Dangers of a price cap
Theresa May’s promise to introduce a price cap on energy bills may not improve the situation of those on Standard Variable Tariffs, says the Independent. Prices in this category have risen by an average of 8 per cent or three times the rate of inflation over the past 12 months. And finding a good deal is getting harder since price comparison sites are not bound to show all the available offers. A majority of utility customers are on SVTs and are paying about £300 a year more than they need to for their energy.
Student loan savings
The rise in the repayment threshold for student loans from £21,000 to £25,000 announced by the Prime Minister at the Conservative party conference will save individual graduates £30 per month and up to £15,700 over their working lives, says the Times, quoting research by the Institute of Fiscal Studies. The cost to the Treasury will be £2.3 billion per year. The IFS also says that 83 per cent of graduates will not repay their loans in full (after 30 years any remaining loan balance is written off) and that under the revised rules, 45% of all student debt will never be repaid.
No cheap cover for that
The collapse of Monarch airlines prompted newspapers to ask: was that covered by travel insurance? The answer given by the Times was that under half of travel insurance policies cover the failure of an airline (most also exclude acts of god such as hurricanes, and acts of terrorism). Experts said a plethora of cheap travel insurance policies had whittled away at coverage and policyholders needed to be aware of just what was and wasn’t covered.
Mortgage rates tick up
Some of the best-value mortgage lending offers have been withdrawn as the Bank of England has warned that a rise in interest rates is imminent, says the Mail. But one lender is still offering a 2-year fix at 0.99 per cent and several 5-year fixed rates are on offer at under 2 per cent. Economists expect the Bank of England’s base rate to rise to 1.75 per cent by the end of 2019.
Use pensions to beat inheritance tax
Pensions can help you avoid inheritance tax bills, says the Mail. If you have a defined contribution pension plan, its value on your death is free from inheritance tax and can be left to anyone you choose. If you die before the age of 75, the beneficiaries don’t pay any tax either. And though they are in theory liable to income tax on a bequest of a pension if you die after the age of 75, many can avoid this – grandchildren, for example, will probably have no income and pay no tax, but still have their own personal tax allowance of £11,500 and could withdraw this amount each year without incurring any tax liability.
HMRC’s auto-tax experiment
Between now and Christmas, some 400,000 people who normally complete a tax return will instead receive in the post from HMRC a ‘simple assessment form’, already pre-filled using data held by the taxman. The forms are going to two groups of people: new state pensioners whose income is above the personal allowance and PAYE taxpayers – most employed people – who have underpaid tax by a significant amount, perhaps because they enjoy a workplace benefit on which further tax is due. HMRC hopes people will just agree the figures and pay the tax. But experts warned that the error rate could be 10 per cent or more and urged people to check the figures carefully.
How to boost pension tax-free cash
Switching from a final salary pension to an independent plan could substantially boost the amount of tax-free cash you can take, says the Telegraph. Under a typical final salary scheme rules, the fund is valued at 20 times the pension, so if you had a £10,000 pension entitlement the fund would be worth £200,000 and you could take a quarter of that or £50,000 as tax-free cash. But many schemes now offer much higher transfer values of up to 40 times the annual pension, and if you transferred at that valuation your tax-free cash entitlement would be £100,000. But, warns the Telegraph, it remains a risky thing to do since you are giving up irreplaceable lifetime pension guarantees.
Rental cost soars
The amount of rent paid on residential properties in the year to June was £54 billion, says the Financial Times, having risen by £14 billion since 2012 – and over that period the amount of interest paid by homeowners on mortgages has shrunk by £6.4 billion to £26 billion. The number of homes that are rented has risen by 20 per cent in the past five years, partly because young people cannot accumulate the capital they need for a deposit on a home.
Put and take
The Financial Times published a chart showing the average amount an individual contributed to or took from the state at different stages of life. Unsurprisingly, young people take a lot more than they pay because of the cost of education, while between the ages of 25 and 65 most people pay more in taxes than they take out of the system. In old age, most people take out more through health and welfare costs than they contribute (on average a 90-year-old costs the state £30,000 a year). Overall, most people get back roughly what they put in, though the latest government figures suggest that those born since 2011 could expect over their lifetimes to pay in about £70,000 more than they received on the basis of the current system and rules.
VCTs rush for the money
Venture Capital Trusts, which normally raise fresh money from investors towards the end of the year, have brought forward their capital-raising activities because of fears that the Budget may restrict the tax reliefs they enjoy, says the Telegraph. Subscriptions for new shares qualify for a 30 per cent tax rebate, so long as the shares are held for at least 5 years, as well as tax-free dividends and exemption from capital gains tax on any profits. At least 25 trusts are currently offering new shares to investors.
As tax year end approaches, there is still time to make use of your available reliefs and allowances.
This tax year end planning checklist covers the main planning opportunities available to UK resident individuals and will hopefully help to inspire action to reduce tax for the 2023/24 tax year and to plan ahead for 2024/25.
As tax rate band thresholds are changing, understanding the impact on high rate taxpayers and the economy is crucial.
It was recently revealed in the media that the amount we need to enjoy a ‘moderate’ retirement has increased by £8,000 per annum, a 38% increase, in just one year.