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Fraser's Blog

Pensions Bill

Tuesday, 23 December 2014 08:00

Details of the new pension reforms first announced in the March Budget have been set out in the Taxation of Pensions Bill published on 14 October 2014.

Chancellor George Osborne said people should “be able to access as much or as little of their pension as they want and pass on their hard-earned pensions to their family’s tax free.” People should be “free to choose what they do with their money”.

What does this freedom mean in practice? How will retirement be effected after April 2015?

The new rules apply to investors aged at least 55 who have a personal or stakeholder pension, a SIPP, an AVC or any other defined contribution pension and come into effect from April 2015.

How you take your 25% tax-free cash

Most people can take up to 25% tax-free cash from their pension.

From April 2015 you’ll be able to decide how you take that tax-free cash: take it all in one go upfront or have a portion of any withdrawals you make tax free.

So, someone with a pension worth £100,000 will have the choice of: Taking the £25,000 tax-free cash all at once, with any subsequent withdrawals taxed as income;

Making a series of withdrawals over time and receiving 25% of each withdrawal tax free. For instance, someone making lump sum withdrawals of £20,000 would receive £5,000 of each withdrawal tax free. Equally, someone taking an income of £1,000 a month would receive £250 of that payment tax free. Please note: this will not be available through an annuity.

The second option could be attractive because it could help you manage your tax liability.

In addition, whilst your money is in the pension, it can remain invested. So, if your investments perform well you could end up with more money available to withdraw over time. On the other hand, if your investments perform badly you could end up with less money available to withdraw.

Freedom in how you take your pension

The Chancellor has described pensions as similar to bank accounts. This is because from April 2015, if you’re aged at least 55, you’ll be able to decide how to make withdrawals from your pension: 1. Take the whole fund as cash in one go 2. Take smaller lump sums, as and when you like 3. Take a regular income (via income drawdown – where you draw directly from the pension fund, which remains invested – or via an annuity – where you receive a secure income for life)

Please remember though, any withdrawals in excess of the tax-free amount will be taxed at your marginal rate (the highest rate of income tax you pay).

Both annuities and income drawdown are already available under current rules.

However, whilst currently the income you can take through income drawdown is usually subject to a maximum decided by the Government’s Actuarial Department (known as the ‘GAD limit’), from April 2015 there will be no limits.

It will be your responsibility to decide how much income to take, bearing in mind the more you take, the greater the risk you will run out of money later in life. We don’t know how long we’ll live, so it’s important to think carefully about how much of your pension you can afford to take out.

Investors interested in taking advantage of the new freedoms, but wanting to take their tax-free cash now and start drawing from their pension before April 2015 could consider income drawdown now and benefit from extra freedom from next year.

Freedom when you pass your pension on

Until now there was little incentive to preserve a pension fund, because on death it could be subject to a punitive 55% pension ‘death tax’.

This has now changed.

From April the 55% pension ‘death tax’ will be abolished. When you die, any money left in your pension can be passed on to your beneficiaries. They will benefit from the windfall subject to income tax at their marginal rate, tax free or subject to a 45% tax (if you die after age 75 and your beneficiaries take your pension as a lump sum).

What happens if I’m already drawing my pensions?

If you’re currently in income drawdown, you should be able to benefit from the new rules from April 2015.

If you’ve used the whole of your pension to buy an annuity, it’s unlikely you’ll be affected by the changes.

Investing

The new flexibility is making pensions extremely attractive. You can build up your pension fund, knowing from age 55 you can not only draw on your savings without the current restrictions, but also pass on any unused savings to beneficiaries’ tax efficiently on death. However, with the freedom comes the responsibility of managing your pension responsibly.

For advice contact me on 01896 757734 or email This email address is being protected from spambots. You need JavaScript enabled to view it.. Fraser Brydon - Money Matters

PENSION TAX warning on cash withdrawals

Friday, 12 December 2014 08:00

People taking advantage of a concession that will allow a pension fund to be used as a cash machine could be hit by large tax bills on their withdrawals.

