you've worked hard all your life, paid all your taxes and National
Now is the time to stop and smell the flowers and have an interesting
what is this - the taxman is still there to haunt you even though you
having to subsist on far less and far more time to pay for things that
you are very well-off it is imperative that you plan ahead to avoid
a drastic income reduction. So how do you plan and what are the options?
the only two certain aspects in this world are death and taxes. And
these two ill-fitting bed fellows come to-gether.
a husband passes away, the wife will get her own personal allowance,
any part of the married couple's allowance for that year's which cannot
be used up against the husband's income, up to the date of death.
if the wife is getting all or half of the married couple's allowance in
the year of the husband's death, as much as possible must be
back and set against the late husband's income
wife will also receive the widow's bereavement allowance during the the
year of the husband's death and for the following year, unless she
before the commencement of the second year. Similar to the married
allowance this reduces the tax bill by a certain amount.
allowances the wife gets in the tax year in which the husband dies can
be set against any income the wife may have in that year.
the wife dies, the husband will get both the personal allowance and the
married couple's allowance, less any part that the wife used against
income. In the following year the husband will just get the personal
unless he remarries in that year. ( Further details are available from
tax offices on leaflet IR91)
following is taxable:
from previous employment
care allowance and invalidity addition paid with a retirement pension
benefit- all benefit paid in respect of new claims from 13 April 1996 (
except benefit paid during the first 28 weeks of incapacity)
interest from a bank, building society or local authority
from National Savings Certificates ( except National Savings
and the first £70 of interest from ordinary accounts with the
on shares and income from unit trusts
from a job or business
gains on life assurance policies
of any joint income
following DO NOT attract taxation:
benefit paid for the first 28 weeks of sickness
benefit paid to someone who was receiving invalidity benefits before 13
april 1995, provided there has not been a break of more than eight
in the claim attendance allowance and mobility allowance.
support paid for reason's other than unemployment, strikes, temporary
or short-time working.
from tax-free National Savings investments such as Savings
Yearly Plan or the first £70 of interest on an ordinary account
the National Savings Bank.
dividends and bonuses from a Tax Exempt Special Savings Account (TESSA)
and terminal bonuses under Save As You Earn schemes
and other income from a Personal Equity Plan (PEP), or interest from a
PEP ( unless you withdraw more that £180 interest)
Bonds, National Lottery and gambling prizes.
If a Pensioner
has paid enough National Insurance Contributions during his/her working
life they are entitled to the full basic state pension. Men can start
at 65 and woman at aged 60. However State Pensions are paid without tax
deducted and depending on other income tax may have to be paid on them.
taking of the state pension may be deferred for up to 5 years in which
instance a higher basic pension is paid.
the case of married women who receive a state pension it is considered
as their own income for tax purposes even though it may have been
as a result of her husband's contributions. She can set her own tax
addition to the basic state pension a Pensioner may qualify for the
Earnings Related Pension Scheme ( SERPS). SERPS is a supplement to the
basic state pension and is based on average earnings made since April
as long as full National Insurance Contributions have been made. There
was also a scheme known as graduated pensions available between April
and April 1975. A Pensioner qualifies under this as well as long as
was employed during that period and paid NI contributions under the
This may be taxable under what is known as the non-contributory
pension. This is a top-up pension for those aged 80 or over who either
have no pension or whose pension is less than the normal state pension.
pensions are different. This pension comes from a former employer, the
tax usually being collected under PAYE. This means the tax has already
been collected from the pension.
UK pensioners may get an overseas pension. Usually normal tax is paid
nine/tenths of any pension from abroad regardless as to whether the
are brought into the UK. No tax is payable on pensions paid by the
of Germany and Austria to UK victims of Nazi persecution.
top-up their pension income with income or capital from savings that
have built up over their lifetime or inherited. However keeping down
income is the main object of ensuring better returns.
may lose his/her age-related allowances if their taxable income exceeds
their total income for the year. The pensioner must therefore tailor
investments to combat this.
preferred route is to invest in to tax-free investments- However there
is a caveat that some investment schemes are riskier than others and
value of the capital can go down as well as up.
is here that we at The Informed Investor usually disagree with most
commentators. The reason is that in many cases the product which is
getting the greatest amount of sales is usually the worst value
the buyer. Why you ask:
A larger than usual amount of money may have been spent on advertising
it. ( Who pays but the purchaser). This may be paying more to
advisers to sell it.
Products sold under the Financial Services Act are subject to rigid
but also to a very high cost of compliance. That cost of compliance is
passed on to the consumer. And in the case of mutual companies any
for non-compliance etc. are also paid by the Investor.
The market sees certain large chunks of monies becoming available
the introduction of a product and raises its values to meet it. This
that the buying public are really paying too much for the underlying
Many institutions can create above average returns on smaller funds but
cannot continue to create those returns with larger amounts of money.
is therefore in certain instances dangerous to follow success, it may
like closing the stable door after the horse has bolted.
You have to keep your eyes open for sharp practices on behalf of
institutions especially in creating higher running costs for so-called
tax-free investments. For instance look at PEPS. Stopped by the
in 1999 you will find the overall value of PEPS under management
year by year as people withdraw and no new ones are sold. However the
still has to pay for the administration of the remaining funds at a
burden for the remaining investors.
Watch out for Investment Companies arbitrarily switching your
from one type of investment to another. This can happen because of
amalgamations or just cost-saving excercises. If you went into a shop
a piece of fish and were given a leg of lamb you would take it back.
its not that easy when dealing with financial institutions.
DO NOT BE PUT OFF BY PROFESSIONAL CRETINS WHO WILL SAY " It's not under
the Financial Services Act so I won't touch it".
these cretins do not understand the Financial Services Act. The Act was
set up to protect investors from rogues. If you go into a shop and buy
gold, diamonds, wines, antiques, art etc. you take the whole article
in the case of shares, stocks, unit trusts, options, futures etc. you
get a piece of paper saying you have a share of something with a lot of
other people. It is that share which is regulated not the whole it
Financial Services Authority has to ensure that the companies issuing
paper are doing so properly and that they have purchased what they say
they have. So the FSA is a stamp of Authority NOT APPROVAL
beware cretins telling you that it is.
TAX-FREE INVESTMENTS . The following can be considered:
Savings Accounts (ISA)
- Fine Wines