Green Financial in the press
Social Media article
MDRT Round the Table magazine, March 2011
Monday, 28 February 2011
FYE, Pension - Carry Forward 3 years
The annual allowance that can be contributed to apension falls from £255,000 for most people to £50,000 in the new tax year starting 6 April 2011.However there is a welcome return for 'carry forward' legislation.
This is where a person can carry forward unused relief from the previous 3 years
And even better news, this is being introduced retrospectively, so large payments are possible from 6 April 2011.
This could be ideal for high earners (normally considered around the £130,000-£150,000+ mark, see previous 3 blog posts) whose payments were restricted to £20,000 in each of the last two years (2010/11 & 2009/10)
Case study:
Dorothy Perkins paid £35,000 into her pension in 2008/09
Her payment for the next two years was restricted to £20,000 in each year (although if she'd been allowed, Dorothy would have contributed the £35,000 she wanted to)
So on 6 April 2011, Dorothy could pay:
£50,000 + the unused relief from the previous 3 years
= £15,000 from 2008/09 + £30,000 from 2009/10 + £30,000 from 2010/11
= a total of £75,000 carry forward
So Dorothy (and her employer) could contribute a total of £125,000 for the 'pension input period' (see previous blog posts for Jargon buster on pension inputs) ending in 2011/12
Friday, 25 February 2011
FYE, Tips Pension – Earner OVER £130,000
FYE, Tips Pension – Earner OVER £130,000
Anti-Forestalling rules will restrict the level of tax relief for individuals with ‘relevant income’ of £130,000 or more (in this or one of the previous two tax years)
This blog post will show you how some people could actually pay up to 12x more than they thought (£255,000 instead of £20,000) into a pension and still obtain full tax relief
Two options are:
1.
Reducing relevant income by making
a) a pension payment of up to £20,000
b) a gift aid payment
2.
Closing the pension input period (see yesterday’s blog for a jargon buster on pension input periods) before tax year end – then making higher payments as soon as the new tax year begins
Case Study
Brian Jenkins earns £149,999. He could make a gross pension payment of £20,000, thus reducing his total relevant income to £129,999. At this level the anti-forestalling rules don’t apply so Brian can now make full use of the £255,000 annual allowance!
Anti-Forestalling rules will restrict the level of tax relief for individuals with ‘relevant income’ of £130,000 or more (in this or one of the previous two tax years)
This blog post will show you how some people could actually pay up to 12x more than they thought (£255,000 instead of £20,000) into a pension and still obtain full tax relief
Two options are:
1.
Reducing relevant income by making
a) a pension payment of up to £20,000
b) a gift aid payment
2.
Closing the pension input period (see yesterday’s blog for a jargon buster on pension input periods) before tax year end – then making higher payments as soon as the new tax year begins
Case Study
Brian Jenkins earns £149,999. He could make a gross pension payment of £20,000, thus reducing his total relevant income to £129,999. At this level the anti-forestalling rules don’t apply so Brian can now make full use of the £255,000 annual allowance!
Thursday, 24 February 2011
FYE Tips, Pension - 57% tax relief?
Almost 60% tax relief?
Anyone with a taxable income of MORE than £100,000 loses £1 of their income tax free personal allowance for every £2 earned.
This means any client whose income exceeds £112,950 effectively loses their entire personal allowance of £6,475 (2010/11)
However if you earn over £100,000 and are able to manipulate your income - for example you own and run your own business - you can legally receive almost 60% income tax relief on pension contributions
Example:
John Smith has taxable income of £115,000. He makes a net (before tax relief) contribution to his pension of £12,000 - this is the amount that leaves his bank account.
This is immediately grossed up with the addition of basic rate tax (20% 2010/11) to £15,000 - so John now has this in his pension.
This pension contribution has now reduced John's taxble income to £100,000 and reinstates his entire personal allowance, making a saving.
In addition, as usual, John will benefit from higher rate tax relief (40% 2010/11) on the pension payment. The total saving is £8,590 - equivalent to 57.26% tax relief on John's payment.
John might also want to read yesterday's blog (!) in case he can have his company make further payments up to a maximum of £255,000 - another opportunity that will disappear after this tax year ends.
I am grateful to the good and clever people at Standard Life Technical Support for pointing out this opportunity to me and my clients
Anyone with a taxable income of MORE than £100,000 loses £1 of their income tax free personal allowance for every £2 earned.
This means any client whose income exceeds £112,950 effectively loses their entire personal allowance of £6,475 (2010/11)
However if you earn over £100,000 and are able to manipulate your income - for example you own and run your own business - you can legally receive almost 60% income tax relief on pension contributions
Example:
John Smith has taxable income of £115,000. He makes a net (before tax relief) contribution to his pension of £12,000 - this is the amount that leaves his bank account.
This is immediately grossed up with the addition of basic rate tax (20% 2010/11) to £15,000 - so John now has this in his pension.
This pension contribution has now reduced John's taxble income to £100,000 and reinstates his entire personal allowance, making a saving.
In addition, as usual, John will benefit from higher rate tax relief (40% 2010/11) on the pension payment. The total saving is £8,590 - equivalent to 57.26% tax relief on John's payment.
John might also want to read yesterday's blog (!) in case he can have his company make further payments up to a maximum of £255,000 - another opportunity that will disappear after this tax year ends.
I am grateful to the good and clever people at Standard Life Technical Support for pointing out this opportunity to me and my clients
Wednesday, 23 February 2011
FYE Tips, Pension - Earner UNDER £130,000
Financial Year End April 2011 Tips
- Pension -
3 Tips for those earning UNDER £130,000
1. Until this tax year end individuals with income below £130,000 can make pension payments equivalent to 100% of their income.
Their employer could also top up payments to a maximum of £255,000
So if you earn £100,000 (say) with tax relief you will only need to contribute £60,000 net. The remaining 40% (£40,000!) will be income tax relief
Your employer could contribute a further £150,000 (say) and have that amount as an allowable business expense.
- Pension -
3 Tips for those earning UNDER £130,000
1. Until this tax year end individuals with income below £130,000 can make pension payments equivalent to 100% of their income.
Their employer could also top up payments to a maximum of £255,000
So if you earn £100,000 (say) with tax relief you will only need to contribute £60,000 net. The remaining 40% (£40,000!) will be income tax relief
Your employer could contribute a further £150,000 (say) and have that amount as an allowable business expense.
What a deal!
2. Individuals over age 55 who are able to take pension benefits before 6 April 2011 are exempt from the annual allowance (see jargon buster below)
3. From 6 April the option to disregard the annual allowance (see jargon buster below) in the year benefits are taken will no longer be avilable
Remember, contribution payments are measured against the annual allowance are those made during the input period (see jargon buster below) ending in the tax year - not those made during the tax year overall.
Jargon Buster
Annual allowance
An annual allowance for pension savings applies each year, which is based on an input period (see below). This limits the amount of tax privileges available on pension savings each year.
Members are subject to a 40% tax charge on the amount of any contribution (both member, contributions on behalf of the member and employer) paid in excess of the annual allowance each year.
In Tax Year 2006/07 the Annual Allowance was £215,000
In 2010/11 as mentioned in the text above it is £255,000
The annual allowance applies in total to all pension benefits a member may have.
