Q. I have a reasonable job and I have accrued significant savings in my current account having saved more than I have spent over the last few years. Currently I hold around £95,000 – with little or no interest on these savings from my bank, I would like to know what other options are available for these savings?
A. The good news – there are lots of options available! Firstly I should point out, your current account holds in excess of the FSCS protected limit of £85,000. In the event anything happens to your UK bank or building society, the FSCS automatically refunds savings up to £85,000. If you do nothing else, you should consider moving perhaps £15,000 (allowing for interest to be added to your remaining £80,000) to a different account with a different banking group to protect these savings.
Central to any financial planning strategy should be to, where possible, maximise any available tax reliefs or allowances, for example NISAs and pension contributions. Each year, UK resident investors have the opportunity to subscribe to a NISA allowance which is £15,240 for the 2015/16 tax year – this can be split between cash and stocks and shares, depending upon your risk appetite. NISAs are particularly tax efficient as they are free from income tax and capital gains tax – comparable to a savings or deposit account, where even an attractive savings rate of 2% gross equates to 1.2% net (as a higher rate tax payer).
Another valuable allowance is your annual pension allowance. You can contribute up to the higher of £3,600 or your gross annual earnings and receive tax relief at your marginal rate of income tax. The maximum tax relivable contribution in any tax year is £40,000, although you can pick up tax relief form earlier years in certain circumstances.
Another advantage of the pension wrapper is that is excluded from your estate and therefore any potential inheritance tax, which presents another great opportunity, especially if your estate is above or likely to be above the nil rate band – currently set at £325,000 per individual.
One distinct disadvantage of investing in pensions rather than the NISA is limited access. Pension legislation restricts when and how you can draw your pension funds, at the moment this is set at age 55 – and then only 25% of the fund is tax free with any further withdrawals taxable at your marginal rate. Your NISA savings carry no such restrictions and can be accessed immediately, without any tax on withdrawal.
A combination of both tax wrappers can allow you to strike a balance between tax efficiency, access and if necessary, estate planning; though ultimately the extent of which is dependent on your personal circumstances. These products do however normally entail incurring a degree of risk, so I would recommend you seek advice from an Independent Financial Adviser (preferably chartered) before proceeding with any transactions.
Q. I am recently divorced, and my solicitor has advised me to re-write my will. I want to leave my estate to my son, who is 12, and my daughter who is 22. My daughter was from a previous marriage. I am concerned that my ex-husband should get no benefit from my estate.
A. You have raised several interesting issues. Firstly, any previous will is generally invalidated by a new marriage, but not on divorce, rather it is treated as though your ex-husband had died at the time of the decree absolute. Any clauses in the will which appoint him as your executor or give any property away to him will therefore be null and void, so it is very likely that it no longer reflects your wishes. In your new will, you will need to include some form of trust to look after your son’s share until he is at least 18, and you may want the trust to extend further to 21 or even 25. The trust could also consider what happens to his share if he dies before becoming entitled to the full amount. If you leave your daughter’s share to her outright, then it becomes her money. If your children die after having inherited from you, their estate would either be subject to their own will, if they have made one, or the rules of intestacy if they have not. Under intestacy rules, for someone unmarried and who has had no children, their parents are the first in line, if living at the time. You do not mention whether your daughter was formally adopted by your ex-husband. If so, he could benefit from her estate, otherwise it would be her birth father. Your son, once he becomes entitled to the fund, could also be in the same situation if he has not written a will. I would recommend that you consult a solicitor specialising in wills and probate. Membership of STEP, the Society of Trust and Estate Practitioners is a good indication that they know their stuff. It is also worth sitting down with your children and instilling in them the importance of writing a will of their own. You could also include a letter to be held alongside your will reminding them of this.
If you have a question you would like Trevor to answer, please email it to: yourmoney@rwpfg.co.uk or post it to Your Money, Rutherford Wilkinson Ltd, Northumbria House, 21-23 Brenkley Way, Blezard Business Park, Newcastle upon Tyne, NE13 6DS.
0191 217 3340
