As the election campaigns build, there are so many pledges and promises being made by all parties that it’s impossible to comment on them all! So this month I’m focusing on 2 areas which have undergone very real and significant change since 6th April, the start of the new tax year 2015, and those are pension benefits and Child Trust Funds.
The world of pensions remains extremely complex, and I cannot possibly cover all the scenarios within a blog. But suffice to say that the changes are positive and welcome, as it gives you as an investor much more flexibility and control than you previously had. Any “money purchase” pension (basically anything other than a workplace Final Salary scheme) can now be used to either buy an annuity (which is a guaranteed income for life) or can be accessed partly as tax-free cash and partly as taxable income when needed, giving you the flexibility to potentially manage your income tax liability in any given tax year. However the way in which you choose to take your benefits, for example, as a lump sum with or without income, will affect the amount of tax you pay, and therefore it’s extremely important that you take good financial advice before making any decisions.
The decisions you take about your pensions will affect your lifestyle and the funds you have available for the rest of your life – there is no financial decision that is ever really as important as this, apart from deciding to save into a pension in the first place!
Child Trust Funds
The other area of significant change is the option to transfer the now defunct Child Trust Fund into a Junior ISA, offering much greater investment choice for parents and the potential for better returns. If your child was born between 1 September 2002 and 3 January 2011, they were eligible for a CTF, and simultaneously not eligible for a Junior ISA. Many CTFs were set up as cash savings accounts – similar to cash ISAs – meaning that the returns they have been earning are low.
You can now transfer an existing CTF into a Junior ISA with a provider of your choice. And as the child cannot access the money until they are 18, you have a finite period of time over which to invest. Up to £4,080 per child can be invested by parents or grandparents in the current tax year, and the benefits will be available without payment of income tax or capital gains tax when the child becomes an adult. If they want to leave the money invested, their Junior ISA will automatically become an “adult” ISA when they reach 18.
So why not make the most of these new opportunities to be more in control of your longer-term investments, and work with a Financial Planner to determine the right options for you and your family.
To receive a guide covering Wealth Management, Retirement Planning or Inheritance Tax Planning, please contact Amanda Redman on 07801 045587, email firstname.lastname@example.org or visit www.amandaredmanfp.co.uk
Remember that the value of a Stocks & Shares ISA can fall as well as rise, and you may get back less than the amount invested. An investment in a Stocks & Shares ISA will not provide the security of capital associated with a cash ISA. The favourable tax treatment given to ISAs, JISAs and pensions may not be maintained in the future as they are subject to changes in legislation.