The withdrawals system was announced recently by the chancellor as an extension of the groundbreaking pension freedom system that will take effect next April 2015. Under these complex reforms, the purchase of an annuity will no longer be compulsory and instead anyone over the age of 55 will be allowed to make regular withdrawals from a fund.

With an increasing number of unemployed older people many may be tempted into withdrawing cash from their pension for everyday living costs without assessing the possible pitfalls. In some circumstances, tax at the rate of 45% could be deducted before the payment is made by the pension company, even though the recipient is not or has never been a higher rate taxpayer. This may be because an emergency tax code could be used by the pension company if it has insufficient knowledge of its customer’s financial position.

However, only 25% of the fund will be tax free. Any further sums taken out will be subject to tax based on the individual’s total earnings for that tax bill. People who do wish to withdraw funds from their pension can avoid having to pay emergency tax by ensuring that the pension provider is given proof of the individual’s tax code for the relevant year.

If an emergency code is used and too much tax is deducted from a withdrawal, then this can be reclaimed. But Revenue and Customs does not make immediate refunds. The possibility that a large chunk of tax could be taken is yet another reminder of how carefully people must plan be before seeking to benefit from the new pension freedoms.

For advice contact me on 01896 757734 or email This email address is being protected from spambots. You need JavaScript enabled to view it., Fraser Brydon - Money Matters

When will you retire?

Wednesday, 03 December 2014 08:00

The government wants people to continue working until they are age 70 which in turn will delay even further the age at which people stop working and retire, according to plans from the Department of Work and Pensions.

The DWP's business plan published in October 2014 stated 'good performance' on this score would be to raise average retirement ages by six months in a year, although it added that it would 'not normally expect' changes of this magnitude.

Retirement ages are on the increase and the Government welcomes this as it knows those nearing retirement are generally the higher rate tax payers and such losses to the Exchequer are hard to replace. Recent figures show men retire at an average 64.7 years of age in 2014, compared to 64.5 in 2011-12. Women were retiring at 63.1 years of age in 2014, compared to 62.7 in 2011-12.

The State Pension age, when people can begin to draw the State Pension, is being raised and has a direct influence on average retirement ages and taxation income

The DWP's acknowledges that women's State Pension age is rising far faster then for men.

The faster rise in the State Pension age for women, is being equalised with that of men at 65 by 2018. This is mostly responsible for the faster rise in women's average retirement ages.

The Pensions Minister, Steve Webb, suggested it's not simply the Government pushing people's retirement ages ever upwards, it's other factors too.

He said: "Unplanned exit from the labour market can have a catastrophic consequences for individuals, living standards into old age and comes at great cost to the economy, business and society as a whole".

Having already abolished the discriminatory default retirement age, our focus now is on acting to prevent individuals being forced out of the labour market early, and where we cannot, supporting older workers to re-enter the world of employment

Successive Governments have identified getting people to work longer as key to putting the nation's finances on a sustainable footing. Some believe this is the first steps in the demise of the State Pension as we know it.

Mr Webb said: "If someone works an extra year they can add 10% to their pension for life. What we are doing is catching up with decades of longer living".

"We are living longer but labour markets and people's retirement age has not been keeping up. I have fought against a vague target of trying to get people to work longer to have something more specific".

Planned rises in the State Pension age have been accelerated to help achieve this

The current State Pension age has been equalised for men and women so that, by 2018, everyone will only be able to claim a State Pension when they turn 65, which is the current level for men.

Under Government plans, the age will then rise to 66 in 2020. In 2026 it will start to rise again so the it hits 67 by 2028.

In 2012 George Osborne confirmed that the Government will use an Office for Budget Responsibility report to create a solid link between the State Pension age and rising life expectancy. It is likely to see the State Pension age raise to 70 and beyond

So the time has never been more right to plan for your own personal pension as it seems the State Pension could be a long way off in the future

For advice contact me on 01896 757734 or email This email address is being protected from spambots. You need JavaScript enabled to view it.

