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5 Year Anniversary for 0.5% BoE Base Rate

Business, Mortgages, Savings

The Base Rate stays at 0.5% for 5 years running

Interest rates will remain at 0.5% for another month after today’s announcement by the Bank of England.

At this point economist and advisers all over the UK will be making their predictions as to when the rates will rise. My advice is simple for those with mortgages, stress test your finances by calculating the effect of an interest rate rise.

Check out our earlier post What if interest rates rise?

For savers it’s a little more complicated, savings rates are almost negligible so you may need to consider investing your savings.  But before you invest make sure you understand and are comfortable with the risks.  There is no point chasing returns if you can’t sleep at night worrying about the stock market.

If you need advice on mortgages, savings or your investments call 02895 815000.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

The value of units can fall as well as rise, and you may not get back all of your original investment.

When should you start preparing your company for Auto-Enrolment?

Auto Enrolment, Business, Pensions
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When should you start preparing your company for Auto-Enrolment?

Whether you want to set up pensions for your employers or not, Auto-Enrolment is here to stay.  The question is not if but when should you start preparing to set up a workplace pension for you company.

The Pensions Regulator (TPR) recommends that companies should start preparing with 18 months to go until your staging date. So far with the companies I’ve spoken with it looks like more and more are waiting to the last minute.  Business is tight and there seems to be no time to spare for the inevitable.

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The simple answer is the sooner the better.

The more time you have to prepare the better your pension solution will be. Remember automatic enrolment is more than a pension problem.  It is likely to involve your accounts department (or Accountant) and HR before you even get to the pension solution.  I’ll stick to the pensions issue for now.

If you take the time to prepare and analyse your workforce properly you may be able to save a small fortune by categorising your workforce appropriately.  Ultimately though my experience so far is that many employers are going to try and save a few pound by going down the DIY route by playing eeney meeney miney mo with pension providers.

As long as you fulfil your Auto-Enrolment obligations, right?.. Wrong!

In 5-10 years most of the Northern Ireland workforce will have been auto-enrolled into their company pensions. At first many won’t have a clue what they have got and many of them won’t care.  After a few years workers will get educated, not only with what they have got but what their friends have got at your competitor down the road.

If you want to be the company everyone wants to work for, a good pension scheme is going to be high on the list of criteria.

Check out our 5 Top Tips For Employers On Auto Enrolment.

If you would like to make sure your company remains ahead of the competition then give us a call on  02895 815000.  We will work with you and your team to make sure you get the best workplace pension solution for your company’s future.

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The End is Nigh… well the end of the tax year that is

Business, Financial Planning, Investments, ISA, Pensions, Savings, Tax Planning
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The End is Nigh… well the end of the tax year that is

Last minute tax planning is less than ideal but it’s better than no tax planning.  Every year we all get our tax allowances and every year we get the same warning before April 5th… use it or lose it.

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What are the tax allowances for this year?

I’m going to limit this post to the main two tax allowances, Pensions and ISAs. Simply because for most of the population these are more than enough to cover our financial planning needs.

ISA Allowances 2013/14 & 2014/15

Up to the 5th April 2014 you can invest up to £11,520 in ISAs of which £5,760 can be invested in a Cash ISA. Remember there is now carry forward of unused allowances with ISAs.  From 6th April your annual ISA allowance will increase to £11,880 with a maximum of £5,940 in cash.

For those who have a little more to invest and want to create a fund for their child there are allowance for Junior ISAs and Child Trust Funds as detailed in the table below.

2013-14

2014-15

Individual Savings Account (ISA) subscription limit
   Overall limit  £        11,520  £        11,880
   of which cash  £          5,760  £          5,940
   of which stocks and shares  £        11,520  £        11,880
Junior ISA subscription limit  £          3,720  £          3,840
Child Trust Fund (CTF) subscription limit  £          3,720  £          3,840

Pension Allowances 2013/14 & 2014/15

Up to the 5th April 2014 you can invest up to the lower of 100% of your gross earnings or £50,000 in a registered pension scheme.  From 6th April your annual pension allowance will reduce to £40,000 however carry forward is allowed under certain rules.

Although it won’t affect most of us it’s important to remember that there is a lifetime allowance to consider.  This is being reduced from £1.5m to £1.25m from 6th April 2014.

