Category: News

Jeremy Hunt delivered his second Autumn Statement as chancellor on 22 November 2023. While the headline news was cuts to National Insurance rates for employees and self-employed workers, there may have been less attention-grabbing changes that could make your finances easier to manage.

Read on to discover how ISA and pension changes might be useful to you.

1. ISAs are set to become simpler

ISAs were launched in 1999 to promote saving and investing in a tax-efficient way. Statistics suggest they’ve achieved that goal – according to the government, in 2021/22, 11.8 million ISAs were subscribed to, with around £66.9 billion added to accounts.

Yet, over the years, ISAs have become more complicated. New ISAs have been launched, including the Lifetime ISA, aimed at aspiring first-time buyers, and the Innovative Finance ISA, which allows you to invest in peer-to-peer loans that are typically higher-risk than traditional investments.

There are also rules around contributing to multiple ISAs during the same tax year and transferring between different providers. Key changes from April 2024 could help you manage your savings and investments in a way that suits you.

• Under current rules, you cannot usually contribute to two ISAs of the same type during the same tax year. For example, if you held two Cash ISAs, you’d only be able to contribute to one each year. From April 2024, you will have more flexibility and will be able to pay into multiple ISAs of the same type. This could mean you’re able to secure a more competitive interest rate or pay into both an easy access and fixed-term account.
• It is possible to transfer your ISA savings or investments to another provider. However, you must transfer all the money in the account. In the new tax year, partial transfers will be allowed. This step could provide you with more flexibility and the option to move your savings or investments to suit your needs.

Despite hopes that the annual ISA allowance would be increased, it wasn’t announced in the Autumn Statement. In 2023/24, the ISA allowance is £20,000, and £9,000 for Junior ISAs.

However, the changes could help you get more out of your money by allowing you to select a provider that’s right for you.

2. There are plans to reduce the number of pensions workers hold

Auto-enrolment means the majority of employees must be automatically enrolled into a pension by their employer, who must also contribute on their behalf.

It’s successfully encouraged more people to save for their retirement. Yet, it’s also created a retirement planning issue that you might face – managing multiple pension pots.

According to Zippia, the average employee stays with their employer for just 4.3 years. So, over your working life, you could end up accumulating multiple pensions.

This could cause issues for several reasons:

• It can make your retirement savings difficult to keep track of. Indeed, a report in FTAdviser, estimates there are almost 3 million “lost pensions” totalling £26.6 billion. Managing several pensions could mean you overlook some essential savings.
• Usually, your pension will be subject to an annual management fee. In some cases, paying fees on several small pensions could add up to more than the fee of a single, larger pension. So, holding several pensions may mean you get less out of your savings.
• Similarly, your pension will typically be invested. Again, a single, large pension that’s invested in a range of assets may deliver greater returns over the long term, particularly when investment fees are considered, compared to several small pots. However, keep in mind that investment returns cannot be guaranteed.
• As well as difficulty managing multiple pots during your working life, it can be challenging when you retire too. You might be unsure about which pot you should access first or how long each will last.

Changes to address this haven’t been implemented yet. However, Hunt announced a consultation with the aim of allowing workers to set up a “pot for life”. Under the plans, employees would be able to choose which pot their pension contributions are paid into. It could mean employees can retain the same pot throughout their careers, even when they change jobs.

The move could make it easier to manage your retirement finances.

If multiple small pensions are something you’re concerned about, there may be steps you can take now. Pension consolidation could mean you have fewer pensions to manage, but there are potential drawbacks too. For example, if your pension provides additional benefits, you’d lose these if you transferred the money to another provider.

We can provide tailored pension advice if you’d like to better understand how to make managing your retirement finances simpler. 

Contact us to discuss what the Autumn Statement means for your financial plan

The chancellor made key announcements during the Autumn Statement that might affect your finances now or in the future. If you’d like to discuss what they mean for you, please contact us.

Please note: This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.

