The suspension of stamp duty land tax offers first time buyers, purchasing their first home, relief from this brutal tax on a house value of up to a value of £250,000. This saving of up to £2,500 comes at what, after all, can be a very expensive time for any would be home owner.

This temporary government strategy, which was introduced to reignite the housing market from the bottom up, sadly comes to an end on the 24th March 2012 and our advisers have been busy fielding calls from Freelancers who are currently renting but who are interested to know what options they have in the Contractor Mortgages market.

Only 10% deposit needed

In particular, as by far the largest Contractor Mortgages specialist, we have personally negotiated access to schemes that only require a 10% deposit and that are available to Freelancers who may even be in the very first week of their first contract. Indeed it could even be argued that the benefit of waiting to save a bigger deposit to secure the best possible interest rate could be far outweighed by the rent paid into your landlord’s pockets and stamp duty needlessly paid to George Osborne, whilst you delay your purchase.

January has brought the usual influx of new properties onto the market and now could therefore be the perfect time to take that all important first step onto the property ladder and buy your own home.

The good news is that it’s not too late for first time buyers to benefit from the initiative. Our contract based mortgage underwriting and strong lender relationships means you can be confident we can get your application approved first time, and without delay, helping you into your new home before the March deadline. This could potentially save you thousands of pounds and we don’t charge the mortgage broker fees that you will often be charged elsewhere, saving at least £500.

Speak to one of our specialist mortgages advisors today on 0845 062 8888 or complete our contact form to find out more.

Copyright © 2012 ContractorFinancials Ltd. All rights reserved.

If the last 4 very dramatic years on Planet Contractor have shown us anything it’s that, as a Freelancer, it is vital to plan ahead so that you’re ready to face any eventuality. For some, contract rates have gone into reverse as the cost of living has soared, volatile markets have given investors a white knuckle ride whilst with the state rolling back pension and other benefits as austerity budgets bite, old certainties have been blown away.

In this month’s Planet Contractor we aim to equip you with all the tools you need to make the most of 2012.

Here’s our 10 step path to financial security.

Step 1: Save tax on your life insurance

Rather than pay for your life insurance from taxed income, a ground breaking arrangement called a Relevant Life Policy, that our advisers at ContractorFinancials helped to launch, now allows you to enjoy corporation tax relief on premiums with no benefit in kind implications.

A carefully worded trust ensures that, in the event that the worst should happen, any payout is free from inheritance tax too.

Whereas you need to pay income tax on salary and dividends to then pay personally for life insurance from your private bank account, this Keyman scheme aims to tax efficiently replace the lost death in service benefits that you may have enjoyed whilst working as a permanent employee and is paid for out of your company bank account instead.

In most circumstances the policy is portable so should you close your limited company in the future and need to restart paying a policy personally, you needn’t worry about fresh medical underwriting.

Insuring the main breadwinner is only part of the job though and you can also protect any employees such as your spouse (who may be company secretary for instance). Our award winning protection team is on hand to help advise you a policy to fit your needs and budget.

The tax man is, in effect, helping to fund the protection for your loved ones, so our specialist adviser; Catherine Young, should be able to help you put in place the cover your family needs without breaking the bank.

Step 2: Get company money working hard this year

Too often over the past 3 years we have had clients come to us suffering poor rates of interest on corporate bank deposit accounts. Inertia or lack of alternatives has often meant that, until speaking to us, Freelancers just accept this as a sign of the times.

Our savings guru, Luke Somerset, has earned clients thousands of pounds in extra interest over this period, using our expertise as advisers and the fact that we can look beyond the high street, to help you make the most of your hard earned cash.

With inflation at 4.2% this month, earning less than this figure means that you’re losing money on cash at bank. At the same time however, you might not want to invest in anything with risks attached even though you know this may earn greater returns. This is cash that you’ve worked damn hard to earn in the first place but this soul destroying dilemma cause you lost sleep in the coming months.

At up to 4.1% interest, we now have access to better cash rates (with the likes of Cater Allen) than are available to you by speaking direct with the banks and by using our cash manager service via an offshore bond arrangement you can defer corporation on any interest earned (perhaps enabling you to engineer a loss at the time of encashment of your bond so receiving the growth tax free).

Our cash manager allow you to avoid tiresome money laundering requirements whilst switching from one account to another to exploit a better rate elsewhere and Luke can handle any the paperwork on your behalf.

