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Residence nil-rate band (RNRB) calculator

Everyone has currently £325,000 of their total estate free of inheritance tax (the nil-rate band – NRB), provided this allowance hasn’t been used when making gifts, for example, or settling assets into trust. Your estate is the sum of your savings, investments, the market value of the house you live in and other assets. Usually pensions are ignored.

But there is a new inheritance tax allowance – the residential nil-rate band (RNRB) – which can be claimed by the estates of people who die after 6 April 2017.

Please note that inheritance tax is a complicated topic and this information has been prepared in good faith and is based on the understanding and interpretation of current law. If in doubt seek advice.

Residence Nil Rate Band – RNRB

Additional main Residence NRB (RNRB) applies if deceased’s interest in a residential property, which has been their main home at some point, is left to direct descendants on death.

Direct descendant of the deceased will be;

  • A child
  • Includes step, adopted or foster child and
  • Their direct descendants

Note – If no children RNRB does not apply

RNRB is also available where the residential property is inherited by someone who is:

  • A spouse or civil partner of a direct descendant at the time of the deceased’s death
  • A surviving spouse or civil partner of a direct descendant who has not remarried at the time of the deceased’s death.

Main Points of RNRB

  • Value of RNRB will be lower of net value of a qualifying interest in the property or maximum amount of the band.
  • It would appear that a qualifying interest is the net amount after an outstanding mortgage has been deducted.
  • Maximum amount will be phased in over 4 years;
  • £100,000 for 2017/8
    £125,000 for 2018/9
    £150,000 for 2019/20
    £175,000 for 2020/21

  • Will then increase by CPI from 2021
  • Limited to one property but PR’s (Personal representatives) will be able to nominate which one should qualify if there is more than one in the estate
  • Unused amount cannot be carried across to another qualifying property
  • Property which has never been a residence of the deceased will not qualify
  • Unused proportion of RNRB will be transferable to surviving spouse or civil partner where survivor dies on or after 6 April 2017 regardless when the first spouse died.
  • Where first death occurred before 6 April 2017 the RNRB is deemed to be £100,000
  • Proposed legislation means that irrespective of what actually happened no part of this RNRB will be deemed to have been used.
  • This means the surviving spouse’s estate will always have a 100% uplift
  • This is unless the estate of the first to die exceeded the taper threshold of £2m when the deemed £100,000 RNRB would be reduced on a 2:1 basis over £2m
  • Claim made as per current transferable nil rate band
  • The RNRB will always be used before the standard NRB
  • If “net” value of the estate is above £2m the RNRB will be reduced by £1 for every £2 above that amount.
  • Finance Act 2016 introduced legislation that where all or part of the RNRB might have been lost because the deceased had downsized to own a residence on or after 8 July 2015, the RNRB will still be available provided the deceased left that smaller residence or equivalent assets to direct descendants.

Example

  • James dies in July 2019 – the NRB is £325,000 and RNRB is £150,000
  • His share in property of £175,000 is left to his wife, Joan, as is the rest of his estate valued at £325,000

  • Joan dies in March 2021 with estate valued at £1 million, including property worth £350,000
  • Her estate is left to their daughters and so will benefit from NRB of £650,000 plus RNRB’s of £350,000 (Joan’s £1275,000 plus 100% uplift to be claimed on behalf of James)
  • No IHT due

As previously mentioned if in doubt seek advice.

Rossmore news: February 2017

A week in the news

  • One in seven businesses is failing to auto-enrol its employees in a workplace pension before the new deadline, new figures from Aviva reveal.
  • An index fund that tracks companies in the FTSE 250 but excludes investment trusts has been launched by Legal & General Investment Management.
  • Coventry for intermediaries has launched new offset mortgages and reduced the rates on some of its buy-to-let products.
  • Scots Widows has scrapped exit fees on all personal pension products.

Thousands of over 55’s lose out from pension freedoms

Hundreds of thousands of vulnerable over-55’s could be left worse off this year if they take advantage of pension freedoms to access cash lump sums, Just has warned. Just Retirement and Partnership said that 2017 would see the highest ever number of people reaching 55, the age at which pension freedoms kick in.