Fraser Brydon - Money Matters

The Million Pound Guarantee

Monday, 24 November 2014 08:00

Savers could see deposits of up to £1m guaranteed as Bank of England looks to shake up savings protection

The Bank of England recently announced a shake-up of how savers would be covered if their bank went bust. The BoE is looking for banks to deposit up to £1million as cover for certain circumstances.

Such moves are as a consequence to remove the chaotic scenes witnessed in 2007 when there was a run on the Northern Rock bank. Money would be protected for up to six months, with cash also being moved into another bank.

Presently, £85,000 is protected under the Financial Services Compensation Scheme per banking licence if a bank or building society runs into trouble, this limit is set across the EU.

The new £1million limit would apply and support money temporarily deposited in a bank, where for instance house purchase capital is in transit or a personal injury claim is in process. This would cover roughly 99% of house sales in the UK.

As it stands customers, have to wait for their money up to seven working days under the current scheme, but under the new scheme it will be automatically transferred to another financial firm to avoid any confusion or delay when a business is failing. This should enable faster access to their money.

The new bank in which the money enters would be chosen by a process that would see banks ‘bid’ for the customers.

The Bank of England has also set out plans to improve protection for insurance policies. The Introduction of 100% cover on the value of a product would be introduced, up from the current 90% figure.

This is for products where customers would be disadvantaged if they lost their cover, such as professional indemnity insurance or an annuity which is paying out. The proposed increase for savers will bear a one-off cost of £390million, a bill in which 60 to 80% would fall on the biggest banks - the Bank of England stated the annual cost to the industry would be around £50million after the initial cost.

These potential rule changes are targeted to go ahead at the end of 2016 with the consultation finishing at the start of 2015.

Andrew Bailey, Deputy Governor of the Bank of England and Chief Executive of the Prudential Regulation Authority said: ‘These proposals will allow customers to have continuous access to the money in their bank account or receive payment from the FSCS if this is not possible.’

‘Additionally, the increase in FSCS limits for certain types of insurance will mean policyholders who may find it difficult to obtain alternative cover, or who are locked into a product, have greater protection if their insurer fails.’

For advice contact me on 01896 757734 or email This email address is being protected from spambots. You need JavaScript enabled to view it. Fraser Brydon - Money Matters

Could your family cope if you die?

Friday, 14 November 2014 08:00

When it comes to the financial security of your family, it is a must to consider their future and this means facing up to the darkest of subjects. What would happen to your family if you were no longer there to provide for them? Would your loved ones be able to pay the bills? Would they be able to stay in the family house? These are some of the questions that need to be addressed and the solution could be an easy one… life insurance.

According to recent research it seems that many people are not prepared and only a few have life insurance in place, with some admitting they don’t know how much they are covered for. Have they enough to meet the needs of their family? This needs to be carefully considered when taking out insurance.

We insure our vehicles, our property and even our mobile phone, so why are so many people overlooking the most important asset, their life?

Life insurance is generally taken out to cover an outstanding mortgage to allow your family to remain in their home. There could be nothing worse than losing a loved one, but to see them face financial difficulties and potentially lose their home at such a vulnerable time is unthinkable.

Life insurance cover can also be used to help the family pay future bills or paying an inheritance tax bill (40 per cent on anything in excess of £325,000) are further uses for the payout.

Whatever your age, life insurance can be a vital lifeline to your family if you’re no longer around. Equally important is making sure your life insurance plan is reviewed regularly and the type of cover to ensure it reflects your needs and the requirements of your family. Your situation changes during your life, you may have more children and your income and outgoings could alter over time. It is these life advancements that make it all the more imperative to review the cover you have. It’s easy to top up or take out an additional policy to keep up with your family’s requirements.

