INDEPENDENT FINANCIAL ADVISER APPEALS BAN AND FINE

Paul Reynolds (also known as Paul Brian Reynolds) was an independent financial adviser authorized and regulated by the Financial Conduct Authority (FCA and the FSA before it) for nearly eight years. This week the FCA revealed it had fined him £290,344 and banned him from holding any position in financial services. Mr Reynolds is contesting the findings and appealing the decision to the Upper Tribunal, the equivalent of the High Court. It could clear Mr Reynolds and allow him to pursue his career in finance.

We know these details because the FCA has finally published its December 2013 decision notice setting out the action against Mr Reynolds. It was delayed by Mr Reynolds's request to the Upper Tribunal that the details should be kept secret until the Tribunal had heard his case and decided if the fine and ban are imposed. After a hearing on 15 October the Upper Tribunal refused that privacy request.

The findings against Mr Reynolds are serious. They include reckless recommendations, deliberately misleading the FCA, investing clients' money without asking them, falsifying signatures, inflating the stated value of clients' investments, misleading clients, and submitting false loan applications on behalf of clients.

Eight clients were encouraged to invest a total of £2 million in Unregulated Collective Investment Schemes (UCIS) some of which have now been suspended losing them money. He also advised some of these clients to invest in Geared Traded Endowment Policies (GTEPs) where the invested money is borrowed. That substantially increases the risk of these already risky products. Aside from the eight people cited in the decision, a total of 41 clients invested £8.3m in these products earning his firm, Aspire, more than £600,000 commission.

Generally the FCA says that UCIS and GTEPs are only suitable for high net worth individuals who understand the risk, are happy to take it, and can bear any losses. Among the eight clients specified in the FCA decision notice was a retired woman living on a state pension, a hairdresser earning £3000 a year who remortgaged her home to raise the money to invest, and a chef and his accounts assistant wife, also on low incomes, who borrowed £500,000 against their home to invest.

I asked the FCA why it and its predecessor the FSA had allowed Mr Reynolds to be authorized for nearly eight years before taking action given the serous nature of the findings which stretched back several years "That is a very difficult question to answer. As soon as these issues were discovered we acted quickly" a spokeswoman told me.

The Upper Tribunal will hear the case on 8 and 9 December. The FCA told me that Mr Reynolds will represent himself and it could not put me in touch with him. No contact details for Mr Reynolds could be found. 

The FCA Decision Notice.

£140 OFF A WINTER ELECTRICITY BILL

Two million people can get £140 off one electricity bill this winter. It's called the Warm Home Discount. Some will be paid automatically. Others have to claim or they will not get it. And the sooner they claim the better. Some who should be eligible are excluded. 

Core Group

The biggest group – called the ‘core group’ – are more than one and a half million older people who get pension credit. They must get the guarantee part of pension credit - which means their income is no more than £148.35 single or £226.50 for a couple. Pension credit guarantee credit will make their income up to that amount. They must have received it on 12 July 2014. which means they must have been born on 5 July 1952 or earlier and so will be about 62½ now. There are about 1.8 million who could qualify and the DWP expects 1.4m of them to do so. They qualify even if they also get the savings credit part of pension credit. This is a slightly wider definition than was used in 2014/15.

People in the core group should not have to claim. Suppliers will use information from the Department for Work and Pensions to pay them automatically. However, some who qualify may not be identified. If you have heard nothing by Christmas and you think you qualify, contact your energy supplier. Some of the smaller suppliers do not pay the discount and if your energy is supplied by one of them you will not get it. Details below.

Those with slightly higher incomes who only get the savings credit part of pension credit but do not get the guarantee credit will not qualify automatically but may qualify under the broader group described below.

Broader Group
The broader group who qualify are low income households where there is a young child or someone with a disability. With some suppliers pensioners not in the core group can qualify as part of the broader group. People in this broader group have to make a claim.

Unfortunately the energy suppliers all have different rules and their own definitions for what is a low income, what age of child counts, and what counts as a disability. These rules are complex.

If your income is low and there are young or disabled children or disabled adults in the household you may be entitled to the discount.

Pensioners who only get the savings credit part of pension credit or who get another means-tested benefit may qualify in this group too. Again suppliers have different rules.

The DWP expects 600,000 to qualify in this group this year. 

If you think you may qualify contact your supplier using the phone number on your bill and say you are asking about the Warm Home Discount. Or look online on your supplier's website and search for Warm Home Discount. The Government publishes a list of suppliers which are in the scheme. The links there take you to the websites of each supplier that is a part of the scheme. Almost all take you direct to the Warm Home Discount page. With one or two you may have to do a search. 

