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Lifetime Gifting in the UK

With the relatively low UK inheritance tax threshold of £325,000 per person, it may be important for individuals with sizable UK assets to think about opportunities to transfer their assets out of their own names at a certain point in time to mitigate any UK tax payable at their death. If this is done properly, it can be a great way of preserving assets for the next generation.

Why is Estate Planning important?

Estate and inheritance tax planning for a US person living in the UK is an important area of your financial life to address. This is probably even more so due to the large differential in the nil rate inheritance tax bands available in the UK as compared to the US (£325,000 versus a current $5.45 million in 2016). A lack of understanding about how inheritance tax works can end up costing families hundreds of thousands if not millions of dollars. However, proper planning can help minimise the amount of inheritance tax payable and help ensure that families are left with an estate that will provide for their needs after death. Proper strategies will largely depend on the individual circumstances of the decedent.

Considerations need to be given to the following:

• Whether you are deemed to be UK domicile or non-UK domicile
• Location and situs of assets
• What would be ideal versus acceptable
• Size and composition of assets
• Citizenship of spouse, if applicable
• Citizenship and relationship of estate beneficiaries
• Whether any lifetime wealth transfer is feasible

There is significant personal thought and planning that goes into what strategies will best meet your specific individual preferences. Sometimes it’s difficult to know where to start or how to think about the eventual distribution of your assets. It is often beneficial to have a solid idea ahead of sitting down with a solicitor so that you can have more productive conversations. Taking the time to frame your thinking on who you might want to pass assets to will begin the process of developing a strategy based around your own needs and requirements.

Estate Planning is a dynamic process. As your life develops your beneficiaries and charities will change. This should not be an excuse to not plan but instead to amend and tweak existing structures.

For more wealth planning tips and tidbits from MASECO read our 39 Steps to Smart Living in the UK.

Risk Warnings and Important Information
The value of investments can fall as well as rise. You may not get back what you invest.
The above article does not take into account the specific goals or requirements of individual users. You should carefully consider the suitability of any strategies along with your financial situation prior to making any decisions on an appropriate strategy.

MASECO LLP trading as MASECO Private Wealth is authorised and regulated by the Financial Conduct Authority, the Financial Conduct Authority does not regulate tax advice. MASECO Private Wealth is not a tax specialist. We strongly recommend that every client seeks their own tax advice prior to acting on any of the strategies described in this document.

Discipline: Your secret weapon

The photograph above this blog article is of my Springer Spaniel, Bear. This shot was taken last weekend at “dog boarding school” where he is spending 6 weeks in training. Here he will be fashioned into a dog capable of working in the field. What he is really being taught is discipline – without discipline he becomes a liability and his positive impact on a day’s hunting would swiftly become a negative.

It is not just dogs that need discipline, investors need it in spades too. Benjamin Graham wrote in The Intelligent Investor that “the investor’s chief problem – and even his worst enemy – is likely to be himself.” When people follow their natural instincts they often apply faulty reasoning to investing. Some struggle to separate emotion from their investment decisions, falling foul of excessive optimism or becoming unnecessarily fearful. By giving in to such emotions and not having discipline may lead to making poor investment decisions at the worst times.

Having a disciplined investment philosophy and strategy differentiates a sophisticated investor from the average investor. Your strategy and philosophy does not have to be complicated. Warren Buffet’s investment approach could be described as “buy a good business at a good price and hold it forever.” A disciplined strategy helps keep our behavioural biases in check, provides focus and may be more likely to deliver a successful investment experience.

Unfortunately there is no training camp for investors! Nevertheless by finding the right wealth manager you too can create a disciplined plan and focus on actions and outcomes that add value.

By Henry Findlater

The Role of Insurance Protection

Well-structured protection can offer you and your family many advantages. Proper planning can provide your beneficiaries with a tax-free death benefit that will alleviate future financial concerns. Protection can also provide a vehicle to accumulate additional funds on a tax-efficient basis. Most importantly, insurance protection can allow you to prudently and effectively manage the financial risks to which you may be exposed in the event of an untimely accident, illness or death.