Again for those with a little more to invest there are children’s allowances available.

Beware the Tax Dog

Remember that just because it is tax efficient doesn’t necessarily mean it’s the most suitable investment for you or your objectives.  Think carefully about what you want to achieve before making any investment.  Obviously as a Financial Planner I am going to recommend getting advice but if you are in any doubt on how to proceed then get in touch on 02895 815000.

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Bank of England Base Rate Remains in an Oasis of Calm

Business, Mortgages, Savings

Bank of England Base Rate going nowhere

Hello, the talk tonight will be of the continuing low BoE base rates. We are only a month away from the 5th anniversary of the base rate being reduced to historic lows of 0.5%. It seems as though these low rates may live forever.

If you are worried how an interest rate rise will affect your finances, then don’t go away, read my previous post. Personally I acquiesce that the BoE is unlikely to raise the base rate until 2015. That said, I don’t think that Lenders will continue to offer the low fixed mortgage rates we’re seeing at the moment for very long either. Existing mortgage borrowers who are on their lender’s standard variable rate are going to have to make some decisions. These are likely to be along the lines of either paying a little more now or paying a little more later.

If you have money held on deposit, don’t look back in anger over the past five years of low returns. Instead go let it out little by little and soldier on.

Some might say that monthly posts about nothing happening with the base rate are well… whatever. I look at it as an opportunity to get mucky fingers and slip as many song titles from a certain Mancunian band in, just for the fun of it. D’you know what I mean?

So how many song titles did you count?

What if interest rates rise?

Business, Mortgages, Savings
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How would an interest rate rise affect you?

The Bank of England (BoE) Base Rate has been held at 0.5% since March 2009 and they have previously indicated that they will not consider a rate rise until the UK unemployment rate is below 7%.  Even then the BoE has announced that a rate rise isn’t guaranteed so we can all relax and worry about it in a year or so, right?  Well, no.

BoE Base RateIt’s all well and good that the rate is unlikely to rise in the short term but it is essential to consider the effect of a rate rise on your finances before making any decisions.  Variable mortgage rates tend to increase directly in line with the BoE base rate and this in turn increases the monthly mortgage payment. A 1% rise in interest rates will add an extra £83.33 per month onto a £100,000 mortgage.  If this would seriously affect your monthly budget than a fixed rate mortgage may be a better solution for you.

Bond investments are also affected: as interest rates rise, bond prices go down in order to bring the rate of income they pay back in line.  Businesses are also affected by rising interest rates in the form of higher borrowing costs, which can ultimately hit the share price and have a knock-on effect across your investment portfolio. As usual keep an eye on your long term goals and assess if you are still on track before making any decisions in any circumstance.

From Acorns Financial Planning Ltd are based in Tyrone, Mid Ulster and provide a comprehensive Financial Planning service to both personal and business clients across Northern Ireland and the UK.

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Status Quo for the Bank of England Base Rate

Business, Mortgages, Savings

Bank of England Base Rate remains at 0.5%

The BoE Monetary Policy Committee has today again announced that rates will continue to be held at 0.5%.  The base rate has been held at the record low of 0.5% since March 2009.  Having indicated that the rate may not even consider a rate increase until the unemployment rate falls below 7% back in August, the Bank has given no further guidance.

The latest figures have the unemployment rate at 7.4% and some experts expect that it will fall below 7% this year.  A few months ago the Bank predicted that unemployment would not reach 7% until 2016 which means an interest rate rise may happen sooner than we thought.

I don’t expect the Base rate to rise but like a good former boy scout I recommend that you ‘be prepared’. Do your sums and make sure you understand the consequences of any rise in interest rates for your personal and/or business finances.

In other news I have decided, on behalf of From Acorns Financial Planning Ltd, to sneak rock band names into random post titles.  Status Quo have not made any comment that I know of regarding the Bank of England Base Rate.

What you need to know about the Autumn Statement 2013

Business, General, Help To Buy, Mortgages, Pensions, Savings
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What you need to know about the Autumn Statement 2013

Income

The income tax personal allowance will rise to £10,000 in April 2014 as expected and will rise in line with inflation from 2015/16.  Inflation will be measured by the Consumer Prices Index (CPI) in this context.

