Top 10 Personal Finance Articles – September 2009

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Here is our usual monthly list of the top 10 read articles on shrewdcookie.com in September – there are some surprising entries!

1. Change in ISA allowances in Budget 2009

The changes announced in the Budget in respect of increases in the ISA allowances come into effect on 6th October for those over age 50 before the end of the current tax year – can invest up to £10,200 into a Stocks and Shares ISA. Woo hoo!!!

2. New Tax Year – New ISA Allowance

More detail on the changing ISA allowances.

3. Download a Free 2010 Yearplanner

I have put together a great little yearplanner for 2010 – it can be downloaded in A4 (landscape) or larger A3 (printed on 2 sheets of A4 for those without an A3 sized printer!). Feel free to send copies to friends, family and colleagues at work.

4. 19 Essential Money Tips for Students

With the start of the University/College/School term upon us here is a great article which might help a few students who are struggling through on their limited finances.

5.  Pay Yourself First

One of the first principles spoken of in the great book “The Richest Man in Babylon” is the need to pay yourself first – the principle here is to take a fixed percentage off your take-home pay and keep that money for yourself forever – then your lifestyle will change itself to allow you to live on the remainder. Get a copy of this book – a truly great read. It could be the most valuable £4.99 you ever invest!

6. Cashflow Forecasting – Planning Income and Expenditure

Here is a really helpful little spreadsheet which will allow you to plan your income and expenditure on a monthly basis – you will be able to see exactly where your money goes to each month – allowing you to make changes in your expenditure – a great tool for “what if” scenarios – what if I stopped eating out, what if I increased income by £200 per month etc.

7. Personal Pension Minimum retirement age increasing to 55 from 6th April 2010

Those people who will be over 50 before 5th April 2010 and were planning to retire in the next 5 years may have to take some urgent action between now and then – in the worst case scenario you may have to continue working for another 5 years!

8. Wear a uniform to work – here’s some free money!

If you have to wash your own work uniform you could be entitled to some money from the taxman – read the article for more information.

9. Get Money for your Old Mobile Phone

Did you know you can sell old mobile phones – I recently sold my old Sony Ericsson K800i and got £28 for it – worth checking out what yours might get you – see the article.

10. 10 Great Reasons for Writing a Will

Everyone needs and should have a Will – it saves so many problems in the event of your death – and let’s face it the only two certainties in life are death and taxes! Read the article now – you might be surprised.

And finally……

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Budget 2009 – The Key Changes

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Alistair Darling, Chancellor of the Exchequer presented his Budget for 2009 last week and below are the main points and changes contained in the Budget:

The Economy

Whilst the economy is expected to shrink by 2.5% during 2009, the Chancellor indicated that there was the expectation that the economy would grow next year, 2010, by 1.25%. I our opinion this is an optimistic forecast and we believe that growth in the economy is unlikely. He then said that the economy would grow by 3.5% annually from 2011. Whilst we would expect the economy to be heading out of recession by 2011, again we would comment that growth at these levels is again unlikely.

Borrowing by the Government is estimated to amount to £703 billion over the next 5 years which, in our opinion, is a large burden for the UK economy to endure.

Income Tax

In order to boost funds to meet this borrowing expectation, the Chancellor announced that income tax for those people earning more than £150,000 would rise to 50% from April 2010. The one comment we would make on this is that this would be fairly ineffective as people falling into this tax bracket will no doubt come up with methods and techniques to get around this additional tax burden.

In addition to this, he also reduced tax relief on pension contributions for people falling into this tax bracket, again from April 2010.  The level of tax relief for people earning over £150,000 will fall from 40% to 20% following introduction of a taper. To this end, many high-earners will consider making pension contributions following a “salary sacrifice” exercise – by effectively reducing their income levels, it is then possible for their employers to contribute directly to their pension plans, and this can be topped up by the employer also contributing some or all of the National Insurance saving enjoyed following the reduction in salary.

Employment, Jobs and Training

The Government announced support for the economy to protect 500,000 jobs and also indicated that redundancy payments would increase from £350 to £380 per week for those made redundant. From January, everyone under the age of 25 will be offered a job or training place, with additional funds paid on top of the benefits they are already receiving – in addition to this there will also be additional support for those people who have been out of work for more than 12 months.

It was also announced that funds would be made available to create an additional 54,000 places in sixth form education.

Housing and Accommodation

The government is concerned about housing and announced plans to provide £500 million to kickstart the housing market, with £100 million being made available to local councils to build energy-efficient homes. Many commentators have said that this is inadequate and will not provide for the true number of new homes needed each year. £80 million will be made available for a shared equity mortgage scheme to promote home ownership as well as £50 million to upgrade military housing.

The current stamp duty holiday for house purchases below £175,000 has been extended until the end of the year in an attempt to help first-time buyers.

The Environment

The government is committed to cutting carbon emissions by 34% by the year 2020. An extra £1 billion will be made available to attack climate change by supporting low-carbon industries. £525 million will be made available for offshore wind farms as an alternative energy source over the next 2 years with £435 million to help with energy efficiency schemes for homes, companies and public buildings.

Business

Help was announced for loss-making businesses – they will be able to reclaim more taxes paid for the last 3 years until November 2010 with the main capital allowance rate doubled to 40% in an attempt to help companies bring forwards capital investment decisions. Also announced was a £750 million strategic investment fund to help emerging industries and those industries which has an important regional position.