Managing several key risks can help ensure financial stability, both now and in the future, including:

(1) Payment of estate/inheritance taxes. Sometimes families have enough assets to fund their future needs but do not take into account potential erosion of their estate that can arise from inheritance taxes. Protection can help you maximise your estate for your heirs.
(2) Loss of income. A survivor’s income stream may not be sufficient to provide the family with enough security if the primary earner’s income is lost. Protection can safeguard your family’s current lifestyle if your income suddenly changes due to premature death or illness.
(3) Repayment of liabilities. Many families carry mortgage debt or other ongoing liabilities throughout a good portion of their lives. Protection creates a vehicle that can repay any outstanding individual or business related liabilities in the event of a premature death.
(4) Fund future lump sum goals. Many families use their expected income stream to make plans to fund a lump sum goal such as paying for a child’s education. Protection allows you to ensure lump sum goals are still able to be funded in the manner you planned.

Other important areas of consideration when assessing the type and amount of protection needed by an individual and their family include:

• Business continuity needs
• The impact of having a US beneficiary on planning strategies
• Multi-jurisdictional tax planning – the impact of a US person being subject to UK Inheritance Tax for a period of time
• Investment diversification and management
• Charitable giving

As with other aspects of your wealth plan, protection requirements need to be reviewed periodically as life’s inevitable changes often impact a family’s needs. Some common events that may trigger a review of your protection portfolio include:

• Change in citizenship or tax residency
• The purchase of your first home or scaling up to a new home
• Acquiring new personal or business debts
• Getting married or entering into a civil partnership
• Having your first child or additional children
• Changes in the amount of household income
• Moving from an employed role to a self-employed role
• Retirement
• Becoming someone else’s dependent

Onshore versus Offshore Insurance Protection

An insurance solution that is considered to be onshore or offshore for US purposes may be appropriate depending on your net worth, current tax residency, planned future tax residency and overall wealth goals and objectives. In some situations, it may make sense for a US person to take out an offshore policy to facilitate a suitable, tax efficient estate planning strategy from a US perspective.

An onshore versus offshore policy is ultimately used to achieve different goals. Each have different investment choices and fee structures but it is possible to find both onshore and offshore solutions facilitated through insurance specialists that are US compliant structures which maintains tax efficiency for US persons and requires minimal tax reporting. Having the flexibility to examine various solutions will help ensure an optimal solution based on your personal circumstances.

For more wealth planning tips and tidbits from MASECO read our 39 Steps to Smart Living in the UK.

Risk Warnings and Important Information
The value of investments can fall as well as rise. You may not get back what you invest.
The above article does not take into account the specific goals or requirements of individual users. You should carefully consider the suitability of any strategies along with your financial situation prior to making any decisions on an appropriate strategy.

MASECO LLP trading as MASECO Private Wealth is authorised and regulated by the Financial Conduct Authority, the Financial Conduct Authority does not regulate tax advice. MASECO Private Wealth is not a tax specialist. We strongly recommend that every client seeks their own tax advice prior to acting on any of the strategies described in this document.

Considerations when looking at property as an investment

Historically, property alongside pensions has been one of the most common ways to invest in the UK. As many know, property is an asset class, just as cash, bonds and shares and can serve as a form of diversification when building an investment portfolio. In the UK, there have traditionally been many tax incentives for property investing. However, these are slowly being tapered back making other avenues of investing potentially more attractive.

Why has investing in UK property been attractive?

The UK does not currently charge capital gains tax on the sale of a main residence. As property prices have increased over the years, it has allowed individuals to upgrade and downsize their properties and keep their gains in tact without the extra consideration of what might be payable to HMRC.

In addition to tax advantages provided for a main residence, the UK also allowed for attractive benefits related to buy-to-let properties. Landlords buy to let properties have been able to generate considerable rental income and that income could be offset against mortgage interest and other ‘wear and tear’ allowances leaving a very tax efficient way to place capital to work

What has changed?

Beginning in April 2016, second properties now attract an additional 3% Stamp Duty Land Tax (SDLT) charge on purchase and on sale, gains tax is charged at 18% or 28% as opposed to a more favourable gains tax of 10% or 20% for the sale of other investments such as shares. Additionally, over the next few years, mortgage interest relief will be capped at a 20% basic rate of tax benefit and gross rental income will be used to determine the tax rate applicable on the net rental income earned each year. With some of the incentives being tapered back, many people are reconsidering its place in their overall investment portfolio.

What can property offer investors?

As noted above, property is an asset class separate and distinct from fixed income and equities. Therefore, it can serve as a diversifier within an individual’s overall investment portfolio.

