Twilight investors

YOUR MONEY Into the seventies in the last in a series on financial planning through life

THERE ARE some who forge highly successful and lucrative second careers in their seventies. Mary Wesley, who wrote the wartime tale The Camomile Lawn, is one. The rest of us would rather put our feet up in retirement and watch TV repeats of the drama than write it.

For most people, the key to financial planning at 70 is to maximise the return from existing assets, as they must last the rest of your life. This may sound gloomy, but people in their seventies have options that are not available to younger people.

These are the main points to consider.

Review your will and plan for inheritance tax. The Law Society estimates that two-thirds of adults do not have a valid will. It is also important to review your will every few years to check its provisions are still appropriate. This removes a source of anxiety after you die, by ensuring that your wishes are respected, and cuts your heirs' tax bill.

Making a will is particularly important if you and your partner are not married, as what is called the law on intestacy (not having a valid will) does not recognise that such partners have a financial claim on your estate. Making a will is also important if you are married and your estate (which includes the value of your home) is worth significantly more than pounds 125,000. Above this, other family members get a claim to part of your estate.

Provided your and your partner's combined estate is under the current pounds 154,000 inheritance tax threshold, no planning beyond a will is needed. If not, planning for the tax should be a priority. It bites at 40 per cent on amounts above pounds 154,000. But there are so many avoidance measures that it has been dubbed a voluntary tax.

One simple loophole to use is the range of gift allowances. Gifts made during your lifetime that are exempt from inheritance tax include any gift to your spouse; any gift made seven or more years before you die; gifts to any number of people up to pounds 250 each per year; and other gifts of up to pounds 3,000 a year.

Although these exemptions are generous - and some are likely to vanish under a Labour government - beware the risk of being too tax-driven. There is little point in saving a few pounds for your heirs if the gift damages the financial quality of your life.

A similar caveat applies to another common technique, which is to split assets between yourself and your spouse so that both of you can use the pounds 154,000 nil- rate band when you die to pass on assets tax-free to your children or grandchildren.

Other techniques range from the relatively cheap and cheerful - writing life insurance policies in trust, for example - to the decidedly expensive and esoteric.

Buy an annuity - but only if you need extra income. Unlike pension funds, where you have to use part of the fund to purchase an annuity (an investment that converts a lump sum into an income for life), buying an annuity using your other savings is optional. Most experts caution against this for men under 70 and women under 75, as the annuity does not justify the capital outlay required.

Unless you need the extra income, you are better off with safe, income- generating investments that do not sacrifice your original lump sum, such as deposit accounts and National Savings Income Bonds or (for protection against inflation) National Savings Index-linked Savings Certificates. You can still use some of these savings to buy an annuity later on if you need.

Use your home to generate extra income. Home income schemes got a deservedly bad name in the late 1980s - the compensation bill for high-risk schemes that were mis-sold to pensioners looking for a secure income now tops pounds 40m. But there are safe schemes available.

They were designed for home owners of 70 or older who need extra income. By mortgaging or part-selling your home, you can get more income for life while continuing to live in it.

There are two main types of scheme. With Home Income Plans (HIPs), you take out a loan of pounds 15,000 to pounds 30,000 secured against your home. The money is used to buy an annuity, which funds the interest payments on your loan and gives you extra income. When you die (or the surviving partner dies, in the case of a couple) the loan is repaid from the proceeds of selling your home.

The table shows the typical levels of income you can expect to get. If you are aged under 70, or in the case of a couple, have a combined age of less than 145, the benefits are not likely to be worthwhile, according to Cecil Hinton, of the independent specialist Hinton & Wild.

Home Reversion Schemes involve selling part or all of the property outright in return for a lifetime income or a discounted lump sum. Importantly, you keep the right to live in the house for the rest of your life.

Use tax allowances to the full. At 74, your personal tax allowance rises to pounds 4,800 a year. Similarly, the additional married couple's allowance goes up to pounds 3,035 if either partner is 74 or older. But you will not get the full benefit of the allowances if your total taxable income exceeds pounds 14,600. If it does, it may pay to switch to savings where the income is tax-free, such as National Savings Certificates.

Typical home income plan payments

Net annual income if:

Taxpayer (1) Non-taxpayer (2)

Woman aged 75 1213 1469

Woman aged 80 1864 2088

Man aged 75 1866 2203

Man aged 80 2799 3168

Couple both aged 75 766 1013

Couple both aged 80 1212 1425

For a loan of pounds 30,000 on a property worth at least pounds 45,000

(1) After basic rate tax at 25% has been deducted.

(2) Assuming total income (including from this plan) is covered by personal and married couple's tax allowance.