Step 3: Protect against state benefit cuts

Your income is totally reliant on you being fit and healthy enough to work tomorrow. With state benefits offering a subsistence level of support and becoming increasingly hard to qualify for as austerity cuts bite it’s essential to protect yourself against illness or injury.

As the Freelancer specialist, ContractorFinancials has been chosen to pilot a new scheme in 2012 based solely on contract rate alone rather than traditional salary and dividend income measures that may have left you underinsured.

Income Protection will pay a tax free monthly income to protect your current lifestyle and can be funded from your own personal bank account or alternatively you can get your limited company to pay. Our award winning protection team even have the option of a policy that will pay out on the very first day of incapacity.

Even if you have income protection already in place, in light of the new contract based cover, we would urge you to review the existing cover in 2012 - to ensure that it is still fit for purpose.

Step 4: Avoid Coalition tax hikes with a Contractor pension

Pensions provide Contractors with one of the few legitimate tax breaks still left and you can benefit from up to 69% relief.

After IR35, MSC, Arctic Systems and EBT clamp downs, pensions are one of the last tax breaks still remaining and we have clients who are saving literally tens of thousands of pounds a year in tax deductions thanks to the far higher contribution limits and break in the link between low salary and pension contributions.  Indeed if your old payment method is now deemed too risky, using a pension to soften the blow of being back onshore could save tax today but also be the best long term move you ever made as Government pension benefits are woefully low and are now kicking in at an ever increasing state retirement date.

Limited company Contractors can invest substantial sums over the course of each trading year whereas Umbrella company ‘employees can use salary exchange to save the equivalent of up to a 69% tax bill.

A £50k pa limit to contributions has posed difficulties to some but is open to a work around for many Contractors thanks to the expertise of our diploma qualified pensions advisers.

The trick is to make sure that any pensions investment effort in 2012 isn’t wasted so don’t put new money or hold historic funds in old style, inflexible and poor performing schemes from the past. Be it NEST, PPP, SIPP, EPP or SSAS pensions, Andrew Gains will find a tax saving retirement planning route from this lexicon that truly reflects your Contractor status and need for complete flexibility.

Step 5: Save, tax efficiently, to help towards time between contracts

A cash or equity Individual Savings Account can grow tax efficiently over time but in the event of an unforeseen need can be accessed, normally without penalty. You can invest monthly or as a lump sum but may be better off drip-feeding your investment to help avoid the risks associated with current volatility in the markets.

In addition to providing a useful safety net and long term savings vehicle, ISAs can now be used as a nest egg for your kids thanks to the advent late last year of the Junior ISA. For the first time children can now shelter money in the same long term and tax efficient environment as their parents.

Step 6: Keep your monthly borrowing costs down and save £500

With uncertainty in the Euro-zone continuing to push up borrowing costs for UK Banks and Building Societies, historically low base rates are not protecting mortgage holders from a potential spike in monthly borrowing costs. In the past few months thousands of borrowers have found their standard variable rate increase as financial institutions play a colossal game of snap with tranches of borrowing passing around the market.

Your mortgage is almost certainly your largest monthly outgoing and it’s therefore vitally important  that Contractors make sure you are paying as little as possible in interest on this debt. For 8 weeks now our Contractor Mortgage desk has been inundated s with clients wanting to remortgage to a fixed deal or lower discounted rate now to avoid any hike in borrowing costs.

The good news is that, unlike other brokers, we still make no charge for our advice which can save you £500 on a typical remortgage. If your accounts are sufficient we will use our uniquely close relationships with the mortgage lenders to base affordability on a multiple of your gross contract income alone so we can avoid the difficulties that Freelancers often face if they approach a lender direct

We will compare your current scheme with rates available elsewhere and wherever possible will get the new lender to pay towards any legal or valuation fees to remortgage you to any lower rate.

If at the same time you wish to release money from your home, our remortgage expert Miranda Francis will show you how. This money could fund debt consolidation, a deposit on a buy to let investment or home improvements etc.

Step 7: Avoid NHS queues with discounted health insurance

Thanks to our close relationship with award winning health insurer WPA, we are pleased to be able to offer private hospital cover at greatly reduced rates as 2012 gets underway.

In addition to our standard 20% discount for Freelancers, we can secure a further 20% saving in the first year, 12% in the second and a lifetime reduction thereafter of 10% via our dedicated contact this last lifetime discount is not available by going direct to help Freelancers put in place this cover at the start of this New Year.

