The ABC of a Junior ISA

The Junior Individual Savings Account (ISA) was introduced in 2011, 12 years after the launch of the original ISA in 1999, which recently celebrated its 18th birthday

In a nutshell, the Junior ISA is a long-term, tax-free savings account for children. It effectively replaced the Child Trust Fund and aims to enable parents to save a tax-efficient nest egg for their children.

There are two types of Junior ISA and your child can have one or both types:

  • A cash Junior ISA, where you won’t pay tax on interest on the cash you save.
  • A stocks and shares Junior ISA, where your cash is invested and you won’t pay tax on any capital growth or dividends you receive.

Managing the money
Only parents, or guardians with parental responsibility, can open a Junior ISA for under 16s, but the money belongs to the child. Until the child turns 16, the parent can manage the account if they want to make changes. For example, they could change the account from a cash to a stocks and shares Junior ISA or change the account provider.

The child takes over control of the account when they turn 16 and they can access their money from age 18 (when the ISA automatically loses its ‘Junior’ status).

Children aged 16 or older can open their own Junior ISA, as well as an adult cash ISA (with maximum contribution limits of £4,128 and £20,000 respectively, for the 2017-18 tax year).

Paying into a Junior ISA
Anyone can pay into a Junior ISA, but the total amount paid in can’t exceed £4,128 in the 2017/18 tax year and £4,260 for 2018/19. If you go over this limit, the excess is held in a savings account in trust for the child and cannot be returned.

During the 2017/18 tax if you have paid £2,000 into a child’s Cash Junior ISA you can only pay £2,128 into their stocks and shares Junior ISA. You can make contributions into a Junior ISA until the child’s 18th birthday.

Contains public sector information licensed under the Open Government Licence v3.0.

The tax efficiency of ISAs is based on current rules.
The current tax situation may not be maintained. The benefit of the tax treatment depends on the individual circumstances. The value of your stocks and shares ISA and any income from it may fall as well as rise. You may not get back the amount you originally invested.

If you’d like more information on Junior ISAs, please get in touch.

Monthly market update, Happy new year!

The bells rang and we moved into 2018 with the FTSE 100 closing at an all-time high. This is the second year in a row that the FTSE 100 has ended the year at its highest level.

The final session of the year saw the FTSE 100 close at 7,687.77, which was 4.9% higher than the November closing figure of 7,326.67.  This meant the index enjoyed growth of 7.6% in 2017, following its close in 2016 at 7,142.83.

Despite falling slightly in the final session, in the US, the Dow Jones Industrial Average continued its general upward momentum, closing the year at 24,719.22.  This was 1.8% above November’s closing level of 24,272.35 and was the ninth straight monthly gain, leaving March as its only losing month in 2017.

Over the full year, the Dow Jones Industrial Average enjoyed growth of an amazing 25.1% over its closing figure in 2016 of 19,762.60.

In terms of £ Sterling, it ended the year at 1.35 US Dollars.  While this was unchanged from the end of November, it was 9.5% higher than the closing figure in 2016 of 1.23 US Dollars.

Against the Euro, £ Sterling ended the year at 1.13 Euros, which was fractionally lower than the November closing figure of 1.14 Euros.  During 2017, the pound fell 4.1% against the Euro, having started 2017 at 1.17 Euros.

Inflation, as measured by the Consumer Prices Index including owner occupiers’ housing costs (CPIH), remained unchanged at 2.8% (this is based on November’s data which is reported in December).  The 12-month for the Consume Price Index (CPI) rate which excludes owner occupied housing costs and council tax, was 3.1% in November 2017, up from 3.0% in October 2017.  This is the highest it has been since March 2012.

The increase in interest rates during November helped long-suffering deposit savers slightly.  However, they continue to lose money in real terms when you consider the rate of savings interest compared to the rate of inflation.