When you own property, there are two main ways to earn a return:

(1) Make the property a buy-to-let and earn an income stream over time by letting it out to tenants
(2) Hold the property for use as a main residence or second home and sell the property at a later date for a higher price than you purchased it for.

For some approaching retirement, a buy-to-let property may, depending on individual circumstances, offer an income stream to supplement pension income and possibly serve as a form of annuity over time.

What are the risks of investing in property?

It may not seem like it from recent history but it is important to remember that property prices and demand for rentals can ebb and flow over time. Additionally, property is considered to be a more illiquid investment as you cannot get your money out immediately if you need quick access to capital.

It is important to factor in any buying, selling, maintenance and management costs associated with owning a property as these are not insignificant. Additionally, this not only involves financial costs but also a time cost. When there is a mortgage loan in place, you need to factor in that there is no guarantee that the rental income will fully cover the loan repayment over time. And, if you cannot keep up with the loan repayments, the bank can reclaim the property.

This is why it is important to remember that investment in property should be a long-term buying decision and time horizon and access to other more liquid sources of capital should be carefully considered before purchase. If the housing market slows down, having the ability to postpone a sale until more favourable market conditions return will certainly help increase the odds of a profitable investment.

For more wealth planning tips and tidbits from MASECO read our 39 Steps to Smart Living in the UK.

Risk Warnings and Important Information
Your home may be repossessed if you do not keep up repayments on your mortgage.
The value of investments can fall as well as rise. You may not get back what you invest.
The above article does not take into account the specific goals or requirements of individual users. You should carefully consider the suitability of any strategies along with your financial situation prior to making any decisions on an appropriate strategy.

MASECO LLP trading as MASECO Private Wealth is authorised and regulated by the Financial Conduct Authority, the Financial Conduct Authority does not regulate tax advice. MASECO Private Wealth is not a tax specialist. We strongly recommend that every client seeks their own tax advice prior to acting on any of the strategies described in this document.

The Role of Foreign Exchange in Investing

Wealth management is the art of managing risk in an effort to optimise reward. For US citizens living in the UK, risk management needs to go beyond the classic issues of retirement planning involving how much money will be needed to retire, or at what age is retirement feasible. Expats need to also understand whether any foreign exchange risk lurks in their underlying portfolios.

For expats who are settling overseas for the long run, foreign exchange risk is complex but highly manageable – if you know how to identify and then anticipate the hazards. There are three areas where US citizens are likely to take on risk without always understanding the pitfalls. This includes:

(1) Planning investments in terms of their future liabilities – Will future expenses be mostly in dollars, pounds, or a combination or currencies?
(2) Being mindful of how to hold cash – Should cash be held in dollars, euros or some other currency?
(3) Not converting currency from one to another to make an investment decision due to exchange rate costs – subsequently ignoring the eventual underlying currency exposures of the investment made.

We explore each of these in a bit more detail below and provide tips for US expats on how to take charge of foreign exchange risks.

• Maintain buying power by selecting the right currency now for fixed income investing.

Traditional investment portfolios generally break down into three basic categories – fixed income, stocks, and cash. Each category plays a special role. Cash is important for emergencies; stocks are the growth engine, and fixed income investments should provide the basis for daily expenses after retirement or for mitigating the overall level of volatility in a portfolio. Foreign exchange risk in fixed income portfolios is singularly important to manage and you should consider having the right mix of dollar and pound-based fixed income investments. US citizens living overseas should look at matching the income from their investments to the local currency where they will be incurring most of their expenses. This will protect from exchange rate fluctuation. You don’t want to suddenly discover after decades of saving that the largest component of your portfolio is in dollars rather than the currency of your liabilities or vice versa.

• Pay attention to cash – is it in a local currency?

Everyone needs to keep cash – or cash equivalents – on hand for emergencies. In our experience we sometimes find that globetrotting clients can be indifferent to the currency in which they hold cash. If you are living in the UK and keep cash accounts in euros as well as dollars, then you are subjecting yourself to currency risk. This is true for cash equivalents, like US Treasury bills or money market funds. If you suddenly need £30,000 to replace your car, you don’t want to convert your cash from another currency. The foreign exchange market is vast – more than $5.3 trillion trades daily. But the price volatility is considerable. You could get lucky, and the currency you hold could strengthen. But in effect, you are playing roulette with your reserves.