Savings and Investments

The annual ISA allowance was raised from £7,200 per annum to £10,200 per annum. This will be introduced from 6th October 2009 for over 50’s and from 6th April 2010 for the rest of the population.

Grandparents

Those grandparents of working age who care for their grandchildren will see their basic state pension increased to take account of this. The winter fuel allowance will be maintained at the higher level of £250 for those over the age of 60 and £400 for those aged over 80 for another tax year.

The Chancellor also announced that there would be a minimum increase of 2.5% on the basic state pension, regardless of what RPI, the index to which inflation is linked, does.

Child Benefits

The child tax credit will rise by £20 by 2010 and child trust funds for disabled children will rise by £100 per year with those for severely disabled children rising by £200.

Cars – Scrappage Scheme

A new scheme will be introduced in an attempt to remove older, more polluting cars from our roads. From March 2010, £2,000 discount will apply for those people who trade in their existing cards over 20 years old in exchange for a new car. In order to qualify they will have to be shown as the registered keeper of the vehicle for the 12 months prior to the purchase and it is expected that the Government will provide £1,000 towards this scheme with the motor industry providing the remainder.

And finally (!) – Cigarettes, Alcohol and Fuel

Tax and duties on alcohol and cigarettes is to rise by 2% – putting a penny on a pint and 7 pence on a packet of 20 cigarettes on average.

Fuel duty is to rise by 2 pence per litre and then by 1 pence above inflation each April for the next four years.

 

So there you have it – how as the Budget affected you? Who do you feel are the winners and losers of this Budget? Please make your comments below.

Tax Allowances 2009 – Tax Rates 2009

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The start of the new tax year yesterday signalled changes in some of the main tax rates, reliefs and allowances and summarised below are the main rates, reliefs and allowances based on our own research: –

tax-rates-2009-2010-1

 

 

 

 

 

 

 

 

 

 

 

Capital Gains Tax

No change to personal allowance for Capital Gains Tax – remains at £9,600 for the 2009/2010 tax year

Note:

Tax allowances, rates and reliefs are subject to change. These figures are for guidance only and are correct to the best of our knowledge at the date of publication. Please check the HMRC website for current rates before making tax planning decisions.

Inheritance Tax – allowances and reliefs

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In this second part of a three part series we will consider the main allowances and reliefs which can be used to reduce your liability to Inheritance Tax.

Nil Rate Band

This is the main relief which most people enjoy. The Nil Rate Band currently stands at £325,000  – on the first £325,000 of your net taxable estate IHT is payable at 0% – hence the name “Nil Rate Band”.

In the previous article we discussed that recent changes in legislation entitled a married couple to pass on any proportion of unused Nil Rate Band to the surviving spouse on first death.

(Please note – the Nil Rate Band has been updated for the 2009/2010 tax year which commenced on 6th April 2009 – Simon)

Inter-Spousal Exemption

Under this exemption, all transfers between spouses and civil partners, as long as they have a permanent home in the UK, are exempt from Inheritance Tax.

The exception to this rule is when a UK domiciled individual is married to a non-UK domiciled individual – in this case, any transfer from the UK domicile to the non-UK domicile receives IHT relief on the first £55,000 transferred only.

Exempt Gifts

Certain gifts are exempt from IHT, regardless of whether they are made during the donor’s lifetime or as a result of a gift through their Will on death: –

  • Gifts between husband, wife and civil partners
  • UK Charities – here is a list
  • Some national institutions such as museums, universities or into the National Trust
  • UK political parties

Annual Exemption

Any individual can make a gift of up to £3,000 in any tax year which is free from Inheritance Tax. Any unused relief can be carried forward for just one tax year.

Other Gifts

Some gifts made during lifetime are exempt from Inheritance Tax and they are detailed below:-

Gifts on marriage or entering a Civil Partnership

  • Parents can each give £5,000 cash or gifts
  • Grandparents and other relatives can give cash or gifts up to £2,500
  • Anyone else can give cash or gifts up to £1,000

Small Gifts Exemption

Any individual can make a gift during lifetime to any other individual up to £250 and not be liable to Inheritance Tax.

Gifts out of Normal Expenditure

Any regular gifts made out of net income (i.e. after tax has been paid) are free from Inheritance Tax. These can include regular gifts to someone – e.g. christmas presents, premiums on a life insurance policy or other regular or monthly payments to another person.

In order for this relief to work, the gift must be made out of normal expenditure and not be so high as to affect the donor’s standard of living in that they have to access their own capital to make good any shortfall in maintaining their standard of living.

Potentially Exempt Transfer – the Seven Year rule

Any gifts made to individuals will be exempt as long as there is a period of seven years between the date of the gift and the date of death.

If you die within seven years, and the value of the gifts exceeds the nil rate band, then IHT may be due on the gift. It would be the recipient’s responsibility to pay the IHT due on this gift.

If the value of the gifts is in excess of the Nil Rate band then “taper relief” may apply. HMRC give more information on taper relief here.

Gifts for Maintenance of the Family

Any lifetime gift for the maintenance of the spouse, child or a dependent relative may be exempt from tax as long as the gift is used for maintenance, education or training up to the age of 18, or to the end of full-time education if this is at a later date.

Other Reliefs – to be covered later

Other reliefs are available in respect of businesses, woodland, heritage and farmland – these reliefs will be covered in more depth at a later date.

Note

As with any issue relating to taxation, rules can and do change on a regular basis. Please ensure you take advice from a suitably qualified accountant or solicitor in respect of Inheritance Tax and the allowances and reliefs your own personal estate may enjoy.