Thursday, 30 July 2015

How Divorce Could Affect Your Retirement Income

“Breaking up is never easy” but sometimes it's the best you can do.  The Abba hit “Knowing Me, Knowing You” was released in 1976.  A lot has changed since then, but breaking up still remains a painful and potentially expensive matter. 

The Basics of Divorce 
There are three steps to getting a divorce.  

Step one is to file a divorce petition.  This currently carries a fee of £410.  

If your spouse accepts the divorce petition, you can then apply for a decree nisi.  This is essentially a statement which confirms that it is legally acceptable to end the marriage.  If your spouse refuses to accept the petition and you wish to proceed with the divorce, you will need to attend a court hearing.  You may require legal representation for this.  The cost of this will vary depending on your needs. 

If a decree nisi is granted, there is a 6-week cooling off period before you can apply for a decree absolute.  The decree absolute formally and finally ends the marriage. 

The Basics of Divorce Finance 
It is perfectly possible and legal for two parties to divide their assets between themselves amicably upon divorce.  Whether or not this is advisable depends on a number of factors.  

Even if the divorce is amicable, it may still be worth both parties taking legal advice.  Divorce can be a highly emotional situation.  Having professional legal advice can help to keep both people focused on the practicalities.  

There are basically four points to consider when looking at finances during a divorce. 

1. The needs of children.
2. The immediate needs of the divorcing parties.
3. Longer-term maintenance.
4. The division of assets and debts 

Where there are children in a marriage their needs will always be the highest priority.  After this, both couples will need sufficient funds to meet their current needs.  How much this will be will depend on individual circumstances.  

It may also be considered appropriate for one party to pay another maintenance over a longer-term period.  This is particularly likely if there are children.  Even without children, however, the lower-income partner may be entitled to maintenance.  

The division of assets and debts covers basically everything else – including pension savings. 

How to Protect Your Finances in Divorce 
Moving on financially after divorce is a bit like unscrambling eggs.  Fortunately it can be done.  You will need to disentangle yourself and your credit record from your spouse as quickly and effectively as possible.  

One of your first priorities should therefore be to set up a current account in your own name.  You should also aim to close all joint accounts as soon as you can. Separate lives mean separate bank accounts.  
If you have joint debt, then this also needs to be dealt with.  In an ideal world, the debt would be repaid as part of the divorce process.  For example, joint assets could be sold and the proceeds used to pay the debt.  

In the real world, this may not be possible.  For example if children are to stay in the family home, then the mortgage payments on it will still need to be met.  

Therefore the division of debts needs to be looked at just as carefully as the division of assets. 

Divorce and Retirement Planning 
Divorce can have a significant impact on your financial health in your later years.  

First of all your existing retirement savings may well need to be split with your ex spouse.  

Secondly you are each going to need to run your own home.  This means that you may have the initial expenses of renting or buying a new property.  It also means that bills which may have been split by two people now need to be paid individually. 

For more information please do not hesitate to contact the team at Ward Williams Financial Services Ltd on 01932 830664 or by email on

Tuesday, 28 July 2015

The family home and IHT

The government has announced the introduction of a new transferrable nil rate band for the family home. The additional band will apply where a residence is passed on death to direct descendants such as a child or a grandchild. This will initially be £100,000 in 2017/18, rising to £125,000 in 2018/19, £150,000 in 2019/20, and £175,000 in 2020/21. The additional band can only be used in respect of one residential property which has, at some point, been a residence of the deceased.

The allowance is in addition to the inheritance tax nil rate band which is currently set at £325,000. By 2020/21 the total individual nil rate band will therefore total £500,000.

Any unused nil rate band may be transferred to a surviving spouse or civil partner. It will also be available when a person downsizes or ceases to own a home on or after 8 July 2015 and assets of an equivalent value, up to the value of the additional nil rate band, are passed on death to direct descendants. This element will be the subject of a technical consultation and will be legislated for in Finance Bill 2016.

There will also be a tapered withdrawal of the additional nil rate band for estates with a net value (after deducting any liabilities but before reliefs and exemptions) of more than £2 million. This will be at a withdrawal rate of £1 for every £2 over this threshold.

