Warr on...

Firstly, on behalf of all of us here at Warr & Co, may we wish you all the best for 2008.

The festive period is now over for another year. The tree has been taken down, the presents enjoyed, or indeed returned depending upon how lucky you were, and you can now get back into the routine of your normal daily lives.

We all endeavour to make New Year resolutions, about how we can change a little here and there to make our lives a little better. The question is are you keeping to those resolutions made or like many made before, have they fell by the wayside? It is fair to say that the easier a resolution is, the easier it is to uphold. The thought of reviewing your finance affairs often fills people with dread, perceiving it to be too complex to tackle or too time consuming, and it is for this reason that the notion to do so never makes it on to the resolution list in the first place.

It is our experience that such reviews need not be time consuming for the client. Certainly, we endeavour where possible to absolve clients of a lot of the work in this regard.

We have taken the opportunity of outlining below some key areas of planning that you may wish to review.

Family Protection

This is an area that we are very passionate about and look to address as a priority above all else. There is little logic in setting aside provision for the future if the fundamentals of mortgage and family protection have not been comprehensively satisfied.

We come across many clients with old policies and / or plans provided by generally uncompetitive providers. A simple call to us and we can quickly assess the likelihood of improving your terms for no additional outgoing or alternatively provide an indication of the cost of satisfying any agreed shortfalls in this area of planning.

Further information can be found in our financial protection section.

Pensions

If you have not utilised fully your allowance for the tax year, then it is ‘a use or lose it’ situation, as the facility to carry back contributions to a previous tax year no longer exists under current pension legislation. Furthermore, there is an additional incentive to use it this year as the basic rate of tax relief is reducing from 22% to 20% with effect from 6th April 2008. This will have the immediate impact of increasing the net cost of pension contributions. For example, contributions of £300 gross per month or £3,600 gross per annum (the maximum allowable with no reference to earnings) currently cost £234 per month net or £2,808 per annum net. These will become £240 and £2,880 respectively.

Now is also the perfect time to save some higher rate Income Tax if income, through salary or dividends, has extended your total gross income above £39,825. Note that post 6th April 2008, balance relief of 20%, rather than 18%, will be claimed via your tax return.

Where employer contributions are concerned, with effect from 6th April 2008, smaller companies Corporation Tax will increase from 20% to 21%. The relief on any such contributions will of course continue to be claimed via the company’s accounts.

Where clients are working within IR35 legislation, relief of approximately 48% is achievable on employer contributions through reduced higher rate tax relief and National Insurance relief as a consequence of a lower resulting salary.

If you are not familiar with the present rules, feel free to peruse our comprehensive retirement planning section. This will avail you of the more generous contribution limits and investment options available.

Individual Savings Accounts (ISAs)

Another ‘use it or lose it’ situation. If not utilised, it is difficult to play catch up, as the Government’s recently announced increase of the annual allowance from £7,000 to £7,200 hardly helps in this respect.

If current market volatility is a concern and one which may give cause not to make use of this, then there is always the Cash Mini ISA option. It is intended that such holdings will be allowed to be transferred into stockmarket linked investments under proposed leislative changes, so this can either be a long term holding or a short term position pending these becoming effective 6th April 2008. Alternatively, many companies offer phasing options, allowing the investment to be made within this year, but with the monies being vested over a period of months. If you still wish to invest at outset into the stockmarket, more cautious funds may prove to of interest. From information provided by the ISA providers, it is clear that these are proving to be increasingly popular.

In respect of contributions beyond this tax year, it may be advantageous to consider monthly contributions, to allow you to benefit from ‘pound cost averaging’, which can have a positive effect in reducing the volatility in such market conditions.

Note that also with effect from 6th April 2008, PEPs will cease to exist and will be reclassified as ISAs. In addition, the distinction between Maxi and Mini ISAs will be abolished, without effecting the overall allowances.

For further information on ISAs and investment, please refer to our personal investment section.

Mortgages

Despite the recent reduction in the Bank of England base rate from 5.75% to 5.50%, and the expectation of further reductions in the coming year, there continues to be a slowdown in the residential housing market. As a consequence, the number of mortgages in respect of new purchases has diminished and is a trend likely to continue for the foreseeable future. This year, therefore, is likely to see a very cut-throat market with lenders anxious to bolster their mortgage books by instead attracting clients from other lenders. 2008 is being touted from some sources as the 'year of the remortgage'. Therefore, there is no excuse to allow your mortgage to revert to the lender’s Standard Variable Rate (SVR) or even to accept the offer of a ‘customer loyalty’ product, without first availing yourself of what else is being offered within the market and establishing its competitiveness.

If you would like a free, no commitment assessment of the terms on offer with your existing lender, please feel free to contact us. In the interim, you may wish to take a look at our mortgage section to view an example of interest rates typically available.

Date of Article: 9th January 2008