Input Period
Since 6th April 2006, members of a pension have been able to set a Pension Input Period to make contributions. A Pension Input Period is a period (usually, but not always, a year) in which a contribution can be made. The original idea was to make things easier for companies that had year ends that were different to the tax year end i.e. company year end of 31st December.
- PIPs are fiendishly complex but can be used to great effect for higher earners to make sizeable contributions - more in a later blog or contact us for more details or examples
E&OE - Please remember this is just a blog with a few tips - Please don't take this as personal or specific financial advice. Pension legislation is huge, varied, complex and subject to almost constant change. What is right for you will be wrong for someone else - what you should do will depend greatly on your specific circumstances - PLEASE take professional advice in this area before acting unless you are really confident you know what you are doing.
2. Individuals over age 55 who are able to take pension benefits before 6 April 2011 are exempt from the annual allowance (see jargon buster below)
3. From 6 April the option to disregard the annual allowance (see jargon buster below) in the year benefits are taken will no longer be avilable
Remember, contribution payments are measured against the annual allowance are those made during the input period (see jargon buster below) ending in the tax year - not those made during the tax year overall.
Jargon Buster
Annual allowance
An annual allowance for pension savings applies each year, which is based on an input period (see below). This limits the amount of tax privileges available on pension savings each year.
Members are subject to a 40% tax charge on the amount of any contribution (both member, contributions on behalf of the member and employer) paid in excess of the annual allowance each year.
In Tax Year 2006/07 the Annual Allowance was £215,000
In 2010/11 as mentioned in the text above it is £255,000
The annual allowance applies in total to all pension benefits a member may have.
Input Period
Since 6th April 2006, members of a pension have been able to set a Pension Input Period to make contributions. A Pension Input Period is a period (usually, but not always, a year) in which a contribution can be made. The original idea was to make things easier for companies that had year ends that were different to the tax year end i.e. company year end of 31st December.
- PIPs are fiendishly complex but can be used to great effect for higher earners to make sizeable contributions - more in a later blog or contact us for more details or examples
E&OE - Please remember this is just a blog with a few tips - Please don't take this as personal or specific financial advice. Pension legislation is huge, varied, complex and subject to almost constant change. What is right for you will be wrong for someone else - what you should do will depend greatly on your specific circumstances - PLEASE take professional advice in this area before acting unless you are really confident you know what you are doing.
Tuesday, 22 February 2011
Pound Cost Averaging
If you set up a regular savings plan investing in one or more markets that have the potential to rise and fall over time (typically shares based investments) you may benefit from a phenomenon known as Pound Cost Averaging.
When markets are high, or perhaps arguably at any time when there is the chance of a fall (perhaps anytime?) care should be taken when investing lump sums.
If you invest £1,000 and it falls by 20% (so by £200 to £800) you now need a rise of 25% (£200, ie 25% of £800) to get back to £1,000.
However if saving regularly a market fall in the early years of a share based investment can actually be beneficial over the longer term!
To see why, please see the table below.
This shows how it can be more effective to buy when a stockmarket is fluctuating in value than by investing in times of sustained growth.
Of course no-one knows exactly when markets will rise or fall so you may wish to consider a mix of lump sum and regular investments if you have the ability.
But if you do not have a lump sum and are starting to invest in the markets for the first time, you can see how fluctuations are nothing to be concerned about over time thanks to Pound Cost Averaging
When markets are high, or perhaps arguably at any time when there is the chance of a fall (perhaps anytime?) care should be taken when investing lump sums.
If you invest £1,000 and it falls by 20% (so by £200 to £800) you now need a rise of 25% (£200, ie 25% of £800) to get back to £1,000.
However if saving regularly a market fall in the early years of a share based investment can actually be beneficial over the longer term!
To see why, please see the table below.
This shows how it can be more effective to buy when a stockmarket is fluctuating in value than by investing in times of sustained growth.
Of course no-one knows exactly when markets will rise or fall so you may wish to consider a mix of lump sum and regular investments if you have the ability.
But if you do not have a lump sum and are starting to invest in the markets for the first time, you can see how fluctuations are nothing to be concerned about over time thanks to Pound Cost Averaging
Monday, 21 February 2011
Time Flies - Saving for Children
Time Flies - Saving for Children
As a parent of a ten year old boy and a new baby daughter I am aware how fast time seems to pass as children grow up (indeed I was once a child myself and it seems a lifetime ago!)
As a parent of a ten year old boy and a new baby daughter I am aware how fast time seems to pass as children grow up (indeed I was once a child myself and it seems a lifetime ago!)
I’m often asked about saving for children and what can be done for them.
Nowadays there is the ‘Child Trust Fund’ – originally, a Labour idea, popular with some as indicating that any money set aside for children as they grow up will be good and with the added benefit of (now substantially reduced) state contributions. Those less enamoured of the concept simply called it a tax on the childless!
In any event, its key facts could be summarised as follows:
• A long-term savings and investment account where your child (and no-one else) can withdraw the money when they turn 18
• neither you nor your child will pay tax on income and gains in the account
• £250 voucher to start each child’s account
• children in families with lower incomes will automatically get an additional payment of £250 from the Government. For more information use this link
Qualifying for the additional payment
• a maximum of £1,200 each year can be saved in the account by parents, family or friends
• money cannot be taken out of the Child Trust Fund (CTF) once it has been put in – once your child is 18 they will be able to decide how to use the money
• children can start to make decisions about how the money is managed when they are 16
• the Government will make a further contribution when your child turns seven - all eligible children will receive a further payment of £250 into their CTF account at age 7, with children in lower income families receiving an additional £250. These payments will be paid around the child's 7th birthday direct into their account
• from April 2010, children entitled to Disability Living Allowance (DLA) will receive annual payments of either £100 or £200 dependent on the care component of their DLA award
• not just one type of CTF account – you choose the type of account you want for your child
• at any time you can move the account to a different provider or change the type of account
• it will not affect any benefits or Tax Credits you receive.
But what if your child was born before 1 September 2002?
Because children born before this date do not qualify for a CTF.
(There are other exceptions to which children can have them – full details on that and all other aspects at the Govt website http://www.childtrustfund.gov.uk/)
So back to time passing…
It makes sense to have time on your side and start saving sooner rather than later.
(More on lump sum investing further on)
A longer term investment is ideal if you want it to mature at the same time as your child
I’d generally suggest there are two main ways to invest.
It makes sense to have time on your side and start saving sooner rather than later.
(More on lump sum investing further on)
A longer term investment is ideal if you want it to mature at the same time as your child
I’d generally suggest there are two main ways to invest.
Similar to deposit based is National Savings and Investments. They have a number of accounts suitable for children. The following is taken from http://www.nsandi.com/savingneeds/investforachildsfuture
Invest for a child
Whether you want to invest for a child’s future or encourage them to save for themselves, we have a range of investments to choose from.
Children’s Bonus Bonds
An easy way to build up a tax-free lump sum for your child’s future. Guaranteed rate of interest and bonus every five years. Invest from £25 up to £3,000 in each Issue.
Premium Bonds
We pay out a £1 million jackpot and over a million other tax-free* prizes every month. Invest from £100 up to £30,000. Can be bought for a child under 16 by the child's parent, guardian, grandparent or great grandparent. A parent or guardian must be nominated to look after the Bonds until the child is 16.
