Virtually all the headlines surrounding George Osborne’s recent Budget were about the changes to the pensions rules. Rightly described as the biggest changes to pensions legislation for a hundred years, they will have far-reaching implications for the financial planning of many of our clients.
With all the attention devoted to pensions, it was easy to overlook a radical overhaul of the rules governing Individual Savings Accounts – ISAs as they were formerly known and NISAs (New Individual Savings Accounts) as they’ll now be called.
The changes will come into effect from 1st July. Here’s a concise summary of the new rules the Chancellor introduced:
• This means that if you already have £11,880 in an ISA for the 2014/2015 tax year you will be able to add an additional £3,120 from 1st July
• The division between stocks and shares ISAs and cash ISAs will disappear. Previously you could only hold 50% of the annual ISA allowance in cash: from 1st July all the £15,000 can be held as cash if you so choose
• For the first time ever savers will be able to transfer previous years’ funds from stocks and shares ISAs into cash ISAs. This had previously not been allowed
• Limits on Junior ISAs and Child Trust Funds are also being increased and will rise to £4,000 from 1st July
• The current annual limit on ISAs will be increased from £11,880 (the figure the Chancellor announced in his last Autumn Statement) to £15,000
George Osborne famously said that he wanted to deliver a Budget for “the makers, the do-ers and the savers” and he’s certainly delivered on the savings part of that statement.
He was concerned that people in Britain “borrow too much and save too little” and these changes are an attempt to address that. They’re also a way of rewarding those savers in cash ISAs who have put up with very low interest rates for some time now. So all in all, they’re far reaching changes and we very much welcome them: but what are the practical implications for our clients?
• First of all you can now save almost three times the previous limit in a cash ISA – up from £5,940 to £15,000. For savers whose first concern is security, ISAs now present a very attractive option with a husband and wife being able to save £30,000 a year in a tax-free cash investment
• ISAs have also become much more flexible. Graham Beale, Chief Executive of Nationwide Building Society, commented: “The impact this change will have on people looking to make the most of their savings will be huge with savers now able to put in £15,000 a year with much greater flexibility.”
• For us, flexibility is the key. ISAs will now play a much greater part in our clients’ financial planning, but it will be more important than ever to make sure that your ISAs are performing well – if you’re invested in a stocks and shares ISA – and that you’re always receiving a competitive rate of interest on savings held in a cash ISA.
• We would expect the increased demand for cash ISAs from July 1st to trigger a wave of competition from the product providers so we will hopefully see some attractive savings rates. Similarly, there will be pressure on the investment companies to make sure they are producing good returns, given that investors can now move all their stocks and shares ISAs into cash holdings. Both of those factors can only be good news for our clients.
As above, we emphatically welcome the changes that the Chancellor has introduced. The limits have been increased, ISAs have been greatly simplified and they will undoubtedly play a greater role in clients’ savings, investments and overall financial planning from now on.
If you have any questions on the proposed changes; if you would like to discuss the ISAs you currently hold – or how NISAs can play a part in your future financial planning – then don’t hesitate to contact us.
Can you ‘Trust’ your Life Assurance Policy?
According to some estimates, as few as 6% of life assurance policies in the UK are currently written in the form of a trust, although doing this can be advantageous.
Clients should always consider whether a new policy needs to be written in trust and a review of any other existing policies might reveal how those could be made more beneficial. Many people may accumulate several life assurance policies, each one written for a purpose, but once written, just allowed to run.
The opportunity to review life assurance policies is an important aspect of any financial health check, when the possibility of putting life assurance policies into trust should not be overlooked.
What are the financial planning advantages to writing life assurance policies in trust? There can be three key benefits:
1. On death, policies held in trust are paid out without having to await probate, so dependants get the benefits straight away.
2. The policy proceeds do not add to the estate for inheritance purposes, thus avoiding paying tax unnecessarily.
3. The client has control over who is to receive the benefits.
Trusts might seem complicated, but with advice are relatively simple to negotiate and understand.
The first thing to remember with any trust arrangement is that three groups of people become involved –the settlors, the trustees and the beneficiaries. The settlor is the client who is putting their policy into trust. The trustees are the legal owners of the trust property and are responsible for managing the trust according to its rules. The beneficiaries are those that are to receive the benefits from the policy.
The second aspect to consider is what type of trust to use. Again advice is helpful when considering and choosing trust options. Commonly there are three types of trust used with life assurance protection –a bare trust, a discretionary trust and split trusts, offering choices in terms of how the client wants to plan their financial future and provision.
So if you are thinking about taking out a life assurance policy, think about it being in trust and it’s not a case of just setting up your policy and leaving it. Be concerned to review your policy holdings and make sure that you paying for the best possible coverage and outcomes.
If you want to find out more about your life assurance cover, contact one of the team who will be happy to help.
The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.
The Financial Conduct Authority does not regulate tax and trust advice.Posted In : Announcements, Savings, Financial Planning, ISA, Inheritance Tax