When taking out life insurance, be sure to compare the premiums and policies on offer. It generally costs more the older you get, but as life insurers compete for business and reduce rates, there are good deals out there. Don’t settle for the cheapest deal either as this may not offer the type of cover you need. Take time to research what is on offer, speak to your professional financial adviser and above all make sure your family are secure should the very worst happen.

Death is never a good subject to discuss, but there are times when we need to bring the inevitable to the forefront and discuss such difficult issues

For advice contact me on 01896 757734 or email This email address is being protected from spambots. You need JavaScript enabled to view it. Fraser Brydon - Money Matters

How to save for your grandchildren

Monday, 03 November 2014 08:00

Save for them

One of the easiest ways to help your grandchildren is to pay money into ‘wrapped’ schemes like Junior ISAs; these are an extension of the adult ISA system and enable children to receive tax-free interest on savings, as well as tax-efficient returns on stock market investments. They have to be set up by parents, but anyone else, can pay in. The big advantage of Junior ISAs is that they roll into adult ISAs at age 18, so offer a way to give young adults a head start.

You can put up to £4,000 a year as from July 2014 into Junior ISAs, split however you like between one cash account and one stocks-and-shares account at any time. If your grandchild has a Child Trust Fund (CTF), the predecessor of the Junior ISA with poorer rates and choice, they are not eligible for a Junior ISA, but that will change from April 2015, when it will become possible to transfer their funds from their CTF.

Investing

As many people use Junior ISAs to invest for a period of ten-years plus, they can afford to put a good proportion of their contributions into stocks and shares, which means higher risk but the likelihood of considerably better longer-term returns than with cash. However, there is a major caveat attached to Junior ISAs. The biggest danger is that at age 18 the child can access the money and spend it however they want.

Set up trusts

Trusts can enable you and other trustees to control how money that you ring-fence is used and in some cases, provide significant tax advantages. They’re often used for providing for specific costs, such as school fees.

There are two main types of trust: “bare” trusts are the simplest trusts and when they are created by grandparents for a grandchild they are taxed on the latter’s tax band, meaning they are normally tax-free. That’s not the case where parents create a bare trust for their children, when it’s taxed at the parents’ rate. The disadvantage, as with Junior ISAs, is that the beneficiary has the right to access the trust cash at 18.

“Discretionary” trusts are more complicated but flexible and you can use one trust to benefit all your grandchildren, or a wider group of relatives. These trusts are typically created for 125 years, so they can benefit multiple generations of your family and the trustees keep control regardless of the ages of beneficiaries. Bare trusts are typically more suitable for sums that will stay in the tens of thousands of pounds, and discretionary trusts for larger amounts. Trusts aren’t cheap to set up, so they won’t be costeffective for smaller sums.

Think long term

More people now go to university than to private schools and most leave with huge debts. Smart planning now could help you to cover your grandchildren’s education costs.

Another ‘life’ goal could be to provide a deposit to help them on to the property ladder. You could help with university fees and a deposit, or maybe aim to save the equivalent of about £30,000 and keep both options open.

Start pensions

The government will top up the maximum pension contribution of £2,880 net a year, taking the actual sum invested to £3,600 gross.

Stakeholder pensions are the cheaper option in terms of fees and allow you to invest in a limited range of funds. Self-Invested Personal Pensions give greater flexibility but also have higher charges.

Grandparents are well placed to help their grandchildren because small contributions now can be life-changing for them later as both grow.

The value of your investment and the income from it can go down as well as up and you may not get back the original amount invested. Past performance is not a reliable indicator for future results. Please contact us for further information or if you are in any doubt as to the suitability of an investment.

For advice contact me on 01896 757734 or email This email address is being protected from spambots. You need JavaScript enabled to view it., Fraser Brydon - Money Matters.

