Monday, 9 December 2013

Flights Carbon Offset 2013

Why Carbon Offset?

Unless I planned to stay in bed every day (with the heating and lights off) my everyday activities, including driving, heating my home, cooking my supper, and of course flying, produce carbon dioxide and other greenhouse gases, which contribute to climate change. There are lots of things we can do to reduce our carbon footprint, such as cycling and getting the train more often, turning the heating down, and using energy efficient light bulbs - all of which we do where possible at Green Financial.

At Green Financial we offset our carbon emissions caused by flying. Whilst not perfect, it is something. When I fly on business matters, I subsequently carbon offset. My travel is usually to conferences or to work on financial planning committees or sometimes to present to other financial planners around the world. Whatever it is, there is a benefit in my increased knowledge, to Green Financial clients.

With carbon offsetting we pay a certain amount of money to a project, which reduces or removes the equivalent amount of CO2 being produced, and therefore there is no net gain of CO2 to the atmosphere, from my flight.

This year we have chosen to do this via myclimate (last year it was trees for cities). Currently this is supporting two renewable energy projects:

In the Indian state of Karnataka, it supports a power plant which uses agricultural waste to produce heat and energy for the local community. In addition, the project creates 650 jobs in the region and leads to an improvement of the groundwater quality as it ends uncontrolled burning of agricultural waste.

Power and heat from biomass in Karnataka, India

This project is the first of its kind in India. Technical innovations have made it possible to use biomass with a low calorific value as a useful fuel. This has led to a revolution in a poor and sparsely developed region of India, as biomass, until now burned in the fields as waste, has suddenly become valuable and is thus raising the income of the local farmers.

Through development of this biomass power plant, in the south-Indian state of Karnataka, brings various advantages for the local population: the project is creating 650 jobs in the region and farmers are also receiving an income from supplying the power plant with agricultural waste. From an ecological standpoint, the project reduces the uncontrolled burning of agricultural waste and thus prevents harmful emissions and the pollution of groundwater. After the waste has been incinerated in the power plant, the ash is given to the local farmers to use as organic fertiliser. In April 2007 this project was the first CDM project in the world to generate Certified Emissions Reductions certificates recognised by the Gold Standard.


On the Indonesian island of Sumatra, it supports the renovation of a hydro power station which will provide clean electricity for the local community. The construction and operation of the facility also creates new employment opportunities, while the environment benefits from the substitution of diesel-based energy.

Hydropower in rural Indonesia

This project is located in the west of the Indonesian island of Sumatra and involves supporting the renovation of an obsolete hydropower plant which has the potential to supply a rural region of Indonesia with electricity from renewable energy.

The current hydropower plant has a power output of 75 kW. But once restored could generate around 1 MW and reduces around 4,500 tons of CO2 annually.

As well as the contribution to climate protection, the project brings economical, social and ecological improvements to the region. Power cuts due to inadequate capacity are extremely common in rural Indonesia. This project allows the local population to benefit from a more stable grid – a vital requirement for the local economy. The construction and operation of the facility also creates new employment opportunities, while the environment benefits from the substitution of diesel-based energy. There is no additional impact on the environment, as the power plant is built upon existing infrastructure.

This carbon offsetting has been via a company called myclimate
myclimate is a Swiss based charity, whose vision is "to find innovative solutions to climate change and to promote clean energy solutions particularly in developing countries".
We have chosen them because Virgin Atlantic have completed due diligence and chosen them as their carbon offset partner. Virgin say “they are a bit different from the other offset providers. They guarantee to us that at least 85% of the money from the scheme goes direct to the projects, which is great. This was really important to us to ensure that our customers money would be well spent. They spend the other 15% on their administrative costs such as payment processing and other essential work to support the projects.”

Friday, 6 December 2013

Autumn Statement Commentary

Delayed for a day and meteorologically speaking arguably more like Winter, It was an Autumn Statement defined more by the measures it did not introduce, than the changes it made.

The big news of the day was the announcement of plans to bring forward the planned increases in the state pension retirement age by around 10 years.

Under previous plans the state pension age was set to rise to 68 in 2046 and 69 in around 2056.

Osborne announced that these changes will now come in a decade earlier; meaning the state pension age could be 70 by the late 2050s, which would hit workers in their twenties today.

The most noticeable inaction was the government’s decision not to make any changes to the drawdown regime.

Following the 2013 Budget the government commissioned the Government Actuary’s Department to review the pensions drawdown table and the underlying assumptions it uses to make sure drawdown rates reflected annuity rates.

However, following the consultation it announced that no changes would be made, concluding they're fit for purpose.

