRB that applies is £175,000 (the lower of the home value or £175,000)
  • The Inheritance Tax Nil Rate Band (NRB) is £325,000

Estate value £490,000

Less RNRB £175,000

Remaining estate value £315,000

Less NRB £315,000*

Value that IHT is due on £0

*£10,000 of NRB is unused and can be transferred to spouse.

Mrs B dies in the tax year 2020 to 2021 leaving a flat worth £100,000, and other assets of £400,000to her son. She leaves the rest of her assets of £500,000 to her husband; these are exempt for IHT purposes.

  • The maximum available RNRB in tax year 2020 to 2021 is £175,000.
  • The RNRB that applies is £100,000 (as it is the lower of the home value or £175,000)
  • The Inheritance Tax Nil Rate Band (NRB) is £325,000

Estate value £500,000

Less RNRB £100,000*

Remaining estate value £400,000

Less NRB £325,000

Value that IHT is due on £75,000

*£75,000 of RNRB is unused and can be transferred to spouse.

HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen. 

Contains public sector information licensed under the open Government Licence V3.0. 

If you would like to discuss the impact of Inheritance Tax on your financial planning please get in touch.

Tax changes impacting Buy to Let landlords

The way landlords can claim tax relief on their mortgage finance costs has changed.

Up until 5 April 2017, landlords could deduct mortgage interest from their rental income before calculating how much tax they should pay. Now, however, tax relief on Buy to Let mortgage interest will gradually be reduced. The restrictions will be phased in over the next three years, resulting in tax relief only being available at the basic rate of income tax (currently 20%) from April 2020.

Wear and Tear allowance has changed

Landlords of only fully-furnished residential properties used to be able to claim tax relief for wear and tear on furnishings. This changed in April 2016, when the ‘Wear and Tear’ Allowance was replaced with a relief that enables all landlords of residential dwelling houses to deduct the costs they actually incur on replacing furnishings in the property, such as:
• sofas
• televisions
• fridges and freezers
• carpets and floor-coverings
• curtains
• crockery or cutlery
• beds and other furniture

The initial purchase of furniture, furnishings, appliances and kitchenware is not eligible for the tax relief.

How will the changes impact you?
The tax relief changes can seem complicated, so it’s important to take the right steps now, so that you know if and how you are affected and what you need to do to minimise the impact:
• Seek advice from a qualified tax adviser on how the new rules will affect your taxable income
• Discuss your portfolio and the best way to structure it with a qualified tax adviser
• Speak to us and we can explore whether your financial plan needs to change to accommodate any potential loss of profit from the Buy to Let changes.

This article is for information purposes only and does not constitute tax advice. It’s best to seek advice from a tax expert on how the rules will affect your taxable income. Tax information is based on our understanding of the proposed tax legislation and may be subject to change.

Some Buy to Let mortgages are not regulated by the Financial Conduct Authority.

Your property may be repossessed if you do not keep up repayments on your mortgage.

To talk about mortgage options for your Buy to Let investments get in touch.

Why Your Pet Would Insure You

Millions of pet owners have purchased insurance in case of an expensive trip to the vet’s, but who will pick up the bill if something happens to you?

Many pet owners will know the stress and financial burden caused by an expensive vet’s bill and have taken out pet insurance to avoid having to make difficult decisions at stressful times. In fact, figures show 3.9 million dogs and cats are covered by pet insurance.

However, it seems we place more value on our pet’s wellbeing than our own, with almost 8.5 million people in the UK potentially needing some sort of insurance cover, having none.

Why aren’t we insuring ourselves?

One in four breadwinners does not have life insurance in place, risking leaving their families in financial difficulty if they were unable to work – or worse, died. It seems women are in a worse position than men, with 38% protected by some sort of policy, compared to 45% of men.

So what is it that puts us off buying insurance? Perhaps it’s the thought of paying out each month but not seeing any benefit from the cover.

Far from being a luxury, protection insurance should be considered essential. If you suffered a serious illness or injury you may lose your income, and this could lead to you losing your home. Similarly, if you died, would your loved ones be able to maintain their current lifestyle without your income?

If you think it’s not going to happen to you, you may

be surprised to know:

  • half of people in the UK born after 1960 will be diagnosed with some form of cancer during their lifetime
  • In 2015/16 8.8 million working days were lost due to musculoskeletal disorders
  • there are up to 175,000 heart attacks in the UK each year

Insurance policies can provide funds to help deal with the financial consequences of illness, an accident, unemployment or death. Whether that’s to help pay the mortgage, maintain your family’s lifestyle, or even help pay for medical treatment or specialist nursing support.

The next time you’re renewing your pet insurance, check our own level of cover too. If you’d like more information on the types of cover available and whether they are suitable for you, please get in touch.