Investment Account
A straightforward passbook savings account, with easy access to your money. The more you save the higher the rate of interest. Passbook to help your child keep track of their money. Invest from £20 up to £1 million. You can also set up a standing order for as little as £10 a month.
IG: Whilst the rates are often less than competitive the main advantage of National Savings is that they say they are 100% secure because National Savings and Investments is backed by HM Treasury, so any money you invest with is 100% secure.
Whether you want to invest for a child’s future or encourage them to save for themselves, we have a range of investments to choose from.
Children’s Bonus Bonds
An easy way to build up a tax-free lump sum for your child’s future. Guaranteed rate of interest and bonus every five years. Invest from £25 up to £3,000 in each Issue.
Premium Bonds
We pay out a £1 million jackpot and over a million other tax-free* prizes every month. Invest from £100 up to £30,000. Can be bought for a child under 16 by the child's parent, guardian, grandparent or great grandparent. A parent or guardian must be nominated to look after the Bonds until the child is 16.
Investment Account
A straightforward passbook savings account, with easy access to your money. The more you save the higher the rate of interest. Passbook to help your child keep track of their money. Invest from £20 up to £1 million. You can also set up a standing order for as little as £10 a month.
IG: Whilst the rates are often less than competitive the main advantage of National Savings is that they say they are 100% secure because National Savings and Investments is backed by HM Treasury, so any money you invest with is 100% secure.
NS&I is one of the largest savings organisations in the UK, with over 26 million customers and over £99 billion invested.
Our principles
As an Executive Agency of the Chancellor of the Exchequer, we aim to:
- provide a totally secure place for people to save, backed by the Treasury
- provide the Exchequer with a source of financing (i.e. public borrowing)
What about non Deposit (cash) based investments?
With interest rates today at a historical low, many people find the rates derisory.
Our principles
As an Executive Agency of the Chancellor of the Exchequer, we aim to:
- provide a totally secure place for people to save, backed by the Treasury
- provide the Exchequer with a source of financing (i.e. public borrowing)
What about non Deposit (cash) based investments?
With interest rates today at a historical low, many people find the rates derisory.
So the second type, EQUITIES (stocks and shares) could be an alternative.
But be warned, investing in equities is VERY DIFERENT from cash or deposit based investments.
Most people have seen the ‘standard risk warnings’ on equity based investments, namely:
“Please remember that past performance is not a guide to future performance. The value of an equity investment and the income from it can fall and rise, as a result of market and/or currency fluctuations, and you may not get back the amount originally invested”
Most people have seen the ‘standard risk warnings’ on equity based investments, namely:
“Please remember that past performance is not a guide to future performance. The value of an equity investment and the income from it can fall and rise, as a result of market and/or currency fluctuations, and you may not get back the amount originally invested”
So if you don’t like the sound of this, go for deposit based. But if you are open to considering the well-publicised ups and downs of equity investment in the belief that in the longer term the ups outweigh the downs, read on…
‘Equity’ is just the technical name for stocks, or shares – in simple terms you are buying a ‘share’ of a company that entitles you to a share of any growth in the value of the company – by virtue of the share increasing in value – or profit – by virtue of the share paying out a dividend.
The downside to this is that if you only buy one or indeed a small number of shares it means your entire investment is dependent on the fortunes of that one company. And no matter how ‘sure a bet’ a company looks today, tomorrow can always bring a different result – think BP in recent history.
‘Equity’ is just the technical name for stocks, or shares – in simple terms you are buying a ‘share’ of a company that entitles you to a share of any growth in the value of the company – by virtue of the share increasing in value – or profit – by virtue of the share paying out a dividend.
The downside to this is that if you only buy one or indeed a small number of shares it means your entire investment is dependent on the fortunes of that one company. And no matter how ‘sure a bet’ a company looks today, tomorrow can always bring a different result – think BP in recent history.
To avoid this there are ‘funds’ available that enable an individual to achieve much greater ‘diversification’ at a lower cost than buying and managing a large portfolio of shares themselves. These are also very suitable for investing for children as the initial amounts can be quite low, around £25-£50 per month. There is an economy of scale in that everyone spreads their costs.
These funds can be managed by fund managers or low cost ‘tracker’ funds that just aim to replicate what a market is doing, for example following the FTSE100
We advise many clients on ‘Green’ or ‘ethical’ (sometimes called ‘socially responsible’) funds so you can also aim to have your investments do good (or avoid bad) during their investment lifetime.
As above, the practical implications of the fund approach can also be considered a positive as unlike buying shares directly there is just one administrative point of contact and update.
Back to investing small (or large!) amounts regularly – there is a phenomenon called ‘pound cost averaging’. In simple terms this is about the ‘when’ of investing in the markets. As it is impossible to predict when markets will be up or down and thus impossible to know the ‘best’ time to invest, by saving regularly one can smooth out the market extremes. If you invest the same amount each month, when markets are up your contribution will buy fewer shares (or units in a fund) than when markets are down.
But by investing consistently, when prices are high and when they are low, you may end up with more for your money than if you had invested at an average price throughout (see separate blog post on ‘pound cost averaging’)
Do children have to pay tax?
Yes. Children are entitled to a tax-free allowance in the same way as adults. And, depending on their income, they may or may not be taxpayers. If their total taxable income is less than the tax-free allowance they are due, a form R85 (catch name HMRC!) can be completed so they receive their interest without tax taken off.
So long as the child does not become a taxpayer, they can continue to receive interest without tax taken off until the 5 April following their sixteenth birthday. At sixteen, they must complete a new form R85 and sign it themselves if their income is still less than their tax-free allowance.
Children under sixteen cannot sign the form R85 themselves.
A parent or guardian must complete form R85 with the child's details and sign it on his or her behalf. It cannot be signed by a grandparent, foster parent or trustee of the account unless they are also the child’s legal guardian.
The address on the form R85 must be wherever the child is living even if the person signing the form R85 lives at a different address.
Children:
•under sixteen in Scotland
•under eighteen in England, Wales and Northern Ireland
cannot apply personally to get their tax back. A parent, guardian or trustee must do it for them.
They do this by completing a repayment form R40 (another catchy name HMRC!) But if someone is claiming on behalf of a minor as a trustee (for example, a grandparent who holds a bare trust account such as Mrs Smith re Miss Smith – more on bare trusts later) they must enclose a statement of the minor's income and capital gains during the year of the claim. The minor's legal guardian must sign this statement.
What about the ‘£100 rule’
There are special rules if a parent has given savings to their child. Where gifts from a parent produce more than £100 gross income a year, the whole of the income from the gifts is taxed as the parent’s income. A child cannot claim back any tax on that income. Nor can interest be paid without tax taken off.
The £100 rule applies to young people until they reach eighteen or marry (whichever comes first).
The £100 rule applies separately to each parent. It does not apply to gifts given by grandparents, other relatives or friends.
What happens when a child becomes sixteen?
Once a form R85 is completed for a child's account it allows interest to be paid without tax taken off. So long as the child does not become a taxpayer the form R85 can stay in play until the 5 April following the child’s sixteenth birthday.
