Fixed Protection for Pensions 2014

Within the last fortnight, HMRC has finally released the application form (APSS228) for individuals who wish to apply online for Fixed Protection 2014 (FP2014).

However, applying for FP2014 is the easy bit. Deciding upon whether you need to, or should, apply for protection is more complex.

First of all, why has FP2014 been introduced? For the simple reason that the pension Lifetime Allowance reduces from £1.5m to £1.25m on 6 April 2014. Any pension savings above this level will be heavily taxed when benefits are taken.

Who may be affected by this? Any person who did not apply for Enhanced or Primary protection before 6 April 2009, and believes the total value of their pension savings will exceed £1.25m when they take benefits on after 6 April 2014.

Warning 1: Before applying for FP2014, you need to know that this protection will be lost if any of the following events occur:

· You start a new pension arrangement after 5 April 2104, other than to accept a transfer of existing pension rights;

· You (or your employer) make further pension contributions to a ‘defined contribution’ arrangement as your Annual Allowance will reduce to zero;

·  You accrue further benefits in a ‘defined benefit’ arrangement.

We can see therefore that the decision about whether to apply for protection is certainly not straightforward, particularly where an individual is many years from drawing benefits and wishes to continue making contributions, or accrue benefits.

Difficult calculations are often required to arrive at an informed position from which to make a decision. We can help you.

Warning 2: If you are employed, and your employer automatically enrols you into a pension scheme, you have 1 month to opt out. If you fail to do so, FP2014 will be lost.

Watch this space for news of Individual Protection 2014. The government will be announcing the final details of IP2014 later this year.

IP2014 is expected to be available for individuals who have accumulated pension savings of at least £1.25m by 5 April 2014, and wish to continuing making pension contributions/accruing benefits.  

AIM shares and ISAs

The new ISA rules allow AIM shares to be held in an ISA. Thus many investors could be looking to transfer their AIM shares into an ISA.

Certain AIM shares benefit from Business Property Relief (BPR). Once shares have been held by an investor for a minimum of two years they are exempt from inheritance tax. Investors holding these shares in their ISA for the two-year qualifying period should benefit from virtually no taxes while they hold the share, and no potential inheritance tax liability.

If there is a transfer of AIM shares into an ISA and the shares have already been held for two years this inheritance tax benefit will be retained within the ISA  without them needing to be held for a further two years.

Please remember the value of tax shelters will depend on individual circumstances, and tax rules can change over time.

For further information please contact Director of Financial Planning Cliff Pocock at Ward Williams Financial Services Limited.

Enterprise Investment Schemes (EIS) - the 5 tax benefits

How would you like to . . .

·         Reclaim income tax you have paid to the taxman

·         Reduce the level of Inheritance Tax payable by your beneficiaries

·         Defer the payment of Capital Gains Tax

ENTERPRISE INVESTMENT SCHEMES (EIS) – the FIVE tax benefits

·         30% income tax relief on investments up to £1m per tax year

·         Must hold investment for minimum of 3 years

·         A gain arising on disposal of EIS shares is fully exempt from Capital Gains Tax

·         Must hold investment for minimum of 3 years prior to disposal for CGT exemption

·         A loss on disposal of EIS shares can be offset against income or capital gains

·         The loss is reduced by any EIS income tax relief claimed at the time of investment

·         Payment of tax on a capital gain made on the sale of any asset can be deferred if that gain is invested in an EIS

·         The gain must be invested in an EIS one year before, or three years after it arose

·         Providing the EIS shares qualify for Business Property Relief…

·         And have been held for a minimum of 2 years…

·         The value of those shares will be free from Inheritance Tax on death

There have been a number of changes to EIS investments recently, and they have increased in popularity particularly as pension tax relief has been reduced.

Ward Williams Financial Services Ltd have always given consideration to EIS investments, as part of an overall Financial Plan, and one of our Advisers would be happy to discuss your options.

EIS investments are considered to be higher risk investments, and it is essential to take financial advice in order to:

·         Ensure sufficient accessible emergency funds remain after investment

·         Restrict the proportion of your overall capital invested in EIS

·         Ensure the investment reflects your risk tolerance and capacity for loss

·         Diversify your EIS investment across a range of companies and sectors

·         Ensure you are focusing on investment fundamentals…not just the attractive tax reliefs

www.wardwilliamsfs.co.uk, wwfs@wardwilliams.co.uk

Ward Williams Financial Services Ltd. Registered in England No. 04359977.  Ward Williams Financial Services Ltd is authorised and regulated by the Financial Conduct Authority.

Introduction to Ward Williams Financial Services

Click here to watch our Director of Financial Planning – Cliff Pocock in action!