Achieving your financial goals
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Whatever your age, personal situation or financial status, you will have goals for yourself and for your family. We can help you put in place the necessary planning measures to make these goals a reality. This might seem like a formidable task, when you consider that you may need to include: raising young children and saving for their education; helping to care for and support ageing parents; achieving the standard of living you want for your household; and funding your retirement. However, as you will see in this guide, there are some definitive plans that you can make and steps you can take. |
Tax allowances and exemptions
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Let's start by looking at some of the worthwhile strategies you could apply within the family. |
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Each member of your family is taxed as an individual, and so is entitled to his or her own allowances and exemptions. |
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Allowances and rate bands are allocated first to your earned income (which includes pensions), then to your savings income, and finally to any UK dividend income. |
Aged 65 or over?
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The personal allowance for 2009/10 for those aged 65 to 74 at 5 April 2010 is £9,490, and for those aged 75 or over it increases to £9,640. Both higher allowances are scaled back if income exceeds £22,900, but in any event the minimum personal allowance is £6,475. The married couple's allowance may be reduced if the husband's income exceeds £22,900. This is subject to a minimum tax reduction of £267. For marriages on or after 5 December 2005 and for civil partners, it is the income of the spouse or civil partner with the most income which governs the scale back. |
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Age at
5 April 2010
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Personal allowance
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Maximum Married
couple's allowance
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65 - 74
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£9,490
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75+
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£9,640
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Elder spouse
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Tax reduction
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75+
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£696.50
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Minimum
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£267.00
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Key planning objectives for the family
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With careful planning, using the available personal allowances and gains exemptions, a couple with two children could have income and gains of at least £66,300 tax-free, and income up to £175,500 before paying any higher rate tax. Planning objectives should include: |
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Making the most of tax-free opportunities |
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Keeping marginal tax rates as low as possible |
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Maintaining a spread between income and capital. |
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Income tax rates for 2009/10 |
Earnings etc
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Savings
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UK
Dividends
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Income |
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First £6,475 |
-
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-
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-
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Next £2,440 |
20%
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10%/20%*
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10%
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Next £34,960 |
20%
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20%
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10%
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Excess |
40%
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40%
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32.5%
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Capital Gains |
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First £10,100 |
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Tax-free
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Remainder |
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18%
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*There is a 10% starting rate for savings income up to
the starting rate limit (£2,440) within the basic rate band.
Where taxable non-savings income does not fully occupy
the starting rate limit the remainder of the starting rate
limit is available for savings income. |
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Planning for 2010
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From 6 April 2010 the top rate of income tax, for those with taxable incomes in excess of £150,000, will be 50% (42.5% for dividends). Talk to us now for our latest thoughts on minimising the impact of the new tax rates. |
Transferring your assets
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Planning is often hindered by the potential for tax charges to arise when assets are moved between family members. Most gifts are potentially taxable as if they were disposals at market value, with a resulting exposure to capital gains tax (CGT) and inheritance tax (IHT). |
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However, there is normally no tax charge on transfers of assets between spouses living together (transfers on or within seven years of death to a spouse domiciled outside the UK are exempt only to the extent of £55,000), or between separated spouses in the tax year in which separation occurs. Gifts must be outright to be effective for tax, and must not comprise a right only to income. Careful timing and advance discussion with us is essential. |
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Case Study 1 |
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Tony is a single person with a gross income of £45,000 (made up of £25,000 earnings, £5,000 of interest and grossed-up UK dividends of £15,000) and capital gains of £11,000 (assuming no other reliefs, etc). He would have a tax liability of £6,620.12. |
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Earnings
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Interest
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UK Dividends
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Gains
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Income and gains |
25,000
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5,000
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15,000
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11,000
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Deduct: Personal allowance |
- 6,475
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Deduct: CGT exemption |
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-10,100
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Taxable |
18,525
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5,000
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15,000
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900
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Tax at: |
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20% on |
18,525
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5,000
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10% on |
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13,875
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32.5% on |
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1,125
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18% on |
