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Investments & Pensions

Investment Tips

• Pensions
• Do make a Will
• Reduce your Inheritance Tax

Pensions

Pension simplifications

On 6th April 2006 the numerous different pension structures were consolidated under one regime. There is now one set of tax rules for all types of pension and some notable changes to the present system. In most cases individuals can contribute up to 100% of their annual earned income as a pension. Although the new legislation tends to favour those with high incomes and large pensions funds there are also benefits for the more modest earners. One thing is certain, those relying on the State for a comfortable retirement in the years ahead are likely to be greatly disappointed.

Personal pensions

Remember to review the spread of your investments within the policy each year. You are normally allowed to make at least one transfer between the different funds free of charge each year.

State Earnings Related Pension Scheme

Please remember that it may be to your advantage to contract out of, or back into, State Second Pension (S2P) (you pay your contributions through your class 1 national insurance contributions) depending on your current age, sex, earnings and attitude to risk.

Full State Pension?

Do write to the Pension Service at Newcastle stating your national insurance number and ask them to advise you of your national insurance contributions record and projected State Pension benefit.

Do Make a Will

Without a will your Estate could well be distributed not in accordance with your wishes, e.g. you may be under the impression that your spouse will automatically inherit the whole of your Estate – but this is not so. The following are the current rules of distribution of an intestate Estate.

Spouse and Issue Survive

Spouse receives 

• All personal chattels; £125,000 absolutely (or the entire estate where this is less); life interest in one half of residue (if any).
• Issue receive
• One half of residue (if any) on statutory trusts plus the other half of residue on statutory trusts upon the death of the spouse.

Spouse survives without issue

Spouse receives

• All personal chattels; £200,000 absolutely (or the entire estate where this is less); one half share of residue (if any) absolutely.
• Remainder distributable to
• the deceased’s parents. If no parent survives
• On Trust for the deceased’s brothers and sisters of the whole blood and the issue of any such deceased brother or sister.

Spouse survives but no issue, parents, brothers or sisters or their issue

• Whole Estate to surviving spouse.

No spouse survives

Estate held for the following in the order given with no class of beneficiaries participating unless all those in a prior class have predeceased. Statutory trusts may apply except under (2), (5) and (8).

1. Issue of the deceased.
2. Parents.
3. Brothers and sisters and the issue of a deceased brother or sister.
4. Half-brothers and half-sisters and the issue of any deceased half-brother or half-sister.
5. Grandparents.
6. Uncles and aunts and the issue of any deceased uncle or aunt.
7. Half-brothers and half-sisters of the deceased’s parents and the issue of any deceased half-uncle or half-aunt.
8. The Crown, The Duchy of Lancaster or the Duchy of Cornwall.

Reduce Your Inheritance Tax

If you have capital that you are willing to invest in Trust to your chosen beneficiaries but wish to retain the right to an income for life then in certain circumstances a Discounted Gift Trust may be the answer.

As an example, let’s say you have £100K to gift to your children. Based on your age, health and gender, part of the £100K will be calculated to provide you with the income required. This amount is called the “value of interest retained” and effectively falls outside your estate for inheritance tax purposes immediately. It could be in excess of 50% of your investment. The balance is called the “discounted value of the gift” and provided you live for seven years, is also excluded from your estate for inheritance tax. By placing your capital into an investment bond you can take up to 5% annually for twenty years without any immediate liability to income tax. Your investment need not be in stocks and shares. You may prefer deposit accounts or fixed interest securities – the choice is yours. The Trust ensures that, on your death, your legacy passes swiftly to the people you wish to receive it and, as the years pass, you can change the beneficiaries as you wish.

Also, do remember that the following gifts are tax efficient:-

1. Gifts up to an annual total of £3,000 are exempt from I.H.T. purposes. This is doubled to £6,000 if you did not use your previous years allowance.
2. Small gifts up to £250 per individual donor are exempt for I.H.T. purposes.
3. Gifts being normal expenditure out of your income, so that you are left with sufficient income to maintain your usual standard of living, are exempt for I.H.T. purposes.