Innes Reid Investments Limited
For truly independant financial advice call us today on 01244 347583
2007 was a busy year for Innes Reid, not least because in August we finally moved into new offices. Because of the expansion of the business we have been looking for larger premises for about three years, but the right property just didn’t come along.
Formerly a guest house, Dee House has been lovingly refurbished to produce a modern office environment whilst maintaining many of the original features of the building. We’re pleased to say that the comments about the offices from clients and the local Hoole community have been very flattering.
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Investment Research, Dealing, And Administration
There are well over 1000 UK based Unit Trusts and Open Ended Collective investments, and probably as many Pension and Investment Bond funds, available in the UK alone. As independent advisers, we are obliged to research these pooled funds in order to make recommendations which are suitable to clients’ needs.
We are pleased to say that we now subscribe to a research service from an independent company - Financial Express - which provides detailed information and statistics on all types of pooled funds, both in the UK and offshore.
When arranging or selling investments it is time consuming to deal with the investment companies separately, and so we are also pleased to announce that we have decided to use the well known trading platform, Cofunds, for this. From now on we will be able to deal in such investments more efficiently, and in many cases at lower cost to the client; also, we intend gradually to arrange the reregistration of clients’ existing investments to the Cofunds platform.
Following our office move we also installed new software for our “back office” administration. As with the new office premises, we took time to consider carefully all the systems available and make our choice. We are pleased with our choice as it is a comprehensive and sophisticated system, and at present we are in the process of transferring existing records as well as new records to it. Therefore, it may be a little while before we and clients see the full benefit.
We believe all these developments will enable us to give our clients an even better service.
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Budget 2008 (now in Finance Act 2008)
Every year we see significant changes in the financial world, and this year is no exception. It’s important that clients are kept aware of these changes to see how they will be affected and how they can take advantage of them.
Income Tax
The basic rate of income tax has reduced from 22% to 20% from 6 April 2008, and despite the furore the 10% starting rate has been scrapped (but see the note under the Income Tax Rates below re the new 10% rate for savings income for some individuals). Among other impacts, this will reduce the tax relief available on pension contributions by basic rate taxpayers. Individuals who are contributing to a personal pension, stakeholder pension or FSAVC plan will need to increase the amount they pay slightly from April if they wish their gross contribution to remain the same. The reason is a reduction in the basic rate of tax means that the tax relief collected from HMRC will also reduce.
The new tax allowances are shown below. In general, these have increased in line with the normal inflation-based formula, but there have been significant increases to allowances for those over 65.
Single Personal Allowance (under 65) £6,035 *
Single Personal Allowance (aged 65-74 in tax year) £9,030
Single Personal Allowance (aged 75 & over in tax year) £9,180
Income Limit for Age Related Allowances £21,800
Married Couple’s Allowance (aged under 75) £6,535
Married Couple’s Allowance (aged 75 or more) £6,625
Minimum Married Couple’s Allowance £2,540
Income Tax Rates
Individuals
0-£36,000 20%**
£34,801+ 40% *
* On 13 May the Government announced the basic Personal Allowance would be increased from £5,435 to £6,035, and the 40% tax band wouldl start at £34,801. These changes took effect in October.
**There is a 10% starting rate for savings income only, with a limit of £2,320. If an individual’s taxable non-savings income is above this limit then the 10% savings rate will not be applicable.
Trusts
Dividends 32.5%
Other income and capital gains 40%
Standard rate band £1,000
Gift Aid
Donations made to charities under Gift Aid are grossed up in much the same way as for personal pensions, so that in tax year 2007/08 a gift of £78 made under Gift Aid would allow the charity to reclaim an extra £22 from the Government.
With basic rate tax reducing to in 20% in April, it looked as though charities could lose out unless donors increased their gifts. However, the Government has announced that in the three tax years 2008/09, 2009/10 and 2010/11 it will make additional payments to charities so that the benefit of Gift Aid remains unchanged at 22%.
National Insurance Contributions
All 2008/09 National Insurance Contributions are summarised below:
Class 1 Employee (Not contracted-Out of State Second Pension - S2P)
As previously announced, the upper earnings limit for National Insurance contributions (above which the employee rate falls to 1%) has increased above the rate of inflation, and will rise further next year to bring it into line with the higher rate threshold for income tax.
Employee Employer
NIC rate 11% 12.8%
No NIC on first £105 pw £105 pw
NIC charged up to £770 pw No Limit
1% NIC on earnings over £770 pw N/A
Class 1A Employer
On car, fuel and most other taxable benefits is 12.8%
Self-employed
Class 2 (Flat rate) £2.30pw/£119.60pa (if earnings are over £4,825 pa)
Class 4 (On profits)
£5,435 - £40,040 pa 8%
Over £40,040 pa 1%
Voluntary
Class 3 (Flat Rate) £8.10 pw/£421.20pa
The IHT nil rate band (NRB) is £312,000 ( 2008/09). The rates of IHT are the same as in 2007/08 (20% Lifetime Rate; 40% Death Rate).
As already announced, the nil rate band will increase to £ £325,000 in 2009/10 and to £350,000 in 2010/11. No announcement has been made for figures beyond that.
As announced in last year's Pre-Budget Report, any unused portion of the nil rate band from the first death of a married couple or civil partners may be used to enhance the nil rate band on the second death, provided (a) the second death occurs on or after 9 October 2007 and (b) the legal personal representatives make a claim for the enhancement within two years of the end of the month in which the second death occurs. The date of the first death is not relevant in determining the availability of the enhancement on the second death.