• Don’t be afraid to change dollars to invest in US-based global stock funds.

Stocks, real estate and commodities – these are the assets that can help to power growth in a nest egg. For many US investors living abroad, buying US-based funds is typically the most efficient way to build a globally diversified portfolio of real assets. Diversifying is critical: it helps to outweigh the true risk of currency fluctuation and keep the return engine of a portfolio humming. We have found that a number of investors hesitate to swap their pounds for dollars. They think that they will get killed on exchange rate costs. However, if your wealth adviser has correctly set up efficient foreign exchange banking services, those transaction rates should be trivial.

Investors also mistakenly assume that they are taking on dollar risk if they exchange pounds for dollars in order to invest in a US global stock fund. Buying US funds is often considered the most tax-efficient venue for expats and the investor needs to distinguish between the denomination of the investment and the true foreign risk exposure. The currency risk for a US person permanently living in the UK, buying a dollar denominated fund, that buys stocks in Europe, is the movement between the euro and pound – not the relationship between the US dollar and pound. If you exchange pounds to buy a dollar-based emerging market fund, then the foreign exchange risk is pound vs. emerging market currencies. There is no dollar risk. The dollar is merely a reporting currency.

When it comes to stocks, the ups and downs of foreign exchange can indeed enhance or hurt returns in the short-run. Some managers may use fancy techniques to hedge – or protect – investors from the vagaries of the foreign exchange market. In the long-term, however, academic studies show that hedging isn’t all that effective when it comes to stocks.

Global diversification is seen as the best friend for savers. When investors understand just where currency risk lies, they can make choices about how to manage that risk. A misunderstanding of these risks can result in investors not being able to achieve their goals

For more wealth planning tips and tidbits from MASECO read our 39 Steps to Smart Living in the UK.

Risk Warnings and Important Information
The value of investments can fall as well as rise. You may not get back what you invest.
The above article does not take into account the specific goals or requirements of individual users. You should carefully consider the suitability of any strategies along with your financial situation prior to making any decisions on an appropriate strategy.

MASECO LLP trading as MASECO Private Wealth is authorised and regulated by the Financial Conduct Authority, the Financial Conduct Authority does not regulate tax advice. MASECO Private Wealth is not a tax specialist. We strongly recommend that every client seeks their own tax advice prior to acting on any of the strategies described in this document.

Look to have a tax overlay to your saving plan

Having clearly defined personal wealth goals and objectives is the first step towards determining an appropriate investment strategy and asset allocation. The additional value add comes with giving proper consideration as to how to meet your goals in the most tax-efficient and optimal manner. As a US person living in the UK, you want to make sure that you avoid the tax traps that are littered within the investment world to mitigate any overall costs of investing.

Below are some general planning considerations for optimising tax-efficiency. You should consider with a US-UK tax adviser on which strategies may make sense for your individual needs.

If you are married, ensure that both spouses are utilising the UK tax allowances available to them. The UK tax system is more individualised compared to the US where married couples have the ability to file jointly. In the UK, each individual has a personal allowance, capital gains allowance and, beginning in this current UK tax year (2016) a dividend allowance that is available. Having investable assets in both spouses name can often maximise the amount of investment income received before being subject to UK taxes and therefore mitigate overall tax payable.

Asset locate investments to achieve maximum tax-efficiency. In general, dividends and capital gains receive more favourable tax rates. Therefore, these investments should be held in taxable accounts. Whereas, interest income is taxed as ordinary income and can be optimally sheltered in tax-deferred accounts. Additionally, if one spouse is a non-US person, consider whether your wealth is invested optimally to take advantage of the differing tax status.

For retirement specific goals, you should consider maximising your contributions to tax-deferred growth vehicles. Generally, employer pension plans (whether that be a US 401k plan or a UK pension) allow individuals to receive tax-deferred growth in both the US and the UK. There may also still be opportunities to contribute to Traditional IRAs and Roth IRAs in the US. The tax benefits of these accounts are generally recognised in the UK as well. For instance, distributions from a Roth IRA are generally tax-exempt in the UK under the US-UK tax Treaty. Given the new rules related to UK pension contribution allowances for additional rate taxpayers, consideration should be given to how to maximise pension/tax deferred contributions as much as possible. For instance, any individuals who have not fully utilised their carry forward allowances from the prior three tax years may want to consider taking advantage before they drop off in future tax years.