Source: Using Your Home As Capital 1996-6, Cecil Hinton. Published by Age Concern England (pounds 4.95)

Tips for the 70s

DO

o Review your will regularly.

o Get advice on inheritance tax planning if you and your partner's combined estate is significantly over pounds 154,000.

o Shop around for the best rates if you want to buy an annuity - rates can vary by 20 per cent or more.

o Consider using your home to raise extra income only if you need that money.

o Use tax allowances to the full.

DON'T

o Assume your spouse or partner will automatically get everything when you die - they may not.

o Create financial hardship for yourself just to save tax.

o Buy an annuity if you don't need the extra income.

o Buy a roll-up scheme. They are very high-risk.

o Forget to reclaim the basic rate tax deducted from an annuity you've bought yourself if you're a non-taxpayer.

Start your day with The Independent, sign up for daily news emails
News
Sir David Attenborough
people
Life and Style
Young girl and bowl of cereal
food + drink
News
Comic miserablist Larry David in 'Curb Your Enthusiasm'
peopleDirector of new documentary Misery Loves Comedy reveals how he got them to open up
Arts and Entertainment
Henry VIII played by Damien Lewis
tvReview: Scheming queens-in-waiting, tangled lines of succession and men of lowly birth rising to power – sound familiar?
PROMOTED VIDEO
Sport
football
Arts and Entertainment
'The Archers' has an audience of about five million
radioA growing number of listeners are voicing their discontent; so loudly that even the BBC's director-general seems worried
News
i100
Arts and Entertainment
Ready to open the Baftas, rockers Kasabian are also ‘great film fans’
musicExclusive: Rockers promise an explosive opening to the evening
Life and Style
David Bowie by Duffy
fashion
Arts and Entertainment
Hell, yeah: members of the 369th Infantry arrive back in New York
booksWorld War Z author Max Brooks honours WW1's Harlem Hellfighters in new graphic novel
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
News
advertisingVideo: The company that brought you the 'Bud' 'Weis' 'Er' frogs and 'Wasssssup' ads, has something up its sleeve for Sunday's big match
Arts and Entertainment
tv
News
i100
Environment
Dame Vivienne Westwood speaking at a fracking protest outside Parliament on Monday (AP)
environment
Life and Style
tech
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Recruitment Genius: Technical Report Writer

£25000 - £35000 per annum: Recruitment Genius: A Technical Report Writer is re...

MBDA UK Ltd: Indirect Procurement Category Manager

Competitive salary & benefits!: MBDA UK Ltd: MBDA UK LTD Indirect Procurement...

Recruitment Genius: Web Developer - PHP

£16500 - £16640 per annum: Recruitment Genius: This fast growing Finance compa...

Day In a Page

Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

Isis stands strong as its numerous enemies fail to find a common plan to defeat it

The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

Virtual reality: Seeing is believing

Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
Homeless Veterans appeal: MP says Coalition ‘not doing enough’

Homeless Veterans appeal

MP says Coalition ‘not doing enough’ to help
Larry David, Steve Coogan and other comedians share stories of depression in new documentary

Comedians share stories of depression

The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
Has The Archers lost the plot with it's spicy storylines?

Has The Archers lost the plot?

A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
English Heritage adds 14 post-war office buildings to its protected lists

14 office buildings added to protected lists

Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Scientists unearthed the cranial fragments from Manot Cave in West Galilee
World War Z author Max Brooks honours WW1's Harlem Hellfighters in new graphic novel

Max Brooks honours Harlem Hellfighters

The author talks about race, legacy and his Will Smith film option to Tim Walker
Why the league system no longer measures up

League system no longer measures up

Jon Coles, former head of standards at the Department of Education, used to be in charge of school performance rankings. He explains how he would reform the system
Valentine's Day cards: 5 best online card shops

Don't leave it to the petrol station: The best online card shops for Valentine's Day

Can't find a card you like on the high street? Try one of these sites for individual, personalised options, whatever your taste
Diego Costa: Devil in blue who upsets defences is a reminder of what Liverpool have lost

Devil in blue Costa is a reminder of what Liverpool have lost

The Reds are desperately missing Luis Suarez, says Ian Herbert
Ashley Giles: 'I'll watch England – but not as a fan'

Ashley Giles: 'I'll watch England – but not as a fan'

Former one-day coach says he will ‘observe’ their World Cup games – but ‘won’t be jumping up and down’
Greece elections: In times like these, the EU has far more dangerous adversaries than Syriza

Greece elections

In times like these, the EU has far more dangerous adversaries than Syriza, says Patrick Cockburn
Holocaust Memorial Day: Nazi victims remembered as spectre of prejudice reappears

Holocaust Memorial Day

Nazi victims remembered as spectre of prejudice reappears over Europe
Fortitude and the Arctic attraction: Our fascination with the last great wilderness

Magnetic north

The Arctic has always exerted a pull, from Greek myth to new thriller Fortitude. Gerard Gilbert considers what's behind our fascination with the last great wilderness