Some pension savers may have unwittingly exceeded a tax allowance and could now face a higher bill, figures suggest. According to HMRC data, the number of people exceeding the Annual Allowance increased by almost 20% in 2021/22 when compared to just a year earlier.

The HMRC figures show more than 53,000 people contributed more to their pension than the Annual Allowance in 2021/22. They may unexpectedly pay more Income Tax as a result.

A pension is a tax-efficient way to save for your retirement. However, it’s important to be aware of the Annual Allowance and how exceeding it could mean you’re liable for more Income Tax than you expect. Read on to find out what you need to know.

The pension Annual Allowance is up to £60,000 in 2023/24

When you place money into a pension, you receive tax relief. This means some of the money you’ve paid in tax goes into your pension to encourage you to save for your future. Tax relief is usually based on the rate of Income Tax you pay.

If you’re a basic-rate taxpayer, your pension provider will generally claim the tax relief on your behalf. If you’re a higher- or additional-rate taxpayer, you’ll need to complete a self-assessment tax return to claim the full amount you’re entitled to.

The Annual Allowance covers all contributions going into your pension, including those made by your employer or other parties. The Annual Allowance is the limit for tax-efficient contributions, and you typically receive tax relief on contributions up to this threshold.

For most people, the pension Annual Allowance is £60,000 in 2023/24. However, you can only receive tax relief up to 100% of your annual earnings.

There are some circumstances where your Annual Allowance may be lower:

• If you have already taken an income from your pension, you could be subject to the Money Purchase Annual Allowance (MPAA). For the 2023/24 tax year, the MPAA is £10,000.
• High earners may be affected by the Tapered Annual Allowance. In 2023/24, if your “adjusted income” – your total income including money you and your employer contribute to your pension – is above £260,000, your Annual Allowance will fall by £1 for every £2 it exceeds this threshold. The maximum reduction is £50,000. So, if your adjusted income is £360,000 a year or more, your Annual Allowance would be £10,000.

If you’re unsure if you’re affected by the MPAA or Tapered Annual Allowance, please contact us.

It might also be useful to keep in mind that you can carry forward unused Annual Allowance for up to three years, after which it is lost. So, keeping track of your pension contributions for each tax year could help you save more tax-efficiently into your pension.

You could face a tax charge if you exceed the Annual Allowance

If you exceed the Annual Allowance, you will be faced with a charge – the amount contributed to your pension that is above the Annual Allowance will be added to your other taxable income. As a result, your Income Tax bill might be higher than you anticipate.

In some cases, you may be able to ask your pension scheme to pay the charge from your pension. This means your income wouldn’t be affected but the value of your pension would be reduced. However, this isn’t always an option.

If you’ve unwittingly exceeded the Annual Allowance, it may be worth reviewing your pension contributions for previous tax years. You may be able to reduce or avoid a tax charge by carrying forward unused allowances. 

A financial plan could help you avoid unexpected tax bills

Keeping track of your pension contributions can be difficult. After all, they’re often deducted from your income automatically, and you might want to make additional contributions too. So, it could be easier than you think to accidentally exceed the threshold.

A financial plan may help you manage your tax liability and avoid a potential charge by setting out your contribution plans. Reviewing your plan regularly can help you factor in changes to your circumstances, such as the effect of a higher income or using a lump sum to boost retirement savings.

Not only that, but a financial plan could also help you align your pension with your retirement plans.

It’s not just the Annual Allowance you need to keep in mind to get the most out of your pension and reach your retirement goals, either. You might also want to consider what income your pension could deliver in retirement, how it’s invested, and whether you’re claiming all the tax relief you’re entitled to.

We can work with you to create a retirement plan that suits your circumstances and aspirations, including how to use your pension to save tax-efficiently.

Please contact us to arrange a meeting to talk about your goals and how you may use your assets to reach them.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts. 

Financial reviews provide you with a chance to ensure your financial decisions continue to reflect your goals and circumstances, and to assess if you’re on track. They could also be a useful way to reduce behavioural bias.

Over the last few months, you’ve read about why financial reviews are important and why you may need to update your plan following one. Now, read on to discover why they could help you make better financial decisions. 