So , onto the headings...


This quiet autumn statement hopefully signals a welcome period of stability for the pension tax regime. This is precisely what is needed to help re-establish consumer confidence at this important time for pension savers as auto-enrolment beds-in.

Thankfully, despite the usual pre-statement rumours, there are no more changes to:

  • pension lump sums;
  • tax relief; or
  • pension allowances.

As I seemingly always write, before ever one of these statements or a budget, somebody, somewhere is predicting, or perhaps fearing, that the government will take away higher rate tax relief, or would further reduce the pensions lifetime allowance or meddle more with the tax-free lump sum.

·         Unlike with drawdown, CTFs and Stamp Duty, the lack of action over pensions was probably greeted with a sigh of relief

Lifetime allowance

  • It's confirmed. A new 'individual protection' available for those immediately impacted by next April's lifetime allowance cut, allowing them to lock-into a personal allowance of between £1.25M and £1.5M. This creates a welcome new safeguard for those with savings already above the new £1.25M allowance when it kicks-in next April. Expect full details in next week's Finance Bill.

State pensions

  • Basic State Pension: The (full rate) Basic State Pension will increase to £113.10 from April 2014 in line with the triple-lock guarantee.
  • State Pension Age: There will be a new approach to future reviews of State pension age, to reflect changes in life expectancy. The rises to 66, then 67, have been brought forward to 2020 and 2028 respectively. Expectations have also been set for further rises to 68 by 'the mid 2030s' then 69 by 'the late 2040s'.
  • Topping-up State pension: Those reaching State pension age before the new single tier State pension starts in April 2016 will also have an option to pay extra (new Class 3A) voluntary National Insurance contributions to boost their Additional State Pension. Details of this new option, which will only be available for a limited period from October 2015, are awaited.

I posted a blog the day before the announcement on trusts and its seems that what was forecast has come to pass, albeit with a welcome dely.

IHT simplification for trusts

The Autumn Statement continued the government’s clampdown on tax avoidance most notably through its planned overhaul of inheritance tax by applying just one nil-rate band to multiple trusts held by an individual.

Currently an individual is able to create an unlimited number of trusts and more than one IHT nil rate band (£325,000) can be applied. This is generally known as ‘Rysaffe’ type planning.

Overall, I welcome the simplification of trusts. It is frustrating that the ‘Rysaffe’ type planning is going but it does make sense and is a fair move, in general, in my opinion.

There will be further consultation on the proposals announced earlier this year to split the IHT nil rate band for trusts between the number of trusts created by any individual. The outcome will be published in the Finance Bill 2014. Such a measure could (and in all likelihood will) put an end to 'Rysaffe' type trust planning. The simplification measures are expected to start from 2015.

IHT Online

A new 'online' service to support the administration of IHT is expected to be up and running from 2016. This should reduce the administrative burdens and may speed up probate for many (crosses fingers, but doesn’t hold breath…)

Despite Osborne’s crackdown on avoidance he balanced it with tax relief for businesses, exchange traded funds (EFTs), social investments and married couples.

Osborne followed up the boost he gave to traditional funds in this year’s Budget, when he scrapped stamp duty on funds, by doing the same thing for ETFs. Hardly a headline grabber, but every little helps.

There were also tax breaks for social impact investments and bonds

Personal allowance goes up – but more higher rate tax payers to come!

As previously announced the personal allowance will increase by £560 to £10,000 in 2014/15. This means there will be more tax-free income for many basic rate taxpayers. However, the basic rate band will contract from £32,010 to £31,865, meaning that some may become higher rate taxpayers for the first time.

Note: Those who make an individual pension contribution will increase their basic rate band, and could potentially take income out of higher rate tax again. Do contact us if you'd like to know more about this.

Pass the personal allowance

Non-taxpayers who are married or in a civil partnership can pass up to £1,000 of their personal allowance to their basic rate tax paying spouse/partner in 2015/16.  It will mean an extra £200 tax-free income for couples who can use it. Around 4 million families could benefit but its success will depend on how easy it is to claim.

ISA allowances increase – but silence on Child Trust Fund to JISA transfers

ISA allowances will be increased to £11,880 in 2014/15 (half of which can be saved in a cash ISA). The Junior ISA and Child Trust Fund limits will both be increased to £3,840. But mysteriously and conspicuous by its absence there is no news yet on whether it will be possible for the 4.1 million children with a Child Trust Fund to transfer to a JISA.

Again the government announced a consultation into the last Budget, the result of which was widely anticipated to be announced in the Autumn Statement.

Those, including me, hoping for CTFs to be unlocked were left disappointed by the government’s silence.