Interest-only ‘prison’ to spur equity release

A flood of interest-only mortgage maturities in 2017 is set to ‘turbo-charge’ the equity release market, with one provider predicting demand will more than double over the year. The FCA has highlighted 2017 to 2018 as the first year in which a large number of interest-only mortgages sold would reach maturity and it estimates that almost half those with such a mortgage will be unable to pay the loan.


Scammers Pose as FSCS

The FSCS has warned consumers to “be on their guard” against an email scam promising a high-value payment. The compensation body said scammers were posing as the FSCS and attempting to entice consumers to provide personal information with the promise of a $5.7m (£4.5m) payment.


Scottish Widows unveils £30m workplace pension investment

Scottish Widows will invest £30m in its workplace pensions business to expand the range of products and services available to its workplace customers.


Cost of cyber crime to rise 40%

Financial services firms will be forced to spend millions more to guard against digital crime this year, as some industry professionals warn more needs to be done to educate businesses of the dangers.

For Financial planners the big risk is that you, or your staff, make an error that leads to a client falling victim to fraud.


What is your State Pension age

Key points from an Age UK document entitled “Later Life in the UK” published in 2016 serve to illustrate just how things have changed and are still changing. With a UK population of 65.3 million:-

  • 6 million people are aged 65 or over
  • Over 1.5 million are aged 85 or over
  • The number of centenarians living in the UK has risen by 72% over the last decade to 14,450 in 2014
  • UK life expectancies at age 65 are 85.9 years for women and 83.4 years for men
  • By 2040, nearly 1 in 4 people will be aged 65 or over
  • The proportion of the population aged over 75 is projected to double in the next 30 years
  • Nearly 1 in 5 people will live to 100, including 29% of people born in 2011.

Pension Contributions by age per £10,000 per annum of retirement income

Current Age State Pension Age Approximate monthly contribution required per £10,000 of income*
20 68 £110
30 68 £165
40 67 £275
50 67 £510

* Contribution assumptions – Level before 20% basic tax relief
* Growth assumptions – Capital growth of 6% net of charges
* Income assumptions – At-retirement gross income before tax: adjusted for 2% inflation; 6% annuity rate; no tax free lump sum taken.

Increasing life expectancy means the State Pension Age goalposts could move even further away in the future, with people working into their 70’s and 80’s to make ends meet.


Conditions re Pension Advice Allowance

Can be used a total of three times, only once in a tax year, allowing people to access retirement advice at different stages of their lives, for example when first choosing a pension or just prior to retirement.

  • Will be available at any age, allowing people of all ages to engage with retirement planning.
  • Can be redeemed against the cost of regulated financial advice, including robo-advice as well as the traditional face-to-face advice.
  • Will be available to holders of defined contribution pensions and hybrid pensions with a defined contribution element, but not defined benefit or final salary type schemes.

Auto enrolment – Review by Department for Work and Pensions

The DWP is conducting a review of auto-enrolment considering three themes, coverage, engagement and contributions.

Coverage – Consideration is being given to changes in the current earnings trigger of £10,000, age criteria and self-employed.

Engagement – Informing individuals that state pensions will not be sufficient in their retirement, employers matching contributions, people have a responsibility to fund their retirement.

Contributions – Rates need to rise above the 8% minimum planned for 2019, learn from the US experience of timing contribution increases with wage rises.

New FCA website: ScamSmart

It is estimated that £1.2bn is lost to Investment Fraud each year, so in response the FCA website has created a specific site giving details of scams with warnings: ScamSmart

Latest scams include emails appearing to be from companies such as Pay Pal and Apple indicating there is a problem with your account, or that a purchase has been made using your details. You are then directed to a site to confirm these details and are requested to enter your bank/card details.

This is a scam – no company will ask you to confirm your bank or card details in full online. If you’re suspicious, contact the payment provider or store and your bank immediately.

What is Lasting Power of Attorney (LPA)?

If you’re married or in a civil partnership, you may have assumed that your spouse would automatically be able to deal with your bank accounts and pensions, and make decisions about your healthcare, if you lose the ability to do so. This is not the case. Without a Lasting Power of Attorney (LPA), they won’t have the authority.

The difference between the types of power of attorney are what they cover – financial or health and welfare. The options available depend on where you live.

England & Wales

Clients can have one or both types of LPA

A property and financial LPA

Allows someone to manage all financial affairs, for example control and managing bank and savings accounts, tax affairs, and buying and selling investments or property.

