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May Newsletter 2012

Thank you for your continued support and feedback regarding our newsletters and in this edition we have quite a mix for you.

Firstly, some ideas to help parents fund university fees and/or a first time buyer deposit for their children, plus an update on important changes in the way financial services will be charged from the end of this year.

Also, one for employers, a timely reminder to check the validity of your group life scheme. We hope you find these articles interesting but above all, useful. As always, we welcome your comments.

In this issue:

• How to build up savings for your Children/Grandchildren

Are you responsible for your Group Life Pension Scheme?

• A small price to pay….

• What’s changing in the way you pay for financial advice?

• The Student Finance Scheme Explained

Savings for Children and Grandchildren

The steep rise in further education fees and house prices means that many parents need to dig deeper into their pockets to help fund their children’s future. Early planning is therefore essential and there are a number of options available to help build up the necessary funds.

Click here to see more details on the Student Finance Scheme.

It is important to remember that for tax purposes, children are treated in the same way as adults, subject to income tax and capital gains tax as well as entitled to a personal allowance and an annual CGT exemption. This enables a number of tax planning opportunities particularly for parents who are higher rate payers.

However, as the child’s fund grows, the £100 rule may apply whereby parents will be assessed for income tax if the income generated by their child’s fund exceeds £100 per year.

Two options to consider are as follows:

Junior ISAs

These replaced Child Trust Funds and are available to all children under the age of 18 who are UK resident and do not already hold a CTF. The annual maximum is £3,600 into either a cash or a stocks and shares Junior ISA. As with adult ISAs, Junior ISAs are completely free from income tax. However it is important to choose the Junior ISA wisely because fund choice and fund charges will vary, as they do with adult ISAs, and will affect the overall return.

Investments held in Trust

For larger investments, setting up a trust may be a useful option as this can be tax efficient and can be tailored to meet the parents’/children’s circumstances. Investments held in trust can enable the trustees to stipulate when the beneficiary can receive funds, which may prove useful when compared to the Junior ISA which is available to the child on their 18th birthday.

There are different types of trust and the underlying investments can be subject to tax in different ways. Whichever option you choose, ultimately, the key is planning ahead and setting up a tax efficient savings programme as soon as possible.

If you would like to discuss the options available in greater detail or to review your current programme, please call us on 01926 651122.

What’s changing in the way you pay for financial advice?

From 31st December 2012 there will be big changes in the way financial services are provided in the UK. Any organisation involved in the retail of financial services and products eg financial advisers, banks and stockbrokers can no longer be paid by commission and must adhere to stricter rules and industry standards.

Consumers can therefore expect fair and transparent charges, higher quality advice and a full understanding of the services they receive.

How will this affect the services you receive from your financial adviser?

1) Your financial adviser will have to agree charges with you upfront for their advice as they will no longer receive commission on the products they recommend.

2) Your adviser will be required to state whether they are independent or restricted, i.e. how much of the market they have access to and whether they are restricted to specific products or providers.

3) Your financial adviser will be required to maintain a higher standard of industry expertise which includes a higher qualification, ongoing continuing professional development of at least 35 hours each year and must hold a Statement of Professional Standing as evidence that they have met the required standard.

This initiative has been in the offing since 2006 and has been brought in by the FSA in a bid to protect the consumer and increase the level of confidence and trust in UK financial services.

For further information on how this affects you as the consumer, please download our pdf:
The Retail Distribution Review (RDR) – what is it and how will it affect me?

Are you responsible for your company Group Life Scheme?

If your company has a stand-alone group life scheme in place its worth checking that it has been set up correctly and registered with HMRC properly, as there could be major consequences if this is not the case. We have set out the 2 main questions you should consider and why.

1. Was the trust deed properly executed? 
If the trust deed was not executed properly the scheme will be rendered invalid, leaving it with no valid trustees, scheme administrator and no scheme setting out the benefits payable. The implications are serious:

• Invalid contract with insurer 
This renders the contract with the insurer invalid as there are no trustees, no benefits in existence and therefore no insurable interest. As a result, the insurer would not be obliged to settle any death claim, even if all premiums had been paid.

