Q. I thought I would be able to sell on my annuity, but in the papers it says that the Government has scrapped this. What options are available to me now?
A. Although frustrating, the Government’s U-turn is perhaps a blessing in disguise, as the plan felt like an accident waiting to happen with the practical difficulties outweighing the potential advantages. As an annuity offers a guaranteed income for life, you should feel reassured of the fact that you will not outlive your retirement funds. This is a potential pitfall of the pension freedoms that without proper financial planning, some will unfortunately face.
Annuity rates have been falling over time and so an annuity you’ve already bought might actually be reasonable value. Considering all your assets against your retirement needs can help you try to boost your income in the later stages of life. Equity release involves unlocking the money in your home while you still get to live there, but it is not for everyone and can be expensive. It’s best to get financial advice to consider all factors and whether this or any other option is suitable.
Q. I run my own company and all but a very small part of my income is made up of dividends. In the last few years I have supported a number of charities using the Gift Aid scheme. My accountant has told me I need to review these gifts now, or it could cause a problem with my tax return. This seems unfair, can you explain why?
A. Your accountant is correct that care needs to be taken. Before 6th April 2016 dividends came with a 10% tax credit, considered to satisfy your basic rate tax liability. Instead they are now paid gross, with any tax due on dividends over a new £5,000 dividend allowance payable in addition, at 7.5% for a basic rate taxpayer, or more for higher rate taxpayers. To make a Gift Aid donation you make a declaration that you have paid the same amount or more than 25% of the Gift in income or capital gains tax. The charity can then reclaim this amount. For those making larger gifts until 2015-16, whose income is mainly derived from dividends, the tax credits accounted for the basic rate relief reclaimed by the charity, and Gift Aid donations meant a reduction in higher rate tax liability. From 2016-17, some such donors may find themselves having to come up with the tax reclaimed by the charity, as it is not covered by the tax credit. This appears an unintended consequence of a supposed simplification of the rules, but unfortunately this reflects the complex nature of our tax system. A possible solution is to set the gift against income from 2015-16, but this is only possible if done before the tax return for that year is submitted. I strongly recommend you take your accountant’s advice, as he appears to have thought this through for your case.
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.
