Money Matters

A regular column for Konect by

Personal Money Management 

Written by:

Peter M Marshall PhD, DipPFS, AFPC. Personal Money Management, 0131 538 7390

February 2014 : End of Year tax planning

From a tax point of view March is the most important month as it offers many tax opportunities which if not taken will be lost.

Independent tax planning

Where one spouse pays a lower rate of tax (or no tax) than the other spouse it can be tax beneficial, subject to practical considerations, to transfer investments to the lower tax paying spouse to save income tax and possibly capital gains tax. Transferring between married couples will not incur any inheritance tax, nor will there be any capital gains tax.

Tax efficient investments

With the current relatively high rates of income tax and capital gains tax it is most important for people to invest in the most tax efficient way.

Everyone 16 years old and over can take out an Individual Savings Account (an ISA). This is the main method of investing savings with freedom from income tax and capital gains tax without giving up access to the investments.

For this tax year the overall annual ISA contribution is £11,520 of which no more than £5760 can go into cash, with the balance being invested in a stocks and shares ISA.

If you do not use your ISA allowance in this tax year it CAN NOT be carried forward to a future tax year.


If you pay tax at 40% then any pension contribution will attract tax relief at 40% i.e. if you put £60 into a pension fund then the government will add another £40 giving you 67% return.

Even for a basic tax payer the government will add £12.50 for every £50 you contribute, a return of 25%. Nowhere else can you get a guaranteed rate at this level.

December 2013 : Investment - is there still any point?

After the terrible events of 2008 many of us have probably been put off investment for life. However, the real numbers are often hidden in all the interference that makes up the rest of the market news. Here are a few facts that may surprise you.

  • The FTSE All Share Index is up 100% since November 2008.

  • The S&P 500 Index is up 104% since November 2008.

  • Personal Money Management’s Medium Risk Portfolio Fund ( level 5 on a scale of 1-10) has returned almost 8% in the year to 15.11.13 and 59% in the last 5 years.**

  • The average instant access Cash ISA has returned approximately 2% per year in the same period. This is a negative real return once inflation is included.

The Golden Rules

  • Always pay off debt first.

  • Always have an emergency cash fund

  • Always invest for the long term.

  • Always take professional advice to invest at a risk level that is correct for you, in a fund that is correct for you. Investment is not a simple business and attention must be given to the range of asset classes invested in and in what proportion. The portfolio will also require rebalanced regularly.

  • Try and maintain a regular feed of payment into your investment fund, this can help performance.

  • Always remember that your capital is at risk and you may not get it all returned.


Investment is not for everyone, but the numbers are clear. It is unfortunate that we live in such a low savings return economy but investment can help us fight the constant threat of inflation and the depleting effect it has on our money.

Figures correct at 18.1.13.

This does not constitute an offer.

**Past performance is no guarantee of future performance.

Source: Trustnet.

 November 2013 : Fixed Term Annuities

When you reach retirement age you have hopefully accumulated a lump sum from which you can take 25% as a tax free lump sum. The problem is what do you do with the remaining 75%?

The simplest thing is to buy an annuity. You give a provider the lump sum and they give you a monthly pension for the rest of your life. Unfortunately, present annuity rates are at an all-time low and any death benefits are expensive.

The alternative is to go into Capped Drawdown, which means the lump sum stays invested and you draw an income every month. Unfortunately, if the growth is less than the amount you draw out then the lump sum starts to decrease in value.

Fixed Term Annuities to the Rescue.

They are basically a clever product which gives you the guarantee of a straightforward annuity but takes away the risk associated with Capped Drawdown.

How do they work?

They are a fixed term contract e.g. five years. The provider pays you a regular guaranteed fixed income for the term of your plan. At the end of your plan they pay you a pre-determined guaranteed maturity value.

What happens at the end of the term?

Provided you are still alive at the end of the term you will have the guaranteed maturity amount to buy the most appropriate pension product for your particular circumstances and income needs at that time.

What happens if I die before the plan ends?

The original investment less any income paid goes to your beneficiaries.

Fixed Term Annuities will not be suitable for everybody but they certainly fill a need if a person wishes a guaranteed income and a guaranteed maturity value at the end.

October 2013 : Savings - where to now?


The Bank of England base rate has been 0.5% since March 2009. Great news if you are a borrower because you should have seen your rates decrease but unfortunately if you are a saver then you will have struggled to get a real return.

What is a real return? It is a return over and above inflation, which is at or around 3% at the moment. This means if you are a basic tax payer you will need a savings rate of around 4% just to keep up with inflation. The new Bank of England governor Mark Cairney has recently said that he intends to keep the base rate at 0.5% until the unemployment rate falls below 7%. This is unlikely to happen in the near future so savers are stuck with a rate of around 1% i.e. losing the buying power of their money on a daily basis.


If you have funds either in a savings account or a Cash ISA and you don’t need the capital in the short term, one option would be to transfer them to an investment ISA and this could achieve a return above inflation, provided you are willing to hold them for at least 5 years.