Health and Welfare LPA

Allows someone to make decisions about health, care and welfare for example, what medical treatment is given or whether a care home is an option.

Scotland

Again there are two types of LPA

A Continuing Power of Attorney allows control of financial affairs and Welfare Power of Attorney manages care and welfare.

Northern Ireland

Has only an Enduring Power of Attorney that allows management of financial affairs, there is no provision for decision making in respect of health and welfare.

Age UK gives further comprehensive information on LPA’s.

Quarterly News – Summer 2016

In this edition of the Succession Group quarterly newsletter you’ll find articles on a range of subjects including:

  • Lifetime ISAs
  • Financial planning for later life
  • Employee benefits
  • And a guide for thos ein danger of exceeding the pension limits

Click here to download your copy

Budget 2016: Eight key announcements

As ever, the Chancellor’s Budget contained a raft of information that could affect our clients and their families. Here we take you through the most important updates:

1. Lifetime ISA: a new £4,000 ISA that you can use to save for retirement or to buy your first home

From April 2017, any adult under 40 will be able to open a new Lifetime ISA. Up to £4,000 can be saved each year and savers will receive a 25% bonus from the government on this money.

Money put into this account can be saved until you are over 60 and used as retirement income, or you can withdraw it to help buy your first home.
The total amount you can save each year into all ISAs will also be increased from £15,240 to £20,000 from April 2017.

2. The Personal Allowance will increase to £11,500, and the higher rate threshold will rise to £45,000 in April 2017

The Personal Allowance is the amount of income you can earn before you start paying Income Tax. This is currently £10,600 – it will already rise to £11,000 in 2016, and will now increase further to £11,500 in April 2017.

The point at which you pay the higher rate of Income Tax will increase from £42,385 to £43,000 in 2016 and to £45,000 in April 2017.

3. New tax allowances for money earned from the sharing economy

From April 2017, there will be two new tax-free £1,000 allowances – one for selling goods or providing services, and one income from property you own.
People who make up to £1,000 from occasional jobs – such as sharing power tools, providing a lift share or selling goods they have made – will no longer need to pay tax on that income.

In the same way, the first £1,000 of income from property – such as renting a driveway or loft storage – will be tax free.

4. Cutting business rates for all rate payers

From April 2017, small businesses that occupy property with a rateable value of £12,000 or less will pay no business rates.

Currently, this 100% relief is available if you’re a business that occupies a property (e.g. a shop or office) with a value of £6,000 or less.

There will be a tapered rate of relief on properties worth up to £15,000. This means that 600,000 businesses will pay no rates.

5. Capital Gains Tax rates will be cut from 6 April 2016, but residential property will still be taxed at current rates

Capital Gains Tax is a tax on the gain you make when you sell something (an ‘asset’) that has gone up in value. It is paid at a basic or higher rate depending on the rate of Income Tax you pay.

From April 2016, the higher rate of Capital Gains Tax will be cut from 28% to 20% and the basic rate from 18% to 10%.
There will be an additional 8 percentage point surcharge to be paid on residential property and carried interest (the share of profits or gains that is paid to asset managers).

Capital Gains Tax on residential property does not apply to your main home, only to additional properties (for example a flat that you let out).

6. Employers will pay National Insurance on pay-offs above £30,000 from April 2018

From April 2018 employers will now need to pay National Insurance contributions on pay-offs (for example, termination payments) above £30,000 where Income Tax is also due.

For people who lose their job, payments up to £30,000 will remain tax-free and they will not need to pay National Insurance on any of the payment.

7. Corporation Tax will be cut again to 17% in 2020

The main rate of Corporation Tax has already been cut from 28% in 2010 to 20%, the lowest in the G20. It will now be cut again to 17% in 2020, benefitting over 1 million businesses.

8. Class 2 National Insurance contributions (NICs) for self-employed people will be scrapped from April 2018

Currently, self-employed people have to pay Class 2 NICs at £2.80 per week if they make a profit of £5,965 or over per year. They also pay Class 4 NICs if their profits are over £8,060 per year.

From April 2018, they will only need to pay one type of National Insurance on their profits, Class 4 NICs.

Paying Class 2 NICs currently enables self-employed people to build entitlement to the State Pension and other contributory benefits.

After April 2018, Class 4 NICs will also be reformed so self-employed people can continue to build benefit entitlement.