The transfer may still be announced in next year’s Budget

Big rises could encourage employees to invest tax-efficiently

The Share Incentive Plan limits will increase by £600 to £3,600 per year for free shares and by £300 to £1,800 per year for partnership shares.
Save As You Earn monthly payment limits double from £250 to £500.
These changes will take effect from April 2014.

These schemes can form a valuable part of a client's investment portfolio as they can offer potential income tax, capital gains tax and NIC benefits.

CGT and Private Residence Relief

Taxpayers can claim Private Residence Relief for any final period of ownership, even if they do not occupy the property as their main residence at the time of sale – as long as it has been their main home at some time.

The maximum will that can be claimed from next April will be cut by 50%, from the last 36 months of ownership to 18 months.

CGT – no escape for non-resident property owners

From April 2015, non-residents will not escape CGT on the sale of their UK residential property. The details will be consulted on prior to introduction.

A bit like the Rysaffe planning in the IHT section, if you use this it is going to be very annoying that it is going, but looking at it, on balance, it seems fair enough.

Currently no CGT tax is payable on these assets but the tax will take effect from April 2015.

The aim is to ‘ensure those with the most in society make a fair contribution’ and to balance the fact UK residents pay CGT, the government will launch a consultation on how best to introduce the charge and will publish its findings in early 2014.


The government also withdrew income tax relief that was previously enjoyed by those participating in share buy-backs in venture capital trusts (VCTs).

Investments linked to a share buy-back scheme where the seller of VCT shares re-invests them are entitled to a 30% tax relief on that investment.

However Osborne announced in the Autumn Statement that the tax break will be scrapped from April next year on investments conditionally linked to a VCT share buy-back in any way or investments made within six months of a disposal of shares in the same VCT.


Osborne also announced the government was due to ‘ease the burden’ on businesses of all sizes by capping any future business rate increases at 2%.

The government also extended the business rate relief scheme from April 2014. Every business in premises with a rateable value of up to £50,000 will get a business rate discount worth £1,000.

Osborne also announced a ‘reoccupation relief’, which will halve business rates for businesses setting up in vacant shops on UK high streets

All in all, a Winter Announcement (there, I said it) that other than with IHT, means ‘keep calm and carry on’. With the IHT, nothing surprising, a shame that Rysaffe planning looks to be going, but delighted that consultation will continue so the sort of ‘unintended consequences’ that have happened with previous rushed IHT rule changes shouldn’t happen.

Wednesday, 4 December 2013

Pre-Autumn Statement - Trust Briefing

One of our legal partners has put together this pre Autumn announcement commentary on the expected changes to trust rules

It is anticipated that the Autumn Statement (Thur 5 Dec 2013) will confirm the consultation changes to simplify the taxation of trusts for Inheritance Tax (IHT) purposes. Some of the changes will be welcomed if adopted, however one anticipated change is likely to have a minor adverse effect on clients who may have transferred assets into trust during their lifetime. Post statement observations may focus on minor taxation effects and total perspective needs to be maintained in order for appropriate trust advice to continue to be provided. The vast majority of clients with existing trusts will not need to make any changes to their existing arrangements at this time, but financial planners may need to modify their advice to new clients.