When investing there are many asset classes which you could consider e.g. government gilts, corporate bonds, commercial property and of course shares or equities in UK and foreign companies.

It is impossible to predict which of these sectors will produce the highest return, hence it is important that you diversify across all the sectors and rebalance your portfolio annually.

By applying a suitable asset allocation to fit your risk profile, which is spreading your investments across many asset classes and geographical areas, your investment should produce returns within a range that is acceptable to you.

September 2013 : Premium Bonds

What are they?

Individuals can invest a minimum of £100 and a maximum of £30,000 into Premium Bonds but you do not receive any interest.

Your numbers are entered into a monthly draw which offers prizes from £25 up to £1,000,000. Any capital is guaranteed but it does not increase and hence it is losing its buying power.

The odds of winning a prize are 26,000 to 1, giving an effective equivalent return rate of 1.3%.

Interest rates!

Up until recently the equivalent interest rate was 1.5%. but NS & I maintain that they have had to cut the rates because other alternatives such as bank and building society deposits have recently slashed their savings rates, resulting in a surge in demand for premium Bonds. NS & I say that this cut is to ensure the stability of the broader financial services sector.

Are they still a good buy?

It is difficult in the current climate to find an instant access savings rate of much more than 1%, so using this comparison 1.3% is indeed better. However, in a savings account your money will grow, albeit by not very much, whereas with Premium Bonds you may in fact get no return at all.

A point in Premium Bond’s favour is that any winnings are tax free. This probably makes them a better buy for a higher rate tax payer.

It is important that National Savings have your correct address. If you want to check if you have won a prize then visit the National Savings website and enter your holder’s number. 

August 2013 : Pensions - All Change

In previous articles we have mentioned the benefits of pensions i.e. you get tax relief at your marginal rate, the fund grows in a tax efficient environment and at the end on retirement you can take 25% tax free cash. That is all well and good, but the government is as always tinkering with the rules so it is worth outlining some key changes.

Allowed contributions

From 6th April 2014 the amount that you will be allowed to contribute to a personal pension and get tax relief will be reduced to £40,000 or 100% of total income, whichever is the lower. 

Increase to drawdown arrangements

From 26th March 2013 the maximum amount of income that may be taken under a capped drawdown arrangement was increased to 120% of the Government Approved Annuity Rates known as the GAD.

Reduction in the lifetime limit

From 6th April 2014 the lifetime limit will be reduced to £1.25 million unless the member applies for one of several forms of protection.

Advantages of a pension plan

  1. Tax relief on contributions up to £40,000 a year at the member’s highest marginal rate with the ability to carry forward any unused allowance.

  2. In most cases the pension will be free from Inheritance Tax.

  3. From age 55 onwards, 25% of the fund can be taken as a tax free lump sum but there is now a limit.

Key tax factors to be aware of

  1. A tax charge UP TO 45% if contributions exceed the available annual allowance.

  2. A lump sum death benefit charge of 55% if the benefits are in drawdown and the member does not have a spouse at the date of death.

  3. It is absolutely imperative that professional advice is taken before a member reaches 75 as there are considerable tax disadvantages if appropriate action is not taken before the member’s 75 birthday.

July 13 : Inheritance Tax Part 2

As most of you are aware on death your estate is liable to Inheritance Tax on any assets above £325,000 if you are single or £650,000 if you are married or in a civil partnership.

How to avoid this 40% tax

First Strategy:- Put a lump sum in a Capital Investment Bond and then wrap a trust around it and if you survive seven years then the asset is outside your estate for IHT.  Most people don’t like this idea because in order for it to be successful you have to give up all access to the funds and many people are worried about needing the money for living expenses or long term care etc.

Second Strategy:-Put some of your assets in an Enterprise Investment Scheme (EIS) and provided you live two years then these assets are exempt from IHT. The major advantage of the EIS approach is that the money is never actually out of your estate, and hence should you need access to it then this is available, plus you get tax relief at 30%. The disadvantage is EIS are often considered relatively high risk.

Third Strategy:-A major insurance company have introduced a Wealth Preservation Bond (WPB) which really ticks all the boxes. The WPB provides you with the opportunity to reduce your potential IHT liability whilst maintaining access to the capital invested at a risk level to suit your personal circumstances. This is of particular importance at the present time, given our ability to live longer and the need to adapt to changing circumstances.

IHT planning requires considerable specialist knowledge. Always seek a financial adviser with this specific experience before considering any of the strategies mentioned above. 

June 13 : Breaking up (the pension) is hard to do.

Divorce is one of life’s most stressful events and dealing with the division of assets, particularly pension assets, can be a minefield. What methods are available to divide pension assets?


This method is the preferred options as it offers a clean break and gives the ex-spouse legal ownership and control over their share of the pension assets.The benefits are usually transferred into a personal pension plan in the ex-spouse’s name. The disadvantage is that any lump sum death benefits can not be shared and may need to be replaced.