Understand how various UK tax wrappers are viewed from a US perspective. In general, many different tax advantaged accounts in the UK do not enjoy the same treatment from a US tax perspective. For instance, ISAs and offshore bonds are ‘looked through’ from a US perspective and taxed on the underlying investments. For some, investing in SIPPs can be a good opportunity to use excess foreign tax credits and establish cost basis in the account from a US point of view.

Avoiding Passive Foreign Investment Company (PFIC) investments. As many know, US persons should avoid investing in non-US registered collective investments as these are taxed unfavourably in the US.

Investing in US mutual funds with UK reporting status. If a US person taxed on the arising basis invests in US funds that do not have UK reporting status, capital gains earned on the funds are taxed in the UK at ordinary income tax rates. This is known as offshore income gain (OIG) rules. Given the non-domicile rule changes that come into effect in April 2017 and the inability to pay the Remittance Basis Charge for more than 15 out of 20 years, offshore asset choice becomes a very important decision.

Working to optimise tax-efficiency of assets within the wealth structure that will help you meet your various goals will ultimately help ensure that you do not make your capital work harder than it needs to for you and allows you to hold on to more of your hard earned money which is almost always the desired outcome.

For more wealth planning tips and tidbits from MASECO read our 39 Steps to Smart Living in the UK.

Risk Warnings and Important Information
The above article does not take into account the specific goals or requirements of individual users. You should carefully consider the suitability of any strategies along with your financial situation prior to making any decisions on an appropriate strategy.

MASECO LLP trading as MASECO Private Wealth is authorised and regulated by the Financial Conduct Authority, the Financial Conduct Authority does not regulate tax advice. MASECO Private Wealth is not a tax specialist. We strongly recommend that every client seeks their own tax advice prior to acting on any of the strategies described in this document.

The importance of financial planning

Financial planning is often an area that takes a back seat in busy lives. When there is no specific deadline to make a financial decision, it is very easy to say that you will address it in the future when life becomes less hectic. Taking the time to review your financial position, your personal wealth goals and objectives and consider the implications of whether your strategy will appropriately meet those goals can be an important exercise. Ensuring that you have an effective and appropriate strategy will likely afford you future flexibility and peace of mind. Below we discuss the areas that are beneficial to consider and review. A few easy steps can ensure optimal wealth planning strategies.

Evaluate and revisit your wealth goals and objectives

The investment process begins by defining your goals and objectives. Consideration should be given to how much money is needed to achieve the goal, the time horizon of the goal and the willingness to take risk to meet that goal.

• What are the goals that need to be considered?
• What are the amounts you need to meet those goals?
• What is the time horizon for each of your goals?
• Do you need an assumed savings target to meet any of the goals? If so, what is the assumed savings target?
• Will you receive any inheritances or gifts that will significantly increase your level of investable assets to help meet any future goals?

Reviewing the above will allow you to work out what growth rates are needed on your investments to meet your eventual needs. This can be very helpful when you assess the performance of your portfolio and whether it is still positioned properly to meet your goals. Once a year, it can be beneficial to sit down with the dedicated purpose of determining whether your current financial targets and the time horizons associated with them are appropriate.

Measure portfolio performance and assess asset allocation

If the first step is evaluating your goals and objectives the next step is to take a closer look at the performance of your current portfolio and determine whether or not it is allocated in a way that will help meet expectations.

If you are falling short of your growth targets, you could consider whether individual investment changes, an increase in your overall exposure to growth assets, an adjustment of your goal or an increase in your level of current savings is needed. If you are exceeding your growth targets, consideration can be given to whether you should decrease your exposure to growth assets or perhaps explore other goals. And, if you are meeting your growth rate targets then your focus can move to asset allocation and tax-efficiency.

A sound wealth plan is built around an appropriate asset allocation. Different asset classes will perform better than others during different time periods and a diversified portfolio of assets will help to ensure that you benefit from the outperformance of each asset class as and when it is realised. This varying performance will likely lead to what is called style drift within the portfolio. An annual rebalance will help ensure that you maintain an optimal risk and reward trade-off for your set of financial goals.

