Which is the cheapest stockbroker?

Question
Kitty asked a similar question in Oct 09. Can I have an update please? I am looking for an execution only sharedealer - online and/or by phone, preferably the cheaper. I have used my ISA allowance for 11/12 so am not interested in ISA wraps. I want to be able to place small purchases (max £1000) to track what could be my path to early retirement... Who do you recommend in 2011? Answer
The cheapest stockbroker I currently know of is x-o.co.uk, who offer online-only dealing at just £5.95 per trade. And, if you do eventually want an ISA wrapper they don't charge for it. You can read my review here. Otherwise, Guardian stockbrokers are also cheap for smaller deals, at 0.1% with a minimum of £8.

If you'd also like the facility to deal by telephone then Interactive Investor charges a flat £10 dealing fee for both online and phone trades. A free ISA wrapper is available too.

Read this Q and A at http://www.candidmoney.com/questions/question445.aspx

How can I top up my pension?

Question
I am a high rate taxpayer with a Government pension due in some years (I am currently 45 years old). I still have a dormant personal pension from the days when you could opt out of Serps. This is only worth £9000 today, as for various reasons I switched back to a Govt pension after I had taken out the personal one. It will currently not do me much good in 2032. I understand that I can now top it up and claim tax relief for doing so. What are my options for topping it up now - more to offset my current tax bill than to plan for a windfall when I am 65?Answer
The personal pension you have from when you 'contracted-out' of SERPs is generally called a 'protected rights' pension. It can continue to remain invested and when you eventually take benefits (i.e. a retirement income) you'll be able to take 25% of the fund as a tax-free cash lump sum.

Although your existing protected rights pension will remain unaffected, from 6 April 2012 the Government will no longer allow contracting out via occupational money purchase schemes, stakeholder or personal pensions, so only those will final salary pensions will have the option to contract out of the State Second Pension (S2P) from then. In any case, plans to introduce a flat weekly state pension would likely spell the end of contracting out if introduced.

If you wish to top up your pension provision you can do so via an occupational or personal pension. This would be via conventional pension contributions rather than contracted out.

Your only restriction will be an annual pension contribution limit of £50,000 from 6 April 2011, which includes any employer pension contributions.

If you're employed and your employer offers a pension scheme then it would be worth considering contributions via that scheme, especially if your employer makes contributions on your behalf and/or subsidises the cost of the pension.

Otherwise you might consider a stakeholder or self-invested personal pension (SIPP), particularly if you're self-employed. SIPPs are generally more expensive, but offer a wider choice of underlying investments than stakeholder. Whether it's worth paying the extra depends on how you wish to invest.

Whichever you choose, the tax relief works in the same way. If you contribute £80 the pension provider will automatically add a basic rate tax rebate (£20) so £100 is invested. You can then reclaim the 20% higher rate tax rebate (£20) via your tax return (or sometimes PAYE), meaning a £100 pension contribution has effectively cost you just £60.

The downsides of pension investing are your money being inaccessible until at least age 55 and the pension income, when eventually taken, being taxable.

Read this Q and A at http://www.candidmoney.com/questions/question444.aspx

How much can I borrow in my SIPP?

Question
Is my sipp able to borrow to increase it's value by 33%? Am I then able to take my tax free cash? Is the borrowing able to be carried over? What happens on death?Answer
Self-invested personal pensions (SIPPs) can borrow up to 50% of pension's assets for investment purposes. So, for example, a SIPP holding assets worth £100,000 could borrow £50,000. If the pension has already borrowed money this must obviously be deducted during the calculation.

However, SIPP providers normally only allow borrowing when purchasing commercial property, i.e. it's unlikely your pension could borrow money to buy shares.

Loan interest must be at a commercial rate (i.e. you can't lend interest-free to your own pension) and bear in mind that low cost SIPPs don't normally offer a loan facility - you'll need to use a more expensive 'full-service' SIPP.

Yes, you are able to take tax-free cash while the loan is in place, but if you've purchased a property there'll need to be sufficient other assets in the pension fund to pay out the cash (to avoid selling the property).

The loan provider will probably require the loan to be repaid on death, necessitating either the sale of the property or, more commonly, a life insurance policy being taken out at the time of the loan to protect against this.

Read this Q and A at http://www.candidmoney.com/questions/question443.aspx

How much pension contribution to avoid 40% tax?

Question
I would like to make an additional personal pension contribution to more or less recover all tax paid at 40% during the year. I have two part time jobs. One income is £45000 pa and has an occupational pension with a final salary pension. I pay 7.35% and my employer pays 14% contributions. The other income is £45000 pa and my employer pars 12% and I pay 10% into a personal pension. How can I calculate the additional payment please?Answer
Let's start with a bit of maths. Your earnings for the year are £90,000 and (assuming you're under 65) the threshold for higher rate tax is £43,875 (£6,475 personal allowance plus £37,400 basic rate band), so you'd need to make £46,125 (£90,000 - 43,875) of gross pension contributions to wipe out your higher rate tax liability.

Note, the above might be a little different if you receive taxable employee benefits, but let's stick with our simple example.

You've already made £7,807 of gross pension contributions (7.35% and 10% of £45,000) leaving £38,381 (£46,125 - £7,807) of further gross contribution required.

To make this contribution you'd normally pay £30,705 into a pension. The pension provider will then automatically reclaim basic rate (20%) tax to increase your contribution to £38,381. You can then reclaim the additional 20% tax, £7,676, via your tax return.