Feedback we have from clients and staff at ContractorFinancials who have needed treatment has been glowing about the ease of claim.

In the case of a Contractor, time avoided waiting in an NHS queue that,  enables you yo get back to work with a minimum of delay, could literally make any monthly premiums self financing.

To find out more about this valuable benefit and the discounts we have access to, contact Ray Lamb via our contact forms on the site website or by calling 0845 062 8888 and we will be in touch.

Step 8: Make a will

Too often in our discussions with clients it becomes clear that, with a Freelancers busy lifestyle, there’s no will in place. Unfortunately few appreciate the potentially disastrous implications this can have for your family.

Without an up to date will you may not only be leaving an administrative mess for loved ones to sort out when they are least able to cope but you may also inadvertently saddle them with unforeseen debts. You could also even end up gifting your hard earned estate to the taxman.

Even more serious is the situation of the unmarried or those with kids because in certain circumstances a partner may end up penniless and the future of any children could be decided by the courts rather than the family.

Not only can we help make sense of your affairs and meet any protection needs but we have access to very reasonably costed legal work, accessed by you either remotely or via face to face meetings and would be happy to help you start 2012 with this worrying issue firmly put to bed.  Jocelyn Morgan can help put you in touch with one of our qualified will writers.

Step 9: Avoid investment volatility with Active Management

The credit crunch and recent Euro zone crisis has brought into sharp relief the need for investment management to focus as much on volatility and mitigating downside risk as on growth.

Too often in the past it was considered enough to simply set up a pension or ISA for instance, have your adviser pick a range of investments and then leave these funds to do their work. However we live in very different times and this approach is no longer sufficient to always meet long term goals.

We are proud to launch a new service in 2012 that we’ve been designing over the past year based around this need for constant monitoring and management of you funds. You’ll hear a lot more about this exciting new service in the months to come but for anyone who would like to discuss the details immediately please feel free to contact Tony Harris via the site or on 0845 062 8888.

A quarterly ContractorFinancials investment committee will meet, calling on outside expertise where necessary, to closely monitor funds and decide on the allocation of client monies across the various asset classes to ensure that each investor remains on track. Client will have their investments regularly rebalanced to mitigate risk. Back testing of this approach has shown significant reduction in volatility and we look forward to rolling this out over the coming year.

Step 10: Start 2012 with two months free home insurance

With household expenses set to rise again in the coming months it’s never been more important to shop around for services and one area that we can really add value is in a review of your buildings and home contents insurance.

Endless adverts for comparison websites only tell part of the story because some savings can turn out be a false economy at time of claim but in many instances inertia means Freelancers are paying over the odds or may even be dangerously underinsured.

Again Luke Somerset is on hand to help guide you through the maze of options and crucially we will also stand by to help you in the event of a claim.

To discuss our 10 steps please call 0845 062 8888 to speak to our specialists or fill out a contact form and a member of our team will be in touch shortly.

Copyright © 2012 ContractorFinancials Ltd. All rights reserved.

Counteract an increase in the retirement age and save tax with a Contractor Pension

Osborne announced that the planned increase in the retirement age from 66 to 67 will be brought forward to 2026 and with the NEST compulsory pension roll-out scheduled to begin in late 2012, there has never been a better time to save for retirement. Thankfully, widely reported fears of the abolition of higher rate tax relief again proved unfounded in today’s budget preview which means that Contractors can still save up to 69% on contributions to a pension. This allows you to cut tax bills today whilst investing for tomorrow.

With NEST just around the corner, Contractors are urged to take heed and realise that the state is encouraging ever greater private provision to offset an increasingly meagre old age pension. The good news on NEST is that you can avoid being automatically enrolled on to the Governments default scheme and instead invest into one that meets your individual requirements and financial goals. Contractor Pensions advisers Andrew Gains and Catherine Young are on hand to help you choose the right pension to suit your retirement plans so you can start making the most of the tax savings available.

Guard against the effects of the Euro zone crisis on Contractor Mortgages and remortgage to a low fixed rate deal

Despite George Osborne’s statement to the house today that he is committed to keeping the UK out of problems in the Euro-zone, no one can deny that the current uncertainty is having an impact on UK bank confidence and will continue to do so in to next year and beyond. Contractors that are currently on their lenders Standard Variable Rate should at least consider switching to a fixed rate mortgage now as it is widely predicted that mortgage rates may rise in 2012 as Euro related liquidity issues amongst UK lenders force them to price their products accordingly.

