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Finance Matters

I write short articles on topical subjects for publication in local newsletters and magazines. They are also available here for you to read.



Lifetime Individual Savings Accounts (LISAs) were designed to fill two separate roles. Firstly to help first buyers get on the property ladder and secondly help fund retirement. Unfortunately they are not simple savings products, which might explain why there are so few providers at present and why take-up has not been great.

ISAs and pensions can be viewed as a tax-efficient wrappers around an investment. For an ISA you invest from taxed income and there is no income or capital gains tax to pay when you take it out. For a pension you receive tax-relief when you invest but the income from it is taxable (apart from 25% that you receive tax-free).

How much is your pound worth?

I read an interesting article from M&G that was also reported on the BBC website recently, about the £1 coin. For those of you who didn’t see it, I thought you might appreciate what it had to say. The current coin is in the spotlight as it will be discontinued this year and the new 12-sided coin was launched on the 28th March.

If you'd left one in your piggy bank (or a few loose in the cupboard because they looked so golden and shiny) in 1983 it would now only buy barely a third of what it would have bought in 1983, due to inflation. The average inflation rate from 1983 to 2016 was 3.5% pa. This means that the buying power decreased by an average of 3.5% pa and your coin would need to be valued at £3.10 just to maintain its buying power.

Residence Nil Rate Band

From 6th April this year an additional amount will be added to the current £325,000 inheritance tax (IHT) nil rate band, specifically for home owners. This amount is to be known as the Residence Nil Rate Band (RNRB) and for deaths in the following tax years will be:

2017/2018 £100,000
2018/2019 £125,000
2019/2020 £150,000
2020/2021 £175,000

Subsequently, the RNRB will increase in line with inflation (CPI).

Is the new State Pension all it seems?

Recent articles in the financial journals have highlighted the rather paradoxical situation that exists with the new state pension.

If you have paid National Insurance Contributions (NICs) all your working life then you might expect to have at least the required 35 years and to get the full new state pension when you retire. However, if, like me and many others, you were ‘contracted out’ of the old additional state pension in favour of a more beneficial salary-related or workplace pension then you will have an adjustment (a deduction of the so-called COPE, contracted out pension equivalent) to your new state pension. This is because, at that time, you either paid a lower rate of NICs or some of your contributions went into your personal pension instead. That makes sense, of course, but you may find, for example, that you paid NICs for as many as 47 years and even though you were contracted out for 11 you still have 36 non-contracted out years, which would qualify you for the full pension? Sadly this is not so, as the deduction for the time contracted out is greater than you might expect.

Equity release - Why do it?

Equity release schemes are designed for people over age 55, to provide an income or a lump sum using the value of their home. Those opting for income clearly have a shortfall, but lump sums can be used for many purposes, including:

P2P and Crowdfunding

Peer-to-peer lending (P2P) and equity crowdfunding are both forms of alternative finance that many people have enjoyed high returns from.

P2P is a debt-based investment that involves providers arranging for people to lend their savings to interest-paying borrowers (eg, for property-based short term mortgages and bridging loans). P2P returns are based on interest rates set by the provider (variable, usually a minimum agreed). The main risks are that a borrower can't repay the loan or there are delays in getting your money back. Hence it is the quality of the loan and what, if anything, the borrower offers as security that is most important to the investor. Most providers seek to reduce the risks by diversifying across several borrowers but some leave it to the investor to decide on the type and numbers of loans. Also most P2P providers have an agreed set of definitions and standards, which mean investment returns can be calculated and comparisons made. However, many investors are attracted to the high interest rates and accept much higher risks than they would normally.

Ethical investments Is there money in morals?

This question was posed in one of my financial journals and the conclusion is ... Yes.

Many people choose to buy fuel from renewable resources (such as solar, water and wind power) and to buy Fairtrade or organic products from the supermarket, while avoiding anything that they believe harms the environment or workers. Such products may be more expensive than their non-ethical (I wouldn't like to say unethical) counterparts, but many consider the extra costs are worthwhile.

Budget 2016

In the March budget the Chancellor announced the following items of particular interest.

Lifetime ISA (LISA)
To be made available from April 2017, this new type of ISA is aimed at younger people to encourage long-term savings and complement pension saving. It will only be available to people from 18 to 40 and will attract a 25% bonus paid by the Government each year up to the age of 50. The bonus will be paid on a maximum of £4,000 saved per year, topping it up to £5,000.

Structured Products and Precipice Bonds

Structured products are types of investment that tie up your money for a set time, usually five or six years, are designed to give you income, capital growth or both, and are dependant upon the performance of something else, like a stock market index. They are sometimes marketed as 'stock market bonds' and are generally aimed at cautious investors requiring a high income.

Staging Date for Pensions

This may be one of the most important dates for small businesses over the coming months. It is the date by which a business is required to have set up a workplace pension scheme that allows auto-enrolment. Auto-enrolment was brought in even though many stakeholder pension schemes were made available by businesses, because often neither employers nor employees bothered to make any contributions.

Buy-to-let Mortgages and Tax Relief

If you are a landlord, no matter how many properties you own, you can claim tax relief at your highest rate on the interest on your buy-to-let mortgage. However, from April 2017, new rules are coming into force, which will restrict tax relief on mortgage interest, reducing it down to a maximum of 20%, ie basic rate, by 2020. The actual reduction in relief is being done in stages as the Government realises the major impact that this will have on landlords and the housing market generally.

Dividend Rethink and Pension Scams

The Summer Budget confirmed the increase in the inheritance tax nil rate band for home owners from April 2016 but surprised us by abolishing the tax credit on dividend income (again from April 2016), although this was partly offset by an additional tax allowance of £5,000 on dividend income.


The latest Government figures show inflation is now the lowest it has been since the 1960s, in fact at time of writing it shows slight deflation at - 0.1%. Headline inflation (and deflation) figures are based on the CPI, which is the Consumer Prices Index and is a measure of how prices generally are moving compared to one year earlier. One way to understand a price index is to think of a very large basket containing all the goods and services bought by households. The price index estimates changes to the total cost of this basket.


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