Professionals

Financial planning for divorce

The festive season is now upon us.  While the extended holiday period is a great time to relax and catch up with friends and family, for some, it is a time when long festering problems can come to a head.

The average age of divorcees is increasing and the fastest growing group is those aged 60 +

This age group is more likely to have considerable assets and will need the help of a financial adviser to make sense of it all.  Whilst solicitors have legal expertise, independent financial advisers are finance experts. Where pensions are involved in a divorce case, the expertise of both is required to find the best solution for the client.

Solicitors often bring in a financial adviser to help with implementing a pension sharing order. Specific pensions qualifications are required to offer advice in this area and very few solicitors have those qualifications. For financial advisers this will normally be G60, AF3 or equivalent.

Opportunities can be lost if a financial adviser is not brought in until a relatively late stage. The solicitor may not find all the pension assets, may not get a fair valuation, or may choose the wrong pension plans to share.

Even if the eventual settlement does not involve a pensions sharing or attachment order, obtaining the fairest value of the pension assets is crucial.

The cleanest financial break following a divorce is to offset the value of the pension(s) against other matrimonial assets. This is usually the first option considered. However, a pension sharing order may allow both parties to retain some assets. It may also be the only way a non-earning spouse can build up any significant pension provision in their own right.

Divorce can also cause several future tax headaches, including the potential loss of tax credits, CGT and an IHT liability – dependent on your individual circumstances.

Consult your independent financial adviser to make sure you know the options available to you.

The Chancellor’s Autumn Statement

The Chancellor George Osborne has today given his Autumn Statement the government’s commitment to addressing its finances should be welcomed by the financial markets.

Below is a summary of the key announcements made today.

Economy and Government Spending

  • The Office for Budget Responsibility expects GDP to contract by 0.1% in 2012, significantly down from forecasts of 0.8% growth in March. The OBR then expects the UK economy to grow by 1.2% next year.
  • The government’s fiscal consolidation programme is to be extended by another year to 2017/2018.
  • The UK budget deficit is set to fall from 7.9% last year to 6.9% this year.
  • National debt will not begin falling until 2016-17, a year later than previously expected.
  • UK unemployment is expected to peak at 8.3%, lower than initially expected, and employment is expected to rise every year moving forward.

Taxes

  • There is to be no new tax on property (“mansion tax”).
  • 40% tax rate threshold will rise from £41,450 to £41,865 in 2014 and then £42,285 in 2015.
  • Corporation tax will be cut by another 1% in 2014, taking the rate to 21%.
  • Capital gains tax allowances will rise by 1% in 2015 to 11,100
  • Inheritance tax  allowances will rise by 1% in 2015 to £329,000
  • Tax free allowance raise is to rise by £235 to £9,440.
  • Planned 3p rise in fuel duty not just postponed, but cancelled.

Benefits and Pensions

  • Most working-age benefits to rise by 1% per year over next three years.
  • Child benefits are also to rise by 1% per year over two years from 2014.
  • Tax relief on the largest lifetime pensions reduced from £1.5m to £1.25m starting in 2014-15, the annual allowance will now be £40,000 rather than £50,000.

To discuss how this may affect your own circumstances as always please do not hesitate to contact us to schedule a meeting.

Adviser fees and the retail distribution review

One of the biggest changes to the financial advice will be implemented from 1 January 2013 – The Retail Distribution Review ( RDR)) Having ignored the up-and-coming retail distribution review for quite some time the press finally seems to be discussing the effect of the new rules are likely to have on individuals. The Telegraph, the Observer and the Guardian have published articles which discuss the changes to the new rules that advisers will be forced to put into place from January 2013 and specifically focus on the argument that many consumers will not be willing to pay fees and therefore independent financial advisers will only focus their services on higher value clients.

The lack of discussion is partly to blame for a lack of awareness of the upcoming rule changes and what they will mean to consumers. A recent study by Deloitte claims that 84% of consumers are completely unaware of the retail distribution review.

Many advisers and other financial services professionals have hit out at the financial services authority for not insuring that consumers are aware of the impact of the new rules.

The FSA has stated that they will shortly launch a broad campaign to make sure consumers are aware of the RDR are and its consequences. As this is about to take place in one month is this too little too late?

As a firm of independent financial advice who have been working according to the “new “ rules and charging clients fees for some years, we do not agree that clients will not pay fees for good advice as we know they are already happily doing so.

Too many people have too little pension savings.

Over a third of British adults, equating to 13.6m, do not have a pension, research from Baring Asset Management, claimed.

The investment management firm found that of this figure 1.4m people who are 55 and older do not have a pension in place.

While Barings is not surprised that a high proportion of people aged 18 to 24 do not have a pension, it found it worrying that 47 per cent of 25 to 34 year olds have not started saving into a pension.
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File your tax return on time

In the past as long as you paid your tax liabilities on time and cleared any self-assessment tax due by 31 January, no late filing penalties were due. Even if you failed to pay your tax on time, late filing penalties were capped at £100 or nil if you were due a tax refund.

The goal posts have moved!

The 2010-11 tax returns have to be filed by 31 October 2011 if you are filing a paper return, or 31 January 2012 if you are filing electronically. If you fail to meet these deadlines you face the following penalty regime, even if your tax payments are up-to-date.

Penalties incurred

  • One day late an initial penalty of £100.
  • Three months late a daily penalty of £10 per day up to a maximum of £900.
  • Six months late an additional £300 or 5% of any tax outstanding, whichever is the higher amount.
  • One year late a further £300 or 5% of any tax outstanding, whichever is the higher amount.

As you can see the minimum penalty for filing 6 months late is £1,300 even if all your tax due is paid on time or you are due a tax repayment.
If you have had a relaxed attitude to meeting the filing deadline in the past; you may like to reconsider your priorities for the filing of the 2011 return!