If a child does not expect to have to pay income tax after that date - because their income will still be less than their tax-free allowances - they can complete a fresh form R85 for interest to continue to be paid without tax taken off. The fresh form R85 can be completed at any time in the tax year in which the child will reach sixteen. A tax year runs from 6 April one year to 5 April the next.
If an account is not held in the child's name, for example, if it is in the name of a parent or grandparent, it must be transferred into the child's own name in time for the first interest payment in the tax year after their sixteenth birthday. If it is not, tax must be taken off the interest.
Yes. Children are entitled to a tax-free allowance in the same way as adults. And, depending on their income, they may or may not be taxpayers. If their total taxable income is less than the tax-free allowance they are due, a form R85 (catch name HMRC!) can be completed so they receive their interest without tax taken off.
So long as the child does not become a taxpayer, they can continue to receive interest without tax taken off until the 5 April following their sixteenth birthday. At sixteen, they must complete a new form R85 and sign it themselves if their income is still less than their tax-free allowance.
Children under sixteen cannot sign the form R85 themselves.
A parent or guardian must complete form R85 with the child's details and sign it on his or her behalf. It cannot be signed by a grandparent, foster parent or trustee of the account unless they are also the child’s legal guardian.
The address on the form R85 must be wherever the child is living even if the person signing the form R85 lives at a different address.
Children:
•under sixteen in Scotland
•under eighteen in England, Wales and Northern Ireland
cannot apply personally to get their tax back. A parent, guardian or trustee must do it for them.
They do this by completing a repayment form R40 (another catchy name HMRC!) But if someone is claiming on behalf of a minor as a trustee (for example, a grandparent who holds a bare trust account such as Mrs Smith re Miss Smith – more on bare trusts later) they must enclose a statement of the minor's income and capital gains during the year of the claim. The minor's legal guardian must sign this statement.
What about the ‘£100 rule’
There are special rules if a parent has given savings to their child. Where gifts from a parent produce more than £100 gross income a year, the whole of the income from the gifts is taxed as the parent’s income. A child cannot claim back any tax on that income. Nor can interest be paid without tax taken off.
The £100 rule applies to young people until they reach eighteen or marry (whichever comes first).
The £100 rule applies separately to each parent. It does not apply to gifts given by grandparents, other relatives or friends.
What happens when a child becomes sixteen?
Once a form R85 is completed for a child's account it allows interest to be paid without tax taken off. So long as the child does not become a taxpayer the form R85 can stay in play until the 5 April following the child’s sixteenth birthday.
If a child does not expect to have to pay income tax after that date - because their income will still be less than their tax-free allowances - they can complete a fresh form R85 for interest to continue to be paid without tax taken off. The fresh form R85 can be completed at any time in the tax year in which the child will reach sixteen. A tax year runs from 6 April one year to 5 April the next.
If an account is not held in the child's name, for example, if it is in the name of a parent or grandparent, it must be transferred into the child's own name in time for the first interest payment in the tax year after their sixteenth birthday. If it is not, tax must be taken off the interest.
Account Holding
So, with the child trust fund, it is in the child’s name, controlled by the parent and as long as the total invested in any year is less than £1,200 anyone can contribute.
With national savings there are different rules depending on the product and with deposit accounts it will depend on the institution chosen.
With stocks and shares, a designated account is one way of holding the investment – the fund is yours, so you have access to it and control over it, until the child reaches 18. The account is yours for tax purposes. With stocks and shares the account has to be ‘designated’ as children under 18 can’t own shares. This will typically be in your name with the child name in brackets afterwards, so for example Mrs Margaret Smith (Master Billy Smith)
Trust accounts (mentioned briefly above and also applies to stocks and shares)
The most common type of trust account held for children is a bare trust. Bare trusts can be called by another name, for example re accounts or nominee accounts. An example of a bare trust account is ‘Mrs Smith re Miss Smith’.
The fund is your child’s, held for them by one (or usually more) trustees (often parents or grandparents). The fund is the child’s for tax purposes from outset and the child gains control of the fund at age 18. Bare trusts are fairly ‘irreversible’ so you really are gifting the money away and pretty much losing any right to have it back.
A bare trust account held for a child can be registered for interest to be paid without tax taken off by completing form R85. The form R85 must be signed by the child’s parents or legal guardian.
So long as the child does not become a taxpayer, the form R85 can stay in place until the 5 April following the child’s sixteenth birthday.
After the child has turned sixteen the account must be transferred into their own name before it can be registered for interest to be paid without tax taken off. If the account remains as a bare trust account the interest must be paid after tax has been taken off.
Different rules apply where a child is mentally incapacitated. Where a child who is mentally incapacitated reaches the age of sixteen, and their account has been registered by their parent or guardian, the registration may continue for the future. If the account is not already in the child’s name, it is not necessary for the account to be transferred into the child's name, or for the account to be re-registered.
Trust accounts (mentioned briefly above and also applies to stocks and shares)
The most common type of trust account held for children is a bare trust. Bare trusts can be called by another name, for example re accounts or nominee accounts. An example of a bare trust account is ‘Mrs Smith re Miss Smith’.
The fund is your child’s, held for them by one (or usually more) trustees (often parents or grandparents). The fund is the child’s for tax purposes from outset and the child gains control of the fund at age 18. Bare trusts are fairly ‘irreversible’ so you really are gifting the money away and pretty much losing any right to have it back.
A bare trust account held for a child can be registered for interest to be paid without tax taken off by completing form R85. The form R85 must be signed by the child’s parents or legal guardian.
So long as the child does not become a taxpayer, the form R85 can stay in place until the 5 April following the child’s sixteenth birthday.
After the child has turned sixteen the account must be transferred into their own name before it can be registered for interest to be paid without tax taken off. If the account remains as a bare trust account the interest must be paid after tax has been taken off.
Different rules apply where a child is mentally incapacitated. Where a child who is mentally incapacitated reaches the age of sixteen, and their account has been registered by their parent or guardian, the registration may continue for the future. If the account is not already in the child’s name, it is not necessary for the account to be transferred into the child's name, or for the account to be re-registered.
Please remember that tax rules are subject to almost constant change. All the above is correct as far as we can be certain at the time of writing (E&OE). Values of tax reliefs will depend on your individual circumstances. I urge you to take individual professional advice to be certain of the best outcome.
Please contact me if you’d like to know more about saving or investing for your children or grandchildren.
Thursday, 17 February 2011
Directions to Green Financial , Erico House
Directions to Erico House
From East Putney Tube (on District Line)
Exit station, turn left and walk under the bridge.
Keep walking, cross Carlton Drive, pass the VSO office on your left, Erico House is the next building on your left
From Putney mainline Rail Station
Exit station, turn left and walk to the junction
Keep on the same pavement, turn left past Foxtons estate agent
Keep walking past the numerous other estate agents, past HSBC bank and past Virgin gym until you reach Wallace & Co café.
Just past this is a crossing point on the main road.
Erico House is directly opposite
If you reach and cross Oxford Road or the Prince of Wales gastropub you have gone too far
Parking
There is no parking onsite, but outside the building is a layby with 1 hour parking
If more than 1 hour is required metered parking is available in Carlton Drive and the roads leading off it.
Tuesday, 15 February 2011
for Green Financial pension drawdown clients
Changes to Income Drawdown / Income Withdrawal type pension arrangements
Please note this post is intended to be an introduction for my existing clients. It is intended to be a brief guide and summary, not an all encompassing technical piece nor should it be taken as specific personal financial advice in any way!