There are still some very competitive fixed rates available on contract based mortgages over a two or five year term that will help Freelancers to keep on top of repayments no matter what the New Year may bring. If you are on a tight budget then it is definitely worth looking in to the option of a fixed rate scheme now so that you know your outgoings will be fixed for the duration of the term. Freelancer mortgages experts Edward Davey, Adam Nanson and Lisa Merriman would be happy to talk you through the options available.

Consider Contractor income protection to offset benefit cuts

Thanks to Government spending cuts announced in the last budget, Contractors can expect to receive just £81.60 per week if you are forced to take statutory sick pay and this shows no signs of improving any time soon. The good news is that our specially chosen income protection for Freelancers can protect against a potential loss of earnings as it will continue to pay up to 65% of your monthly income until you are well enough to return to work.

Unlike statutory sick pay, where you may be forced to accept any job that you are well enough to do, a tailored Contractor income protection policy will cover you on an own occupation basis which means that it will pay out until you are well enough to return to the same or an equivalent role that you were in when you fell ill or were injured. This leaves you free to take time to recuperate, safe in the knowledge that your bills are covered and your lifestyle protected. Our award winning protection advisers can talk you through the various options for sick pay replacement so you make sure you get a policy that is tailored to your needs.

Diversify your investments to minimise exposure in Europe

Osborne spoke at length about the Euro zone crisis and the fact that we are now borrowing at a lower cost than most of Europe, including Germany. The impact of what is happening in Europe is having a significant impact on the markets so we urge Contractors to re-evaluate the spread of their investments. Now is the time to ensure your portfolio is future proof for the coming year and you have spread the risk of investments in Europe and equities by diversifying into property, cash, gilts and bonds.

Against this volatile backdrop, it will become more important than ever to drip feed funds in to your investments in equities so that you can minimise the risk of short term fluctuations in the markets. You should consider your investment plans for the coming year now so that you can ensure you have small amounts to invest each month rather than one lump sum payment at say the end of the tax year. This method for investing, known as pound cost averaging, is definitely the way to make the most of potentially volatile markets in 2012.

Choose buy to let as an alternative income stream

The Chancellor has gone back to his Conservative roots by backing an enhanced ‘Right to buy’ scheme which was originally introduced by Margaret Thatcher in the 1980s. However, despite this plan to help council tenants buy their homes and other measures aimed at boosting home construction, first time buyers are likely to struggle again over the next year. As such, Buy to let investment should see huge growth in 2012 as demand continues to outstrip supply and a shortage of homes and lending for first time buyers causes a spike in rental yields at a time when returns on bank deposit accounts are woeful. Rental properties could provide an income to guard against a potentially difficult contracting market as the year progresses.

Our mortgage advisers have access to the whole of the market and will help you to find the best buy to let rates available in order to ensure you make the most of the opportunities available in the New Year. They will help you raise money from any existing equity in your current home and can then ensure that you can put down the minimum possible deposit which will help maximise tax efficient gearing on your investment and may also allow multiple purchases whereas previously you thought you’d need to put all of your investment eggs in one basket.

To find out more about how you can benefit from any of the points raised in this article or for advice on making the most of your contract income in 2012, call 0845 062 8888 or fill in a contact form and a specialist adviser will be in touch shortly.

There has been concern that mortgages for contractors may become far harder to secure because AWR represents a further complication to an employment status that has always been viewed as risky in the eyes of many lenders.

Payslips won’t reflect your true income

If you were a permanent employee, you would typically apply for a mortgage using your last three months payslips as proof of earnings and this is where AWR could potentially have posed a very real problem for thousands of Freelancers. As a Contractor you will obviously use legitimate tax planning measures such as a pension contribution to reduce your taxable monthly earnings and therefore any pay slip won’t show the true extent of your income.

Contract Based Mortgages…

The good news is that our Contractor mortgages team are still able to offer Freelancers working via an Umbrella company access to our popular contract based mortgage underwriting.

We can help you to secure a mortgage based on a multiple of your annualised gross contract rate alone, despite the fact that the AWR may now technically class you as an employee. The special IT contractor mortgage underwriting which we initially negotiated with key lenders over 12 years ago has, thanks to our efforts, now been extended to other professionals such as oil and gas contractors and freelance engineers. The work that we have put in on behalf of Freelancers means that even in a post AWR world you should still be able to borrow far more than your ‘permie’ colleagues.

