Year: 2017

Lifetime ISAs v pensions

Lifetime ISAs became available as from 6 April 2017, though there are as yet few providers. The government had two objectives in introducing the LISA – to assist would-be home owners to accrue sufficient funds to enter the housing market, and to provide an alternative or additional means of saving for retirement. In the latter […]

The ageing population

Government statistics are projecting that by the year 2020 there will be 12% more people in the UK aged 65 and over than there were in 2015. This compares with an overall population growth of just 3%. Another prediction is that the number of retired people will have increased by 1.1 million in the three […]

Missing out on ISA returns?

HM Revenue & Customs has reported that in the tax year 2015/16 80% of the 12.7 million people who invested in Individual Savings Accounts put their money into cash ISAs – a similar figure to that for 2014/15. This, despite historically low returns and with little current prospect of beating inflation. Insurers Royal London have […]

Reclaiming expenses

Despite the fact that, according to HM Revenue & Customs, “the general rule for employees’ expenses is very restrictive”, there is scope for obtaining tax relief of which some people may be unaware. The condition for company directors and employees obtaining relief is that expenses must be incurred wholly and exclusively for the purposes of […]

Pension transfer caution

There is an on-going decline in the number of final salary pension schemes. Many of the companies which have provided these schemes for their employees have found the open-ended liability insupportable, and have introduced schemes under which their contribution is defined by reference to the amount contributed rather than the pension which is to be […]

Reasons for setting up a trust

A trust is a legal arrangement which enables a person (‘the settlor’) to transfer the legal ownership of property, shares or cash to another person (‘the trustee’) to hold on behalf of a third person or persons (‘the beneficiary”). The main reason for setting up trusts is the protection of family interests. For example:   […]

Equity release on a roll!

In 2016, the value of funds released from the capital value of homes in the UK exceeded £2 billion for the first time. It appears that most of the money is being used to fund home and garden improvements and a smaller proportion to pay for holidays or to repay credit card and loan debts […]

Thank you for small mercis

An exception is made to the new provisions for benefits in kind which are classified as ‘Trivial Benefits’. To qualify, these must satisfy three conditions: The value must be no more than £50 per recipient, or an average of £50 if the benefit is provided to a group of employees and the exact value to […]

Premium bonds improved

The total pool of money from which premium bond ‘prizes’ are paid has been reduced, but a greater proportion of the pool from which ‘prizes’ are paid is now allocated to £25 prizes than to £50, £100 or larger prizes and consequently the chances of winning a £25 prize have increased. Interestingly, the laws of mathematics […]

Benefits in kind

Despite the Chancellor’s u-turn on National Insurance contributions for the self-employed, the subject of NI has clearly not been removed altogether from his agenda. Currently, some benefits in kind are exempt from NI contributions and may also permit the employee’s charge to income tax to be based on a lower figure. However, a provision in […]

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Lifetime ISAs v pensions

Lifetime ISAs became available as from 6 April 2017, though there are as yet few providers.

The government had two objectives in introducing the LISA – to assist would-be home owners to accrue sufficient funds to enter the housing market, and to provide an alternative or additional means of saving for retirement. In the latter context, some people will be wondering about the respective merits of personal pensions and LISAs.

Personal pensions offer tax relief on contributions, but apart from the 25% tax-free cash entitlement, withdrawals are subject to tax. LISAs, by contract, offer both a 25% up-lift on contributions and tax-free withdrawals. Provided that the conditions are satisfied, the government will contribute £1,000 for every £4,000 invested.

The conditions attaching to LISAs are that the funds must be used either to purchase a first home for less than £450,000 or, if encashed for any other purpose, that this is not before the age of 60. In addition, investors must be aged between 18 and 40. However, anyone who starts a LISA before the age of 40 can continue contributing until the age of 50.

Limits on maximum contributions still favour pensions. The £4,000 p.a. maximum which can be invested in a LISA compares with £40,000 for pensions (reduced to £10,000 for people who have already started drawing benefits)

So, who should be considering investing in LISAs? Certainly, first-time house buyers Also people wishing to provide for retirement and who do not have access to workplace pensions.

The self-employed are a principal target audience for LISAs. However, the current maximum age restriction of 40 is seen as inappropriate and may be one of the reasons why more providers have not yet entered the market.

An influential lobby group of banks and asset managers has been formed which has pointed out that according to the Office for National Statistics, 43% of the self-employed are aged over 50, compared with only 27% of those in employment. And significantly, one of the few providers already offering LISAs reported that nearly one fifth of applicants in the weeks following the launch were aged 39.

LISAs are unlikely to be attractive to higher rate taxpayers, who currently enjoy the great benefit of tax relief on pension contributions at their highest marginal rate. However, proposals for the equalisation of tax reliefs have been discussed and remain on the cards.

To complete the picture, we must not forget standard ISAs, for which the maximum annual contribution is now the very meaningful £20,000 p.a. per individual.

If, as suggested, the market for LISAs is the first-time home buyer and the self-employed, it is equally clear that other categories of taxpayer should be seeking to maximise their pension contributions while current limits are in force; and at the same time, taking their cue from the government’s wish to reduce the cost of pension reliefs, to build up meaningful portfolios of stocks and shares ISAs