Garbetts Newsletter September 2008

Annual Investment Allowance personal considerations

From the 6 April 2008 sole traders and partners can claim up to £50,000 a year as a direct write off against their profits if they invest in certain qualifying assets; plant and equipment, vans and so on. Small and medium sized companies can also claim (from 1 April 2008). This article alerts individuals claiming the allowance of two other matters they should consider before making a claim.

First the good news!

Tax credits

If the claim you make reduces your income sufficiently you may be eligible for tax credits.

The problem is that until the current tax year's earnings are quantified, you will not know for certain that you are eligible to claim - a pity as you can only back date claims for three months!

A possible solution may be to make a protective tax credit claim now. Your initial claim may show £nil but when adjusted for your actual post AIA claim the actual claim achieved may be much higher.

And now the bad news!

Mortgage applications

Many lenders now ask for taxable income rather than trading profits when they consider if you are eligible for a loan. If your trading profits of £50,000 are covered by an AIA claim of £50,000, zero income is not going to qualify for much of a loan. Hopefully lenders will take into account the reason for the dip in your taxable income - but some may not!

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		Shopping around for an Annuity
	When you retire, it can be tempting to succumb to the first fixed rate level annuity quote you get as this appears to offer the highest income. However, with an average life expectancy now of between 80 and 85, the annuity may have to pay out for more than 20 years, so the erosive effects of inflation could become significant. It is therefore sensible to shop around - and there are other options to choose from if you want to see your income increase. First, there is an index-linked annuity, which is tied to the rate of inflation; Second, there is an escalating annuity, which rises at a fixed rate each year, regardless of inflation (ie: some years the rise may be greater, some years it may be less). For the more adventurous, you could even link your income to the ups and downs of investments (IF you are prepared to take the risk). All of these are likely to offer a lower starting income than the equivalent level annuity, but long term, your ability to afford the same lifestyle could be better protected. If you are able to leave the purchase until later in life, or suffer from poor health, the higher income from a level annuity may outweigh the inflation issues. Whatever you decide, make sure you shop around. You can’t change your annuity once you’ve bought it, so it’s crucial you pick the right one. Annuities are only one of the available choices for providing an income in retirement. If you would like to discuss your options give one of your friendly Garbett’s Financial Strategies advisers a call on 01983 527111. www.garbetts.com/gfs Back to top


	DISCLAIMER - PLEASE NOTE: The ideas shared with you in this email are intended to inform rather than advise. Taxpayers circumstances do vary and if you feel that tax strategies we have outlined may be beneficial it is important that you contact us before implementation. If you do or do not take action as a result of reading this newsletter, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.