April 6th 2011, the next tax year, heralds new income limits on drawdown plans.
The legislative changes are complex in part and with many of the new proposals (such as so-called ‘flexible drawdown’) many pension providers are unlikely to finalise their products to match the new legislation until well into the new tax year.
One of the major changes will be income limits – The most headline worthy change is that “maximum income on capped drawdown plans will decrease from 120% to 100% of GAD income”
Putting aside for one moment the awful acronyms and jargon that simply means maximum income for most people will fall by around 16%
However, some clients may benefit from preserving the old (higher) limits on their plan for as long as possible. This is likely to mean 5 years – that being the maximum ‘deferral time’ before the new limits MUST apply.
Depending on your type of plan, provider, anniversary date of plan & your age you may be able to ‘lock-in’ to these higher rates before April.
Remember the income is taxable, so don’t just take it because it is higher for a while – especially if you don’t need it or it pushes you into a higher tax bracket. Don’t be fooled by a ‘buy now while stocks last’ if this doesn’t apply to you. To really mix an old phrase up – ‘Don’t let the change in legislation tail wag the financial planning dog’!
There may be limits on what you can you with your plan and IF you want higher income and IF you want to do this pre-April it MAY be necessary to move your plan to another provider which MAY in itself have a cost. But even this could mean being drawn under the new limits sooner than leaving it where it is – this really is a complex scenario for most people in drawdown.
Even asking for an additional review (if you have already had one in your current pension year) may trigger an admin charge.
So in summary, a lot to think about and many variables all with some fairly lengthy and complex legislation behind it – and with a few future unkowns still lurking about.
If you are happy with your income (it may even be zero at the moment), don't need any more and don't want to draw out as much as possible as soon as possible you may not want to do anything.
But if you wish to discuss your own specific drawdown situation, please contact me.
www.iangreen.com has all the contact points – email, mobile, postal address etc
Action points reminder – with jargon included!
• Clients aged over 55 considering drawing benefits using income withdrawal, should consider crystallisation of benefits before the end of the tax year. This will lock clients into a five-year review based on current GAD limits rather than the rates and the three-year review periods that will apply on crystallisation from 6 April 2011.
• Recycle excess income as a contribution to improve tax efficiency of a client’s retirement funds. The maximum is £3,600 if a client has no relevant earnings, but could be greater where relevant earnings still apply.
• When gifting excess income for this tax year ensure clients take the relevant income withdrawals before the tax-year end. This probably means income withdrawals taken in March 2011.
• Review impact of potential additional designation. This may deliver higher maximum annual income on an existing income withdrawal fund for the rest of the existing five-year period, and will benefit from the potentially higher maximum income limits that will apply on additional designations before 6 April 2011.
• Ensure transfers of income withdrawal arrangements are completed by 5 April 2011 to preserve both the maximum annual income and the remainder of the client's current five year review period.
JARGON BUSTER!
GAD - Government Actuaries Department
GAD rates - maximum income from drawdown is calculated using GAD tables which take into account age and interest rates
crystallisation of benefits - in this context mostly means taking tax free cash and/or income withdrawals
flexible drawdown - a new type of drawdown coming in April 6 2011 with no limit but with restrictions on other areas
capped drawdown plans - the name for drawdown plans that are not 'flexible' (see above) - pretty much what plans are now and the type of plan facing the maximum income reduction
pension year - set at outset of policy and relevant to calculating quinquennial review dates. a pension year normally runs in line with the policy anniversary date
reference period - the time between reference dates, currently 5 years and moving (back to) 3 years after April 6 2011
E&OE
Please note this post is intended to be an introduction for my existing clients. It is intended to be a brief guide and summary, not an all encompassing technical piece nor should it be taken as specific personal financial advice in any way!
April 6th 2011, the next tax year, heralds new income limits on drawdown plans.
The legislative changes are complex in part and with many of the new proposals (such as so-called ‘flexible drawdown’) many pension providers are unlikely to finalise their products to match the new legislation until well into the new tax year.
One of the major changes will be income limits – The most headline worthy change is that “maximum income on capped drawdown plans will decrease from 120% to 100% of GAD income”
Putting aside for one moment the awful acronyms and jargon that simply means maximum income for most people will fall by around 16%
However, some clients may benefit from preserving the old (higher) limits on their plan for as long as possible. This is likely to mean 5 years – that being the maximum ‘deferral time’ before the new limits MUST apply.
Depending on your type of plan, provider, anniversary date of plan & your age you may be able to ‘lock-in’ to these higher rates before April.
Remember the income is taxable, so don’t just take it because it is higher for a while – especially if you don’t need it or it pushes you into a higher tax bracket. Don’t be fooled by a ‘buy now while stocks last’ if this doesn’t apply to you. To really mix an old phrase up – ‘Don’t let the change in legislation tail wag the financial planning dog’!
There may be limits on what you can you with your plan and IF you want higher income and IF you want to do this pre-April it MAY be necessary to move your plan to another provider which MAY in itself have a cost. But even this could mean being drawn under the new limits sooner than leaving it where it is – this really is a complex scenario for most people in drawdown.
Even asking for an additional review (if you have already had one in your current pension year) may trigger an admin charge.
So in summary, a lot to think about and many variables all with some fairly lengthy and complex legislation behind it – and with a few future unkowns still lurking about.
If you are happy with your income (it may even be zero at the moment), don't need any more and don't want to draw out as much as possible as soon as possible you may not want to do anything.
But if you wish to discuss your own specific drawdown situation, please contact me.
www.iangreen.com has all the contact points – email, mobile, postal address etc
Action points reminder – with jargon included!
• Clients aged over 55 considering drawing benefits using income withdrawal, should consider crystallisation of benefits before the end of the tax year. This will lock clients into a five-year review based on current GAD limits rather than the rates and the three-year review periods that will apply on crystallisation from 6 April 2011.
• Recycle excess income as a contribution to improve tax efficiency of a client’s retirement funds. The maximum is £3,600 if a client has no relevant earnings, but could be greater where relevant earnings still apply.
• When gifting excess income for this tax year ensure clients take the relevant income withdrawals before the tax-year end. This probably means income withdrawals taken in March 2011.
• Review impact of potential additional designation. This may deliver higher maximum annual income on an existing income withdrawal fund for the rest of the existing five-year period, and will benefit from the potentially higher maximum income limits that will apply on additional designations before 6 April 2011.
• Ensure transfers of income withdrawal arrangements are completed by 5 April 2011 to preserve both the maximum annual income and the remainder of the client's current five year review period.
JARGON BUSTER!
GAD - Government Actuaries Department
GAD rates - maximum income from drawdown is calculated using GAD tables which take into account age and interest rates
crystallisation of benefits - in this context mostly means taking tax free cash and/or income withdrawals
flexible drawdown - a new type of drawdown coming in April 6 2011 with no limit but with restrictions on other areas
capped drawdown plans - the name for drawdown plans that are not 'flexible' (see above) - pretty much what plans are now and the type of plan facing the maximum income reduction
pension year - set at outset of policy and relevant to calculating quinquennial review dates. a pension year normally runs in line with the policy anniversary date
reference period - the time between reference dates, currently 5 years and moving (back to) 3 years after April 6 2011
E&OE
Monday, 14 February 2011
Blue & Green Tomorrow - Feb 2011
February issue of Blue and Green Tomorrow Magazine
And much more
Full details at www.blueandgreentomorrow.com or email me for your free copy
Contents include a map of the UK showing where individuals who consider themselves 'socially responsible investors' 
reside
resideTravelling to Europe?