The IHT nil rate band is currently frozen at £325,000 until April 2018. This is to remain frozen until April 2021.

Internet link: TIIN IHT

For more information please do not hesitate to contact the team at Ward Williams Financial Services Ltd on 01932 830664 or by email on

Wednesday, 22 July 2015

Changes for 'Buy to Let' Landlords

It was announced in the Budget that the government will restrict the amount of income tax relief landlords can claim on residential property mortgage interest costs to the basic rate of income tax.

This means that landlords will no longer be able to deduct all of their finance costs from their property income. They will instead be restricted to the basic rate. To give landlords time to adjust, the government will introduce this change gradually from April 2017, over four years.

This restriction will not apply to landlords of furnished holiday lettings and will not impact on basic rate tax paying landlords.

From April 2016 the government will replace the Wear and Tear Allowance with a new relief that allows all residential landlords to deduct the actual costs of replacing furnishings.

Internet link: TIIN landlords

For more information please do not hesitate to contact the team at Ward Williams Financial Services Ltd on 01932 830664 or by email on

Tuesday, 21 July 2015

Will You Get The Full State Pension?

In the Jane Austen novel Emma, the main character, Emma Woodhouse wittily describes the difference between being rich and being poor in old age.  

Emma was published in 1815, but in principle her comments still hold today.  Those with enough money can find their later years some of the most fulfilling of their lives.  Those who are short of money can find them difficult and depressing. 

A Brief History of the State Pension 
The original state pension was introduced in 1909.  Unsurprisingly it has seen quite a few changes since then.  

Starting in April 2016 the existing state pension will be changed to the new state pension.  As the new state pension is a means-tested benefit the amount received, if any, depends on your National Insurance contributions.  You are likely to need at least 10 years' worth of payments to claim any state pension.  You will need at least 35 years' worth of payments to claim the maximum amount. 

How Do I Calculate My Pension? 
The easiest way to calculate your state pension is to get an estimate from the website.  You can also apply for a National Insurance statement, which will show if there are gaps in your payment record.  These may have been for perfectly legitimate reasons and be completely legal, but they may still impact your future pension.  

If this is the case, you may be able to undo, or at least limit the damage, by making additional NI contributions.  

You can also have NI contributions credited to you if you are in receipt of certain benefits.  This could be particularly useful to people taking time out of work to raise children or to care for elderly relatives.  Again, you can check if you are eligible for NI credits on the website. 

Can I Rely on the State Pension? 
There are two parts to this question.  

The first part is how likely it is that there will continue to be a state pension.  
The second part is whether or not it will be enough to live on.  

There are no guaranteed answers to either part of the question.  It should, however, be possible to make some reasonable guesses about the second part.  

In short, you need to think seriously about the sort of lifestyle you want to have in retirement.  Then you need to start costing out your plans.  Of course, some aspects of your life may be substantially cheaper in retirement.  For example you may have paid off your mortgage.  You may also be able to stop buying a season ticket to travel to work or to give up your car.  

You may, however, get a surprise at just how many expenses you will still have in retirement.  For example, if you own your own home you will still need to maintain it.  That's even before you start thinking about actually having fun in your retirement. 

Voluntary Pension Contributions Could Make All The Difference
Under the auto-enrolment scheme, all eligible workers are automatically enrolled into a workplace pension scheme. 

As a part of this scheme, workers make pension contributions automatically out of their wages.  These contributions benefit from tax relief.  

Employers also make contributions.  There are therefore obvious benefits to being a part of a workplace pension scheme.  

There is, however, the obvious drawback that pensions contributions reduce the amount of money a person has available in the here and now.  As the scheme is entirely voluntary, everyone needs to take their own decision based on their own personal circumstances.  

It is, however, arguably impossible to overstate the importance of having adequate retirement savings in place.  Does anyone really want to spend their later years in poverty? 

For more information please do not hesitate to contact the team at Ward Williams Financial Services Ltd on 01932 830664 or by email on