The year ahead: 2016

The guys at Seven Investment Management have pulled together a comprehensive guide to the global economy in 2016. Download the guide now to see the full commentary which includes these highlights:

  • The hope is that this year will be the one where stronger economic data is rewarded with a positive market reaction. Now that the Federal Reserve has increased interest rates, investors will seek positive confirmation of the strength of the US economy, rather than looking for reasons to stay in emergency monetary policy mode.
  • Despite this, most of the rest of the developed world remains in emergency mode – something that should fade throughout 2016. While the central banks of the UK, Japan and Europe aren’t expected to tighten policy in the next twelve months, but they will most likely start talking about it.
  • Markets are going to continue to experience shocks (true in any year), and the violence and speed of these is unlikely to diminish. The current environment is likely to persist – with long periods of tranquillity punctuated by short episodes of extreme volatility.
  • Managing money will be as difficult as ever, and it is going to be more crucial than ever to focus on the long term outcomes. Advisers like Rossmore will keep trying to ignore the surface ripples and instead look for the deeper currents that affect the financial world over years, rather than weeks or days.

So grab a cuppa and take a look at the guide now.

Market Volatility

We have seen a bout of volatility in China over the last few days affecting global markets so outlined below are our current thoughts.

The fact that China has been slowing has been known for a number of years but growth rates are still strong compared to many other economies at 6 to 7%. The problem for the West is the after-effects of this and judging the impact this will have on the global economy. The obvious victims are commodity exporters, although in volume terms some items, such as iron ore, have not dropped in 2015 – it is only the cost per tonne that has fallen providing the problems for mining companies and resource dependent economies. Chinese manufacturing data has been a focus for the West and this has deteriorated as the export led economy, which was also exporting deflation to the world, retreats and its consumption led domestic economy takes over.

In the short term the fall in the Chinese currency this week has sparked fears of declining global growth and further currency wars, which has not helped the domestic Chinese market nor overseas markets that see China as a key component of global growth. Thinner market trading at this time of year also exaggerates the problem, compounded by the fact that most stock markets globally are pretty fairly valued leaving investors reluctant to enter markets at such levels. The Chinese authorities have not helped the position by closing down markets after a 7% fall thereby stopping a natural level being achieved and forcing investors to move quickly to liquidate assets before the market is closed. The added uncertainty is how the policymakers will react to this higher volatility, given the problems they had the last time this occurred.

We should remember that the currency is only weakening against the dollar not against almost all other currencies, and global data from China is not as bad as it was in August which suggests some of the current market reactions are too negative. Service sector data is still very positive in China, but investors are not focusing on this area.
The issues that ended 2015 are still in place – a stronger dollar, a slowing China, cheaper oil etc. with little change, and so as markets overcome the initial scares they will start to re-focus on the core data which we feel will begin to stabilise over the next few weeks.

In our view, it would be wrong to overreact to this short term spike in volatility in China when looking over the medium to longer term at any portfolio. For tailored advice, please contact us.

Fraudulent Activity

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Information from investment providers indicates that fraudulent attacks which use spoofed or hacked customer e-mails to pass withdrawal instructions through investment advisers are continuing to occur.

The fraudulent instructions appear to be sent from a genuine customer’s email address, which may have been hacked or ‘spoofed’ by the fraudsters. If the initial request is successful, the suspects have been known to attempt additional transfers, often to a number of different accounts.

The potential for this to harm customers is significant and Rossmore Financial Services has instigated procedures to ensure that customers are protected from any fraudulent activity.

These procedures will require Rossmore clients to go through various processes should they wish to withdraw funds that are designed to protect both the client and Rossmore from any fraudulent activity, so as a client you are asked to consider this if your request for withdrawal of funds be questioned.

Summer 2015 newsletter

Welcome to the Summer 2015 edition of our newsletter. In this roundup of the latest financial news, you’ll find articles on:

Yet another pension revolution?
Summer Budget round-up
The benefits of regular savings
Housing market update
2015/16 limits for ISAs
Don’t put off your will

To download your own copy of this newsletter, click HERE.

If you have any questions about the issues raised in this edition, please do not hesitate to get in touch.

The content of this newsletter does not constitute advice and should not be taken as a recommendation to purchase or invest in any of the products mentioned. Before taking any decisions seek advice.

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