Covid concerns – Should I access my pension fund now?

Covid Concerns – Should I access my pension fund now?

The UK is on the brink of a severe recession, with job losses and cashflow concerns for a large proportion of the country.

You may be thinking of the need to access some of your savings to alleviate large short term worries.  What a lot of people however are not aware of, is the fact that by using your pension savings to plug this gap, may mean that you are not able to utilise this vehicle to save again when the time arises.

Currently, anyone over 55 who makes a taxable withdrawal (not the 25% tax free cash allowance) from their pension will find that their annual allowance for this year and future years will be lowered from £40,000 to just £4,000 as a result of the triggering of money purchase annual allowance (MPAA).

This is a relatively new rule that was brought in 5 years ago with the introduction of ‘pension freedoms’ with an initial £10,000 limit, however it was reduced to £4,000 in 2017.  If the MPAA is triggered future contributions to your pension savings in excess of £4,000 per annum will face a tax charge.

The reasons for accessing taxable income from your pension could be for a variety of reasons like replacing lost income from employment or potentially taking extra income out to help a younger relative pay their bills. Regardless of the circumstances, currently the MPAA is applied indiscriminately and permanently.

If a 90% cut in the annual pension allowance was not bad enough, triggering the MPAA also means you lose the ability to carry forward any unused allowances from the three previous tax years in the current tax year. So, someone making a one-off decision to access taxable income from their pension during the current crisis could in fact reduce the amount they can save in the future into a pension in the current tax year from £160,000 to £4,000.

If you feel that you may still wish to make contributions to your pension savings in the future either personally or through an employer, accessing taxable cash just now may not be the most ideal solution.

I am not saying for one moment that in the current times using your pension to ease cashflow worries is to be completely avoided, however knowing all the ramifications of these decisions is of huge importance.

If you have other forms of savings available like ISAs or bonds, these may not have penalties, or taxation regimes which are quite as strict. It is important to make decisions of this nature with your eyes wide open and with all available knowledge at hand, and not regret a decision made in haste.

Please do not hesitate to get in contact if you feel you would like to know more, or to discuss your options.  We are always available for a remote video conference.



Plan now to avoid a big tax bill on your pension savings.

Are you building a fund for your retirement in a company pension scheme? If so, forthcoming changes to the taxation of pension savings could cost you dearly – unless you act swiftly.

From April, the maximum pensions saving that anyone is allowed to build, before it becomes subject to punitive taxation, reduces from £1.5m to £1.25m. This cap is called the Lifetime Allowance (LTA) and applies to an individual’s entire pension savings (apart from the state pension).

The figure may sound high but many thousands of people fall into the category – especially those in final-salary schemes who have built their entitlement through many years’ work.

But don’t despair, if you are affected, there are actions you can take before April to mitigate the potential tax charge down the line.

Saving into a pension scheme has for years attracted tax relief. However it was felt that wealthy people were getting too much tax relief and building up enormous pension pots and the LTA was introduced at £1.8m in 2012 reducing to £1.5 in 2013 and now to £1.25m in April this year.

It would be a brave man that did not anticipate further reductions in years to come.

When first introduced, the LTA used to apply only to a few thousand high earners in the UK who could afford to grow seven-figure pension pots. But the reduction in the limit, coupled with the increased costs of funding retirement promises for those who retire on final-salary-type pensions, has now pushed hundreds of thousands of people into the net.

There is some key information you need to know or find out quickly!

You need to find out what the total value of your pension savings will be, as at April 2014. This should include any legacy pension schemes with previous employers. If the total is already over £1.25m, or likely to grow beyond that sum before retirement, you can take action to retain the £1.5m LTA, subject to certain conditions.

If you are in a final salary scheme and expect to receive a pension in excess of £56,000 on retirement, this could take you over the LTA and should prompt you to take action now.

As ever HMRC have produced detailed guidance on the changes and impacts (see link below) but if you need assistance to understand the impact on you then please get in touch.



Spotlight on VCTs – Part 2 of risky tax relief


of small, higher-risk trading companies not listed on any stock exchange. Fund managers of VCTs must buy predominantly the shares of unlisted companies and the investment risk is spread over a number of them.

VCTs themselves are listed and can be traded with other investors.

Income tax relief is 30% at present and the annual investment limit is £200,000. This relief is withdrawn if the shares are disposed of within 5 years. However, it may be difficult to dispose of shares even though they are listed, because tax relief is only offered on the subscriptions of new shares, not those bought in the market.

Unlike EISs, VCTs cannot be used for Capital Gains Tax deferral.

Overall, a VCT should be a lower risk investment than an EIS (featured here ) because it is a pooled investment, whereas an EIS is an investment in a single company.

Approach with caution, but, if you are interested in how either VCTs or EISs could work for you please get in touch using the Make An Enquiry tab above.

Please note that all figures given represent our understanding of current HMRC legislation and this article does not constitute financial advice.


