Research from the World Economic Forum claims that the average UK retiree is likely to outlive their retirement savings by more than 10 years.

Men are expected to outlive their savings by 10.3 years on average, whereas women are forecast to be affected the most; outliving savings by 12.6 years.

It is clear that various pension schemes are under strain around the world and this places more responsibility on savers to prepare for their own retirement. However, the report shows that savings have not accelerated fast enough to cover the gap.

The UK government has aimed to reduce this gap by introducing workplace pensions for those earning above a minimum level, where it is compulsory for employers and employees to contribute. However, it is still possible for the employee to opt out of such schemes.

At Eldon, one of the major elements of our service is to ensure that our clients have sufficient funds throughout their life to cover expenditure requirements and meet their objectives. By using cashflow modelling software we can project forward our client’s circumstances allowing them to see in a clear, illustrative manner what their future position looks like. From here, our client can understand whether additional savings are required or even show where additional spending is affordable.

If you would like a better understanding of your financial affairs as a whole, please do get in touch with a member of the team and we will be more than happy to help.

Market volatility over the last week or so is a direct result of the global outbreak of the coronavirus, Covid-19. At this stage, we don’t know how long such volatility will continue as we cannot predict the full extent of the virus’ spread.

It is natural to feel concerned when the media is full of dramatic phrases and panic-inducing headlines, making market volatility seem much worse than it is. If you find yourself concerned about your investments, take a deep breath and consider these two key points about investment:

1. Investment volatility is a normal part of the investment journey

If, like all our clients, you have a well-diversified investment portfolio then the natural movement of markets is a normal part of investment. Investment values rise and fall and there is always a need to view investment over a longer term than panic allows us to. Once any event has passed, we would expect recovery as normal. The long term trajectory of investment markets has been positive, whatever the world has thrown at it.

Your planning is for tomorrow, not today.

2. Investment volatility should have no impact on your day-to-day living

All our clients’ finances are arranged in such a way that volatility in markets should have no impact on day-to-day living. This is one of the core values of our financial planning service. Your life should not be dictated by investment markets and don’t let the headlines lead you to think otherwise.

That is not to say the current situation is to be ignored. We continue to monitor events very closely and, if you are a client, we will be in touch should action be warranted before we meet again. However, if you have any personal concerns please don’t hesitate to contact us.

From April 2020, new rules for Capital Gains Tax (CGT) are set to come into place for landlords and those with additional properties in the UK, but are you aware of them?

CGT Timeframe

Currently, CGT is paid after submitting your Self Assessment tax return, no matter how the CGT is incurred. From April 2020 landlords (or those with an additional property) who sell and incur a CGT liability must pay the full amount of CGT owed within 30 days of the completion of the sale.

The rates of CGT will remain the same; for a residential property these are 18% for a basic rate tax payer and 28% for higher and additional rate tax payers. If however, for a basic rate, or even a non-tax payer, the gain is excessive enough to push an individual into higher rates of tax, then the portion of the gain that is within their basic rate band would be taxed at 18% and the remainder at 28%. The annual CGT exemption of £12,000 each can be applied still.

Therefore, people who are selling to realise profit must factor in the payment of CGT that will be owed shortly after completion, as failure to make the payment owed within the 30 days will lead to penalties.

A return must be completed and individuals must calculate whether any CGT is due, taking into account their annual exemption for the year and carrying forward unused losses. Individuals must also apply the correct CGT rate, either 18% or 28%, or a combination of both.

At the end of the tax year, a Self Assessment return must be completed, detailing total income and include the gain realised on the property. The true amount of CGT due will be ascertained and any repayments made or further CGT owed will be collected.

The 30 day period starts at the date of disposal. A return is not required where there is no CGT due, including where a gain is realised but is within the CGT exemption, or a loss has been realised.

At present, no detail has been provided by HMRC as to how to report this gain, but we will be monitoring this. Further detail is expected before the changes are implemented on 6th April 2020.

Private Residence Relief (PRR)

Currently, anyone who sells their main residence and lived in it throughout the period of ownership doesn’t have to pay CGT on any profits realised. To an extent, this relief applies to people who sell a rental property that used to be their former main residence. The relief is applied to the period the resided in the property as well as the final 18 months of ownership, regardless of whether the property is rented out or not in this final period. You therefore need to calculate what proportion of time the property was your main residence to obtain this relief.

The intention in doing so is to give you longer to sell a property after moving out before you are eligible to pay CGT. From April 2020, this 18 month period will be halved to 9 months.

Letting Relief

If you qualify for Private Residence Relief, at present you may also qualify for Letting Relief, meaning less, or no CGT is incurred. Letting relief only applies where, at some point during the period of ownership, the property has been let out as residential accommodation. The relief applies where:

• A gain will be realised and Private Residence Relief is available;
• Part or all of the property has been let out as residential accommodation during the period of ownership;
• A gain has arisen due to the property being let out (no longer being a main residence).