Behavioural bias could mean you make financial decisions that aren’t right for you

Behavioural bias refers to beliefs or behaviours that unconsciously influence your decision-making. It’s something you do every day, and it helps you make decisions quickly. For instance, you might give little thought to which way you’ll drive to the office or what you’ll eat for breakfast.

However, bias could lead to mistakes as you might be basing your decisions on faulty reasoning or emotions rather than facts. 

When you’re making large financial decisions, like where to invest a lump sum or how much of your pension to withdraw, eliminating bias might lead to better outcomes.

Let’s say you have some money to invest. You overhear several co-workers chatting about how they’ve all invested money into a tech company that’s sure to deliver “huge returns” or become the “next Google”. You might feel excited about the opportunity everyone seems to be talking about, or worried that if you don’t invest right now, you’ll miss out. So, you decide to invest your money based on a bias sometimes referred to as “herd mentality”.

Yet, if you delved deeper or looked at the bigger picture you might find that the investment isn’t right for you. It could be a high-risk investment that doesn’t suit your risk profile, or the investment time frame isn’t right for your goals.

If you plunged ahead and invested your money without research, you could later find you’ve made a mistake because you’ve acted on bias.

There are steps you can take to reduce the effect bias has on your financial decisions, including giving yourself time to fully review options and recognising when emotions are influencing your views.

This is something financial reviews may help with too. Here’s how.

1. You may be less likely to make impulsive decisions

Regular financial reviews mean you can keep track of how you’re progressing towards goals, which could lead to you feeling more comfortable taking your time to review all the options.

While bias can affect any decisions you make, you’re more likely to recognise its potential influence if you’re not making a snap judgement. With more time, your emotions will change, and this might alter how you view an investment or other financial decision. Or you could have an opportunity to carry out research and find that your initial assumptions were inaccurate.

By reducing impulsive decisions, you could limit the effect unconscious bias has on your finances.

2. You may be in a better position to assess what’s right for you

Financial planning isn’t just about growing your wealth but understanding what’s right for you. As part of your financial reviews, you might talk about your investment risk profile, long-term goals, and more. It means you could develop a better understanding of different financial opportunities and how they fit into your wider plan.

So, following a financial review, you might feel more comfortable bypassing an investment opportunity that at first seems like a “must buy” because you know it’s not right for you.

3. You’ll have someone to turn to when you have financial questions

Sometimes, having someone to talk to is all you need to recognise bias in your financial decisions. Having another person look over an opportunity you’re interested in could give you a different perspective.

Working with a financial planner on an ongoing basis means you have someone you can turn to when you’re thinking about making changes to your financial plan. We could help you assess how the potential changes may affect your long-term finances and fit your goals.

Please contact us if you’d like to review your financial plan or talk to us about how we could help you manage your finances.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

As inflation remains stubborn, and interest rates may have to remain higher for longer, recessionary concerns have grown around the world.

Read on to discover some of the factors that may have affected your investment portfolio in October 2023. 

When reviewing short-term market movements, remember to focus on your long-term investment goals.

UK

After a slump in July, official data shows the UK economy grew by 0.2% in August with the Office for National Statistics (ONS) reporting that the service sector mostly drove this growth.

Despite this positive news, concerns remain that the UK is heading into recession. Official figures indicated that the unemployment rate rose to 4.2% between June and August, up from 4% in the March to May quarter.

In addition, UK business activity shrank for the third consecutive month in October. The S&P Global/Cips Flash UK composite purchasing managers’ output index marginally increased to 48.6 in October from 48.5 the previous month.

However, the reading remained below the 50 mark, indicating that a majority of businesses continued to report a contraction in their output.

Inflation remains stubborn, as the headline rate was unchanged at 6.7% in the year to September. Rising fuel costs offset the first monthly fall in food prices for two years to maintain pressure on households.

This means that interest rates may have to remain higher for longer, especially considering that Swati Dhingra, one of the Bank of England’s nine-strong Monetary Policy Committee, said that they felt most of the impact of 14 interest rate rises was yet to be felt.