1) Context
"Trusts still remain the best mechanism for protecting and controlling family wealth. They are
also tax efficient. They will often be the solution".. M. Hansell . Mills & Reeve LLP
Erosion of family wealth occurs primarily through social impacts, such as failed relationships,
bankruptcy, etc., and generational taxation primarily impacts larger estates. The proposed changes are
only likely to immediately impact individual clients who have settled more than £325,000 into trust
during their lifetime. Even if this level is exceeded, maintaining existing arrangements will still be
more advantageous for nearly all clients.
Question: If a client only has an established death benefit trust for pension and DIS benefits (Asset Preservation Trust (APT)) do they need to be concerned? Highly unlikely, a trust like the APT has already been drafted to allow for any beneficial consolidation.
If a client has a couple of Assurance Trusts for death benefits will they need to take any action?
Highly unlikely, a trust like the Assurance Trust has already been drafted to allow for any
beneficial consolidation.
If a client has an estate planning framework (Family Trust / Solidus Plan, Beneficial Protection Plan or Legacy Plan) in place for their residual estate death benefits will they need to take any action? Highly unlikely, the client should only need to review the status at the time of death.
2) What are the Expected Changes?
2.1 The reporting dates of trusts are to be simplified e.g. multiple pension death benefits going into
trust. This is anticipated to be beneficial .
2.2 The treatment of PETs and CLTs is to be simplified, which is a welcome change in dealing with
PET taxation when a client makes a chargeable lifetime transfer.
2.3 The .periodic charge. rate is to be fixed at 6% across assets exceeding £325,000 on each 10th
anniversary of a trust.
2.4 The key financial impact on larger estates is that Rysaffe benefits will be removed. This
means the small periodic charge will be applied to the total value of assets an individual settles
into any number of discretionary trusts during their lifetime and for death benefits above
Financial Case for Trust Planning
HMRC would collect more revenue if trusts did not exist.
However, clients would do well to remember and reaffirm the protective benefits, as well as the significant financial benefits. The financial case alone is overwhelming:
Two clients have £500,000 in SIPPs.
Mr Trustless makes no trust arrangements for his SIPP. His SIPP fund passes to his wife and
following her death a total of £200,000 in IHT is paid on the SIPP assets. Twenty years later, their
child, who inherited the residual SIPP funds, dies and the grandchildren pay tax on £300,000
attributable to the SIPP funds, which is a further £120,000. This brings the total IHT paid to £320,000
in 20 years.
Mr Wise directs his death benefits into an Asset Preservation Trust on his death. On the death of his
wife, the loaned sum is repaid to her husband's trust and no IHT is paid. On the death of their child 20
years later, a loan is also repaid. During the 20 year period, trustees pay a total of £21,000 in periodic
IHT charges.
The basic arithmetic confirms the massive benefit of trust planning from a tax viewpoint and when the protective benefits are added the continued case for trusts is overwhelming. Financial planners, on behalf of their clients, need to keep a perspective on this unwanted, but relatively minor, tax and should continue to advise on the use of trusts whilst making clients aware of the potential for periodic charges.
Example 1
Mr Smith has a single APT in place to receive his £300,000 SIPP death benefits. He has no other
trusts in place. Should he be concerned?
No, the changes will not impact Mr Smith's planning.
Example 2
Mr Smith has a single Assurance Trust in place to receive his death benefits from a single life policy.
He has no other trusts in place. Should he be concerned?
No, the changes will not impact Mr Smith's planning.
Example 3
Mr Smith has two Assurance Trusts in place to receive his death benefits from two £250,000 single
life policies. He has no other trusts in place. Should he be concerned?
No, the changes are unlikely to have any immediate impact, but advice will need to be taken by
trustees on the death of the settlor.
Example 4
Mr Smith has a Protective Gifting Trust in place and a Beneficiary Protection Plan with two trusts. He has made a gift of £50,000 to a beneficiary via the Gifting Trust. Should he be concerned?
The changes are unlikely to have any immediate impact, but our advice is that any clients who have
made lifetime transfers should seek reassurance and take advice.
Example 5
Mr Smith has a provider Bond Trust in place which consists of £250,000 and a Death Benefit Trust
for his DIS. Should he be concerned?
The changes may have an immediate impact unless HMRC have responded to industry input.
Currently our advice is that any clients who have bonds in trust should seek reassurance and take
advice if they have any other lifetime (pilot) trusts in place.
Example 6
Mrs Smith has a Family Trust / Beneficiary Protection Plan with two trusts in place for her family. Each trust should receive £350,000 after the payment of any taxes. Should she be concerned?
No. The changes will not have an immediate impact on Mrs Smith's framework and the change in
periodic charge assessment will have no negative tax impact on her children. The benefit of discrete
trusts should far outweigh the requirement to make a basic tax return every 10 years. If the trust funds
did not exceed £325,000 in value, then, if the minor tax charge was important to trustees, the
Beneficiary Protection Trust already has consolidation powers.
3) Next Stages
Clients should not feel panicked into making immediate changes to existing planning, as historically
clients have been given adequate time periods to comply with changes. You may wish to consider the
· The Autumn Statement is a confirmation of direction and, frequently, changes occur between
the Autumn Statement and the Finance Act.
· There are likely to be a number of clarifications sought from HMRC over the next few
· Only clients with significant lifetime transfers already in place are likely to require considered
advice between now and July, and this is not a certainty.
· The vast majority of clients will be unaffected.
Next week we will review proposed changes with our legal partners and further guidelines will be
made available
Advice on individual cases cannot be made at this stage.
A further blog post will be made after the announcement and after we have considered the content

Wednesday, 26 June 2013

Flexible drawdown

Flexing drawdown for better client outcomes

This article has been written by the technical department at Standard Life

Flexibility to vary income to adapt to changing needs is perhaps the key appeal of income drawdown. So the drawdown changes announced in March's Budget create a catalyst for advice to help drawdown clients achieve better outcomes in retirement.