Under the new rules, the changes to this relief mean it would only apply to the period of time where the owner(s) occupied the property with the tenants at the same time.

The relief will still be applicable in some cases, but on the whole, it is expected that claims for this relief will be significantly fewer.

Summary

There are costs that can be deducted upon the sale of a property, such as Stamp Duty Land Tax paid on purchase, estate agent fees, solicitors fees, improvement costs made during the period of ownership. All of these will help to reduce the realised profit and thus, the potential CGT liability.

The liquidity should not be an issue, as after the sale investors should receive the proceeds. It would be prudent to therefore settle any CGT liabilities before deciding what to do with the capital.

As calculations must be made, individuals should tell their adviser or accountant immediately after the sale to ensure the calculation is undertaken correctly. It may even be beneficial to provide forewarning so that calculations can be prepared, with minor adjustments made upon the sale completion.

The Alzheimer’s Society Dementia Friends programme is the biggest ever initiative to change people’s perceptions of dementia. The aim is to transform the way we think, act and talk about the condition.

Eldon recently invited Sheila, a lovely Dementia Friends Champion, to our annual conference as a guest speaker. A Dementia Friends Champion is a trained volunteer who encourages people to learn more about dementia.

Eldon is proud to announce that all colleagues are now Dementia Friends, and that all colleagues have made commitments to help people living with dementia. Commitments include sharing our knowledge and talking more positively about dementia, volunteering, and wearing the Dementia Friends badge to raise awareness.

Colleagues found the session to be incredibly powerful, and felt it enabled us to improve our client skills even further. It is important to us that we are able to work with empathy and understanding, as well as in the most effective way possible with any client who may have symptoms of dementia.

If any of our clients would like to take part in this amazing initiative we would certainly be happy to facilitate a client focused session, or share contact details of Dementia Friends Champions.

The deadline for submission of Self Assessment tax returns for the 2018/19 tax year is approaching and is 31st of January 2020.

It is important that all of our clients to whom this is applicable ensure that tax returns are completed by the deadline. If you believe you should complete a Self Assessment tax return, please take some time to check using the following link.

We would urge our clients to be on time in their submission, as if late, they may then be eligible for late penalty fees. It is down to each individual to ensure their return is completed by the 31st of January.

Professional accountants can help complete the Self Assessment on your behalf but will charge for these services. Alternatively, a Self Assessment form can be completed by the individual using the following link.

Here at Eldon, we work closely with clients to understand their tax obligations and consider these in any financial planning work we do with you. Our effective planning considers ways in which you can be tax efficient with your savings and investment, to have your funds working as efficiently as possible for you.

There are key points in life which may prompt a need to engage with the tax system such as; having children, entering work, saving for or drawing a pension, and helping others who need support. The independent Office of Tax Simplification (OTS) has produced a report which highlights how individual’s engaging with HMRC when these key events occur can lead to a range of complexities.

High Income Child Benefit Charge

When income for an individual or their partner is over £50,000 per year, high income child benefit tax charge applies. This tax charge increases until you effectively receive no child benefit when an individual’s income reaches £60,000 per year.

Some people with salaries higher than £50,000 are not claiming the benefit to avoid the need to tax report. This can have an unintended adverse effect on the individual’s national insurance credits which count towards state pension for the parent, as well as delay the child’s receipt of their national insurance number when they turn 16.

These problems can be avoided, by first making a child benefit claim, but then choosing not to receive payment of it. In addition to causing significant administration, the lack of knowledge has caused people to lose out.

Pension Reliefs and Charges

Pensions and associated tax issues are notoriously complex.

Employers have a choice when providing pensions for their employees between what are known as ‘net pay’ and ‘relief at source’ taxation arrangements. The different mechanisms have different outcomes depending on a number of factors, the most significant being for those whose income is below the personal tax allowance.

As part of their report, the OTS has recommended potentially removing or reducing the difference in outcomes, without making it more complex.

Recently the government has reduced the overall level of tax relief available for pension saving, through the annual allowance and the lifetime allowance. This has added to the complexity and, in certain situations, can lead to disproportionate outcomes.

OTS have recommended to HMRC that clearer guidance is needed, along with a constant review of the allowance levels.

Tax Education

Better levels of awareness and education around the tax system would help avoid some of the problems individuals face.

Schools are offered materials through the Tax Facts programme, but resource pressures mean that young people are not introduced to these concepts at an early age, and therefore do not gain the knowledge they need.

The three areas above are just some of those highlighted by the OTS within their report. In conjunction with other tax experts, here at Eldon, we understand how important it is to give you, our clients, the correct advice regarding your individual tax situation, and how that impacts on your overall financial planning.