INVESTOR JARGON you need to understand

Monday, 27 October 2014 08:00

A recent report from the Financial Conduct Authority (FCA), the City regulator, says that investment houses and fund managers are failing to provide investors with clear figures on total fund charges, instead offering a number of different charging structures that can lead to confusion.

Asset managers were also criticised for using jargon in information that makes it difficult to understand.

The FCA has declined at this time to take action, but has set out a number of suggestions which it would like companies to adopt, including stopping the annual management charge in favour of spreading charges as an ongoing charges figure.

Confusion can cost you money, because it enables some companies to continue to charge higher fees, therefore understanding the jargon and terms used is very important.

Here are some common terms you need to know.

AMC - Annual Management Charge

This is what you pay to a fund manager each year. The AMC is taken directly from the fund to cover management costs but it excludes many fees including administration, accounting, custodian and legal fees.

TER - Total Expense Ratio

TER is a better indicator of the annual costs as it includes the AMC and some other costs that are taken directly out of the fund, like legal and custody fees, audit charges and any performance fee. TERS are levied at between 1 and 2 per cent. TERs do not, however, include the dealing costs for buying and selling shares or bonds.

OCF - Ongoing Charges Figure

The FCA would like to see OCF as a true measure of fund costs, but does not include any performance fees. The performance fee and transaction costs are disclosed separately.

OCFs are presented in percentage terms and can be misunderstood, so the IMA is keen to introduce another measure of fund charges. This will include transaction costs and be shown in real values of how much profit or loss you have made and how much the fund costs you.

Set up charge

This fee is taken out of your money before it is invested to cover the set up costs. If you pay in £10,000 and the initial charge is 5 per cent, £500 is taken to cover the fee and £9500 balance is invested in the fund.

Clean share class

A clean share class within a fund is where the commission for financial advisers or fund supermarkets have been taken away. A consequence of the regulatory shake-up that started in January 2013, called the Retail Distribution Review, which aimed to make fund charges more transparent.

With clean share classes, the fee you pay to the fund manager or broker who completed the deal are separate. Instead of a typical 1.5 per cent for an actively managed fund you will now usually pay just 0.75 per cent in “clean” fund charges. You then pay the adviser or platform fee on top.

Unfortunately, there is no set way of identifying share classes so it can be difficult to identify which is the clean one.

INC - Income Share Class

This is any income generated by the fund’s investments, like dividends or bond interest, paid out to you.

ACC - Accumulation Share Class

With accumulation shares the income gained from the fund is reinvested back into the fund. Generally, reinvested dividends provide a large part of total returns over the longer term.

Bid-offer spread

If you are buying shares or unit trusts you pay a bid price and when you are selling an offer price. The selling price is often higher than the buying price. With unit trusts the bid-offer spread is often similar to the initial charge, though it may incorporate costs encurred by the fund such as stock broking commission, making the spread bigger.

NAV – Net Asset Value - Discount/premium

Investment trusts are similar to unit trusts because both pool savers’ money to invest in a wide spread of companies, but there are key differences.

Investment trusts are public companies traded on the stock market. You buy shares in the trust and crucially only a limited number of shares are available. Meaning the share price depends not just on the value of the investments held, but also on demand for the shares. If more people want to buy than Sell, the share price increases and vice versa. The price of unit trusts, on the other hand, always reflects the value of the underlying investments less all the charges.

Investment-trust shares can often be bought for less than the value of the shares under ownership. The trust is then trading at a discount to its net asset value (NAV). When the opposite happens and the shares are worth more than the NAV they are trading at a premium.

For advice contact me on 01896 757734 or email This email address is being protected from spambots. You need JavaScript enabled to view it.

Fraser Brydon - Money Matters

Do I have to pay tax under new freedom rules?

Thursday, 16 October 2014 08:00

Hundreds of thousands of savers could be heading for a tax shock at retirement because they fail to understand the new pension freedom rules being introduced by the Government.

Many people with defined contribution pensions are labouring under the illusion that they will be able to access their retirement pots tax-free from next April.

