Funding a decent retirement income

Whenever you start thinking about retirement planning, it is worth beginning by working out how much income you think you are going to need. Generally, few people need as much income in retirement as they did when working; nevertheless, with more leisure time available, you may have some ambitious plans for travel or family. All these expectations need to be considered carefully so you can set realistic targets.

Once your target figure has been determined, you can then begin to decide how much money needs to come from a pension and how much can come from other sources. For example, the flat-rate, single-tier basic state pension is £159.55 per week (for 2017/18), plus you may have money in Individual Savings Accounts (ISAs) or from rental income from a second property. You may also decide to take some other type of temporary paid employment.

Pension plan savings are the first step in working out how to make up the difference; however, unless you already have a significant work or personal pension arrangement in place, some form of additional saving is likely to be necessary for you to meet your target. Just to give you an idea, a pension fund valued at £100,000 will buy a 65-year-old an annual income of less than £5,200, with no built-in guarantees. If you wish to retire earlier than that, the cost will be even higher. The amount you need to save could, therefore, be considerable.

For more information please do not hesitate to contact the team at Ward Williams Financial Services Ltd on 01932 830664 or by email on wwfs@wardwilliams.co.uk.

ISA transfers: How do you move on?

Sometimes, having owned your Individual Savings Account (ISA) for a few years, you might notice that the underlying investments no longer give you what you need. Alternatively, because your circumstances have changed, you might wish to switch to another ISA provider with a wider choice of funds. How can you shift your investment without jeopardising the tax benefits?

You can transfer the value of your ISA to a different manager whenever you like. Reforms to legislation have granted much greater flexibility to ISA savers: savings held within a stocks and shares ISA can be transferred to another stocks and shares ISA, or to a cash ISA, and vice versa. Once you have decided on your course of action, you must enact an official transfer using your new manager’s ‘Transfer Request Form’; closing one ISA and reinvesting the proceeds into another is viewed as a withdrawal and, once you withdraw, you lose all tax benefits on the money removed.

Although transferring is a relatively straightforward process, it is important to remember that any investment – particularly in shares – is likely to be for the long term. Consequently, you need to be sure your existing investment is really not right for you, rather than switching just because of a short-term downturn in markets. Before shifting your portfolio, remember any transfer will incur charges that will need to be weighed up against the potential benefits, so do make sure you seek expert advice first.

For more information please do not hesitate to contact the team at Ward Williams Financial Services Ltd on 01932 830664 or by email on wwfs@wardwilliams.co.uk.

Gifting your house

Inheritance tax (IHT) allowances have failed to keep pace with house prices and many more people now have to consider the IHT burden they leave to their beneficiaries. In the current tax year 2017/18, your individual IHT allowance stands at £325,000 (£650,000 for married couples and civil partners), with an additional “main residence nil-rate band” of £100,000 per person that was introduced in 2017. This means that parents or grandparents can leave a property worth up to £850,000 to their direct descendants before IHT kicks in.

Despite the urban myths, the one thing you definitely cannot do is simply to sign your house over to your descendants whilst continuing to live in it. This is called a 'gift with reservation' and is ultimately inefficient for tax-planning purposes as the house will continue to form part of your estate. The only way to get around this is to pay the beneficiaries a market rent; however, this is unlikely to be a popular option for those who have paid off their mortgage in order to enjoy a comfortable retirement. Your beneficiaries will also have to pay income tax on the rental income; moreover, it leaves you vulnerable to the possibility that the house might have to be sold from under you if your beneficiaries find themselves in financial trouble.

So what options do you have? You could sell, move out and rent, or buy somewhere smaller and gift the balance of your gain to your beneficiaries. This is called a potentially-exempt transfer (PET) and becomes IHT-free as long as you survive seven years. If you have a big enough house, you could arrange joint ownership and live together in the house. That proportion of the house then becomes a PET and again, is IHT-free as long as you survive for seven years. For larger estates, there are more complex schemes to consider; however, these schemes need to be constructed with the help of a financial adviser to ensure not only that they meet the regulations, but also that an equitable deal is reached.

There are no easy ways to avoid IHT if a lot of your equity is tied up in your main house. However, you can at least maximise use of all the other allowances available to ensure that you manage the tax liabilities, whilst keeping a roof over your head.

For more information please do not hesitate to contact the team at Ward Williams Financial Services Ltd on 01932 830664 or by email on wwfs@wardwilliams.co.uk.