Can the plane beat the train when considering the strain?
Can the plane beat the train when considering the strain?
And much more
Full details at www.blueandgreentomorrow.com or email me for your free copy
Monday, 7 February 2011
What are you doing on your 65th birthday?
It used to be that 65 was the age for retirement after working a lifetime for one company. For most of us that is no longer the case.
Retirement is no longer an event celebrated on one's 65th birthday
- it is a period of life when one is perhaps no longer earning a regular income from the main employment one undertook until then.
January 1 2011 marked the day that many people consider the first so-called 'baby boomer' turned 65.
As medical science helps us live longer, demographics tells us that life expectancy continues to increase.
With this, the harsh reality of working for longer has set in for many.
Whilst some simply can't afford to retire at 65, others simply don't want to retire.
One of my aims for my clients is to help them have the choice of when to retire through gaining financial independence.
Without this, the choice may be made for us.
Last October, the French parliament raised the retirement age from 60 to 62 - despite rioting in the streets by French citizens in protest.
At about the same time the reforms in Spain mean their retirement age will soon move from 65 to 67 and that is what has happened here in the UK with even older ages being discussed.
Though turning 65 doesn't have to mean mandatory retirement I still suggest that in advance of 'retirement'- whenever that is for you and whatever it may mean, it is worth reviewing your financial situation, principally to ensure you don't outlive your means.
You may like to look at my website on the 'How much is enough?' page
http://www.iangreen.com/timeline.php
Alternatively, as a start, you may wish to consider the LIFESTYLE you wish to maintain during retirement and the LIFE INCOME you'll need.
You may also want to think about financial LIFEBOATS to have at the ready, should the unforseen occur, such as long term care and private medical arrangements
With these numbers in mind you can start to work out if and when you can retire, or what retirement will mean to you.
If you don’t want to do the maths, or the number crunching or any of the ‘financial stuff’ yourself, we'll help you to do that.
Perhaps just as importantly as the figures, we’ll also help you to explore the personal issues that matter to you, such as what you want to do in retirement and who you want to do it with.
You may not know when you want to 'retire' yet.
As a small, bespoke, personal, family business we prefer to take the time to get to know you as retirement approaches.
We promise you won't have to hang on the telephone, or choose push button options.
You'll always be able to speak to a person.
And they will know who you are and what you are doing. You won't have to explain it all, again, to someone else! (sound familiar when calling your bank or utility providers?)
We are not the cheapest, but you can be assured you'll find us of value.
We offer an initial meeting, at our expense, so you can ‘try us out’ to see if we do what we say we will do, and determine if you think we can provide a valuable service for you and most importantly of all to see if you wish to work with us on this important matter.
After all, retirement may well be the longest financial time period in your life after working – a 30 year retirement is longer than childhood, time in education and most mortgages are only 25 years.
Whether with our assistance or not, we wish you a happy, healthy and prosperous retirement, whenever that is and whatever it means to you.
important footnote: This blog post was inspired by an article entitled 'Age is just a number' by Kelly Biasco in the MDRT (www.MDRT.org) magazine 'Round The Table' (www.roundthetable.org) - I urge any financial planners to join MDRT if they meet the qualification criteria as it is an excellent global organisation with tremendous educational resources. MDRT - The Premier Association of Financial Professionals
Retirement is no longer an event celebrated on one's 65th birthday
- it is a period of life when one is perhaps no longer earning a regular income from the main employment one undertook until then.
January 1 2011 marked the day that many people consider the first so-called 'baby boomer' turned 65.
As medical science helps us live longer, demographics tells us that life expectancy continues to increase.
With this, the harsh reality of working for longer has set in for many.
Whilst some simply can't afford to retire at 65, others simply don't want to retire.
One of my aims for my clients is to help them have the choice of when to retire through gaining financial independence.
Without this, the choice may be made for us.
Last October, the French parliament raised the retirement age from 60 to 62 - despite rioting in the streets by French citizens in protest.
At about the same time the reforms in Spain mean their retirement age will soon move from 65 to 67 and that is what has happened here in the UK with even older ages being discussed.
Though turning 65 doesn't have to mean mandatory retirement I still suggest that in advance of 'retirement'- whenever that is for you and whatever it may mean, it is worth reviewing your financial situation, principally to ensure you don't outlive your means.
You may like to look at my website on the 'How much is enough?' page
http://www.iangreen.com/timeline.php
Alternatively, as a start, you may wish to consider the LIFESTYLE you wish to maintain during retirement and the LIFE INCOME you'll need.
You may also want to think about financial LIFEBOATS to have at the ready, should the unforseen occur, such as long term care and private medical arrangements
With these numbers in mind you can start to work out if and when you can retire, or what retirement will mean to you.
If you don’t want to do the maths, or the number crunching or any of the ‘financial stuff’ yourself, we'll help you to do that.
Perhaps just as importantly as the figures, we’ll also help you to explore the personal issues that matter to you, such as what you want to do in retirement and who you want to do it with.
You may not know when you want to 'retire' yet.
As a small, bespoke, personal, family business we prefer to take the time to get to know you as retirement approaches.
We promise you won't have to hang on the telephone, or choose push button options.
You'll always be able to speak to a person.
And they will know who you are and what you are doing. You won't have to explain it all, again, to someone else! (sound familiar when calling your bank or utility providers?)
We are not the cheapest, but you can be assured you'll find us of value.
We offer an initial meeting, at our expense, so you can ‘try us out’ to see if we do what we say we will do, and determine if you think we can provide a valuable service for you and most importantly of all to see if you wish to work with us on this important matter.
After all, retirement may well be the longest financial time period in your life after working – a 30 year retirement is longer than childhood, time in education and most mortgages are only 25 years.
Whether with our assistance or not, we wish you a happy, healthy and prosperous retirement, whenever that is and whatever it means to you.
important footnote: This blog post was inspired by an article entitled 'Age is just a number' by Kelly Biasco in the MDRT (www.MDRT.org) magazine 'Round The Table' (www.roundthetable.org) - I urge any financial planners to join MDRT if they meet the qualification criteria as it is an excellent global organisation with tremendous educational resources. MDRT - The Premier Association of Financial Professionals
Wednesday, 2 February 2011
HSBC - marketing genius...NOT!
Not so long ago I wrote an article about how HSBC were advertising a rate of return (over 18%) in their window as it it were a deposit rate. Only when you were close enough to read the small print did you find this was a structured product and there were numerous risks.
Their advertising annoyed me - it is just misleading at worst and sneaky at best, appearing at first glance to be one thing but on closer inspection it is another.
I'll say agian, I am not naive. I know that advertising isn't real life. I know that my washing won't be that much whiter than last time or that a 6th blade isn't really going to shave me that much closer.
But financial services operates under different rules than retail so imagine how delighted/surprised/disappointed (take your pick) I was to see the latest ad in the window of my local HSBC.