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900
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Totals |
£3,705.00
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£1,000
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£1,753.12
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£162.00
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Total tax liability |
£6,620.12 |
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Your children
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One of the biggest financial challenges facing children today is the amount of debt they will have incurred by the time they leave university. Studies suggest that students going to university now could come out with debts in the region of £20,000. |
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For younger children, the Child Trust Fund may create the opportunity for parents, grandparents and other family members to build - with Government help - a fund to help offset university expenses and minimise debt at the start of the child's working life. With an initial payment of £250 (£500 for low income families) from the Government plus a second payment of £250/£500 at age seven and perhaps further state payments, parents and others can add up to £1,200 a year to the tax-free fund which can be available any time after the child reaches 18. |
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Older children will not receive the Government help, but they do have their own personal allowances, meaning that income up to £6,475 escapes tax this year, as long as it does not originate from parental gifts. If income from parental gifts exceeds £100, the parent is taxed on it unless the child has reached 18, or married. Thus parental gifts should perhaps be invested to produce tax-free income, or accumulate income, or in a cash ISA. The £100 limit does not apply to gifts into the Child Trust Fund or National Savings Children's Bonus Bonds. |
Generation skipping
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Income from capital gifted by grandparents or more remote relatives will be taxed as the child's, as will income distributions from a trust funded by such capital. |
Marriage breakdown
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Maintenance payments do not usually qualify for tax relief. Similarly, maintenance payments received under orders or agreements are not taxable. However, tax relief worth up to £267 this year is given on maintenance paid to a former spouse under orders or enforceable agreements, as long as at least one of the former parties to the marriage was born before 6 April 1935. |
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The special CGT/IHT treatment for transfers between spouses applies throughout the tax year in which separation occurs. For CGT, transfers in subsequent years are dealt with under the rules for disposals between connected persons, with the disposal treated as a sale at market value, which could result in substantial chargeable gains. For IHT, transfers remain exempt until the decree absolute. |
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Therefore, careful consideration on the timing of such transfers is needed. |
Personal contingency planning
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How would your spouse and/or children manage if you died or were incapacitated tomorrow? |
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Beyond taking the obvious step of ensuring you have adequate insurance cover, with life assurance perhaps written into trust for your spouse or children to ensure quick access to funds, you need to make a Will. We also strongly recommend that you: |
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Make a living Will: so you can make clear your wishes in the event that, for example, you are pronounced clinically dead following an accident |
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Execute a lasting power of attorney: so that if, whether as a result of an accident or illness, you become incapable of managing your affairs, you can be reassured that responsibility will pass to someone you choose and trust. |
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Of course, all of this also applies for your spouse. Make sure that your family protection planning considers the possibility that both parents may be simultaneously killed or incapacitated. |
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On a practical note, tell your spouse, your parents, and your business partners where your Will and any related documents are kept - it is still up to you to decide whether to tell them what the documents contain, but if you are passing responsibility for managing your affairs on to others, it would be advisable to talk matters through with them now. |
Do you have unclaimed assets?
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It is estimated that over £15 billion of assets lie unclaimed in the UK. To see if you have any lost assets contact the unclaimed assets register on 0870 241 1713. |
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To see if you have an unclaimed Premium Bond prize, call 0845 964 5000 or visit www.nsandi.com. |
Taxation of non-domiciliaries and others entitled to claim the remittance basis for UK taxation
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The rules are complex and a full analysis is beyond the scope of this guide, so please talk to us if you are affected. But as a very brief summary of the position for 2009/10: |
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If you are an adult caught by the 'years of residence' rule, and your unremitted foreign income or gains exceeds £2,000, you will have to make a choice of whether to include them in your self-assessment Return for 2009/10 and pay UK tax or pay the £30,000 tax charge. The decision is made when you complete your 2010 Tax Return, and the tax will be payable as 2009/10 tax |
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You may be able to claim credit for the UK tax/£30,000 against your liability elsewhere in the world, and against the UK liability when the income or gains are eventually remitted |
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The concept of what constitutes a remittance goes beyond money you bring into the UK. For example, tax will be due on the remittance to the UK by close family members of income or gains gifted by you to them outside the UK, and on the import of assets bought outside the UK using untaxed income or |
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gains (subject to limited exemptions) |
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Key to managing your tax liabilities is the ability to identify and track capital, income and gains. People affected should seek advice on keeping different types of funds separate, how to remit 'clean' and 'tax-paid' income and gains, and on how money brought into the UK from mixed funds will be taxed. |
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Please contact us to discuss the following:
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Understanding your available tax allowances and rates |
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Making the most of tax-free opportunities |
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Keeping tax rates as low as possible across the family |
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Using savings, capital and the Child Trust Fund to give your children a better start in life |
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Making a Will |
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Making a living Will and giving someone you trust a lasting power of attorney over your affairs |
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Insuring your life and obtaining disability and critical illness insurance |
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Saving for income and investing for capital growth |
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Planning in the event of marriage breakdown |
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