• False HMRC Declaration 
The trustees are required to appoint a scheme administrator to register the scheme with HMRC. If the trust deed has not been properly executed any administrator subsequently appointed is not valid and has made a false declaration in registering the scheme. This renders that person liable to a fine.

• Invalid HMRC Registration 
A requirement of HMRC is that the scheme must have a trust (or other arrangement) in place for registration to be valid. This is not the case if the deed was not executed properly and the registration is therefore invalid.

• Loss of Tax Benefits 
With an invalid registration, if an insurer did agree to pay out on a claim, any tax benefits would not apply. The premiums would therefore not be treated as a business expense or as P11D earnings for employees.

2) Was the scheme properly registered?
Any scheme that has not been properly registered would be treated as an unregistered scheme. For example, where a scheme was registered before the trust deed was executed. As a result, the business would lose any tax benefits and any claims paid out could be subject to full tax and NI contributions. Furthermore, whoever registered the scheme could be subject to a fine from HMRC for making a false declaration.

As you can see, it is vital that your stand-alone group life scheme has been set up and registered correctly, but if you are in any way concerned about your scheme please call us on 01926 651122 and we’ll do what we can to help.

A small price to pay…

If you own a pet, the chances are that you’ve taken out pet insurance to help with vet costs. But how many people insure themselves against critical illness? A recent study of 2000 consumers found that 12% of respondents have pet insurance, compared with 9% who have a critical-illness policy and even fewer, 4%, who have an income protection policy.

Yet the effects of serious illness and the potential loss of income can be devastating. Take this example as a case in point:

Tom* is married with 3 children and lives in a large 4 bedroom house. Tom’s wife Rebecca* works part-time for a local insurance company. Their mortgage is £1100 a month and the family car repayments are £200 per month. Tom unfortunately becomes ill with colon cancer and faces a long recovery period. Rebecca must give up her job to care for Tom on his release from hospital. Tom’s employer sickness scheme pays his full salary for 6 months but after that the family is forced to rely on statutory sick pay of approximately £340 per month to cover the family’s bills – the mortgage and car bills costing £1300 alone. The trauma and stress are unimaginable.

*All names have been changed for the purposes of this illustration

The above is based on a true story yet the picture could have been so much different. Critical-illness cover pays out a tax free lump sum in the event of serious illness.

If you’re concerned about the cost of Critical Illness cover, it’s probably less expensive than you think. Having something in place is definitely better than nothing and it’s possibly a small price to pay for peace of mind.

For a no obligation quote on CI cover, please call us on 01926 651122.

Student Finance Scheme

Students who start university on or after 1 September 2012 will face much higher costs, with tuition fees in the public sector set to increase from £3,275 up to £9,000 per year.

When you add on costs for food, accommodation and travel it is not unreasonable to assume that a typical year at university may cost around £18,000.

For example:

  • Tuition fees £9,000 per year
  • Accommodation £4,000 per year
  • Living expenses £5,000 per year

Students from England will not have to pay their tuition fees up front as loans to cover the cost of the tuition fees are available from the Government.

Government loans are also available to help with living costs, with the amount that can be borrowed being up to £5,500 a year for a student living away from home and studying outside of London.

However, the amount that can be borrowed towards living costs will depend on where the individual lives, studies and the level of household income. For an individual living at home the loan amount will be less than the ranges stated above and for those studying in London the amounts will be higher than the ranges stated above.

Interest on the loan will be added at the rate of inflation plus 3% while studying and from the April after finishing studying, at the rate of inflation plus up to 3% with the latter being determined by the level of the individual’s income.

The loans do not have to be paid back until after the individual has finished their course and is earning over £21,000 a year.

At this point the individual will have to pay 9% of their income above £21,000 with the amount that has to be repaid dependent on the level of the individual’s income. For example, if salary was £25,000, the 9% would apply to £4,000, meaning that £30 per a month would have to be repaid. After 30 years any outstanding loan will be written off.

For further information on student finance go to www.direct.gov.uk/studentfinance

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