They've gone all 'retail' (trying to be like FMCG for those in the know) on us and decided to have a 'SALE'
7.5% is the rate they'll charge us to lend money. Sale? Let's see.
Let's break this down.
The previous price before the 'sale' was 7.6% (up to Dec 27 2010, it doesn't say how long it was at that rate for)
So a saving of just 0.1%, when base rates are 0.5% - So their margin has dropped from about 7% to about 6.9% - Sale? Not much.
It gives no comparison anywhere of the prices you'd have paid at 7.6% compared to the 'sale' at 7.5% - so I'd argue for the layman the 'sale' tag has no day to day application as you can't see what you are saving in £ each month or year or over the term. Sale? Hardly.
It gives no comparison of rates elsewhere, for example at other high street banks, so unlike retail/FMCG/supermarkets who will claim to be cheaper than rivals and show their prices, you have no such relative comparison. Sale? Who knows.
In my opinion another fine example of a high street bank playing by the rules, so that they have done nothing wrong (the current rate is cheaper than the previous after all), so you can't complain but nothing like the super friendly, 'we're on your side' image they project.
Bah!
Tuesday, 1 February 2011
Guide to being a Trustee
The Trustee Guide
About this guide
This trustee guide has been put together to give you an overall view of what you are required to do as a trustee. At the time of publishing it, this guide covers the relevant legislation and regulations relating to trustees and trustee. Therefore, by its very nature, it will become out of date over time. Therefore please come back to us at any time in the future if you have questions or queries regarding your role as a trustee.
Green Legal and Financial Consultancy
Erico House
93-99 Upper Richmond Road
London
SW15 2TG
Web: iangreen@iangreen.com
LinkedIn: http://uk.linkedin.com/in/ianjamesgreen
Twitter: ianjamesgreen
Blog: http://greenfinancial.blogspot.com/
Your role as trustee
The role of trustee is a very special one, as it will put you in control of assets, and give you ownership of assets that you will be holding for the benefit of someone else; the beneficiaries.
A trust has three parties:
The first is the Settlor. This is the person who established or set up the trust. Usually they are the person that placed assets into the trust, or intend to place assets into the trust in the future, although other people can also place assets in the trust. Usually the Settlor will agree and establish the terms of the trust. It is these terms that you, as a trustee, must comply with in the future.
The second are the Beneficiaries. The Beneficiaries are the people that are legally entitled to benefit from the trust. The way in which they can benefit will vary depending on the terms of the trust. Usually beneficiaries can benefit by receiving use of the trust assets, or income from the assets or from capital payments from the trust. Very often the trust will have reserve beneficiaries, known as “remainder men”, who effectively benefit from the trust if the main beneficiaries can not.
The last group are the Trustees. The Trustees responsibilities are to hold the assets that are owned by the trust, for the benefit of the beneficiaries. The trustees must comply with the instructions within the trust deed and only take actions allowed by the trust under law. There must always be a minimum of two trustees on any trust in place.
The above parties are interchangeable. This means that a trustee can also be a beneficiary, or a trustee can be a Settlor, or a Settlor can be a beneficiary. The “inter-changeability” of the parties affects how the trusts can be used under law.
Your Duties as a trustee
Your job as a trustee is to hold the trust property and administer it for the benefit of the beneficiaries. The way in which you do this depends upon the provisions within the trust deed. Also, the Settlor may have written you a guide, or set of instructions, know as a letter of wishes, which you would normally take into account in your actions and decisions.
Many of your duties as a trustee will have been set out in the trust deed, however many are now covered in the Trustee Act 2000 which came into effect on 1st February 2000. There are many rules set out in the Trustee Act 2000; however, the following are the most important and relevant to you.
You must act in a way that an ordinary prudent business person would be expected to act.
If any cash is received by the trust, you have a duty to invest the money, unless it is being disbursed immediately.
You must use the utmost diligence to avoid any loss and will be liable to the beneficiaries for any breach of this duty.
You must keep proper accounts of all trust property. The beneficiaries are entitled to see these accounts at any time and may require “reasonable” information regarding the dealings of the trust.
The trustees are personally liable to the beneficiaries for losses caused by their default and bad management.
The trustees must make sure that the trust money is properly invested and monitor the investments regularly.
You may not charge for your services as lay trustees.
When investing money, you must pay heed to standard investment criteria. This means that the investments that you select must be suitable for the trust and that there is appropriate diversification of the investments used.
Any investments in the trust must be reviewed and amended as appropriate.
When making investments you must obtain and consider proper advice.
You must disclose any potential conflicts of interest.
You must acquaint yourself with the terms of the trust deed.
Your powers as a trustee
The trust deed sets out specific powers for you as a trustee, in particular regarding to the property within the trust. The most important of these powers are as follows:
Where the trust holds investments, you have the power to buy and sell investments as you see fit to enable you to take account of market conditions.
Income in the trust may be used to support a beneficiary who is under the age of 18 by way of “education and maintenance”.
To make payments, where appropriate to the costs of relevant insurance policies, for example building insurance to cover a property owned by the trust
As a trustee you must act jointly with your co trustees.
You have the power to exercise your discretion. This means that you must have an active mental process in considering what action you will take. It is usually important to make sure that you make a note of your thought and decision making process when you make changes to trust property.
Dealing with the Her Majesty’s Revenue and Customs (HMRC)
As a trustee, you will be required to keep accounts for the trust, as noted above. This is particularly important where completion of a tax return is required by the HMRC.
In the eyes of the HMRC, the trust is a separate legal person. This means that it will be responsible for the completion of its own tax return, as well as payment of its own tax liability. Taxation on trusts is similar to that of individuals, but there are a number of differences which usually relate to the rate of tax payable and allowances.
As a trustee you are required to complete a return if:
1. The trust generates a taxable event
2. The HMRC requests a return is completed
It is likely, because of the way that the trust is set up, that there will be no return required in the early years. If this is the case, you may find the HMRC send you a return regardless. If this happens you need to simply return the tax return as a “nil return”. This means noting that no changes were made to the trust and that no interest was received and no gains were made.
If you are aware of a gain being made, or interest or income being received you must contact the HMRC to request a return. It is not the HMRC responsibility to ask you to complete a return; it is your responsibility to ensure that one is completed when it is needed.
You can employ an accountant or other financial professional to complete the returns for you and any fees that they charge can be taken from the trust.
Dealing with the Beneficiaries
At your Trustee Integration Meeting, you will have been informed who the beneficiaries of the trust will be. These beneficiaries will also have additional beneficiaries for you to consider in the future.
As a trustee you must act fairly in making investment decisions so that one beneficiary or class of beneficiary is not advantaged or disadvantaged at the expense of another.
As a trustee you will need to build what may be a long relationship with the beneficiaries. In doing this you will be acting in their best interest over the years, as this is one of the reason why you were asked to be a trustee.
Over time you will be asked to disburse money or trust assets to the beneficiaries. In doing this you should consider the requests and wishes of the Settlor. When the trust is created the Settlor will have a purpose for the trust, and it is your role to ensure these wishes are complied with as much as possible. Clearly these wishes can not take everything into account and so it is your role to look towards the intent of the wishes so that you can take the action that the Settlor would have wanted.