Spotlight on EISs – Is risky tax relief for you?

spotlightAt a time when many in the city may have just received their bonus and will be paying a healthy dose of tax with it, I thought it would be a good time to mention a couple of investment vehicles that come with tax relief.

Tax relief doesn’t come for free of course, and to obtain it you must be prepared to put up with higher levels of risk.

The first of these vehicles to be discussed is Enterprise Investment Schemes (EISs).

EISs are intended to help certain types of small, higher-risk, unquoted trading companies raise capital by providing tax relief for investors. They took over from Business Expansion Schemes in 1994.

Income tax relief on EISs at present is 30% for qualifying investments and the maximum annual amount an individual can contribute at is £1million. Interestingly, income tax relief is given in the year of assessment in which the shares are issued, rather than the year of investment. So as an investor, it might be possible to carry back income tax relief to the previous tax year.

The shares must be held on to for 3 years minimum or the relief will be withdrawn.

Capital gains can also be deferred for tax reasons by investing the gain into an EIS. There are various caveats to this and I would urge you to contact us to find out more if you think this could be useful in your circumstances.

No mention of EISs should come without a big fat risk warning. Investing in unlisted trading companies is a very high risk activity and the possibility of a company failing is very real. There is also a high liquidity risk as, even after the minimum three year period, it may be difficult to dispose of the shares.

Approach with caution, but, if you are interested in how this could work for you please get in touch.

Please note that all figures given represent our understanding of current HMRC legislation and this article does not constitute financial advice.

Come back in a fortnight for a look at Venture Capital Trusts (VCTs).

Malcolm Stewart


Budget 2013

George Osborne budget

George Osborne revealed his mid-term budget on Wednesday 20th. Here is our summary of the most relevant points for your future financial planning:

Inheritance tax – As mentioned in our blog recently, the amount of an estate that can be passed to the next generation tax free will remain at £325,000 until April 2018 (anything above being taxed at 40%). Another 5,000 estates are expected to become taxpaying estates by this time. If this is you, careful use of allowances today can reduce your bill.

State pension – this will rise by 2.5% to £110.15 per week. The Basic State pension and State Second Pension will be combined in April 2016 to a flat £144 per week (in today’s money). This should make it easier to plan for the future.

Pension drawdown – From Tuesday 26th March capped income drawdown rates will rise from 100% to 120% of GAD. While this could be useful for those of you that need more income, please be aware there is no guarantee your pension fund can sustain this. GAD is also set to be overhauled which should lead to good news in the future.

Capital gains tax allowance – the amount of gains that you can make on disposal of assets before having to pay tax increases to £10,900 for 2013/14. The rate remains at 18% for non and basic rate taxpayers, 28% for higher rate taxpayers.

ISA (tax free savings vehicle) – The stocks and shares ISA allowance will be £11,520 and the cash ISA allowance will be £5,760 in 2013/14. Please contact us for details of how you could use these depending on your circumstances. If you are yet to use your £11,280 allowance for 2012/13 contact us ASAP!

Income Tax – The personal allowance, currently £8,105, will increase to £9,440 in April this year and then £10,000 in April 2014.

Pension allowances will be cut next year – Personal annual contribution allowance down from £50,000 to £40,000 and lifetime allowance down to £1.25m.

Abusive tax avoidance – The Government will publish a report on how it will tackle tax avoidance and evasion this week. Needless to say, any tax mitigation strategies recommended by OAM are not abusive and are a key part of good financial planning.

That concludes our non-exhaustive list of points to be taken from Wednesday’s budget. The above points are based solely on our understanding of intended HMRC rules and should not be used to influence planning decisions on their own.

If you are a current client and require any clarification on how the above might affect you then please get in touch.

If you are not, then we would be happy to give you a second opinion on any aspect of your planning. There’s never been a better time to contact us.

Malcolm Stewart


Modelling Your Legacy

As part of the Wealth Management service we offer a comprehensive look at your entire financial position. If you have significant assets, an important part of your planning is the future of your estate in the event of your death. This entails the obvious legal aspects such as having a will prepared but also how exactly these assets are arranged.

The basic things to consider are as follows:

– Inheritance tax is only due if your estate – including any assets held in trust and gifts made within seven years of death  is valued over the current inheritance tax threshold (£325,000 in 2012-13 tax year).
– Tax is paid at 40% on the amount over this threshold
– Since October 2007, married couples and registered civil partners can effectively increase the threshold on their estate when the second partner dies – to as much as £650,000 in 2012-13. Their executors or personal representatives must transfer the first spouse or civil partner’s unused Inheritance Tax threshold or ‘nil rate band’ to the second spouse or civil partner when they die.*

Step one when producing an estate solution is to model your complete financial situation. This allows us to not only calculate what your immediate legacy or joint immediate legacy is, but also what it is likely to be factoring in rates of income and expenditure, as well as growth and inflation over time.