From April 2015, a new transferable tax allowance will be made available for married couples and civil partners who are basic rate taxpayers.  This will enable people to transfer £1,000 of their personal allowance to their respective partner.

Benefits

A new welfare spending cap is to be introduced in 2014, although this will not include the cost of providing State pensions or Jobseeker’s Allowance.

Those claiming benefits aged 18-21 will need to demonstrate basic English and Maths, take skills training or they will risk losing their benefits.

Benefit claimants who are out of work for longer than six months will have to start a traineeship; do work experience or a community work placement rather than risk losing their benefits.

Some change is always good

Pensions

The Basic State Pension will rise by £2.95 per week in April 2014, meaning a single pensioner will now receive £113.10 per week.

Plans were announced to increase the state pension age to 68 in the mid-2030s and to 69 by the late-2040s, based on the latest life expectancy figures.

For those with sizeable pension pots there has been no change to the way GAD rates are calculated for Income Drawdown.

Savings & Investments

The Annual Allowance for Individual Savings Accounts (ISAs) will rise to £11,880 in 2014/15 of which £5,940 can be invested in cash.

Junior ISAs and Child Trust Fund (CTF) limits will also increase to £3,840 per annum.

In a drive to encourage funds to locate in the UK, Exchange-Traded Fund (ETF) stamp duty will be abolished.  This could save investors 0.5% on domiciled ETFs next year.

Mortgages

It was announced that two more lenders, Aldermore and Virgin, are expected to join the Help to Buy scheme in December 2013.

Businesses

From April 2015 employers will no longer have to pay employer National Insurance contributions for 16 to 21 year old employees, a potential saving of £500 for each employee on £12,000 per annum.

The business rate relief scheme for small businesses will be extended for a further year and end in April 2015. Additionally, the planned rate increase for all business premises will be capped at 2% from 2014.  A discount of £1,000 will be available for some small businesses and a 50% business rates discount will be available for those taking on vacant units.

Taxes

Importantly for commuters the planned fuel duty rise next September of 2p a litre was cancelled, that’s as good as we can hope for in terms of fuel duty.

From April 2015 foreign residential property owners will pay capital gains tax (CGT) future gains on the sale of UK property.

We already mentioned the removal of stamp duty on the purchase of ETFs in the Savings & Investments section.

The Autumn Statement also contained a package of five measures to address tax avoidance and tax evasion.

Auto Enrolment – The Statistics One Year On

Auto Enrolment, Business
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Auto Enrolment – The Statistics One Year On

1st of October marked the first anniversary of Auto Enrolment and the government’s workplace pension reform.  Due to the average size of companies in Northern Ireland we are only beginning to see companies taking action and getting prepared for Automatic Enrolment so it is worth looking at the stats so far from across the UK in our handy infographic.

Auto Enrolment - One year in

Source: Professional Pensions – Figures correct as of 1/10/13

As of the 1st October these are the numbers that define Automatic Enrolment.

Employers auto-enrolled 2,256
Employers staging between Jan-Jul ’14 29,000
Overall opt-out rate according to the DWP 9%
TPR investigations into non-compliance 89
TPR warning letters 38
TPR compliance notices 1
Estimated set-up costs for all employers £15.4bn
Proportion of employers using the NEST who spent more than 10 months preparing for AE 53%

 

It is clear that things are only beginning to heat up so if you need some help with preparing your company for auto enrolment then call us on 02895 815000 and get prepared as early as possible.  It can take over 6 months to prepare for auto-enrolment  and some pension providers won’t even consider companies with less than this to their staging date.

Should employers be concerned about Auto Enrolment capacity crunch?

Auto Enrolment, Business
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Should employers be concerned about Auto Enrolment capacity crunch?

Auto Enrolment Northern Ireland

Pension providers across the UK have been warning employers, financial advisers, employee consultants and pretty much anyone who will listen about the oncoming ‘capacity crunch’ regarding Auto Enrolment.  The question is should we be concerned? In short, Yes.

The only provider on the market that has a legal responsibility to take all employers is NEST.  Every other provider on the market will pick and choose their clients just like any other business.  The problem lies in the number of businesses these few providers will have to choose from, every business in the UK and Northern Ireland!