Advice is the key to good client outcomes

Standard Life's research shows that, particularly for wealthier clients, income needs are unlikely to match the conventional pension income shapes produced by annuities or defined benefit schemes.

•For many, we've identified a 'retirement income smile' pattern. This is driven by higher demand for income early in retirement when clients are still active. Income needs drop off with age, then pick up again as personal assistance and long term care needs develop.

•Others simply want a relatively modest, sustainable income – but with scope to turn it up if their circumstances change.

•Some wealthy clients' main need is to draw as much income as early as possible to gift to loved ones, via trusts or pension plans as well as directly, as part of a wealth transfer strategy.

Income drawdown is well suited to meet all these diverse client needs and aims. And the higher the income limit available, the more room there is to manoeuvre. Which is why the Budget announcement was so welcome.

But it's not about always taking the maximum allowed, it's about having the flexibility to take more income when it's needed and cut it back again when it isn't.

This is where advice is key. Drawdown isn't a 'self-service' option. It's complicated. There has never been a better time for advisers to demonstrate their true worth by helping drawdown clients do the right thing to exploit this flexibility to attain their financial goals.

Where did it all go wrong?

Drawdown users, and their advisers, have had a rough ride in the last few years. Markets have been difficult. But much of the pain has been imposed by the drawdown regime itself:

•The linking of drawdown rates to gilt yields means that plunging yields fuelled by QE have had a disproportionate impact on income limits.

•And the 20% limit cut, and new GAD tables, in 2011 simply compounded the problems.

A typical example illustrates this:

•A 60 year old man starting drawdown with a £100,000 pot in August 2007 (when gilt yields were 5.25%) would have had an income limit of £8,280 a year.

•At his 5-yearly review in August 2012, even if he'd maintained his £100,000 pot, this client's new income limit would only have been £5,300 (56% lower than the old limit)! This is partly owing to the 20% headline limit cut – but primarily because, by then, the gilt yield had dropped to 2%.

It's a case of the tail wagging the dog. Logically, with the same pot having to last him 5 years less, this gent's allowable income should have gone up!

Light at the end of the tunnel – an advice opportunity

Thankfully core elements are coalescing to create light at the end of the tunnel.

•Most importantly, gilt yields appear to have at last bottomed out (IG: but remember, this may not be the case and they could fall further).

•Markets remain volatile, but they're well up on the lows of 2009 that saw the FTSE 100 drop to almost 3,500. And the increasing availability of sophisticated, risk-based investment solutions makes it easier to reduce the volatility that can be so damaging in a decumulation environment.

•These factors, combined with the move back to 120%, should get income limits back to more realistic levels from the start of drawdown users' next income year after 25 March 2013.

Here is an example:

Edith started pension drawdown on 1 August 2012. She was 60, her drawdown pot was worth £150k and the GAD drawdown yield was 2.0% - giving an income limit of £6,450.

If no action is taken, this will simply increase by 20% to £7,740 from 1 August 2013.

But what if Edith triggers an earlier review by paying more money into her drawdown pot on 30 March? Changes since August could really boost her income limit:

•Unisex rates: Edith now benefits from 'unisex' (male) drawdown rates, following the implementation of the EU Gender Directive into UK law in December 2012.

•Rising yields: The GAD drawdown yield has gone up from 2.0% to 2.75% since August 2012.

•Rising markets: The FTSE has grown by about 25% over the same period. Suppose Edith's drawdown fund has done the same. So, even after taking her maximum £6,450 income, it's now worth about £180k.

•Getting older: And Edith has had a birthday, so is now 61.

Edith's new 100% income limit is £9,360 – allowing her to take an extra £2,910 from her drawdown pot before her new income year starts on 1 August.

This will increase by 20% to £11,232 on 1 August - over 45% more than if no action was taken (and over 74% higher than her August 2012 limit).

And the Government's kick-start of an early review to get GAD drawdown rates themselves back to reality mean there's more good news in the pipeline.

For example, improving market conditions mean advisers can potentially help boost clients' income limits sooner than the start of their next income year. This can also turbocharge the effect of the 20% hike when it comes. An early income review can be triggered simply by phasing more funds into an existing drawdown pot. Or by requesting an ad hoc limits review from the start of the new drawdown year.

This sort of flexibility supports holistic advice strategies that help put the client's needs first. Which is what drawdown is all about. But good professional advice is the key that can unlock it – creating the fundamental building blocks for the successful use of income drawdown as part of an efficient, flexible, but sustainable wealth decumulation strategy.

If you are a client of Green Financial - or not - and would like an income drawdown review, please contact me