Maximise the tax-efficiency of your wealth plan

In light of the above, consideration should be given to how to meet your goals in the most tax-efficient and optimal manner. You want to make sure you have a good understanding of the tax opportunities available to you and your individual situation. Investing in a tax-efficient manner will help ensure that you do not need to make your capital work harder than it needs to for you. For retirement specific goals, one should look to take advantage of appropriate tax deferred growth vehicles. In addition, one you should seek to asset locate investments to achieve maximum tax efficiency. For instance, in general, dividends and capital gains receive more favourable tax rates. Therefore, these investments should be held in taxable accounts. Whereas, interest income is taxed as ordinary income and can be optimally sheltered in tax-deferred accounts. Additionally, consideration should be given to whether assets could be more optimally placed in a spouse’s name based on tax status or overall relative income position.

Consider your inheritance tax planning and estate provisions

Your estate provisions and any inheritance tax planning, whether basic or more complex, should be taken into account when undergoing financial planning. Even if you have previously put a plan in place the suitability of that plan may evolve as a result of a change in your financial situation or a family event. Life events such as getting married or divorced, the death of a spouse or close relative, having children, purchasing a new home, a change in citizenship among members of your family, or an increase in net worth may all trigger a need to review your estate plan.

Summary
Undergoing a review of your financial life allows you to maintain a clear picture of where you stand financially. It is an opportunity to ensure you are on track to meet your goals and help identify areas in need of adjustment. Being pro-active allows your plan to evolve as your needs change and leaves you with a level of comfort that you have implemented an optimal strategy to meet your needs.

For more wealth planning tips and tidbits from MASECO read our 39 Steps to Smart Living in the UK.

Risk Warnings and Important Information
The above article does not take into account the specific goals or requirements of individual users. You should carefully consider the suitability of any strategies along with your financial situation prior to making any decisions on an appropriate strategy.

MASECO LLP trading as MASECO Private Wealth is authorised and regulated by the Financial Conduct Authority, the Financial Conduct Authority does not regulate tax advice. MASECO Private Wealth is not a tax specialist. We strongly recommend that every client seeks their own tax advice prior to acting on any of the strategies described in this document.

Is Lifetime Allowance Protection appropriate?

The standard lifetime allowance (LTA) is a limit on the amount of pension benefit that can be drawn from pension schemes – whether lump sums or retirement income – and can be paid without triggering an extra tax charge. Currently at £1.25 million, the LTA will reduce to £1 million beginning 6 April 2016. Provided nothing changes, the LTA is set to stay at £1 million from 6 April 2016 until April 2018 when it is scheduled to increase each year in line with CPI.

With the LTA threshold getting lower, many more people will find the need to consider whether or not a form of LTA protection might be appropriate in their situation. Lifetime allowance protection locks in the level of your lifetime allowance. There are three protection programmes that remain available to individuals who do not currently hold protection or have not previously applied for protection in the past. These are:

(1)
Individual Protection 2014 (IP2014) – This protection is available to an individual whose pensions were valued at £1.25 million or more on 5 April 2014. It gives individuals a protected lifetime allowance equal to the value of their pension savings on 5 April 2014, subject to an overall maximum of £1.5 million. An application for protection until IP2014 is available until April 2017.

(2)
Fixed Protection 2016 (FP2016) – This form of protection could be considered by any individual who wants to lock in a protected lifetime allowance of £1.25 million but by doing so must cease any contributions (made by themselves or their employers) to UK pensions from 6 April 2016. If any contributions are made from 6 April 2016 onwards, fixed protection will be lost.

(3)
Individual Protection 2016 (IP2016) – This form of protection will be available to those which funds valued at £1 million or more on 5 April 2016. It will protect the value of the fund on that date up to a maximum of £1.25 million. Unlike Fixed Protection, contributions can continue without the risk of losing protection.

The decision as to whether any and what LTA protection is appropriate is based on personal circumstances and a number of factors. The key factors in the decision making process can be outlined as follows:

Number of years until retirement – a longer timeframe will result in a more uncertain projected outcome. This will make it more difficult to know which option might result in the most beneficial scenario.

Expected investment returns – An individual’s attitude to risk is a key factor to consider as the rate of return used in any sort of projection will directly impact the compound growth effects over time.

Value of pension benefits on 5 April 2016 – the value of any pension assets as of this date will determine what options are even available to consider. The closer the pension value is to £1.25 million on this date, the more valuable individual protection will be since it will offer nearly the same protection benefit but still afford flexibility of future contributions should you be unable to avoid them.