Unfortunately if you approach the high street lenders direct you will almost certainly be required to produce your payslips and so the amount you can borrow will be limited to a multiple of your basic salary minus expenses, payroll fees, employers national insurance etc. The income verification based on your gross contract rate that we have been able to put in place, obviously won’t feature these deductions which is why you can borrow far more than a standard high street application will allow.

Our Freelancer mortgage service

Having worked hard to ensure that this contract based underwriting won’t be affected by the AWR, our mortgage team at ContractorFinancials also understand that you are busy keeping your client happy and therefore juggling the demands of a house move can make life very difficult indeed.

We aim to take the stress out of securing your Freelancer mortgage with our experienced team guiding you through the process from initial enquiry through to you getting the keys to your lovely new home. The whole process can be handled via phone, email and post to fit around your busy lifestyle.

To speak to a mortgage adviser today call Edward, Adam or Lisa on 0845 062 8888 or fill in an enquiry form. Alternatively if you’re interested in looking at post AWR remortgage options instead so that we ensure that you are paying the lowest interest rate possible, Miranda is on the same number or can be contacted via our enquiry form .

Many Contractors have simply stayed put on their lenders Standard Variable Rate (SVR) once their original fixed or discounted scheme expired and whilst this made perfect sense even up until a few months ago, several lenders have now introduced exceptionally low remortgage rates. It has been calculated that up to 800,000 homeowners could save money by switching to, for instance, the Woolwich’s ‘Great Escape’ remortgage package.

Miranda Francis, our dedicated remortgage expert at ContractorFinancials, has been scouring the market to find our lowest ever remortgage rates for clients and the great news is that these deals are often available with our specially negotiated contract-based underwriting. Given that most Contractors biggest financial commitment will be your mortgage, it is imperative that you keep costs to a minimum and there has never been a better time to look at your options.

Is your mortgage term coming to an end?

According to Woolwich, an estimated £7.2bn worth of mortgage lending is coming to the end of its fixed rate this summer. If you are one of these increasingly nervous borrowers or your deal has already expired over the past few years it will be worth looking at the options available to you now as a lot has changed over the last few years. If you want to take advantage of the current low base rate initially then you could always opt for a tracker mortgage but retain the option to then switch to a fixed rate if you need to, without facing a penalty, to amend your scheme. So speak to Miranda about this option and more on 0845 062 8888.

Or are you waiting for the base rate to rise?

If it has been a while since your last deal expired but you are waiting to see what the base rate does before you fix again, you could be missing a trick. Given the low rates on the so called ‘SWAPs’ market, the record low borrowing costs that are now being offered by remortgage providers are unlikely to be around for long, so you might be wise to fix now before it’s too late. It may also be a fool’s game to stay on your lenders SVR when the current deals offered by lenders could save you money on your repayments now whilst limiting your future costs too. Waiting to see what happens to the base rate means you could be wasting a lot of money with your current mortgage for a while yet as recent predictions suggest that the base rate won’t start to rise until next year.

Is the cost of remortgaging putting you off?

Remortgaging is often perceived as an expensive business but this doesn’t have to be the case. As an example, the Woolwich Great Escape remortgage scheme carries no application or legal fees and you also benefit from a free valuation on your home. The great news is that you also get £300 cash back which you can use to offset any exit fees that you may be charged by your current lender.

See how much you could save…

If you answered yes to any of the questions above then now may be the perfect time to look in to remortgaging to a better rate and save more money on your repayments. The great rates that are available now may not be around for long, so before you jet off on your summer holidays, call Miranda on 0845 062 8888 or emailmiranda@contractorfinancials.com and find out how much you could save.

However, our dedicated protection team have been working hard over the past year to negotiate with providers to bring you the first contract-based income protection product. This innovative insurance will allow Contractors to insure far more income than was previously possible and could make a substantial difference to your lifestyle if you were unable to work due to accident or illness.

Income Protection or Permanent Health Insurance (PHI) will pay a tax-free monthly income in the event that an accident or illness prevents you from working. It can even pay you an income all the way through to retirement if your condition is more serious.

These policies will pay after an initial waiting period of your choice (known as a ‘deferment period’), which is normally between 4 weeks and a year. The longer this deferment period, the lower your premiums are likely to be. However, if you have savings or credit cards that can cover your outgoings in the short-term then it could be beneficial to defer your benefits for 3-6 months in order to lower your monthly premium. You would do this safe in the knowledge that you are due benefits at the end of the waiting period.

