Archive for June, 2015

Cashing in your pension pot

Monday, June 29th, 2015

From April 2015, persons aged 55 years or older, with defined contribution personal pension pots, can consider cashing in the value accumulated in their fund. Certainly, anyone considering this course of action should take professional advice from their independent financial advisor.

 The following steps are advised by the Pensions Wise website:

 Here are some next steps if you’re interested in taking cash:

 Cash in chunks:

  • check with your current provider if they offer the option and what they charge – if they don’t offer it, you can transfer your pot but you might be charged
  • check if your pot has any special arrangements attached to it that could mean you get a better deal, e.g. a guaranteed value at a certain time
  • make sure you know how much tax you’ll pay on any money you’re planning to take out

 Taking your whole pot:

  • check with your provider if you can take 25% tax free
  • make sure you know how much tax you’ll pay on the remaining 75%
  • if you want to reinvest the money, talk to a registered financial adviser first

 In the majority of cases, if you cash in your whole pension pot 25% of the amount received is tax free; the remaining 75% is treated as part of your taxable income for income tax purposes.

When the payment is made by your pension company they will estimate the income tax due and deduct this amount before sending you the balance. They will provide you with a P45 that shows the taxable amount refunded and the income tax they have deducted. These details will form part of your income tax assessment in the tax year that you cash in your policy.

It is important to realise that the amount of tax deducted may or may not cover the income tax due. It will have been based on an estimate of your total income when the payment is made. If you are a high income earner, subject to income tax at a marginal rate of 40% or 45%, or likely to be a higher rate tax payer if the taxable 75% of your cashed in fund is included, then take professional tax advice before spending or reinvesting your fund proceeds.


Summer Budget 2015

Friday, June 26th, 2015

 On  Wednesday 8th July, George Osborne will present his first budget of the new parliament.

 He has indicated that there will be no hikes in the major taxes: Income Tax, National Insurance, VAT and Corporation Tax. We shall see…

 What he will be revealing is how he intends to reduce public expenditure in order to meet his commitments to reduce our growing national debt.

 We will likely see further legislation to combat tax evasion and the re-introduction of the few issues that were dropped from the March 2015 Finance Bill in order to expedite matters before the general election.


Scottish Rate of Income Tax

Friday, June 26th, 2015

From April 2016, the Scottish Parliament has devolved powers to set the Scottish Rate of Income Tax (SRIT). Within the last few weeks it has been widely publicised that this may mean a higher rate of Income Tax in Scotland as compared to the Income Tax rates in other parts of the UK.

 HMRC have also issued a technical statement that clarifies who will be subject to SRIT.

 According to the statement issued, a Scottish taxpayer will be defined using a simple test:

 “For the vast majority of individuals, the question of whether or not they are a Scottish taxpayer will be a simple one – they will either live in Scotland and thus be a Scottish taxpayer or live elsewhere in the UK and not be a Scottish taxpayer.”

Factor in the possibility that Income Tax rates in Scotland will be higher than the rest of the UK and tax payers living and working in the border areas may need to reconsider their living arrangements.

For example, a business person living and working in Edinburgh will pay the SRIT from April 2016. If they relocated their family home to say Berwick on Tweed, and continued to work in Edinburgh, they would pay the UK Income Tax and not be subject to SRIT.

Turning this example on its head; consider a person living in Scotland and working in England. They would be subject to SRIT even though their income was earned in England.

Does this mean the north of England will become the UK’s Monte Carlo as wealthy Scots seek to establish tax residence in England to avoid SRIT?


Business start-ups

Friday, June 26th, 2015

If you are an old hand at setting up a new business most of the content of this article will be a timely reminder of the issues you need to cover in your project to-do list. For first timers, use this article as a guide to see you through what can prove to be an exhilarating and challenging adventure.

 Planning and research

 Your planning and research should at least cover the following issues:

  • What does it take to run your own business?
  • What skills will you need?
  • What do you know about your competitors?
  • How much capital will you need to raise?
  • What resources will you need, plant, equipment, computers etc?
  • Could you start on a part-time basis and delay leaving the day job?
  • Can you run your business from home?

 Also be aware that none of us operate in a vacuum. What special considerations do you need to look out for taking into account the present economic conditions?

 Red tape

 There is no doubt that at times you will just have to deal with it. Here are a few tips that may make the process less painful.

  • Find out exactly what is required, what forms need to be filled in and when they need to be submitted.
  • If you feel that a particular process is beyond your abilities find a professional advisor to help, the cost will generally be recovered by time that you are able to free up to work on your business.
  • If you want to complete the online filing or form filling make sure you read the fine print…

Red tape seems to be a necessary evil in our highly organised society. If you do find yourself beating your head against a brick wall, save yourself the headache, get some help

 Tax planning

Whatever you do, don’t underestimate the UK tax system. Be very clear what your obligations are and the ways you can organise your business affairs to save tax. There is no point in planning for your tax liabilities after the event! The time to plan is before you act. This is a really important point. Tax specialists, us included, take no joy in advising tax payers that they could have saved themselves tax if only they had acted in a certain way at some time in the past. The tax system is riddled with deadlines that once passed, deny you tax saving opportunities.