While the FTSE All-Share Index rose by 1.9% in the third quarter of 2023, the market remains uncertain, and it had given up all of these gains by mid-October.

Europe

Fears of a recession also persist in the eurozone.

S&P Global said that eurozone business activity declined for the fifth consecutive month and, excluding the months affected by pandemic lockdowns, it was the heaviest fall for a decade.

Falling exports, a sharp drop in new business orders, and a surge in fuel prices all contributed to this decline.

In more positive news, annual inflation in the eurozone fell to 4.3% in the year to September – its lowest level since October 2021. This comes after the European Central Bank decided to increase interest rates to a record level in September, pegging its key rate at 4%.

This data masks sharp differences in inflation between nations. Spain and Italy both saw the inflation rate rise in September – to 3.2% and 5.7% respectively – while Croatia’s inflation rate of 7.3% was the eurozone’s highest. 

Contrast this with inflation in the Netherlands, which fell into the negative zone at -0.3%, meaning prices were lower than they were a year previously.

Overall, the MSCI Europe ex-UK index – an index covering 344 constituents in 14 developed markets across Europe – rose by 10% in the first nine months of 2023.

US

Over the last two decades, the US economy has grown at roughly double the pace of Europe and the UK. This looks set to continue in 2024.

The IMF has predicted that the US economy will power ahead in 2024, forecasting an expansion of 1.5% next year. This compares with IMF forecasts of 1.2% for the eurozone and 0.6% for the UK.

While this is partly due to soaring costs of energy in Europe after Russia’s invasion of Ukraine, more structural reasons – like the US’s booming technology sector – have also helped to maintain growth.

The percentage of US adults in their prime working years participating in the labour force is now at its highest level in 20 years and, interestingly, labour force participation by Americans with a disability has soared.

As in the UK, US inflation remained steady over the 12 months to September, at 3.7%.

Overall, the S&P 500 index rose by around 4% in the six months to 24 October, while the Dow fell by around 1% over the same period. 

Asia

Diversifying your portfolio means investing in a range of different funds, companies, and geographical locations. Gains in one particular sector or world market can help to offset losses elsewhere.

Q3 of 2023 illustrates this well.

In the three months to the end of September, leading indices in the US, Europe, and “emerging markets” all fell in value. So, if you’d invested in just the US or Europe, you’d likely have seen a slight reduction in the overall value of your portfolio.

During the same period, the Japan TOPIX index rose by 2.5%. In the first nine months of 2023, the TOPIX index rose by 25.7%.

Diversifying your assets across regions means you can benefit from strong growth in certain parts of the world, even if other markets are uncertain.

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

According to This Is Money, more than 2,700 people have built up an enviable £1 million in their ISA. Regular contributions and investing could be the secret to reaching this goal. Read on to find out why. 

An ISA is a tax-efficient way to save or invest. In the 2023/24 tax year, you can place up to £20,000 into an ISA. Interest or returns aren’t liable for Income Tax or Capital Gains Tax. So, compared to some alternatives, using an ISA could help to reduce your overall tax bill. 

The number of ISA millionaires has increased by 380% in five years

During the 2016/17 tax year, there were just 570 ISA millionaires. Five years later, in 2020/21 – the latest period for which data is available – there were 2,760.

ISAs were first introduced in 1999 to encourage more people to save. Government statistics suggest they’ve achieved that aim.

In 2021/22, around 11.8 million adult ISAs were subscribed to. During that tax year, ISA holders deposited around £66.9 billion. 

Using your ISA annual allowance is essential for becoming an ISA millionaire 

If you want to get the most out of your ISA, using your full ISA allowance each tax year could be essential – if you don’t use your annual allowance, you lose it. You cannot carry it forward to a new tax year. 

While a £1 million target may seem out of reach, regular deposits mean you’re making steady progress towards your goals. 

Remember, each person has an ISA allowance. So, if you’re planning with your partner, you could put away £40,000 between you each tax year by using both of your annual allowances.