How much of my income should I protect?

It is important to be realistic about the amount of money you would require if the worst should happen and you can no longer work. Whilst you may be able to cut back on some areas, there will be other luxuries that will become essentials if you are ill over a long period of time. Income protection can offer you the opportunity to cover any of these expenses and can give you the peace of mind that you can make the most of your life after an accident or illness, all without the financial hassles that would otherwise put at risk your current lifestyle and could even cost you your home.

A traditional income protection policy allows you to protect up to 55% of your gross income but this can be quite limiting for Contractors who may draw a low salary and dividends to minimise their tax take. Our new, specially negotiated contract-based income protection allows you to cover up to 50% of your gross contract income instead. This means that a Contractor with a rate of £60 per hour working 35 hours per week could earn a gross yearly contract rate of £100,800 based on 48 weeks work and could therefore protect up to £4,200 per month with our Contractor income protection policy.

What else do I need to know about income protection for Contractors?

The world of protection can be a minefield for Contractors as many of the policies available on the high street and from price comparison sites are unsuitable for your unique working status.

You obviously need complete confidence that the policy you choose and start paying for is truly fit for purpose. Make sure that the policy you choose will cover you for your own occupation so you don’t end up stacking shelves in a supermarket when the insurer refuses to pay the benefit and for the full term of your illness. Own occupation cover will continue to pay out until you are well enough to return to your original position or the equivalent role which is vital for a Contractor.

We also ensure that your cover is inflation proofed so that you are covered for the same amount of spending power in twenty years time as you would be today. Over time, inflation would have a huge impact on the income you would receive in the event of a claim so this is a priority for Contractors looking to protect their income until retirement.

The good news is that our award winning protection adviser Samantha Foster-Hebberd has done the leg work for you and has negotiated hard to ensure that the contract based income protection that we now offer will cover you on an own occupation and inflation proofed basis.

For more information on contract based income protection or to review an existing policy to ensure that it is tailored to your unique needs as a contractor and definitely covers you for a sufficient enough amount of benefits, contact Samantha on 0845 062 8888 or email us at protection@contractorfinancials.com.

The Treasury have been holding workshop sessions with financial planning industry experts over the last fortnight to investigate the possible implications of their latest idea to inject life back in to the savings market. There have been whispers for a while now that pensions and ISAs could one day be linked to enable savers to access their funds more freely and bring an element of flexibility to retirement saving.

Whether or not this will amount to anything remains to be seen, but it does raise the question as to how this could improve the prospects of our solely Contractor based clients. One benefit may be easier access to your pension savings, as waiting until you are age 55 before you can draw the 25% tax-free lump sum from your retirement fund can act as a disincentive to some Contractors. It would undoubtedly have more impact however if the tax savings available on contributing to your pension and the tax free growth that is applied to ISAs were combined. Unfortunately, the likelihood of the Treasury foregoing the lucrative tax take at both ends is highly unlikely.

Whatever happens with regards to this important debate, you can rest assured that Planet Contractor will be on hand to share the facts, figures and impact on the Contractor community… watch this space.

Given that pre-existing pension funds could suddenly become far more accessible in the future, now may be the right time for you to look at ensuring you use more of these valuable tax allowances. If you would like to speak to an adviser about your pension or ISA, call 0845 062 8888 or email pensions@contractorfinancials.com and ask for Andrew Gains or Catherine Young.

During their election campaign last year, the Liberal Democrats spoke about plans to remove the tax relief that higher earners receive as part of ‘a steal from the rich, give to the poor’ policy. When the budget was announced last year we held our breath as George Osborne delivered the verdict on pension tax relief and were relieved to hear that the only victim was the annual allowance which fell from £255k to £50k pa. However, it seems that the dust never truly settled on the Lib Dem’s plans to remove higher rate tax relief altogether and it looks as if this may rear its ugly head again as the Government looks for a way to fund their new flat rate state pension scheme.

Whilst a decision has yet to be made, the very fact that there are rumours in the press seems to suggest that changes may be on the horizon. As such, we urge all higher rate tax payers to invest in your pension now as previous changes to pension tax relief have only applied after the date of implementation and have not affected previous contributions.