Claims should be made as soon as possible. Suppliers have a fixed amount of money for this group and when that runs out the supplier will close its scheme. Some may close by the end of December. 

People in the broader group should not switch supplier until the discount is made. They could be disqualified if they do.

Payment

The discount is normally taken off your winter electricity bill which could mean waiting until March 2015. People in the core group who have moved supplier since 12 July 2014 will be sent a cheque by their old supplier. Broader group customers who move supplier before the discount is made will probably lose it. All discounts should be made by the end of March 2014. People on prepayment meters will have the credit added to their key. Some will be sent a voucher to take to the Post Office to credit the key. Other suppliers will update the key automatically.

Supplier

The big six electricity suppliers are legally obliged to offer the Warm Home Discount. They are British Gas (including Sainsbury’s), EDF Energy, E.on, npower, Scottish Power and SSE (that includes Atlantic Energy, Scottish Hydro, Southern Electric, and Swalec). SSE also operates the scheme for Ebico, Equipower, and M&S Energy. First Utility, Utility Warehouse, and Cooperative Energy are also in the scheme. If you get your electricity from any other small supplier you will not get the Warm Home Discount. If you have switched to one of these excluded supplier you may have lost the right to the discount.

Sixteen small suppliers which are not in the Warm Home Discount scheme: Better energy, Daligas, Ecotricity, Extra energy, Flow energy, Good energy, Green energy, GreenStar energy, isupplyenergy, LoCO2 energy, Oink Energy, Ovo, Spark Energy, Utilita, Woodland Trust Energy, Zog Energy.

The Warm Home Discount applies in England, Wales, and Scotland. It does not apply in Northern Ireland.

The Warm Home Discount scheme does not apply to people in Park Homes.

Last year British Gas added £60 to the Warm Home Discount which was then £135. This year it is not adding this amount. So British Gas customers who qualified last year for £195 will only get £140 this year.

The future

Until this year the Warm Home Discount was paid by the energy companies out of their own money. That amount - about £11 per customer - was added on to all customer bills. Under a deal with the Government they have taken that £11 off bills and the Government now funds the Discount directly. So it is a nonsense that each supplier has its own rules for the broader group and that smaller suppliers are not included.

The Government has issued a consultation paper about extending the Warm Home Discount for winter 2015/16. It proposes fixing the amount at £140 though the overall cost is expected to rise to £320m compared with £310 in 2014/15. One question is whether the the broader group rules should be the same throughout the industry. It does not seem to suggest that all smaller suppliers should be included though there is a question where that suggestion could be made. There is also an impact assessment. The main change considered includes extending the scheme to park homes.

More information

The official Government guide to the Warm Home Discount.

The Home Heat Helpline 0800 33 66 99 can give advice about the Warm Home Discount and other schemes to help with heating bills. You could also contact the Energy Saving Trust www.energysavingtrust.org.uk or the Centre for Sustainable Energy www.cse.org.uk They can give advice about local help with insulation as well as national schemes.

29 October 2014 version 1.1

SCOTTISH TAX LESS TAXING

UPDATE 5 DECEMBER 2014
In the Autumn Statement on 4 December 2014 the Chancellor George Osborne changed Stamp Duty Land Tax from midnight that day. This change brings it much more in line with the Scottish LBTT, though the bands and rates are different. The examples below have not been updated and relate to the old SDLT. The description of the Scottish tax is accurate.

ORIGINAL POST
Anyone buying a property in Scotland from 1 April will pay no stamp duty. Instead they will pay a new Land & Buildings Transaction Tax. The Scottish government says the new tax will be fairer and 90% of home-buyers will pay less. It will raise the same amount of money. So it follows that the other 10% will pay more – in some cases a lot more.

Stamp Duty Land Tax

At the moment throughout the UK anyone buying a residential property has to pay Stamp Duty Land Tax – SDLT. It is a strange tax. Nothing is payable on a property bought for £125,000 or less. But once that threshold is crossed a 1% tax applies to the whole price – not just the amount above £125,000. That is why it is called a ‘slab tax’. So a home sold for £150,000 is taxed at £1500. Once the price goes over £250,000 the tax is 3% - again on the whole price. So a £250,000 home costs £2500. But a £250,001 sale would generate a tax of £7500. The next threshold is a 4% tax above £500,000, 5% on homes selling for over £1 million and a 7% tax on those over £2 million.

Land & Buildings Transaction Tax

The new Scottish tax is very different. It starts later – not until a sale exceeds £135,000. And then the tax is only levied on the excess above that level. It starts at 2%. So on a £150,000 property the tax works like this. Take £135,000 from £150,000 which is £15,000 and multiply it by 2% which gives tax of £300. A lot less than the £1500 SDLT. The 2% tax applies up to £250,000 when it rises to 10%. But again that is only due on the amount above £250,000 plus of course the 2% on the amount between £135,000 and £250,000. But that still means any home bought for £324,285 or less will pay less tax in Scotland than in the rest of the UK from April. Another band taxed at 12% begins at £1 million. Some very expensive properties will pay almost double under LBTT compared with SDLT.

