October 2010

The know zone

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While no one likes to consider the prospect of redundancy, there are measures you can take to ensure that your finances are in the best possible state should the worst happen.

Your number’s up…

During this uncertain time of shrinking budgets and hard choices, some ASCL members may be worried about facing the prospect of redundancy. For peace of mind, the following steps can help to reassure that you are in the best possible position to weather tough financial times.


To reduce taxation to a minimum, make sure you have the right investment structures or tax wrappers in place, or you could end up paying tax when you do not need to.

For example, ensure that any lump sum you receive is invested tax efficiently by using up your annual ISA allowance.

A capital gains tax approach to income generation through a portfolio could potentially be more cost effective than attracting an income tax charge. Everyone has a £10,100 annual capital gains tax allowance before any capital gains is payable and in certain circumstances this can prove to be a useful planning tool.

If you are a higher rate tax payer and have severance pay in excess of £30,000, it is advantageous, if possible, for it to be paid after you have left rather than while still in employment. In this way, only 20 per cent tax will be deducted immediately, rather than 40 per cent or higher. You will have to pay the rest at a later date but in the meantime this can be a useful sum in hand.


Reviewing debts such as your mortgage will help to ensure you aren’t wasting more money than necessary on interest payments. Depending on your specific circumstances, ‘one accounts’ and traditional offsetting mortgages can be attractive. The main advantage is that the mortgage can be paid down easily and increased again as required without redemption penalties or application fees, thereby offering maximum flexibility for the minimum amount of interest paid.

Using a redundancy payment in an offsetting arrangement can mean that you reduce your debt in the short term while income is uncertain and gear up again when the time is right. Also check to see if you have a mortgage protection policy. One may have been sold with your mortgage and at a time of redundancy this can be invaluable. Another common source of debt is store or credit cards – make it a priority to pay offoutstanding balances. The interest rates (APR) charged by these are, at a time of historically low interest rates, sometimes astonishing when you actually work them out in detail.


When it comes to investments there is an adage that says “time in the market is more important than timing the market”. Don’t therefore panic, cash in and move out of the market unless you have to. Do, however, review your portfolio. Provided you have the correct asset allocation and underlying investments for the medium to long term then you will maximise the upside when market conditions improve.


It is vital to create a liquidity reserve to cover expected, or indeed unexpected, expenses over the short term. It may be appropriate to put some of this in your partner’s name if s/he has unused personal allowances or pay tax at a lower rate than you.


Finally, ensure that areas such as life and critical illness cover are not neglected. Generally these will stop from the day you cease to be employed. If you are in an accident during a period of unemployment your loved ones still need to be catered for.

Ultimately redundancy can be stressful and is a time when calm professional financial advice should be sought.

This information was provided by ASCL partner Lighthouse Temple which provides impartial, independent financial planning advice for ASCL members. For more information contact 08000 858590 or sarah.codlin@lighthousegroup.plc.uk or visit www.lighthousetemple.co.uk

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