The Omnis Managed funds, Openwork Graphene Model Portfolios and new Omnis Managed Portfolio Service provide you with a diversified asset allocation in line with your Attitude to Risk, investing in Developed Market Equities, such as UK, US, Europe and Asia Pacific as well as Emerging Market equities.  Cautious and Balanced investors will also have significant holdings in UK and Global Bonds, as well as Alternative Strategies.

We believe this multi-asset approach aims to give you the best opportunity for the highest level of return for your stated level of risk.

 

The bells rang and we moved into 2018 with the FTSE 100 closing at an all-time high. This is the second year in a row that the FTSE 100 has ended the year at its highest level.

The final session of the year saw the FTSE 100 close at 7,687.77, which was 4.9% higher than the November closing figure of 7,326.67.  This meant the index enjoyed growth of 7.6% in 2017, following its close in 2016 at 7,142.83.

Despite falling slightly in the final session, in the US, the Dow Jones Industrial Average continued its general upward momentum, closing the year at 24,719.22.  This was 1.8% above November’s closing level of 24,272.35 and was the ninth straight monthly gain, leaving March as its only losing month in 2017.

Over the full year, the Dow Jones Industrial Average enjoyed growth of an amazing 25.1% over its closing figure in 2016 of 19,762.60.

In terms of £ Sterling, it ended the year at 1.35 US Dollars.  While this was unchanged from the end of November, it was 9.5% higher than the closing figure in 2016 of 1.23 US Dollars.

Against the Euro, £ Sterling ended the year at 1.13 Euros, which was fractionally lower than the November closing figure of 1.14 Euros.  During 2017, the pound fell 4.1% against the Euro, having started 2017 at 1.17 Euros.

Inflation, as measured by the Consumer Prices Index including owner occupiers’ housing costs (CPIH), remained unchanged at 2.8% (this is based on November’s data which is reported in December).  The 12-month for the Consume Price Index (CPI) rate which excludes owner occupied housing costs and council tax, was 3.1% in November 2017, up from 3.0% in October 2017.  This is the highest it has been since March 2012.

The increase in interest rates during November helped long-suffering deposit savers slightly.  However, they continue to lose money in real terms when you consider the rate of savings interest compared to the rate of inflation.

The Omnis Managed funds, Openwork Graphene Model Portfolios and new Omnis Managed Portfolio Service provide you with a diversified asset allocation in line with your Attitude to Risk, investing in Developed Market Equities, such as UK, US, Europe and Asia Pacific as well as Emerging Market equities.  Cautious and Balanced investors will also have significant holdings in UK and Global Bonds, as well as Alternative Strategies.

We believe this multi-asset approach aims to give you the best opportunity for the highest level of return for your stated level of risk.

A Tax Update for Landlords

As a result of a challenging economic environment, the Chancellor has tightened the screws on a number of sectors and trading types. One sector that has been bombarded by changes is landlords and property owners.

In this article, we endeavour to summarise recent tax-related changes that affect people letting out or selling residential, second properties.

Mileage for private landlords

In the recent Autumn Budget 2017, the Chancellor announced that landlords would have a choice when calculating their motor running expenses. From 6th April 2017, landlords can now opt to use mileage rates to calculate their allowable deductions for motoring expenses, or stick with deducting actual running costs and claiming capital allowances.

Mileage is not available to landlords who are companies or in mixed partnerships (a partnership with both individual and non-individual members).

Selling properties owned by a company

When an asset is sold for a profit, part of the increase in its value is due to inflation. When calculating a capital gain for a company, you effectively convert the proceeds to what they would’ve been worth when the item was originally purchased. This is called indexation.

Indexation allowance for companies has continued to apply since 1982, but it will now be frozen from January 2018.

Lending

Buy-to-let lending legislation has also changed. In October, new rules introduced by the Prudential Regulation Authority made it more complicated to obtain lending to finance the purchase of an investment property, because lenders were forced to look at the feasibility of the entire portfolio; not just the property in question.