The table shows how the taxes compare.

Sale price	SDLT	LBTT	LBTT-SDLT
£125,001	£1,250	£0	-£1,250	-100%
£135,000	£1,350	£0	-£1,350	-100%
£150,000	£1,500	£300	-£1,200	-80%
£200,000	£2,000	£1,300	-£700	-35%
£250,000	£2,500	£2,300	-£200	-8%
£250,100	£7,503	£2,310	-£5,193	-69%
£275,000	£8,250	£4,800	-£3,450	-42%
£300,000	£9,000	£7,300	-£1,700	-19%
£324,285	£9,729	£9,728	£0	0%
£400,000	£12,000	£17,300	£5,300	44%
£520,000	£20,800	£29,300	£8,500	41%
£600,000	£24,000	£37,300	£13,300	55%
£750,000	£30,000	£52,300	£22,300	74%
£1,000,000	£40,000	£77,300	£37,300	93%
£1,100,000	£55,000	£89,300	£34,300	62%
£1,500,000	£75,000	£137,300	£62,300	83%
£2,000,000	£100,000	£197,300	£97,300	97%
£2,100,000	£147,000	£209,300	£62,300	42%
£5,000,000	£350,000	£557,300	£207,300	59%

Stamp duty is widely resented. Buyers have already struggled to save up a big deposit, paid a fee to the lender, a surveyor, a broker and a solicitor, and will probably have paid for removal costs. So having to pay a tax as well – which is demanded before the deal is done – can sometimes be the last straw. And if it is difficult for first time buyers it can be doubly so for those who trade up. Crossing one of the slab thresholds can put the tax up by thousands of pounds.

The Scottish government says that 90% of sales will attract a lower tax and 10% will pay more. It also says that the tax take will be the same. So a lot of people will pay a few hundred or thousands of pounds less. And a few will pay some thousands or tens of thousands of pounds more. Although the LBTT will be welcomed by the majority the few with expensive houses will resent it even more than Stamp Duty.

England, Wales, and Northern Ireland

Given the dislike of Stamp Duty, would a version of the Scottish tax in the rest of the UK be more popular in the rest of the UK?

An analysis for Money Box by Savills estate agents found that the vast majority in England and Wales would pay less under the Scottish system. In the north of England, the east and the Midlands between 91% and 96% would pay less. Even in the south the great majority would benefit – 85% would pay less in the south-west and 73% in the south-east. In Northern Ireland I estimate that 97% would pay less and in England as a whole 87% would pay less with 13% –  about one in eight – paying more. Those two figures are my estimates not Savills’.

Only in London would most buyers pay more – and it is small majority at 53% paying more and 47% paying less. The resentment against Stamp Duty is particularly strong in London where in many Boroughs even a modest size family home can incur tens of thousands of pounds in tax. But these same homes will usually exceed the £325,000 balance point and cost more in a version of LBTT than it does in SDLT.

HOME SALES TO YEAR END JULY 2014
	Up to £325,000	Over £325,000	Mean
London	47%	53%	£501,006
South East	73%	27%	£299,851
South West	85%	15%	£233,236
East England	91%	9%	£250,698
West Midlands	92%	8%	£180,842
East Midlands	94%	6%	£170,227
North West	94%	6%	£161,619
Yorks & Humber	94%	6%	£161,613
Wales	95%	5%	£157,041
North East	96%	4%	£143,863
N. Ireland*	97%	3%
England	81%	19%
Scotland**	90%	10%

Source: Savills from Land Registry data.

* PL estimate

** Scottish government

Pressure to change

Once the new LBTT begins in Scotland comparisons with SDLT in the rest of the UK are bound to grow. And for the vast majority the comparison will demand change. But of course in Westminster where the decision is made the argument would go the other way. So it could mean that demands grow for a version of LBTT in the rest of the UK outside London and perhaps a different tax exclusively for London that took account of the very high prices in many Boroughs. There are even suggestions that London should be able not just to set its property sales tax but to keep the proceeds as well. And that could set the capital on the road to its own form of devolution.

Further Information
Scottish Government announcement with links to a LBTT calculator
HMRC Stamp Duty Land Tax calculator

CARERS STUCK IN EARNINGS TRAP

Some carers face losing £61.35 a week after their earnings rise just £3 due to a Government failure to coordinate its policies.