People will be given unrestricted access to their pension pots provided they’re above the age of 55, but they will still have to pay marginal income tax on withdrawals.

Full details of the new pension rules are still being formulated, with the Government currently in consultation with the industry as it seeks feedback on its proposals.

But the basic premise is that people with money purchase pensions will be able to make withdrawals from pots as and when they like once they turn 55.

They will still be able to take 25 per cent of their pot as a tax-free lump sum.

Previously, withdrawing cash above the 25 per cent lump sum from a pension pot outside of an annuity or income drawdown product would have incurred a 55 per cent tax charge on the amount taken - but this has been scrapped.

Instead, savers will only have to pay income tax on their withdrawal and how much tax they pay will depend on their whole income during the financial year.

So based on 2014/15 tax rates, incomes of up to £10,000 will be tax-free because of the personal allowance, while earnings between £10,000 and £41,865 will be taxed at 20 per cent.

Earnings between £41,865 and £150,000 will be taxed at 40 per cent and income above £150,000 will be taxed at 45 per cent.

Those who plan on withdrawing their full pension pots from next year should bear in mind that they risk paying higher levels of tax on it than they would if they spread their withdrawals out over several years, particularly if they have other sources of taxable income such as a work salary or rental income.

With major changes being made to Britain’s pension system, we all should be encouraged to save in a tax efficient pension.

20s

Once you begin work, retirement is a distant thought. Other priorities tend to take precedence, like saving a deposit for a first home, paying down debts from student days or simply enjoying life.

The biggest influence on a comfortable retirement is the capacity to generate earnings. By starting a regular savings plan early, even if you can only spare small amounts, the returns will be much bigger.

Your earnings are generally low during this period but diverting the small amount left at the end of each month into a pension is likely to yield less than saving into an ISA, where the £15,000 tax-free annual allowance (from July 1 2014) will be more than sufficient.

The exception is your company’s pension scheme. Employers will pay on your behalf, for example, you might pay 5 per cent and the company 5 per cent.

30s

During this period your earnings should start to increase, but you could have higher costs to possibly meet like getting married, starting a family or buying a first home.

You may need to create an ‘emergency fund’ to cover unexpected issues such as redundancy; a fund worth six months’ expenditure is generally the rule of thumb.

New parents may want to consider life assurance, which will protect family finances if anything happens to the main income. Repaying mortgage debt will also take a large chunk of income.

If you can afford to, invest as close to the £15,000 ISA limit as possible. You should also consider joining your company pension and consider increasing contributions if possible.

Pensions can help tax planning. Families where one parent earns more than £50,000 will start to lose their entitlement to child benefit. Contributing to a pension can reduce your taxable earnings below £50,000 and preserve this benefit for your family.

40s

If you haven’t started a pension type savings plan yet, it’s not too late. With up to 27 years before you collect your state pension and potentially more afterwards. Don’t be fooled into thinking your investment time-horizon is short; investments can still continue into retirement, for good returns.

During this period you may have school fees or other commitments to consider. Try to maximise the £15,000 ISA allowance, but don’t ignore the tax relief on pensions, though, which applies at your highest marginal rate. It costs a higher-rate taxpayer only £60 to put £100 into their pension.

Consolidate pensions sitting idle with former employers into a Self-Invested Personal Pension, or “SIPP”. These plans, which give access to thousands of investments in one place, are offered at low cost by different financial companies.

50s

Saving for retirement should now become serious. From age 55 you will be able to access your pension. In theory you could retire then.

In reality, most people will continue working and plan carefully, saving as much as possible for the future as other expenses cease. Plan by working out how much income you’ll need when you eventually stop work.

Pensions do work as tax-planning tools after your ISA allowance is used. Consider for every £2 you earn above £100,000, you lose £1 of your tax-free personal allowance (currently £10,000). Contributing to a pension can reduce your taxable income so you retain this tax break.

