How good is LISA?
How does the Lifetime ISA, the savings scheme launched in April 2017, compare with other saving options? asks the Herald. Despite the possible merits of a government subsidy of 25 per cent on the annual maximum of £4,000 for those aged under 40, many experts caution that LISA is not as good as workplace pension schemes. This is because in employer pension schemes, the extra £100 contributed by an employee often attracts an equal contribution of £100 from their employer – four times the government boost provided to LISA. So, for retirement savings, pensions are the clear winner, but experts agree that if you use the proceeds of LISA for a first-time house purchase you get the maximum possible bang for your buck.
The Independent reviewed several pieces of recent research on inheritance. It concluded that most people expect to inherit more than they will, that about half of the elder generation plan to spend a lot of their money and that almost half of those who will get an inheritance have already got very specific plans for how they will spend it – with items like mortgage repayment and big-ticket purchases like cars and home extensions topping the bill. But because the richest 10 per cent of elderly households own 40 per cent of all wealth in the UK, it is also a case of the ‘haves’ and the have-nots’, with the children of the wealthiest – who already have above-average incomes – likely to inherit far more than the rest.
Compensation limit rises to £85,000
As from the start of February 2017, the amount protected by the UK’s investor compensation scheme rose from £75,000 to £85,000. This reversed a cut of £10,000 in the limit in July 2015. The change follows a decline in the exchange rate of the pound against the euro (just as the previous cut followed a rise in the exchange value of the pound). The EU-wide limit is set at 100,000 euros. The limit applies to all of an individual’s accounts with the same institution.
Test drive your retirement home
A new trend towards ‘test-driving’ a new retirement home was identified by the Telegraph. Many developers of new-build housing aimed at retirees now offer prospective buyers the opportunity to stay in a development for a day or two to check it out before committing themselves to a purchase. Some developers now include a ‘show and stay flat’ in their development just so that it can be used for this purpose. People who have used this facility say it helped them make the right choice.
Why the old have to support the young
Intergenerational inequality is bad and is going to get worse, says the Telegraph, citing research by the Resolution Foundation. Back in 2011, the average income of pensioners after housing costs overtook that of workers, and it has continued to rise ever since. The reason is the steady increase in housing costs, especially rents. But from now on, rising inflation and stagnant wages are likely to be the factors that make the gap between old and young even bigger. This increases the pressure on the older generation to help the young with capital towards house purchase or regular gifts.
Boost your pension through deferral
People who retired before April 2016 can still boost their state pension by over 10 per cent, says the Telegraph – by ‘unretiring’ and deferring their state pension: each year of deferment will bring a 10.4 per cent increase in the pension they get. If you live over 11 years after you restart your state pension, you will make a profit from doing this, but if you retired after April 2016, the rate of increase for deferment is only 5.8 per cent so you will have to live longer to make a profit. But the Telegraph warns that if you defer the state pension, you will not automatically get the pensioners’ winter fuel payment but will have to ask for it.
Hospitality businesses face pension fines
Figures from the workplace pension regulator show that it has levied most fines and penalties against clubs, bars and restaurants, says the Financial Times. Under the auto-enrolment rules, all employers are bound to enrol employees in a pension scheme to which both employer and employee contribute. The regulator has also started to issue County Court Judgements against businesses that have not paid fines or penalties.
Trusts in decline
The use of family trusts in financial planning is in decline, says the Financial Times. The number of trusts completing tax returns has fallen by 27 per cent over the past ten years. The prime reason, says the FT, is tax. Back in 2004 the tax rate on trusts was 34 per cent – now it is 45 per cent. Moreover, since 2006 there has been a 20 per cent tax on assets being passed into a trust and a 6 per cent tax every ten years. However, ‘bare trusts’ escape most of these taxes and are still worthwhile, and today more people use family investment companies to achieve many of the objectives that used to be served by family trusts.
Iron out tax discrepancies, says think-tank
It’s time the government ironed out major tax discrepancies between employees, the self-employed and owner-managers of businesses, says Britain’s most influential financial think-tank the Institute of Fiscal Studies, says the Financial Times. The IFS say an employee earning £100,000 pays £8,035 more tax than an owner-manager and £7,365 more than a self-employed person and says such differences are unjustified. But it warns against piecemeal changes which could have ‘whack-a-mole’ effects of moving problems from one part of the complex UK tax system to another.
Watch out for leasehold costs
Financial Times columnist Merryn Somerset Webb warned readers against new-build leasehold properties, saying they were simply a means for developers to make more profits. Ground rents charged to leaseholders usually have a set rate of increase at a much higher rate than inflation, while there are often no caps on service charges, which in new-build properties often cover the costs of maintaining common areas and facilities. Developers sell off the ground rents to other investors to boost their profits. She advises readers to avoid leasehold if they possibly can.
Worries over digital tax speed
The Financial Times quoted accountants concerned at HMRC’s confirmation of its intention to press ahead with plans to digitise the tax system from April 2018. They queried HMRC’s claim that businesses would save money since not only are there up-front costs but businesses are likely to need to consult their tax advisers more often. HMRC has, however, left open its options for deferring digitisation for smaller businesses and the self-employed and could also increase the current £10,000 turnover threshold.
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