New Scottish Tax Rates

Moves to freeze Scottish income tax rates are adding risk and volatility to the Scottish tax regime and could lead to behavioural changes among the wealthy, the Chartered Institute of Taxation (CIOT) has warned.

MSPs last week  voted to approve the Scottish government’s income tax rates for the 2019/20 tax year by 61 votes to 52.

They put a freeze on the higher rate of income tax at 41 per cent for workers earning between £43,430 and £150,000 a year.  In the rest of the UK the higher tax rate threshold will rise to £50,000 from April.

The top rate of tax was also frozen at 46 per cent for those earning above £150,000,

What this means is that the gap between Scottish income tax and that in the rest of the UK continues to widen.

For those earning between £24,944 and £43,430 an income tax rate of 21 per cent will apply while earnings between £14,549 and £24,944 will incur a 20 per cent charge, and a starter rate of 19 per cent was passed for income between £12,500 and £14,549.

Scotland’s five-band tax system means lower earners pay less in tax than those in the rest of the UK but higher earners pay more.

The Chairman of the CIOT’s Scottish technical committee, said: “Some Scottish taxpayers may find they pay less income tax in the coming year.

“This can be attributed in part to the Scottish government’s policy to increase the starter and basic rate bands of income tax, which protect lower paid employees by reducing their tax burden relative to the rest of the UK”.

Paying off debt most common reason for taking pension cash

Paying off debt has been cited as the main reason for taking tax-free cash from a pension, a survey has found.

Research has found that more than a third of those seeking advice on taking tax-free cash were doing so to tackle ongoing debt.

A further 21 per cent suggested the funds were for home improvement and 11 per cent needed it to pay for a new vehicle or to cover maintenance on their current car, van or motorbike.

The average age at which the advice firm’s customers took advice around tax-free cash in 2018 that 56 years and seven months, with more than half of those surveyed taking most of their money before they turned 56.

Before a tax-free cash transfer, average pot sizes were £89,974, while median pots were £56,923. The average tax-free amounts, therefore, were £18,110, or £12,171 for a median pot.

The a spokesman for the Company which carried out the research said: “There is obviously good financial sense for most people in leaving their pension pots invested in growing assets tax-free for as long as possible.

“However, it’s also clear from our dealings with pension freedoms clients that the majority who seek advice around taking some tax-free cash from age 55 have very good reasons for wanting to do so.

“Tackling a debt once and for all, especially one attracting a high interest rate, can also make good financial sense, as well as reducing anxiety and their monthly outgoings.

“Likewise, investing in their property, which is often their main asset as well as their home, to keep it fit for purpose as they head towards their retirement can avoid further deterioration and far larger bills down the road. These people aren’t being reckless, they are looking to their tax-free cash for sensible reasons.

“Anyone thinking of taking their tax-free cash just to put it into their bank or building society savings account should think carefully about what they are giving up, and what it could cost them in the long term.

“In many cases people simply don’t understand their pension whereas they are confident they understand their bank account.

“Much more needs to be done to engage people with their pensions and make them easier to understand – especially when more and more self-service is being encouraged with very few safeguards.”

Women ‘victims in 63% of romance scams’

I was reading earlier, ahead of Valentine’s Day on Thursday, about recent scam data published by Action Fraud – the 4,555 instances of ‘romance fraud’ reported to the police reporting centre in 2018.

Some £50m was lost in such scams last year as fraudsters pretended to be romantically attached to their victims, says the piece. “Fraudsters trick victims into sending money or gather enough personal information to steal their identities,” it goes on to explain. “Police say victims are targeted via online dating websites, apps, or through social media. Fraudsters use fake profiles to form a relationship with them.”

The average age of a romance fraud victim is 50 and 63% of victims are women, according to Action Fraud, adding they lose twice as much on average as males. Dating site users are now being urged not to take everything at face value, says the BBC, noting: “Many people who have been caught out have judged those they met online based on their social media profile, their job, or simply trusting them too soon.”

Have you heard of Bomad: If not, read on

I was reading recently that The Bank of Mum and Dad – or Bomad – has become one of the most significant lenders in the market and needs to be considered an important branch for the financial planning profession.

In 2016, Bomad financed a quarter of all mortgage transactions, which put it on a par with Yorkshire Building Society. It has since grown to become the sixth-largest lender in the UK, totalling more than £5.7bn in value last year probably mainly due to young people being increasingly inclined to look to their family for assistance as house prices rise faster than increases in income.

Recent figures revealed by the FCA show one in five people under 35 expect to receive financial help from their family. It is increasingly difficult for younger generations to take the first step on to the property ladder, recognised in that more than a third of all significant cash gifts from Bomad are given for a mortgage deposit. These contributions average more than £76,000 in London.

That said, parents making such contributions are not necessarily “high earners”. It is worth noting while the wealth of the baby-boomer generation has doubled in the past decade, many are now retired.

Considerable numbers of baby-boomers are withdrawing the large cash sums from their pension pots or, in some cases, downsizing or releasing equity on their own home, without fully understanding the long-term consequences.