Back in July Scottish Life started warning that they would only accept employers that started to plan with at least 6 months to run until their staging date and more recently the have warned that they may exit the market in 2015 or sooner if they feel the business is not profitable.  This poses a problem for small to medium sized employers (SMEs) in that the ABI (Association of British Insurers) only lists a total of 10 member providers in the Auto Enrolment market.  There are a few other non ABI member providers out there but this does not answer the problem that the number of companies to be auto enrolled per month could potentially far outstrip the supply.

The best thing any employer can do is get prepared early with good quality independent advice to have the best chance of providing a company pension scheme that works both for them as an employer and for their employees.

Images courtesy of J.Reed on Flickr

5 reasons business owners should consider a SIPP to buy commercial property

Business, Pensions, SIPP
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5 reasons business owners should consider a SIPP to buy commercial property

A Self Invested Personal Pension or a SIPP can purchase almost any form of commercial property depending on your SIPP provider’s own rules. The most common commercial property to be placed inside a SIPP is a Business Owner or Owners trading premises.  SIPP providers are particularly keen on this type of property as the business owners are also the tenants they have a vested interest in the property.

There are plenty of good reasons to consider SIPPs for your commercial property purchase but here are 5 of the best:

 SIPP Owned Commercial Property

1. To Save Tax

No-one wants to pay tax and there are plenty of good legitimate ways to reduce your tax bill, one of which is using a SIPP to purchase your trading premises.  Once the property is held within a SIPP the company will pay a market rent to the SIPP which is a tax deductible expense.  Within the SIPP itself the rent is received free of income tax.

When you sell the commercial property there will be no CGT payable and potentially no IHT on death and this makes buying your trading premises through your Self Invested Personal Pension incredibly tax efficient

2. Ability to raise funds

Getting commercial finance is not a straight forward process and requires a minimum deposit of around 30%. This leaves a loan-to-value of 70% and would still be considered quite high risk especially in Northern Ireland given the last few years.

A SIPP can borrow up to 50% of net scheme assets, so if you have £200,000 in your SIPP you can therefore buy a commercial property for around £285,000 after expenses (£100,000 of which would be a mortgage). In this circumstance the mortgage is restricted to 35% which makes the commercial mortgage quite low risk for the bank.

Not only that but SIPPs are not restricted in who they borrowing from, only that this must be on commercial terms, as such you can borrow the extra funds from a Business Angel, a friend, a family member even your own Business.  This affords you a lot of flexibility in terms of your borrowing.

3. Pooled Investments

SIPPs can club together with other SIPPs held with the same provider, businesses and/or individuals to purchase commercial property. This provides added buying power, for instance a combination of 10 SIPPs, businesses or individuals with £100,000 each could buy a property for £1.5 million (£500,000 mortgage)

4. Future Development

The funds within the SIPP will build up over time from both contributions and on-going rental and along with investment growth this could lead to a considerable pot of money.  Not only can the SIPP pay for development and improvement works to the commercial property, it can also be registered for VAT to claim the VAT costs back.

5. Asset Protection

We all know someone whose business has gone bust in the recession and it certainly brings home the risks involved with running your own business.  If your commercial property is owned by your SIPP then it is ring fenced from creditors in any future Bankruptcy proceedings giving you an extra layer of security.

 

Disadvantages

Of course there are disadvantages to investing in a commercial property through a SIPP and these must also be considered before making a decision.  As such here are 5 disadvantages of investing in commercial property through a Self-Invested Personal Pension:

  1. As the Property will be legally owned by the SIPP, business owners can feel they have a lack of control
  2. The property cannot be used as collateral for future loans to the company
  3. As the company are will be the tenants it will have to pay a market rent
  4. On retirement of the investor and if the SIPP wishes to raise finance the property will need to be valued incurring additional costs for the SIPP
  5. The SIPP will lack diversification if the property represents the main asset of the SIPP

Image courtesy of VGB Studios on Flickr

THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE COMMERCIAL MORTGAGES.

THE FINANCIAL CONDUCT AUTHORITY DOES NOT PROVIDE OVERSIGHT OF TAXATION. LEVELS AND BASIS OF TAXATION MAY CHANGE AND ARE DEPENDENT ON PERSONAL CIRCUMSTANCES.