When you invest personally into your pension, basic rate tax relief is in effect given immediately with the balance being claimed via your self assessment tax return but these contributions will be limited to 100% of salary. Company contributions are not linked to salary and are paid gross with the sum written off against your corporation tax bill. Corporate pension contributions carry no benefit in kind. We have clients that use their pension primarily as a tax planning tool and as such they transfer up to 100% of their annual contract income directly into their nest egg using either company contributions, salary sacrifice or investing personally via their own bank account. Certain higher rate tax payers could save the equivalent of 69% tax relief on contributions! The only downside is that you can’t begin to release pension funds until you reach age 55 but you can take 25% as a tax free lump sum.

If the Government does decide to scrap higher rate tax relief on pensions then you should still be able to benefit from lower rate tax relief of 20% but clearly this could be a case of buy now whilst stocks last on the higher rate of relief.

We will keep you updated in Planet Contractor as soon as any developments are announced but in the meantime, you can speak to our pension advisers about making the most of your annual pension allowance by calling 0845 062 8888 or emailpensions@contractorfinancials.com

Annuities are provided by insurance companies and offer a guaranteed income for the rest of your life based on the value of your pension pot when you retire. The insurer will judge that you are statistically likely to live to a certain age and commits to provide a set income that reflects this calculation. In practice they use some of the money they make from those short lived annuity clients to inflate the income they can afford to pay out to the rest so you are, in effect, gambling that you live long enough to receive a greater sum than you’ve paid over to the insurer. This is because whereas if you die before you start drawing an income from your pension the fund will pass to your dependents, after retirement the annuity provider pockets the unused cash.

Income drawdown offers a flexible alternative to the annuity option however as it allows you to keep your pension fund invested whilst you draw an income. This could mean that your nest egg and the income it produces can continue to grow and under the new rules introduced in April this year; you have even greater say over how your retirement income is managed. Income drawdown now follows these guidelines:

• As an alternative to taking a tax free lump sum between ages 55 and 75, under the revised rules, you are able to benefit from a tax free withdrawal after age 75 as long as you have designated funds to this purpose. This offers far greater flexibility and allows you to save your lump sum drawdown for a time that suits you.
• Whatever your age in retirement, you can now decide how much of your fund you take as income as there is no minimum amount anymore. This allows Contractors that carry on working to leave your pension untouched until you are ready to fully retire.
• In an attempt to protect Contractors from spending their entire retirement fund and then being forced to rely on the state in later years, the maximum amount that you can draw has also changed. Your income drawdown allowance will be calculated by your pension provider so that you can’t release more than 100% of the equivalent annuity for someone of the same sex and age as outlined by the Governments Actuary Department (GAD).
• The maximum amount that you can draw needs to be regularly reviewed to ensure that your plan remains on track. Under the new rules, your income will be reviewed against the maximum annuity every three years until you reach age 75 and then every year thereafter.

These new rules will help an ever greater number of Contractors to enjoy the flexibility of income drawdown as it is increasingly no longer just limited to those with the largest pension pots. However, it is important to bear in mind that there is a risk associated with leaving your pension invested as it may be susceptible to volatility in, for instance, the stock market. In order to lower the risk associated with these fluctuations, you could look to draw income from less risky assets such as cash and leave equity funds to benefit from long term growth.

Crucially though, unlike the money used to buy an annuity that does not form part of your estate when you die, pensioners in drawdown pass on their fund to dependents minus a tax charge. In this way the pension can be used to pass funds down through the generations.

Phased income drawdown

If you are even more concerned about what will happen to your pension pot when you pass away then phased income drawdown may be an even better option for you. It is ideally suited to Contractors aged under 75 who don’t have a need for the full tax free lump sum as phased drawdown enables you to release less income now so that your dependents are entitled to more of your pension when you die.

Your dependents will receive more of your pension fund because you only move part of your fund into a drawdown plan; the rest remains invested in a personal pension which is protected in trust. Any money left untouched in the personal pension when you die will be paid as a lump sum to your dependents without any inheritance tax being taken and the tax charge only falls upon the money in drawdown so it provides a very tax efficient way of transferring savings to your loved ones.

Flexible drawdown

Enables those with a minimum £20k pa income from a scheme such as the civil service pension etc to then draw the money as cash lump sums from any additional pension pots they may have. Subject to a tax charge this is a means of retirees unlocking potentially massive sums from the rigid constraint of a pension but in reality it is sadly rare for Contractors to have the guaranteed £20k income from a suitably guaranteed source.