With this in place we can firstly analyse whether there is an inheritance tax liability at all. If there is, we will also be able to quantify just what this liability is and also, if desired, designate the estate split amongst other members of the plan.

The planning can be as detailed as appropriate


The calculations are presented in a detailed report. Once the liability is recognised we can then start to prepare what the best solution or solutions will be in discussion with the client, from gifting strategies to whole of life insurance policies.

You don’t have to be planning on leaving an inheritance to make the most of these tools. For some clients we have been able to take a different approach; how much can they afford to spend annually to make the most of their assets and gradually exhaust them? By adding in an arbitrary expense we can make an estimate. We can carry this out on a worst case scenario basis as well.

In this scenario we see liquid assets gradually being used up over time.


This approach takes a lot of the uncertainty out of inheritance tax planning and is of great benefit to our clients in this stage of their lives.

If you feel that this side of your planning hasn’t been looked at appropriately please get in touch. We offer a free second opinion service to anyone unsure about their current plans.

* Legislation from HMRC correct at the time of writing.


Do You Have A Large Pension?

Urgent Action Needed by the Deadline – 5th April 2012 

Who does this concern?

Anyone who expects their overall pension value to be above £1.5m by the time it is crystallised.

Individuals in final salary pensions schemes who are expecting pensions of £65,000-£75,000p.a.

What is happening?

From April 6 2012, the Lifetime Allowance (LTA) – the overall maximum that can be drawn from a pension fund before tax penalties are imposed – will fall from £1.8m to £1.5m. Any pension benefits over and above the LTA will incur a tax charge of 55% for a lump sum and 25% plus income tax for regular payments.

However, the government has softened the blow for those currently expecting their benefits to be worth more than £1.5m by allowing individuals to lock into the current £1.8m limit.


They must apply for fixed protection with HMRC.


  • You cannot start a new arrangement other than to accept a transfer of existing pension rights
  • You cannot have benefit accrual
  • You will be subject to restrictions on where and how you can transfer benefits

What are the consequences of not having fixed protection?

If you take a lump sum having exceeded the LTA, the tax charge is 55%. If you take the benefits as income, the charge is 25% plus income tax at the member’s marginal rate.

For more details please contact us forthwith!


Offshore bonds for university fee provision?

As my 16 year daughter gaily announced that she’s found another University near London that she might like to try, it did strike a chord that the financial burden for children goes way beyond standard school fees.

You could argue that the cost of children never diminishes or goes away completely, but that’s another argument for another day.

Whatever the eventual cost and in whichever location, having funds available to help ease the pain is the thing to do.

There are a number of ways to plan for further education fees; using the maximum ISA allowance each year, savings accounts, collectives and even using tax free cash from pension can all play a part.

I’d like to focus on how an Offshore Bond could be a vital addition to your further education fund armoury.

As I touched upon in a previous blog, the tax regime in the UK is punitive and using the tax free growth status of an Offshore Bond to provide fees by way of assignment to a non-UK taxpayer (like a Student) is worthy of consideration.

The Offshore Bond also has further advantages over other forms of saving in as much as there are no upper contribution limits (like an ISA or pension), access at anytime and a wide range of investment options which can include our Dimensional run passive portfolios.

A higher rate tax payer can take advantage of tax free growth offshore and potentially could provide annual University fee help to their children by then assigning policy segments to them. Providing the recipient is a non-taxpayer, there will be no tax to pay.

Care needs to be taken when accessing benefits from an Offshore Bond if you are a higher-rate taxpayer and I would discuss this in more detail in individual cases.

Add the ability to take tax deferred income for 20 years and a range of Trust options, then the Offshore Bond is a very handy addition when considering funding for further education fees.

This is a very brief introduction to the concept of Offshore Bonds and I would be happy to discuss this subject or any other of your financial planning needs at any time.

Roland Oliver


Working for the Government?

I had a friend that years ago had worked out that with his given rate of tax and National Insurance, he was effectively working for the Government until mid afternoon on a Tuesday before he made any money for himself.

Given our current levels of tax, I wonder what he’d make of things now?

He could well be working until late Thursday with top rates of tax being 50%.

We know that reducing the tax burden is one of the 5 key concerns of our clients and that this has never been more acute. I hear from people on a daily basis that they are looking for ways to pay less tax.

Interestingly, they always want to look to the esoteric methods rather than the tried and tested.

So please speak to your adviser and make sure you’re maximising your ISA allowance, pension contributions, CGT annual exemptions, IHT allowances – use a relevant life policy through your limited company if your able and save corporation tax on your life cover premiums.

If you want more, then certainly look at the improved tax breaks Venture Capital Trusts & Enterprise Investment Schemes offer since the last budget (be well aware of the higher levels of risk that might be involved here.)

In short, pay your tax but make sure you take full advantage of the ways you can pay less.

I’ll be discussing the ways you can use financial planning tools to save tax in more detail in the coming weeks.

Call me anytime to discuss this further or any other aspect of your financial planning needs.

Roland Oliver