The value of the pension assets is considered when valueing the couples’ matrimonial assets, but they each maintain their own pension rights with the value of the pension being offset against other assets.A common situation is that one of the partners has a much larger pension than the other and that member may keep his or her pension rights while the ex-spouse retains the matrimonial home.


This allows a portion of the benefits to be earmarked for the ex-spouse. The benefits continue to be held in the original member’s pension plan until retirement. At this point the benefits will be paid to the respective parties in the proportions required by the earmarking order.  Earmarking is a simple solution but a major disadvantage is that it does not allow a clean break and the couples may need to keep in touch many years after an acrimonious divorce. Another large disadvantage of this is that the member whose original pension it was, would have the right for any investment decisions and may choose an investment risk which the other partner would consider much inappropriate but can do nothing about it. Finally, if the member or ex-spouse dies the earmarking payment will cease. 

May 2013 : Pension choices at retirement

The choice you make at retirement can mean the difference of tens of thousands of pounds over your lifetime and the lives of your inheritors. It is simply the biggest financial decision you will probably make for the rest of your life, but you only have one chance to get it right. Here are the three main options to consider;

Annuities: you simply hand over your pension savings and the insurance company will give you an income for life. You can purchase death benefits for the plan, but if you don’t then the income will die when you die. Never buy an annuity without getting an Open Market Option Quote.

Draw Down Plan: this option lets you stay invested in the market but also draw a pension from the plan. The amount you can draw is decided by the government but will roughly equal the size of an annuity you could purchase. Should you die, your spouse will inherit the plan or the full cash amount, tax free, if the plan has had no tax free cash or income taken from it.

3rd Way Guaranteed Product: this is a hybrid of an annuity and a draw down plan. In short, it lets you stay invested in the market but also gives a level of guarantee, so that no matter how your investment performs you will be given a minimum income and / or capital value for life. Should you die, your spouse has all the benefits of a drawdown plan.

This is a very complicated subject and you should always consult a suitably qualified expert before choosing. WHICH magazine calculated those who take financial advice were on average 20% better off. 

April 2013 : Lost accounts

There cannot be many of us who have at some time in the past taken out a life policy, started a pension or opened a savings account and then because it was a long time ago have lost trace of it. This may be because you moved house, changed your address and failed to notify the appropriate insurance company, pension administrator, bank or building society department.

Amazingly, there is estimated to be £400m of unclaimed life assurance and pension policies alone. Below is some help on how you can trace these lost assets.

Pension Tracing Service

If you think you may have an old pension the Pension Tracing Service can help you :-

Pension Tracing Service, Tyne View Park, Whitley Road, Newcastle upon Tyne, NE98 1BA

Telephone 0845 600 2537or

Lost Building Societies Accounts

For Building Societies accounts:-

Building Societies Association, 6th Floor, York House, 23 Kingsway, London, WC2B 6UJ

Telephone 020 7520 5900 or

Lost Bank Accounts

Again British bankers have a trading association and their account tracing scheme is at:-

Dormant Bank Account Department, The British Bankers Association, Pinners Hall, 105-108 Old Broad Street, London EC2N 1EX

Telephone: 020 7216 8800 or

Lost Insurance Policies

The first stop would be the Association of British Insurers (ABI). Unfortunately they do not accept written applications. All applications must be done on line.

Telephone: 0870 241 1713 or

An alternative is to visit an Independent Financial Adviser taking with you any correspondence regarding lost building societies, insurance policies or pensions. It would be helpful if it was the latest correspondence you have had. Finally, if you do not have an IFA, then the following website will enable you to find one. Alternatively you could simply visit your local Independent Financial Adviser at the address shown below. 

March 2013 : End of year tax planning

Each tax year the government encourages you to take advantage of tax efficient savings and investment opportunities. Unfortunately if you don’t use them, you lose them.


Individuals have an annual tax allowance of £11,280 (2012/13). Half can be held in cash but if you do not use your cash ISA the full amount can be invested. Under the ISA wrapper there is no Capital Gains and the fund manager is able to claim certain tax on dividends back.


An individual can contribute £50,000 into a pension this year and get full tax relief at their marginal rate.


An individual can make gains of £10,600 a year on investments tax free. If you are married and your spouse does not use their annual CGT allowance then transfer some or all of the investments into their name before cashing them in.


If you are married and only one partner has an income, than savings and other assets that generate an income may be transferred to the non-tax paying partner to benefit fully from their allowance.


Each year an individual can gift away £3,000 with no IHT liability and if they have not used last year’s allowance then this doubles to £6,000.


Sophisticated investors can invest in Enterprise Investment Schemes which offer tax relief at 30% if you hold the investment for at least 2 years. Growth in an EIS is also tax free and provided you hold the EIS for 2 years it is also exempt from IHT.


Again Venture Capital Trusts (VCT) which invest in small firms and also give the investor tax relief at 30%. In addition, dividends from VCTs are tax free and any growth is exempt from CGT.