Letting fees

As part of the Autumn Statement in 2016, the government announced plans to ban letting agent fees for tenants in England. Currently, tenants are usually billed for tenancy agreements, referencing and credit checks.

A draft bill has recently been laid before Parliament so if the government proceeds with the ban, it is likely to come into effect in 2018.

£1,000 property allowance

You can get up to £1,000 a year in tax-free allowances for property income from 6th April 2017. If you own a property jointly with others, you’re each eligible for the £1,000 allowance against your share of the gross rental income.

If you’re already registered for Self Assessment, you can claim the allowances by deducting them from your gross property on your tax return. You can’t deduct any other expenses or allowances if you claim the property allowance. You can change which approach to take from year-to-year.

If you aren’t in the tax return system, you don’t need to register provided your property income is below £1,000, but you would need to keep records of your income. You can of course opt to complete a tax return if you have a loss to declare, which would make it easier to claim the loss in the future.

Capital Gains Tax

Capital gains tax arises when you make a “gain” when you sell or dispose of an asset. Normally, capital gains tax is charged at 10% or 20% depending on your tax rate, and capital gains tax transactions are reported on a tax return so you have 10 months from the end of the tax year to file the return online and pay any tax arising.

From April 2017, new rates of capital gains tax were introduced that only apply to residential property that isn’t your home. If your gains are within the basic rate band, 18% is now charged on residential property and 28% on any amounts above the basic rate band.

The government has also announced their intention to shorten the window for paying the capital gains tax on such transactions. But in the Autumn Budget 2017, it was announced that the introduction of the 30-day payment window for capital gains tax to be paid on residential property would be deferred until April 2020.

Restrictions to tax relief on mortgage interest

From April 2017, the offset of mortgage interest available to higher rate taxpayer landlords will be gradually reduced to the basic rate.

Under the four-year withdrawal of the relief, in 2017/18 landlords will only be able to apply the existing relief rules to 75% of their finance costs with the remaining 25% using the basic rate reduction. The following three years will see the proportion change by 25% each year before the basic rate cap applies in full from 2020/21.

Landlords who have small borrowings or are basic rate taxpayers, will be unaffected by the change. However, those who took advantage when access to finance was more relaxed, could be hit by the fall in their tax-deductible expenses- and therefore a rise in their tax liability.

This restriction applies to individuals owning properties – not companies. Corporation tax is currently 19% and set to fall to just 17% by 2020 under current government plans. Operating as a limited company may look attractive. However, the tax-advantages of being paid dividends have been slashed and there may be stamp duty and capital gains tax, so it is important to seek advice if you’re considering putting property into a limited company.

Stamp Duty surcharge on additional properties

As of April 2016, anyone buying a second property has been hit with a 3% surcharge.This means for someone buying a property worth £175,000 they’ll pay £6,250 rather than £1,000.

The surcharge is probably one of the most severe changes for individuals who own more than one property.

Removal of the Wear & Tear Allowance

From April 2016, the annual Wear and Tear Allowance was removed. This Allowance served to reduce property income and was available against lettings of furnished, residential properties. It was intended to account for the deterioration of the fixtures and fittings.

Instead of the Wear and Tear Allowance, landlords are now able to deduct the actual costs they incur on replacing furnishings in the property, but no tax relief will be available on the initial cost of furnishing a property. This relief is available to unfurnished and part-furnished properties, as well as fully-furnished.

Increase in Rent-a-room Relief

After 18 years of being at £4,250, ‘Rent-a-room’ relief increased to £7,500 from April 2016.

Rent-a-room relief allows you to let out furnished accommodation in your home, tax-free, subject to the threshold. The threshold is halved if you share the income with your partner or someone else.

The relief is open to anyone renting out room (i.e. a room or even an entire floor) in their home, whether they own the property or not. It is therefore available to people running bed and breakfasts and guest houses.

In the Autumn Budget 2017, the government announced it would publish a call for evidence to establish how rent-a-room relief is used and ensure it is better targeted at longer-term lettings.