A flexible pension

If you opt for income drawdown when you retire then you will enjoy far more flexibility than your peers with an annuity but the good news is that you can always change your plans if you no longer wish to manage your own retirement fund. Contractors can switch to an annuity arrangement at any time if you feel that you would prefer to have a set income for the rest of your life. However, you will need to bear in mind that if you buy an annuity at a later stage, you may then have less in your pot to purchase one than if you buy one at age 65. Paradoxically annuity rates may also get progressively worse as you get older due to something known as mortality drag where the bean counters judge you to be more likely to reach very old age and also have less unspent money from those other savers who have died early.

It is important to consider how you will manage your income and whether or not you will carry on working past retirement age when deciding on whether to opt for income drawdown. It can be difficult to determine the best route to suit your individual circumstances but the specialist pension advisers at ContractorFinancials are on hand to help. To speak to Andrew Gains or Catherine Young about your retirement planning call0845 062 8888 or email pensions@contractorfinancials.com.

We are now settled in to the 2011/12 tax year and you could already be making use of some pension tax relief allowance to reduce the deductions on your income. There may be some avenues that you have yet to explore which could make a significant difference to the amount of your hard earned cash that HMRC can get their hands on.

Release retained company profits without paying any tax

If you operate via a one man ltd company then you will probably have profits built up in your business accounts that you may be struggling to move without facing a hefty bill from the tax man. Transferring these funds directly from your company in to a pension scheme can be treated as a legitimate business expense and will therefore not incur any corporation tax charges. Whilst retirement may seem like a long time to wait to get your hands on this cash, you can actually release 25% of the fund tax free when you reach age 55 without having to formally retire, so Contractors that are nearing this age could get their hands on some of the funds sooner than you think.

With interest rates at their current historic low, your business account is unlikely to be paying more than a few percent interest on your company funds so it is a shocking waste if you have a large lump sum built up. Due to the longer term nature of a pension, it is likely to be invested in many different sectors including some cash, property, UK and Global equities and hopefully in a wide choice of funds so the opportunity for growth is often far higher, particularly if you are able to take a more aggressive investment approach. Therefore it could make sense to transfer your retained profit in to a pension as you not only receive corporation tax relief on the initial contribution but you should also benefit from increased and tax free capital growth in the long term too.

Consider asset allocation to make the most of your pension

When you first take out a pension, your financial adviser or will carry out a risk assessment questionnaire with you which will help to determine the selection of funds that are best suited to your retirement goals and your attitude to risk. However, over time your feelings regarding volatility in your investments and your plans for later life can change and the standard set of funds that your adviser chose originally may no longer be valid. It is important to review the asset allocation in your pension fund regularly to make sure that you are still invested in the best selection to suit your needs.

In response to this we have launched our pensions asset management service which enables us to not only set up your pension but to manage it for you in the long term, ensuring your pension works for you at every stage of your life. Our asset management service offers you the opportunity to benefit from independent advice on the best fund choice to suit your individual circumstances and attitude to risk, so it takes the stress out of pension investment.

Why use ContractorFinancials pension’s management service?

We set up your pension with a trusted provider, advising you on the best funds to choose for your attitude to risk and level of contributions. Unlike in the past, where this pension would typically be left in the funds you agreed to use, there is an ever greater understanding these days of the need for proper monitoring of long term investments and we commit to a yearly review of your pension in order to keep the performance on track to reach your retirement goals.

We will assess your attitude to risk at every yearly review as we often find that our clients risk profile changes as they go through different stages in life. For example, as you get older or your pension fund grows to a significant sum you may be less willing to risk losing money from your pension due to fluctuating markets as you may feel it is too late to regain any potential losses before you retire. In order to assess your risk appetite each year we ask you to complete a short risk questionnaire and this helps us to advise you on the best fund choices to suit your needs. We also review the amount that you are contributing and whether or not this will provide the level of income at retirement that you desire.

Once we have assessed your attitude to risk we will then rebalance your portfolio to ensure that the percentage of your fund invested in riskier equities etc and lower risk bonds and cash is balanced in line with your expectations. We will also make sure that the funds that we have chosen previously for your pension are still on course and if they can be improved upon then we will advise you on how better to invest your pension.

We allow you to benefit from our ongoing support and advice to maximise the return on your pension and will ultimately be on hand to help decide which income route is most appropriate for your needs when you finally hand up that mouse mat and retire.

To speak to one of our specialist pension advisers today call 0845 062 8888 or emailpensions@contractorfinancials.com and Richard Braid or Andrew Gains would be happy to discuss your needs.