Income Protection Insurance Policies

There are two types of Income Protection Insurance Policies:

  1. Guaranteed – where the premiums remain constant.
  2. Reviewable – where the premiums are reviewed in light of the insurer’s claims history.

When an insurer reviews the premium under a reviewable IPI contract, it is connected with the claims experience of the insurer – not the health of the policyholder.

Reviewable Income Protection Insurance Policies

Where a Reviewable policy is sold, the ABI states that the consumer must be made fully aware of the reviewable nature; the reasons why this type of policy is being recommended and how the review process works.

Renewable Income Protection Insurance Policies

The features of Renewable IPI policies are:

  • structured over a short term (eg, 5 years)
  • guaranteed renewal at expiry
  • insurer cannot decline to renew contract
  • premiums will be revised at renewal in line with insurer’s current rates

Income Protection Insurance Policy Claims

IPI policies pay out until the earlier of a return to work, the end of the policy or death.

Where a claim has been made that does not include death, the insurer will require periodic medical certificates for the claim period and provide incapacity counsellors to monitor claims.

Income Protection Insurance Policies

Cover Outside The UK

When an Income Protection Insurance policyholder resides temporarily outside the free limits, the policy benefit will not be payable for more than a few months (usually 3 or 6 months) and the insurer may require the insured to return to within the free limits if they make a claim.

Group IPI Schemes

Group IPI schemes are preferable because they provide a higher benefit of up to 75% of income. The reason for this is that the employee will have to pay tax on the benefit received from the employer.

Due to increasing costs and poor claims experience, policies with a maximum claim period of, say, five years are preferred

Contributions Under Group IPI Schemes

Contributions under Group IPI schemes are not taxable on the employee as a benefit in kind and allowable as a business expense for the employer. Payment of the claim to the employee is made after tax & NI.

Where the policy premiums qualify for tax relief as a deductible business expense, payment of the claim to the employer (eg to hire a locum) is a taxable business receipt.

Budget 2015

2015 Budget

Here is a summary of the main points of the March 2015 Budget:

Income Tax Rates and Thresholds

Income Tax 2015/16

  • The basic personal tax-free allowance is £10,600 (restricted for income in excess of £100,000)
  • The first £31,785 of taxable income is to be taxed at 20%.
  • The next £118,215 is taxable at 40% (or 32.5% for dividends). The balance over £150,000 is taxable at 45% (or 37.5% for dividends).
  • The effective higher rates of tax on net dividends received are 25% and 30.56% respectively.
  • The tax rate applicable to trusts income (excluding dividends) is 45%.
  • The national insurance minimum salary for 2015/16 will be £8,060 per annum.

Income Tax 2016/17

  • The basic personal tax-free allowance is increased to £10,800 (restricted for income in excess of £100,000) with a further increase to £11,000 planned for 2017/18.
  • The first £31,900 of taxable income is to be taxed at 20%.
  • The next £118,100 is taxable at 40% (or 32.5% for dividends). The balance over £150,000 is taxable at 45% (or 37.5% for dividends).
  • The effective higher rates and those rates for trusts are as above.

Age-related Personal Allowances

  • For 2015/16 the age-related personal allowances available to people born before 6 April 1938 will be £10,660. The personal allowance for people born after 5 April 1938 will be the standard personal allowance of £10,600.
  • The income limit for the personal age allowance has been increased to £27,700 in 2015/16 before it will be reduced by £1 for every £2 over the limit.
  • From 2016/17 age-related personal allowances will be aligned with the standard personal allowance.

Transferable Tax Allowances for Married Couples

  • For 2015/16, a spouse or civil partner who is not liable to income tax above the basic rate can transfer up to £1,060 of their personal allowance to their spouse/civil partner provided the recipient of the transfer is not liable to higher rate tax. This will generally only be beneficial where one spouse is non-working or a lower rate taxpayer.
  • The transferable amount will increase to £1,080 for 2016/17 and £1,100 for 2017/18.

National Minimum Wage

  • From October 2015, there will be an increase to the national minimum wage for employees aged 21 and over to £6.70 per hour.
  • The rate for 16-17 year olds will increase to £3.87 per hour
  • The rate for people aged 18-20 will become £5.30 per hour.
  • The apprentice rate will be increased to £3.30 per hour.

Tax Rates for Savings

From 6 April 2015 the maximum amount of an eligible individual’s savings income that can qualify for the starting rate of tax for savings will be increased to £5,000 and the starting rate of tax will be reduced from 10% to 0%.

A new personal savings allowance will be introduced. For basic rate taxpayers the first £1,000 of interest received on savings will be tax free (a reduced £500 allowance is available for higher rate taxpayers).

Individual Savings Accounts (ISAs)

The ISA subscription limit for 2015/16 is currently £15,240, with no restriction on the proportion held as cash. There are new rules for a Fully Flexible ISA which will allow savers to withdraw their money and then put it back into the ISA later in the year without losing any of their tax free allowance.

A new Help to Buy ISA will be launched for first time buyers which will be Government backed. For every £200 saved for a deposit, the Government will top this up by £50.

The Junior ISA and Child Trust Fund subscription limits will be increased to £4,080.

Pensions

  • From April 2016, pensioners already in receipt of annuities will have the option to exchange part or all of these for a cash lump sum or alternative pension product. This new measure is extending a similar flexibility to existing pensioners as to new pensioners who, from April 2015, will have the choice of cashing in all or part of their pension funds upon retirement and will affect up to 5 million pensioners who were previously required to buy an annuity upon retirement. These proceeds will be taxed at the pensioner’s marginal rate of tax.
  • From April 2015, if someone dies under the age of 75 without having drawn a joint life or guaranteed term annuity, their beneficiary can receive future payments free of tax. If the death occurs after 75, the payments will be subject to the beneficiary’s marginal rate of tax.
  • The pension contribution lifetime allowance for tax relief will be decreased from £1.25m to £1m from 6 April 2016, thereby affecting pension savings for those with larger pension pots. There will however be transitional rules for those exceeding the allowance at this date. The lifetime allowance will be index-linked to the Consumer Prices Index with effect from 2018.