If you want to create a nest egg for children, a Junior ISA (JISA) could also be a useful option. In the 2023/24 tax year, you can deposit up to £9,000 in a JISA and, like their adult counterparts, this can be held in cash or invested, and they are tax-efficient. 

Assuming the JISA annual allowance doesn’t change, if you deposited the maximum amount each tax year from birth until they are 18, your child could have £162,000 when they reach adulthood before interest or investment returns are considered – giving them a significant head start on reaching £1 million. 

Keep in mind, that money cannot usually be withdrawn from a JISA until the child reaches 18, at which point they will have control over how they use it. 

Using your ISA annual allowance alone isn’t enough to reach the £1 million milestone

Over the years, the ISA annual allowance has changed. Between 1999 and 2008, it was just £7,000 each tax year. It then increased over the years until it reached £20,000 in 2017/18.

Someone who opened an ISA account in 1999 and deposited the maximum amount each tax year would have added more than £291,000 to their account by 2023/24.

So, how have people reached the £1 million milestone?

How your money grows once you deposit it in an ISA is crucial. If you leave the interest or returns in your ISA, you benefit from compounding, which could help your money grow at a faster pace over the long term. 

However, people holding their money in Cash ISAs are unlikely to have generated enough interest to reach £1 million.

Over a long time frame, interest is typically lower than returns. In addition, a period of more than a decade where interest rates were historically low following the 2008 financial crisis may have harmed savings. 

Investing through a Stocks and Shares ISA might be the key to becoming an ISA millionaire.

While investment returns cannot be guaranteed, investing in appropriate stocks and shares could help you reach your goals. 

When investing, it’s important to remember that all investments carry some risk. Understanding your risk profile could guide your decisions so you can assess which opportunities make sense for you. 

The government figures indicate that many people could be missing out on potentially higher returns due to holding money in cash – in 2021/22, around 6 in 10 ISAs were Cash ISAs.  

That being said, a Stocks and Shares ISA isn’t always the right choice.

Holding your money in cash may be appropriate if you’re saving for short-term goals or you need easy access, such as if it’s an emergency fund. 

Setting goals for your money may help you decide if saving or investing is right for you. 

Contact us to talk about how you could get more out of your savings 

If you’d like to learn how you could grow your savings more effectively with your goals in mind, please contact us. We can work with you to create a financial plan to get the most out of your money. 

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Eccentric Willy Wonka boasts a lot of enviable skills as a businessman – he’s innovative, understands his target audience, and inspires loyalty from his employees. But his skills at succession planning left a lot to be desired. 

Over the years many actors have taken up the role of Roald Dahl’s iconic chocolatier Willy Wonka. The character is getting a new lease of life in December when Wonka releases in cinemas.   

While the new movie looks at how Wonka became the owner of a successful business selling fantastical sweets, the original novel, Charlie and the Chocolate Factory, focuses on his succession plan.

With no children to leave his business to, Wonka hides five golden tickets in chocolate bars to win a tour of his world-famous chocolate factory. He plans to pass on his company to one of the lucky winners.

Despite the risky approach, the competition pays off when Charlie Bucket secures one of the golden tickets. 

While Wonka’s method might be perilous, research suggests some business owners could also be taking a risk when it comes to their firm’s future. 

According to a report in FTAdviser, more than a third of businesses have no succession plan in place, and a further 10% haven’t thought about it.

Yet, what will happen to their business is a concern for many business owners. 21% said they were most worried about seeing their business fail and 18% were concerned about their employees’ prospects. 

Without an effective succession plan, there’s a chance your business’s legacy doesn’t live up to your expectations or pass to the person you want to hand the reins to. 

Creating a succession plan can seem daunting and involve a lot of work. However, if it’s something you’ve been putting off, here are seven reasons to make it a priority. 

1. It provides a chance to think about your different options 

There’s more than one way to step away from your business when you’re ready. You might plan to pass it on to your children, or you may want to sell it to fund your retirement. 