Just a word of warning: if your annual taxable income has exceeded £130,000 since April 2007 then you'll subject to the following restrictions:
If you increase existing regular (i.e. monthly/quarterly) pension contributions and annual contributions exceed £20,000 then you'll have to pay tax on the excess to remove the benefit of higher rate tax relief.
If you make ad-hoc pension contributions, then your higher rate tax relief is limited to the lower of your average annual contribution over the three years to April 2009 and £30,000. Any excess is again taxed to reduce the tax relief to basic rate.

From 6 April 2011 the annual pension contribution limit for enjoying tax relief will be £50,000 (including employer contributions) and the rule affecting those with incomes exceeding £130,00 will be dropped. It will also be possible to carry forward any unused annual allowance (calculated at £50,000) for the last three years.

Read this Q and A at http://www.candidmoney.com/questions/question442.aspx

A travel insurance farce

Homogenised insurance policies can be a real pain when you don't fit a standard profile. .

Yet another computer crash has taken me off air these past three weeks. I was away for one of them, but only just. I would be interested to know if others have shared my nightmares with medical travel insurance.

Laws Junior was to be married in Houston, Texas. His brother was to be his best man, and I was to represent the wider family. But, of course, only a mug risks the trip without the appropriate insurance.

As it happened, I had fainted a few weeks back, and because I have a bit of heart history the GP had recommended that I should have a 24 hour ECG. With that test pending, I soon found that I couldn’t get any cover at any price. Anyway, the surgery’s ECG gizmo, which looked like something out of the ‘fifties, failed to function. Thus, I was despatched to a cardiologist, who managed to get two lots of tests organised in two days, and signed me off.

I obtained the cover in the end, but it cost about the same as the return ticket. Along the way, I must have done half a dozen call centre interviews. I have to admit that I was irritated by the question: “can you walk 200 yards on the flat without losing your breath? As it happens, I play golf on a fiendishly hilly course, and walk for an hour and a half every day with our faithful hound.

But what was most infuriating was that none of the underwriting algorithms seemed able to cope with the fact that I had unpleasantly high blood pressure in the year 2000, and was told then that if I couldn’t get it down I would have to have medication. So I got it down and was never prescribed medication. Along came the policy schedule, which stated that I had taken medication for high blood pressure. So I ‘phoned up to correct the simple error. The entire interview had to be gone through all over again because apparently that is what the FSA requires. And at the end of it all the insurer wanted another £20. I paid up because I had no choice.

There were no questions about family history. There were no questions about height and weight. So I reckon if I had been a 30 stone non-smoking alcoholic, with a father and three siblings all of whom had died of heart attacks before the age of 30, I would have got the cover on the cheap.

Maybe it is just a racket, like PPI. Has anyone out there had similar problems?

Read this article at http://www.candidmoney.com/articles/article215.aspx

Reclaim lost personal allowance via pension contributions?

Question
For high earners, how is income calculated when determining whether an income taxpayer loses their personal allowance in the 2011-12 tax year? For example, if you earn £140,000 and make a £40,000 pension contribution, is one's income considered to be £140,000 or £100,000 for personal allowance purposes? In other words, is it worth making a big pension contribution (subject to the £50,000 annual limit) in order to avoid the very high effective marginal rate of income tax on incomes in the low £100,000s?

P.S. Great site.Answer
Pension contributions are deducted from your income, allowing you to potentially reclaim your personal allowance when earning above £100,000 (the £6,475 personal allowance is reduced by £1 for every £ 2 earned above £100,000).

So, in your example of a £40,000 pension contribution when earning £140,000:

A £40,000 pension contribution would initially cost you £32,000 - as the contribution automatically enjoys basic rate tax relief.

You can then reclaim higher rate tax relief via your tax return (or, in some instances, PAYE). This equates to a further £8,000, meaning the £40,000 contribution has effectively cost you £24,000.

However, you can also reclaim the lost personal allowance as your income has now been reduced to £100,000. This equals an extra £2,590, calculated as 40% of your £6,475 personal allowance (i.e. the tax that would otherwise been paid on this amount).

This means your £40,000 pension contribution ends up costing £21,410 after tax relief. Putting this another way, pension contributions from income between £100,000 and £112,950 effectively enjoy 60% tax relief.

I've used the 2010/11 personal income tax allowance, but the concept remains unchanged for the next tax year (you'll just get more tax relief from the £7,475 allowance).

Just a word of warning on contributions made before 6 April 2011. If your income exceeds £130,000 you may not benefit from higher rate tax relief on pension contributions, see our pension rules page for more info. From next tax year pension contributions are unaffected by earnings, but a flat £50,000 annual contribution limit will apply.

Glad you like the site!

Read this Q and A at http://www.candidmoney.com/questions/question440.aspx

Oeic version of Capital Gearing Investment Trust?

Question
Capital Gearing Investment Trust has a very enviable long term record but has been consistently on a hefty premium.This makes buying it expensive.It is run by Peter Spiller.Do you know if the same fund manager runs a similar oiec or unit trust that one can invest in?Answer
I agree, long term performance has been good but the 18% premium at the time of writing makes it expensive. Although provided the premium when you eventually sell is similar to when you bought then it doesn't really make any difference.

There are two open ended versions of the Capital Gearing Investment Trust, run by CG Asset Management (of which Peter Spiller is CEO). Both aim for absolute returns by investing in cash and a range of fixed interest, commodities and equities, often using investment trusts for exposure.

The first, called CG Portfolio Fund, is closed to new investors. The second is the Capital Value Fund, which has a minimum subscription of £100,000 with weekly dealing.

So, I'm afraid, unless you have deep pockets then the investment trust remains the only practical way to access Peter Spiller's fund management talents.

Read this Q and A at http://www.candidmoney.com/questions/question441.aspx