The people affected claim Carer’s Allowance – which means they already work unpaid looking after a disabled person for at least 35 hours a week. And they supplement that with part-time work of 16 hours a week on the minimum wage. Most of them will be parents – many single parents; some may be over 60 without a state pension; others may be disabled themselves.

Until 30 September 2014 National Minimum Wage was £6.31 an hour. For 16 hours work that is £100.96. On 1 October it rose to £6.50 an hour. So 16 hours’ work comes to £104 a week. One of the conditions for getting Carer’s Allowance is that you do not earn more than £102 a week. So before the change in minimum wage carers could work 16 hours and stay below the threshold. From 1 October 16 hours’ work will put them above the threshold. Once that line is crossed the whole £61.35 a week benefit disappears completely. So an extra £3.04 a week costs them £61.35 in lost benefit.

The simple answer of working fewer hours creates another problem. People on low pay can claim a benefit called Working Tax Credit. This group of people (single parents, some other parents, over 60s, and those who are disabled) must work at least 16 hours a week to get Working Tax Credit. So if they cut their hours below 16 to bring their pay under the threshold for Carer’s Allowance they stop being entitled to Working Tax Credit. It is worth up to £75 a week for some.

So this small rise in the National Minimum Wage faces this group of carers with the choice of losing a benefit of £61.35 a week or one of up to £75 a week.

Benefit complexities
Nothing in benefits is quite that simple. If they give up Carer’s Allowance they would not lose the full £61.35 a week. That is because their income is lower and Working Tax Credit might therefore rise – though never by more than £25 a week.

And two things might stop Working Tax Credit increasing. First there is a maximum amount payable and if they are close to or at that level already a further cut in income may not result in a significant rise in Working Tax Credit. Second, the Credit is worked out on annual income in the previous tax year. So it is insensitive to changes in the current tax year. You can apply for it to be changed if income has fallen significantly. But then you might hit a further problem. Unless your income in the current tax year falls by more than £2500 a year compared to the previous tax year no adjustment is normally made to tax credits. And losing £61.35 a week for half a tax year will not pass that test. So to get Working Tax Credit changed is going to be difficult. And of course HMRC which administers it may not get the sums right. It often doesn’t.

If the carer also pays rent and council tax they will probably already get help with those expenses through Housing Benefit and local Council Tax Support. Again, a reduced income from losing Carer’s Allowance could mean those benefits rise, though always by far less than the amount they have lost. They will have to apply (remember they are already working at least 51 hours a week plus travelling time doing their caring and part-time job) and hope that the local council works it out correctly and swiftly.

But even at the very, very best they are going to lose many tens of pounds for a pay rise of £3. Earn £3, lose £30 is not a slogan to encourage work.

Government steps in
As this problem emerged this week the Office of the Deputy Prime Minister Nick Clegg announced a rise in the earnings threshold for Carer’s Allowance. It will increase to £110 a week. But not until April 2015. So six months after the National Minimum Wage went up the threshold will finally increase.

This year is not the first in which this problem has occurred and unless something changes will not be the last. The rise in April 2015 will sort the problem until at least October 2015 when the minimum wage rises again. But if that goes up to £6.90 an hour – and remember both Conservatives and Labour plan big rises – then that will again put this group of carers above the earnings threshold for getting Carer’s Allowance.

The obvious answer is to link the earnings threshold for Carer’s Allowance to the minimum wage – fix it at 16 times as much plus £1. So when the minimum wage rose to £6.50 on 1 October the threshold would automatically have gone up to £105. Problem sorted.

But if you want to lobby for this change where do you go? The Department for Work and Pensions administers Carer’s Allowance. Her Majesty’s Revenue & Customs runs tax credits. The Department for Business, Innovation and Skills determines the National Minimum Wage. And the Office of the Deputy Prime Minister announced the rise in the Carer’s Allowance earnings threshold for 2015. Oh, and local councils determine the rules of Council Tax Support and administer Housing Benefit.

Joined up Government anyone?

Postscript
Buried deep in the rules is one small glimmer of hope. The income which counts for the Carer’s Allowance earnings threshold is earnings minus half the contributions paid into a pension scheme. So a carer who earns £104 a week but then pays £4 a week or more into a personal pension (or a pension at work) would bring their weekly income down to £102 and just scrape below the threshold.

Even though these carers earn far too little to pay tax the Treasury would still boost this £4 contribution by another £1. And the small fund they build up could be cashed in at any time once they reach 55. If their circumstance remained the same no tax would be due on it. All that is needed is to find an insurer who will take such a small contribution and levy reasonable charges on it.

PS A benefit geek writes: when they cash in their pension it may reduce any working tax credit, housing benefit, council tax support, or other means-tested benefit they receive.

Sigh.

Version 1.1 updated 10 October 2014