Going through your preferences now provides an opportunity to explore the different options and consider which would be right for you. 

2. The process could help you identify potential leaders and skill gaps

Handing over his business to someone with no experience might work well for Wonka, but it’s not advised.

As part of your succession plan, you may review the skills and expertise of your current team to identify where there could be gaps in the future. You might then create a training development programme to upskill existing employees or seek to hire someone who fits your needs.

It’s a step that may improve the long-term security of your business and give you peace of mind. 

3. Preparing your business may be a lengthy process  

Depending on your plans, preparing your business to hand over could be a process that takes years. Perhaps you need to dedicate time to training existing employees to take over some of your tasks, or you might want to sell the business with an established customer base that you need to build.

Setting out your succession plan now could mean you have more options, reduce stress, and give you a chance to overcome potential obstacles. 

4. It could improve processes in your business now 

When creating a succession plan, you’ll often want to consider how the business would operate if you weren’t there and how to make processes as efficient as possible.

So, even if passing on your business is years away, a succession plan can be a useful exercise. You might find ways to increase productivity, cut costs, or help your team work more efficiently. It could improve your business now and mean it’s in a better position in the long term too. 

5. A succession plan could boost confidence in your business 

When Wonka announced he’d be handing over his business to an 11-year-old boy, we’re sure not everyone was thrilled about the decision or optimistic about the firm’s prospects. 

A lack of a succession plan could harm confidence in your business. For instance, customers might worry about whether you’ll be able to fulfil orders over the long term. A succession plan could also give your employees more confidence in their security. 

6. A succession plan may be useful if the unexpected happens 

A succession plan isn’t just useful if everything goes according to plan, it might also be valuable if the unexpected happens.

If you fall ill, having processes and a leadership team in place that you can trust could make the difference between your business continuing to run smoothly or facing challenges. Knowing that your business is in safe hands might mean you’re able to focus on your recovery. 

A robust succession plan could also make it easier to step back from your business sooner than initially planned if you decide to. 

7. Your decision may influence your long-term plan

As a business owner, your firm is likely to affect your lifestyle and finances. 

Your business plans and when you hope to move on might influence areas like your pension or investments. So, understanding how and when you want to move on from your business could mean you’re able to make informed decisions about your personal life and assets.

Contact us to talk about your succession plan and what it means for your future 

If you’d like help with your succession plan, we may be able to offer support and could make your decisions part of your personal financial plan too.

Please contact us to arrange a meeting to talk about your aspirations. 

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Households are paying more in taxes, research suggests. At a time when high inflation may be affecting your outgoings, finding ways to reduce your tax bill could be valuable. If you’re married or in a civil partnership, planning with your partner could help you get more out of allowances. 

According to the Institute for Fiscal Studies, at the time of the last general election in 2019, UK tax revenues amounted to around 33% of the national income. By the time of the next general election in 2024, the figure is predicted to have increased to 37%.

Only during the immediate aftermath of the two world wars have government revenues grown by as much.

The think tank notes the response to the Covid-19 pandemic explains some of the increased tax burden. However, it adds higher government spending on things that pre-date the pandemic also plays a role. 

On average, the changes mean households are paying an extra £3,500 each year in tax. Yet, the tax rise isn’t shared equally and some families may have seen their tax bill rise much further. 

HMRC collected £19.8 billion more in tax between April and August 2023 than a year earlier 

Figures released by HMRC support the claim that taxes are rising. 

Between April and August 2023, HMRC receipts were £331.1 billion – £19.8 billion higher than the same period in the previous year. 

Some of the receipts in the HMRC data are paid by businesses, but others come from individuals. For example, the amount of Income Tax paid was £9.5 billion more than a year earlier. 

So, how could planning with your partner potentially reduce your tax burden?

Many of the tax allowances available are for individuals. As a result, passing assets to your husband, wife, or civil partner to utilise both of your allowances could be useful. 

Here are five allowances you might want to consider as part of your financial plan. 

1. Personal Allowance

The Personal Allowance is the amount you can earn before you’re liable for Income Tax. For 2023/24, it is £12,570. 