Flexibility of employee benefits/employer contributions – Where there are no employer contributions, or the employer contributions can be redirected, the decision around protection options can be relatively straightforward. But, if the employer does not allow any sort of flexibility, this inevitably creates a layer of complexity around the decision. One must assess the trade-off of any forgone benefits under fixed protection versus securing individual protection or doing nothing at this point in time.

The right decision is an individual one and many factors are not independent from one another. It is important to give consideration to all factors in light of your own objectives and circumstances. Seeking personal advice will almost certainly be beneficial.

For more wealth planning tips and tidbits from MASECO read our 39 Steps to Smart Living in the UK.

Risk Warnings and Important Information
The above article does not take into account the specific goals or requirements of individual users. You should carefully consider the suitability of any strategies along with your financial situation prior to making any decisions on an appropriate strategy.

MASECO LLP trading as MASECO Private Wealth is authorised and regulated by the Financial Conduct Authority, the Financial Conduct Authority does not regulate tax advice. MASECO Private Wealth is not a tax specialist. We strongly recommend that every client seeks their own tax advice prior to acting on any of the strategies described in this document.

Consider maximising UK pension contributions ahead of new UK tax year

UK pensions have traditionally offered a great opportunity for UK and US persons alike to save towards retirement. From a UK perspective, pension contributions have typically allowed individuals to receive tax relief in the year of contribution, tax-deferred growth whilst funds remain within the tax wrapper, a tax-free pension commencement lump sum of up to 25%, and distributions from the pension at marginal tax rates. Additionally, UK pensions now remain entirely outside of the pension-holder’s estate for UK inheritance tax purposes, providing a powerful planning tool for many families. From a US perspective, to the extent that tax relief is limited, UK pensions have often provided a good opportunity to use excess foreign tax credits and establish cost basis in the account. This can be especially powerful if the individual anticipates living in the US during retirement where the US will generally have primary taxing rights on the UK pension under the US-UK tax treaty.

The new tax year beginning in April (TY2016/17) will bring in a number of changes with respect to pension contributions. The question remains what further changes will be announced during next week’s Budget Statement. But, for now we can outline what considerations individuals should give leading up to the end of the tax year.

The UK currently allows contributions in excess of the annual allowance by using any unused annual allowance from the previous three qualifying tax years as long as the individual was a member of a qualified UK registered pension scheme in those earlier years. Applicable prior year allowances are as follows:

2012/13        £50,000
2013/14        £50,000
2014/15        £40,000

By now everyone probably knows about the upcoming tapered allowance that is set to apply for additional rate taxpayers following 6 April 2016. Anyone with applicable earnings of less than £150,000 will be able to contribute up to £40,000 per year to their pensions. However for those earnings over £150,000 from April 2016 this tax relief will be scaled down £2 for every £1 of earnings and tax relief will be £10,000 for those earning £210,000.

A special opportunity has arisen for some individuals related to 2015/16. In order to phase in the new pension relief rules, where all pension input periods will be concurrent with the UK tax year from 2016/17 onwards, HMRC split the current tax year into two pension input periods. The new pension input period runs from 9 July 2015 to 5 April 2016. All pension input periods open on 8 July 2015 were closed. All individuals were given an £80,000 allowance for the pre-alignment tax year with a maximum of £40,000 able to be carried forward to the post-alignment tax year. So, individuals who funded their 2015/16 pension contributions prior to 9 July would have up to another £40,000 annual allowance available for the 2015/16 tax year.

For any individuals who will be subject to the tapered allowance outlined above, and for those who are worried about what future tax relief might be offered on pension contributions, maximising contributions ahead of any announced changes may be beneficial.

For more wealth planning tips and tidbits from MASECO read our 39 Steps to Smart Living in the UK.

Risk Warnings and Important Information
The above article does not take into account the specific goals or requirements of individual users. You should carefully consider the suitability of any strategies along with your financial situation prior to making any decisions on an appropriate strategy.

MASECO LLP trading as MASECO Private Wealth is authorised and regulated by the Financial Conduct Authority, the Financial Conduct Authority does not regulate tax advice. MASECO Private Wealth is not a tax specialist. We strongly recommend that every client seeks their own tax advice prior to acting on any of the strategies described in this document.