The FCA’s Financial Lives Survey, published last year, revealed that, of all parents who gifted their children large sums of money, a massive 92 per cent did not seek any kind of professional financial advice. This could be potentially disastrous for their personal finances, as retirees run the real risk of running out of money. So more needs to be done by government and regulators to raise awareness among the public.

This issue of practicality is further exacerbated by the reluctance of many to formalise conditions when family is involved. Indeed, only 14 per cent of those polled by the FCA sought legal advice when handing money over to family members.

The sum required for a deposit is unanimously higher than the £3,000 gifting threshold currently maintained by HM Revenue & Customs and remains part of the originator’s estate for seven years.

It would be wise to have all transactions of significant value formalised. This is certainly true for a loan, so that the repayment terms are mutually agreed, but even a gift with no expectation of repayment at all. Such protections can help safeguard all parties involved.

This represents a growing trend and an increasing need for professional financial planning.

Almost £200m lost through investment fraud in 2018

According to an article in “MoneyAge”, a News Sheet for IFAs, victims of investment fraud lost over £197m in 2018 as scammers use increasingly “sophisticated tactics” to persuade people to invest their savings, according to new figures from Action Fraud.

The Financial Conduct Authority (FCA) issued a warning to potential victims of investment scams today, 6 February, after it emerged that the average victim lost £29,000 last year, as fraudsters move away from cold calling and towards online techniques.

In August, The Pensions Regulator and the FCA joined forces to launch a campaign, ScamSmart, urging people to be aware of scammers targeting their pension savings, after they revealed an average of £91,000 was lost per victim in 2017.

The number of people visiting the ScamSmart website increased from 31,000 in the 55 days prior to the launch of the campaign to 173,000 in the 55 days after, according to FCA figures.

Of those who checked the FCA Warning List, 54 per cent had been contacted via online sources in 2018, up from 45 per cent the previous year.

FCA executive director of enforcement and market oversight, Mark Steward, said: “Investment scams are becoming more and more sophisticated and fraudsters are using fake credentials to make themselves look legitimate.

“The FCA is working harder than ever to help protect the public against this threat. Last year we published over 360 warnings about potentially fraudulent firms. And we want to spread the message so we can all better protect ourselves from investment scams.”

In January, pensions cold-calling became illegal and companies caught nuisance calls could face enforcement actions and fines of up to £500,000.   Aegon head of pensions, Kate Smith, said: “Legislation to prevent pension cold calling will help to some extent, but investors shouldn’t be lulled into thinking they’re home and dry.

“To fully fight fraud a considerable amount of work needs to be carried out to inform people and the over 55s in particular, that cold calling is illegal and they need to continue to be on their guard. A government led campaign to keep this issue in the limelight would help to combat the scourge of fraud.”

According to Action Fraud, investments in shares and bonds, forex and cryptocurrencies by unauthorised firms accounted for 85 per cent of suspected investment scams in 2018.

The FCA warned the people must be extra vigilant during Q1, the peak investment season.  These include the following six:- 

  • unexpected contact,
  • time pressure,
  • social proof,
  • unrealistic returns,
  • false authority and
  • flattery.

Last month, the Insolvency Service said it has applied to wind-up 24 companies, connected to 3,750 scam victims, since 2015.


Have YOU made a will?

Did you know that around 27 million adults in the UK have not made a will?

This can have serious consequences, especially if you’re a parent. Dying without a will means the law will simply run its course, often against your wishes.  It’s a huge risk that leaves you powerless over your assets.

Why A Professional Will Is Essential

The technical term for passing away with no valid will is ‘dying intestate’. If this happens, your money, possessions and property will be divided up according to the law, and the people you love most dearly could inherit nothing.

For example, if you have a life partner but are unmarried and die ‘intestate’, your partner would receive nothing in terms of the law. If you have children this can complicate things further, as the law often places them above your partner in the pecking order – and if you have children from a previous marriage or relationship, they could be completely passed by too.

Dying without a will means you have no control over who stands to inherit your assets and even worse, if you pass away with no close relatives, your estate could pass automatically to the government, who claim millions of pounds from this every year.

Writing a will can be easy and some people feel they save money by doing it themselves.  But more often than not, it’s tricky and you are well advised to get professional help.  It’s not that expensive particularly in relation to the value of what your estate may be worth.

The sooner you plan ahead, the sooner you’ll get peace of mind.  And if you use the services of a Solicitor or a Professional Will Writer, you will be asked to consider the following as a minimum.

1.                 Who exactly do you want your benefactors to be. Rather than letting the law decide, you can divide up your inheritance in whatever way you want.

2.                 Who do you want to nominate as your children’s guardians. If you have children under 18 and the worst does happen, you need to plan ahead for their future.

3.                 Who do you want your executors to be. Pick the person or persons you trust who will make sure your will is properly adhered to.

4.                 Do you have any specific wishes for specific possessions. Many of us have treasured heirlooms or keepsakes – a well-written will lets you pass these heirlooms onto the person or persons you want to have them.

If you would like any help or advice about selecting a Solicitor or Professional Will Writer, please feel free to contact us.  We will be happy to assist.