Example
First Death (Assume the NRB is £312,000)
Estate on First Death £400,000
Left to Spouse (exempt) £340,000
Left to Children/Trust £ 60,000
In this case £60,000 of the NRB was used, which represents approximately 20% of the Nil Rate Band. So, approximately 80% of the NRB was not used.
Death Of Survivor (Assume NRB has increased to £350,000 and Estate values are unchanged)
Estate of Survivor £400,000
Received from Spouse £340,000
Total Estate £740,000
Survivor’s Own Nil Rate Band £350,000
NRB Passed from First Death £280,000* £630,000
Taxable £110,000
* ie approximately 80% of CURRENT NRB (£350,000)
The new rules will apply on the death of a surviving spouse/civil partner even if the other spouse/civil partner died before 9 October 2007. However, HMRC have stated that it will be up to the executors to show how much of the NRB was not used on the first death, and as proof they will be required to produce all the relevant documents (or certified copies) in relation to the first death - eg death certificate, marriage certificate, Will, probate, Deed of Variation (if applicable).
Obviously the longer the period since the first death the more difficult it will be to prove how much was not used. Therefore, it is extremely important for widows and widowers to check now whether they still have these documents so that their estate will not lose out. We will be happy to advise on this and calculate how much of the previous might be available.
Despite the IHT changes, it may still be advisable to set up Trusts within a Will so that the NRB on the first death is fully used. Please contact us if you would like us to review your Wills.
Interest in Possession Trusts
Legislation has been introduced in Finance Bill 2008 to clarify the IHT rules where interest in possession (IIP) trusts in place on or before 21 March 2006 come to an end on or after 22 March 2006 and are replaced with new IIP trusts for the same beneficiary. In addition, the transitional period will be extended by six months to 5 October 2008.
The Finance Act 2006 changed the IHT rules for IIP trusts. It included a transitional period from 22 March 2006 to 5 April 2008 to enable trustees to reorganise trusts set up on or before 21 March 2006 without being subject to the new rules.
However, the effect of those transitional provisions is unclear where pre-22 March 2006 IIP trusts are replaced with a “transitional serial interest” for the same beneficiary. This measure will ensure that the new rules will not have effect where this kind of change is made in the transitional period.
The new legislation will also ensure that the new rules will have effect as intended where an IIP trust is replaced after the transitional period with a new IIP trust for either the same or a different beneficiary.
In addition, this measure extends the transitional period so that it will now end on 5 October 2008.
Capital Gains Tax (CGT)
The CGT annual exemption is £9,600 for 2008/09. The equivalent exemption for most trusts will be £4,800. Gains from the sale of a principal private residence will continue to be free from tax.
For the tax year 2008-09, there will be a single rate of capital gains tax set at 18 per cent as announced at the 2007 Pre Budget Report. The rate will have effect for individuals, trustees and personal representatives, although they will no longer be able to benefit from indexation or taper reliefs.
In addition, legislation has been introduced to establish a new entrepreneurs' relief, reducing the effective tax rate on some gains to 10%.
Corporation Tax
As previously announced, the main rate of Corporation Tax will fall from 30% to 28%, while the small company rate increases from 20% to 21%
£0 - £300,000 21% (20% in 2007/08)
Over £1,500,000 28%
Companies with profits between £300,000 and £1,500,000 have an overall Corporation Tax rate between 21% and 28%. Their marginal rate (the tax they pay on every extra £1 of profit) has reduced from 32.5% to 29.75%.
Individual Savings Accounts (ISAs)
Important changes to ISAs
ISAs will be available indefinitely. The Government has been dithering on this point for some time, and until now have simply kept extending the period that ISAs would be available. We are pleased that these attractive investments will continue to be available.
The annual ISA investment allowance is £7,200 for each individual who is aged 18 or over and resident in the UK for tax purposes. This can be used all as a “Stocks and Shares” ISA (which of course includes investments in Unit Trusts and OEICs), but within the £7,200 up to £3,600 can be kept in cash.
All existing Personal Equity Plans will automatically become Stocks and Shares ISAs.
Money saved in Cash ISAs may be transferred into Stocks and Shares ISAs without affecting the investor’s annual ISA allowance.
This last point is particularly important because many people have built up substantial amounts in Cash ISAs, but until now have been unable to transfer to other types of investments without losing the tax benefit of those ISAs.
So, if you have at least, say, £15,000 in Cash ISAs and want to consider diversifying your investments please telephone us.
We teamed up with Chester law firm, Aaron & Partners LLP, for two seminars in June on Asset Protection. These seminars provided a rare opportunity to hear the latest views from two professional firms on Estate and Will Planning, including the popular question of Local Authority funding of Care Home fees.
Our June seminars were so successful that we will be holding two further seminars with Aaron & Partners, as follows:
4th November at the Thornton Hall Hotel, Thornton Hough, Wirral, CH63 1JF, starting at 11 am (with registration at 10.45 am).
12th November at the Ramada Hotel,Whitchurch Road, Christleton, Chester, CH3 5QL starting at 11 am (with registration at 10.45 am).
Please contact us as soon as possible on 01244 347583 if you would like to attend one of these, as spaces are limited.