Focus though on the £1.25m lifetime cap on saving. Someone aged 50 with £525,000 in a pension would push past the lifetime allowance by age 65 if the fund grew at 7 per cent a year even without additional contributions, according to pension provider Standard Life.

There is a currently a £40,000 limit on annual contributions to pensions.

60s

Many people will continue working, into their sixties. With the new rules from next April, you have instant access to your entire pension fund, how and when you withdraw becomes a major decision.

An annuity will guarantee a stream of income payments for life, but the cost of purchase is high. For example, current rates pay just £6,000 a year for each £100,000 of savings. Shop around for the best rates, as they do vary between insurers and declare all health conditions to obtain the highest income.

The main alternative to an annuity is to keep your pension invested in the stock market and take income as you need it. This runs the risk of the ups and downs of the stock market. The capital should be protected, a well-diversified set of dividend-paying funds and shares can provide a decent income, so long as you can put up with the fluctuating value of the underlying capital.

With the introduction of the new flat-rate state pension, probably in 2016, you will need 35 qualifying years of National Insurance contributions to benefit from the full £155 a week (it is possible to “buy” extra qualifying years). Check with the Pension Service on 0800 731 7898 to ensure you have the full amount.

The value of your investment and the income from it can go down as well as up and you may not get back the original amount invested. Past performance is not a reliable indicator for future results. Please contact us for further information or if you are in any doubt as to the suitability of an investment.

The inheritance tax time BOMB

Monday, 29 September 2014 08:00

Rising house prices and the recovering economy are set to force tens of thousands more people above the death tax threshold

The number of families hit with inheritance tax bills will rise significantly, as the Treasury forecasts suggest that rising house prices and the recovering economy will push tens of thousands more people over the £325,000 threshold for paying the duty.

The Government said the continued freeze of the IHT threshold at £325,000, a level at which it has remained for more than five years - will be used to fund upcoming reforms to long-term care laws that will cap the total costs of care borne by the individual at £72,000.

Inheritance tax is levied at a rate of 40 per cent on the value of an estate above the threshold. Economists, tax experts and Tory MPs have called for radical reform, warning that growing numbers of middle-class families are being trapped as house prices rise. A typical property in London is worth more than £450,000.

Britain has some of the highest death duties of any country and it has been estimated that more than a third of home owners face the threat of inheritance tax bills because of rising house prices. The system is seen as unfair because it taxes assets such as family homes bought with income that was taxed when it was earned.

Government forecasts estimate that the number of households liable for inheritance tax will rise by more than a third this year alone, with 35,600 expected to be hit with bills, rising to 43,800 next year.

It’s estimated that some 236,000 families will have to pay the 40 per cent tax on estates left by their families over the next five years, with booming property prices in certain parts of the UK sending those with modest estates over the threshold.

The Treasury says this will be used to fund its care reforms that along with the care cost cap will see the Government contribute towards care costs when a person’s total assets are valued at below £118,000.

The Government said this should prevent people having to sell their homes to fund their care costs.

However this has been challenged as it emerged that the cap only covers care costs, but not associated costs such as accommodation. As such, someone could end up forking out £150,000 before they actually reach the cap.

A Treasury spokeswoman said: ‘While we are having to pay off Labour’s deficit couples can still leave £650,000 tax free and importantly, freezing the IHT threshold means we can pay to end the scandal of people having to sell their homes to pay for social care - meaning they often had no home to leave to their children and grandchildren in the first place.’

Inheritance tax remains a deeply unpopular tax among the British public and one that is the subject of regular calls for reform.

Married couples can reduce their tax liabilities by combining their allowance to £650,000 for when their assets pass to their children upon their deaths. But in some cases middle class families, particularly those living in and around London, are exceeding even the doubled allowance, such is the premium on property in the capital.

For advice contact me on 01896 757734 or email This email address is being protected from spambots. You need JavaScript enabled to view it.. Fraser Brydon- Money Matters

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