Inheritance Tax

A review of the use of a deed of variation (altering the beneficiaries of a Will after death), with the intention of potentially reducing future inheritance tax liabilities, is to take place by Autumn 2015. New rules are also likely to be introduced to target the use of multiple trusts to avoid inheritance tax.

National Insurance

Class 1 NIC – Employee & Employer – rates & thresholds per week unless stated:

  • Lower Earnings Limit – £112.00
  • Upper Earnings Limit (UEL) for employees’ primary Class 1 NICs – £815.00
  • Upper Accrual Point – £770.00
  • Primary Threshold – £155.00
  • Secondary Threshold – £156.00

Employee’s (primary) Class 1 contribution rates

  • Weekly earnings above £155.01 to £815.00 (12%)
  • Weekly earnings above £815.00 (2%)

Employer’s (secondary) Class 1 contribution rates

  • Weekly earnings above £156.00 (13.8%)

Class 2 NIC

  • Self employed NIC – £2.80
  • Small earnings annual exemption level – £5,965
  • The Chancellor has announced that class 2 NIC will be abolished in the future.

Class 4 NIC

  • Annual profits below lower profits limit of £8,060 (Nil)
  • Annual profits above £8,060 but below £42,385 (9%)
  • Annual profits above upper profits limit of £42,385 (2%)

Employment Allowance

The £2,000 Employment Allowance introduced from April 2014 will be available for 2015/16. There have been some changes to the exclusions from the scheme, notably so an employer will be able to claim the allowance for care and support workers from 6 April 2015.

Capital Gains Tax

  • The annual exemption for 2015/16 is £11,100.
  • Entrepreneur’s Relief rules are to be tightened to target two areas of misuse of the relief:
  1. Where non-trading companies are involved in joint ventures; 2. Where personal assets used in a business are sold without a corresponding sale of at least 5% of the business itself.
  • Any capital gains qualifying for Entrepreneur’s Relief which are deferred into Enterprise Investment Schemes or Social Investment Tax Relief Schemes will continue to qualify for Entrepreneur’s Relief when the gains are ultimately realised.
  • Principal Private Residence relief will no longer be available on properties in countries in which the taxpayer does not meet the tax residency rules in that year.

Corporation Tax Rates

The main corporation tax rate will reduce to 20% from April 2015. This aligns the main rate and small companies’ rate of corporation tax and effectively removes the previous marginal rates of corporation tax.

Capital Allowances

The current annual investment allowance of £500,000 is due to be reduced from 1 January 2016 and the actual amount will be confirmed in the 2015 Autumn Statement.

Company Car and Fuel Benefit

The appropriate percentage of a car’s list price that is subject to tax will increase by 3% for all cars in 2019/20, up to a maximum of 37%.

Research & Development Tax Credit

  • from 1 April 2015, the rate of R&D enhanced deduction for Small Medium Enterprises (SME’s) will increase from 225% to 230%.The repayable tax credit for loss making SME’s will remain at 14.5%.
  • The Government has announced that smaller businesses making a first claim will from Autumn 2015 be able to apply for voluntary advanced assurance that their claim is valid, which will last 3 years. They are also committed to reducing the time taken to process a R&D claim from 2016.

VAT

From 1 April 2015, the registration limit has been increased from £81,000 to £82,000 and the de-registration limit has been increased from £79,000 to £80,000.

Landfill Tax

The standard rate of landfill tax will increase by £2.40 per tonne to £85.00 per tonne from 1 April 2016 in line with the Retail Prices Index.

Advantages Of Prepaid Cards

A prepaid card provides you with an easy way of managing your budget and staying in control of your spending.  These are important considerations when you are considering forms of insurance protection that require monthly payments like income protection insurance.

Prepaid Cards Compared To Credit Cards

Though prepaid credit cards provide you with the same functionality as a conventional credit card, you can make your purchases secure in the knowledge that you will not be able to run up debts that you will be unable to repay. You can shop online, or on the high street, just as you would normally do, but you do not risk creating an unmanageable amount of debt that you won’t be able to pay off in the future.

Reduce Your Risk Of Debt

As you control the amount of money that is on your prepaid credit card, you will nullify the risk of creating debt that you will not be able to repay. This means you will maintain a good credit rating which makes you more attractive to potential lenders in the future.

Control Your Budgeting

Using a prepaid credit card is a convenient and easy way to manage your finances. Because you can allocate the amount of money you intend to spend on the card, you will stay in control of your spending and not incur extra charges due to mounting credit bills.

No More Credit Charges

The advantage of having a conventional credit card is that you can buy things without paying for them immediately. However, the risk of this is that you spend too much money and are unable to pay off the full balance of your credit card. This means that you will incur charges to your credit card that will mount every month that you do not pay the full balance back. With a prepaid card, you will not incur any credit charges because there is no credit available on the card once you have used the money you can you have put on it.

Improve Your Credit Rating

Many credit card users accrue penalties for not repaying the full balance on time. This may have serious repercussions on your credit rating – and downgrade your credit score so that you may be less attractive to potential creditors in the future such as when you wish to take out a loan or some other kind of financial agreement.

Once you understand the advantages, you can choose the best prepaid cards according to your needs.

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