Protecting the Beneficiaries
One of the most effective ways to protect the beneficiaries is to release money from the trust in the form of a loan to the beneficiaries. This has the advantage of ensuring that the money released does not usually fall into the beneficiary’s estate. This can usually provide protection of the trust funds from the divorce of the beneficiary and indeed from subsequent Inheritance Tax on the death of the beneficiary. Therefore, you should give a great deal of thought to releasing funds in this way rather than with a simple disbursement from the trust.
Remember, you don't need to be a legal expert to be a trustee, we are always available to help. But you do need to take your role and duties seriously and act at all times for the benefit of the beneficiaries
About this guide
This trustee guide has been put together to give you an overall view of what you are required to do as a trustee. At the time of publishing it, this guide covers the relevant legislation and regulations relating to trustees and trustee. Therefore, by its very nature, it will become out of date over time. Therefore please come back to us at any time in the future if you have questions or queries regarding your role as a trustee.
Green Legal and Financial Consultancy
Erico House
93-99 Upper Richmond Road
London
SW15 2TG
Web: iangreen@iangreen.com
LinkedIn: http://uk.linkedin.com/in/ianjamesgreen
Twitter: ianjamesgreen
Blog: http://greenfinancial.blogspot.com/
Your role as trustee
The role of trustee is a very special one, as it will put you in control of assets, and give you ownership of assets that you will be holding for the benefit of someone else; the beneficiaries.
A trust has three parties:
The first is the Settlor. This is the person who established or set up the trust. Usually they are the person that placed assets into the trust, or intend to place assets into the trust in the future, although other people can also place assets in the trust. Usually the Settlor will agree and establish the terms of the trust. It is these terms that you, as a trustee, must comply with in the future.
The second are the Beneficiaries. The Beneficiaries are the people that are legally entitled to benefit from the trust. The way in which they can benefit will vary depending on the terms of the trust. Usually beneficiaries can benefit by receiving use of the trust assets, or income from the assets or from capital payments from the trust. Very often the trust will have reserve beneficiaries, known as “remainder men”, who effectively benefit from the trust if the main beneficiaries can not.
The last group are the Trustees. The Trustees responsibilities are to hold the assets that are owned by the trust, for the benefit of the beneficiaries. The trustees must comply with the instructions within the trust deed and only take actions allowed by the trust under law. There must always be a minimum of two trustees on any trust in place.
The above parties are interchangeable. This means that a trustee can also be a beneficiary, or a trustee can be a Settlor, or a Settlor can be a beneficiary. The “inter-changeability” of the parties affects how the trusts can be used under law.
Your Duties as a trustee
Your job as a trustee is to hold the trust property and administer it for the benefit of the beneficiaries. The way in which you do this depends upon the provisions within the trust deed. Also, the Settlor may have written you a guide, or set of instructions, know as a letter of wishes, which you would normally take into account in your actions and decisions.
Many of your duties as a trustee will have been set out in the trust deed, however many are now covered in the Trustee Act 2000 which came into effect on 1st February 2000. There are many rules set out in the Trustee Act 2000; however, the following are the most important and relevant to you.
You must act in a way that an ordinary prudent business person would be expected to act.
If any cash is received by the trust, you have a duty to invest the money, unless it is being disbursed immediately.
You must use the utmost diligence to avoid any loss and will be liable to the beneficiaries for any breach of this duty.
You must keep proper accounts of all trust property. The beneficiaries are entitled to see these accounts at any time and may require “reasonable” information regarding the dealings of the trust.
The trustees are personally liable to the beneficiaries for losses caused by their default and bad management.
The trustees must make sure that the trust money is properly invested and monitor the investments regularly.
You may not charge for your services as lay trustees.
When investing money, you must pay heed to standard investment criteria. This means that the investments that you select must be suitable for the trust and that there is appropriate diversification of the investments used.
Any investments in the trust must be reviewed and amended as appropriate.
When making investments you must obtain and consider proper advice.
You must disclose any potential conflicts of interest.
You must acquaint yourself with the terms of the trust deed.
Your powers as a trustee
The trust deed sets out specific powers for you as a trustee, in particular regarding to the property within the trust. The most important of these powers are as follows:
Where the trust holds investments, you have the power to buy and sell investments as you see fit to enable you to take account of market conditions.
Income in the trust may be used to support a beneficiary who is under the age of 18 by way of “education and maintenance”.
To make payments, where appropriate to the costs of relevant insurance policies, for example building insurance to cover a property owned by the trust
As a trustee you must act jointly with your co trustees.
You have the power to exercise your discretion. This means that you must have an active mental process in considering what action you will take. It is usually important to make sure that you make a note of your thought and decision making process when you make changes to trust property.
Dealing with the Her Majesty’s Revenue and Customs (HMRC)
As a trustee, you will be required to keep accounts for the trust, as noted above. This is particularly important where completion of a tax return is required by the HMRC.
In the eyes of the HMRC, the trust is a separate legal person. This means that it will be responsible for the completion of its own tax return, as well as payment of its own tax liability. Taxation on trusts is similar to that of individuals, but there are a number of differences which usually relate to the rate of tax payable and allowances.
As a trustee you are required to complete a return if:
1. The trust generates a taxable event
2. The HMRC requests a return is completed
It is likely, because of the way that the trust is set up, that there will be no return required in the early years. If this is the case, you may find the HMRC send you a return regardless. If this happens you need to simply return the tax return as a “nil return”. This means noting that no changes were made to the trust and that no interest was received and no gains were made.
If you are aware of a gain being made, or interest or income being received you must contact the HMRC to request a return. It is not the HMRC responsibility to ask you to complete a return; it is your responsibility to ensure that one is completed when it is needed.
You can employ an accountant or other financial professional to complete the returns for you and any fees that they charge can be taken from the trust.
Dealing with the Beneficiaries
At your Trustee Integration Meeting, you will have been informed who the beneficiaries of the trust will be. These beneficiaries will also have additional beneficiaries for you to consider in the future.
As a trustee you must act fairly in making investment decisions so that one beneficiary or class of beneficiary is not advantaged or disadvantaged at the expense of another.
As a trustee you will need to build what may be a long relationship with the beneficiaries. In doing this you will be acting in their best interest over the years, as this is one of the reason why you were asked to be a trustee.
Over time you will be asked to disburse money or trust assets to the beneficiaries. In doing this you should consider the requests and wishes of the Settlor. When the trust is created the Settlor will have a purpose for the trust, and it is your role to ensure these wishes are complied with as much as possible. Clearly these wishes can not take everything into account and so it is your role to look towards the intent of the wishes so that you can take the action that the Settlor would have wanted.
Protecting the Beneficiaries
One of the most effective ways to protect the beneficiaries is to release money from the trust in the form of a loan to the beneficiaries. This has the advantage of ensuring that the money released does not usually fall into the beneficiary’s estate. This can usually provide protection of the trust funds from the divorce of the beneficiary and indeed from subsequent Inheritance Tax on the death of the beneficiary. Therefore, you should give a great deal of thought to releasing funds in this way rather than with a simple disbursement from the trust.
Remember, you don't need to be a legal expert to be a trustee, we are always available to help. But you do need to take your role and duties seriously and act at all times for the benefit of the beneficiaries
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