Debt Information: What is an IVA?

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Many people in the UK have debt problems. Some in the form of mortgages, others credit cards. Paying back the amount borrowed can be difficult if personal circumstances change, with interest added on, it can seem like there’s no way out.

During times like this, an IVA may seem like the solution to put things right or find a way to tackle the issues. An individual voluntary arrangement is a formal agreement which is binding upon the borrower and the creditor.  Governed by the Insolvency Act of 1986, the agreement allows the individual to pay back the money owed at an affordable cost. During this time, creditors will not be able to contact the individual who will be protected from any legal action or in some cases bankruptcy. Any interest which was set out in the original agreement will also be frozen.

In order to be eligible for IVA, the individual must have debts in excess of £12,500. This amount must be between two or more creditors. A regular household income must also be shown. Those who meet the criteria and are struggling to keep up with instalments to the creditor can apply for an IVA.

After the agreement is made, monthly payments will be calculated to be paid each month. An IVA is the amount of income minus necessary living costs. This allows the individual to pay back what they can afford rather than what is being demanded by the creditor.

There are many advantages to setting up this agreement, for example in most cases the individual can be debt free within 5 years with one single monthly payment.  Individuals have a legally binding contract which is a form of protection from court orders and also, as already mentioned, interest will be frozen. Telephone calls and payment demands also stop – for those struggling with the stress of debt this provides peace of mind that is priceless.

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An Overview of Relevant Life Legislation

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There are certain terms and conditions that regulate relevant life insurance policies and they are collectively known as relevant life legislation. This policy is a single-life, death in service benefit policy designed to cover an employee by the employer and carries a whole lot of tax benefits for the employer.

Relevant Life Legislation: An Overview

Subsection 393B (4) of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA) delineates a ‘relevant life policy’ as:

  1. An exclusive group life policy as laid down u/s 480 of the Income Tax (Trading and Other Income) Act 2005
  2. A life insurance policy, the terms and conditions of which support the insured person’s beneficiaries through benefits in the event of his/her death, and with regard to which: (i) Clause A u/s 481 of the Act would be fulfilled if paragraph (a) in that clause denotes the death, in any situation or excluding particular situations, of that person (instead of the expiry in any situation of each of the persons who are covered with the plan) and if the clause did not incorporate paragraph (b), and ii) clauses C and D under that section and clauses A and C u/s 482 of the Act are fulfilled, or
  3. A life insurance policy that will fall inside the purview of paragraph (a) or (b) only because of the reality that it offers a payout which is an exempted payout under or on account of paragraph (a), (b) or (d) of subsection (3) of section 393B of the Income Tax (Earnings and Pensions) Act 2003.

Consequently, the criteria that have to be fulfilled if a policy is to be regarded a relevant life policy in the ‘single life’ class laid down in (b) are as follows:

Clause A u/s 481 of the Income Tax (Trading and Other Income) Act 2005 (‘ITTOIA’) –  “under the terms of the policy a sum or other benefit of a capital nature is payable or arises on the death in any circumstances of [the individual] insured under the policy who dies under an age specified in the policy that does not exceed 75.”

Clause C u/s 481 – “the policy does not have, and is not capable of having, on any day:

(a)  A surrender value that exceeds the proportion of the amount of premiums paid which, on a time apportionment, is referable to the unexpired paid-up period beginning with the day, or

(b)  If there is no such period, any surrender value.”

Clause D u/s 481 – “no sums or other benefits may be paid or conferred under the policy, except as mentioned in condition A or C”.

Clause A u/s 482 of Income Tax (Trading and Other Income) Act – “any sums payable or other benefits arising under the policy must (whether directly or indirectly) be paid to or for, or conferred on, or applied at the direction of:

(a) An individual or charity beneficially entitled to them, or

(b) A trustee or other person acting in a fiduciary capacity who will secure that the sums or other benefits are paid to or for or conferred on, or applied in favour of, an individual or charity beneficially.”

Clause C u/s 482 – “a tax avoidance purpose is not the main purpose, or one of the main purposes, for which a person is at any time:

(a) The holder, or one of the holders, of the policy, or

(b) The person, or one of the persons, beneficially entitled under the policy.”

 

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A Fine of £390 Million to RBS for LIBOR Scandal

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Bank customers or clients often choose a trusted bank where their money can be safe and their investments protected. Moreover, a bank should always be transparent with their valued customers. Mistakes can occur or even mis-calculations in the bank for it handles huge amount of money and also assets for its customers. However, it is a big problem when the money you earned from working hard would vanish just easily or worse- get corrupted by many.

There are certain departments and authorized groups  in and out of the government such as the Financial Standards Authority (FSA) who are watchful on how the banks treat their customers or in general how they run the banks according to set standards. There are already cases of mis-selling that occurred in well known banks and the customers themselves have the right to be refunded and assisted in the said matter – Payment Protection Insurance Claims. More recently the scandal of mis-sold interest rate swaps for small to medium sized businesses has leaked.

The Royal Bank of Scotland(RBS) have today been given a fine amounting to £390 Million from regulators for their misconducts.  This fine was specifically for having rigged the London Interbank Offered Rate aka LIBOR (average rate of interest when borrowing from other banks).  They had furthermore assisted others in the riggings and thousands of pounds went into the pockets of the corrupt bankers involved. RBS had continued to manipulate the LIBOR rate two years on from being bailed out by the taxpayers of the UK and nationalised, and even once investigations into the LIBOR scandal had begun, all the way into late 2010.  The effects of the manipulations affected billions of pounds worth of transactions across the world.

“What happened at RBS and other banks is totally unacceptable,” commented Chancellor George Osborne regarding this, though noting that RBS is now owned by the taxpayers of this country therefore “the bankers, not the taxpayers, will pick up the bill. Those people who did wrong will face the full force of the law.”

Among rising banking scandals, Osborne added that in 2013, “our reforms are turning people’s anger into a positive force for change.”

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