Here are the latest stories in the news – October 2015 – which may be of interest to our clients.
Family disputes on the rise
The number of family financial disputes that reach the courts is rising, says the Financial Times. An expert explains that one reason is the rising value of people’s assets. The typical cost of a court case over a will is £60,000, and rising property values means there is often a lot more than that at stake if someone feels they have been left less than they were due. Another factor is complicated families, with people wanting to provide for children by earlier marriages. One lawyer says home-made wills are a gift for him since they are rarely adequate.
Millions won’t get new flat-rate pension
The flat-rate state pension starting in April 2016 was billed as simple but is anything but, says the Mail. It turns out that because of complex qualifying rules, as many as two million people will not get the full flat rate pension. For most, this will be because for some part of their working life they were ‘contracted out’ of the state scheme. What baffles most people is that even if they have the 35 years of NI contributions that are required for a full state pension, if they were contracted out at some point they will still suffer a deduction.
Listing slump hits London properties
There has been a slump in new residential property listings for sale, says the Mail. Nationwide, listings have fallen 20% since June but in many London boroughs new listings are down over 30%. Some agents say the average rise in prices of 5.2% in the year to July is partly due to this shortage of supply.
The place to buy is Birmingham
The Mail quoted estate agents tipping Birmingham as a likely top performer in property over the next year. The last major pieces of city centre redevelopment are happening, including the second largest John Lewis store in the country above New Street station, and 2-bed city centre flats are still available for under £250,000. By London standards that seems absurdly cheap. Birmingham’s population is 1.1 million and growing with a surprisingly low average age of 35.
HMRC chases contractors
The taxman is chasing thousands of self-employed contractors who used mass-marketed schemes to avoid PAYE on their earnings, says the Mail. Last year HMRC gained new powers to force people to pay up the amount of tax HMRC says is due, and then argue their case through tribunals. The result is that many contractors have received demands for tax equal to their annual earnings. Experts say the HMRC assessments are often wrong, in which case people will eventually get refunds, but they still have to stump up the cash. The campaign against tax avoidance is becoming more aggressive.
Beware 70% pension tax charge
Thousands of people aged over 55 who take money from their pension funds face possible 70% tax charges, says the Mail. This is because if you take a tax-free cash sum of over £7,500 from a pension fund, and then add to your regular pension contributions, HMRC can claim that you are abusing the tax relief system and impose a 40% tax charge on the tax-free cash withdrawal plus 30% in other charges and penalties. The issue arises because many people are taking cash from old pension pots, typically worth less than £50,000, while remaining in their employer pension scheme to which they make contributions. It’s open to HMRC to say that if the tax-free cash was used to, say, pay off debt, that was what enabled someone to pay more into their pension – and this is defined as abuse.
This is yet another example of why you really do need to take care – and advice – on pensions to avoid the tax traps.
Pension tax relief under threat
The government launched a review of pension tax relief in July, and is expected to announce a policy change, perhaps as early as November, says the Times. Most experts believe the tax relief system will be changed to reduce tax relief to a flat rate of about 30%, and suggest that higher rate taxpayers make hay while the sun shines.
Don’t underestimate illness risk
Half of all workers think the risk of being unable to work though illness is less than one in ten, says the Independent. In fact the risk is a lot higher, and every year 300,000 people go from work to welfare as a result of illness. There are several types of insurance that can be used alone or in combination to provide cover for a family, but experts and insurers agree that this is something the general public knows almost nothing about.
Income protection is especially important for the self-employed and business owners.
Automatic train delay refunds from Virgin
Virgin Trains has become the first operator to offer automatic refunds if trains are delayed or cancelled, says the Sunday Times. Refunds start at 25% for a 30-minute cancellation, rising to a full refund if the delay is over two hours. The refunds will go direct to customers’ accounts, but only if they have bought direct from Virgin. It’s estimated that three-quarters of those entitled to refunds don’t currently get them because of the need to fill in forms from operators’ websites. But as many as 50 million journeys a year could qualify for some form of compensation.
A £2 billion ISA rip-off
Savers are losing as much as £2 billion a year in interest because banks have cut their interest rates on cash ISAs so much over the past two years, says the Sunday Times. According to the Bank of England, the average interest rate on cash ISAs two years ago was 2.35%, but today – even though the Bank’s base rate has remained the same at 0.5% – the average is just 1.43%. In November, National Savings & Investments will cut the rate on its popular cash ISA from 1.5% to 1.25%. The Sunday Times suggests readers forget cash ISAs and use bank accounts that offer high interest rates up to 5% on up to £5,000 of savings – even after paying tax, these offer higher returns.
Losers complain about state pension rules
Hundreds of thousands of people retiring after April 2016 will get less than the new flat-rate State pension, says the Times. Most do not understand why, since the pension statements they get from the Department of Work and Pensions don’t explain. In fact, for the majority of those who get smaller state pensions, the extra pension they get from their employer for the period for which they were ‘contracted out’ of the state scheme will more than make up the deduction. But the rules are complex and are different depending on when and for how long you contracted out.
Taking tax-free cash from your pension fund and investing it back into your pension can be an easy way to pick up extra cash, says the Mail. This is because tax relief is added to your contributions. But nobody is yet sure how HMRC will apply its ‘anti-avoidance’ rules that can result in high penalties for people who do this on a large scale or regularly. In theory, anyone drawing more than £7,500 in tax-free cash and contributing to a pension scheme at the same time could be caught by these rules.
Can’t afford to downsize
The Telegraph featured the story of an elderly couple living near Cambridge who wanted to downsize. Their detached 4-bed home was in a village and was valued at £280,000, but they couldn’t find a suitable retirement property – ideally a flat with a small garden – for less than £350,000, and would have had costs of some £20,000 on top. This shortage of suitable property is preventing many older people from downsizing and freeing up family homes.
HMRC cracks on with digital
HMRC is on a mission to eliminate paper forms, says the FT. It is already starting to send out self-assessment forms with a lot of pre-populated data. That will increase as it moves towards online accounts where it no longer sends out self-assessment forms by about 2020, saving 12 million people from their least favourite task of filling them in. HMRC also told the FT how useful its Connect system is in tracking down tax evaders by pulling together information from public sources as well as its own records.
Crackdown on risky pension investments
The regulator is changing its rules to make it harder for investors to use their pension pots for risky investments. Until now, they have been able to qualify as ‘high net worth’ investors by counting their pension pots among their assets, but now they will not be able to include their pension tax-free cash in their assets, so fewer will qualify. Though high-risk investments are unsuitable for most investors, some have been lured by the promise of high returns from schemes that have collapsed or proved fraudulent.
Household staff pensions
People who employ household staff, both full and part-time, will have to make arrangements to set up auto-enrolment pension schemes for them, says the Financial Times. Anyone earning over £10,600 has to be enrolled and those earning over £486 per month are entitled to join if they wish. The timing depends on the numbers involved, but for most will be in the next 18 months.
The Consumer Rights Act that took effect from 1st October has improved consumer rights, says the Independent. It sets a definite period of 30 days within which you can get a full refund for faulty items, and extends that right to digital downloads, which were not previously covered.
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