If your spouse or civil partner doesn’t earn above this threshold, they may be able to pass on some of their unused allowance to you under the Marriage Allowance.

£1,260 of the Personal Allowance can be transferred to the partner with the higher income, which could reduce your annual income Tax bill by up to £252 each year.

The higher-earner must be a basic-rate taxpayer to use the Marriage Allowance.

2. Personal Savings Allowance

The Personal Savings Allowance (PSA) is the amount you can earn in interest before it could become liable for Income Tax.

As interest rates have increased over 2022 and 2023, you might face an unexpected tax bill if you don’t review how much your savings are earning.

Crucially, your PSA depends on the rate of Income Tax you pay. Basic-rate taxpayers can earn up to £1,000 in interest before paying tax. The PSA falls to £500 for higher-rate taxpayers, and additional-rate taxpayers don’t benefit from a PSA at all. 

So, if you could exceed your PSA or you’re an additional-rate taxpayer, transferring savings to your partner may help you get more out of your money. 

3. ISA allowance

In addition to the PSA, the ISA allowance may be useful to avoid paying tax on your savings.

Each individual can contribute up to £20,000 in the 2023/24 tax year to ISAs. You can choose a Cash ISA, where the money would earn interest, or a Stocks and Shares ISA, where your money would be invested and potentially deliver returns. 

The interest or returns earned on money held in an ISA aren’t liable for Income Tax or Capital Gains Tax (CGT). Using both your and your partner’s ISA allowance could help you save or invest more efficiently. 

4. Dividend Allowance

Dividends may be a helpful way to boost your income. 

You might take dividends if you own a company or you could receive them through some investments. In 2023/24, you can receive up to £1,000 in dividends before tax is due.

If you might exceed this threshold, transferring dividend-paying assets to your partner could effectively double the amount you could tax-efficiently receive as a couple.

The rate of tax you pay on dividends above the allowance depends on your Income Tax band. So, if your partner pays a lower rate of Income Tax, transferring dividend-paying assets to them could also mean you benefit from a reduced tax bill. 

You should note that the Dividend Allowance will fall to £500 in the 2024/25 tax year. 

5. Capital Gains Tax annual exempt amount

CGT may be due when you dispose of certain assets, including investments that aren’t held in a tax-efficient wrapper, second properties, and some material items.

The annual exempt amount means that in 2023/24, you can make profits of up to £6,000 before CGT is due.

Similar to dividends, transferring assets to your partner could mean you’re able to use both of your annual exempt amounts and potentially benefit from a lower rate of CGT as your tax band affects the rate you pay.

In 2024/25, the annual exempt amount will fall to £3,000 for individuals. 

Arrange a meeting with us to discuss how you could potentially reduce your tax bill

If you want to make the most out of your money and reduce your tax bill, please get in touch. We could help you create a long-term financial plan that cuts how much tax you pay with your goals in mind. 

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate tax planning. 

Trusts may be a useful way to pass on wealth, but research suggests it’s an option some people are dismissing. 

You can place a variety of assets in a trust, from investment to property, for the benefit of another person, known as the “beneficiary”. The trust is then managed by one or more trustees according to the instructions you’ve set out.

There are many reasons why using a trust to pass on wealth to your loved ones could be right for you. Among them are:

• Ensuring your assets are passed to the right person
• Reducing a potential Inheritance Tax (IHT) bill
• Passing on assets more efficiently 
• Allowing you greater control over how the assets are used
• Creating a legacy for future generations 
• Decreasing the risk of assets leaving your family.

Yet, despite seeking advice, research suggests many people who could benefit from using a trust aren’t doing so. 

The majority of life insurance is not placed in a trust despite the advantages 

According to Royal London, families are frequently recommended trusts by financial planners. Yet, few are following the advice offered. 

For instance, just 3 in 10 people with a term life insurance policy have placed it in a trust. Life insurance would pay out a lump sum to your beneficiary if you passed away during the term.

Writing your life insurance in trust can ensure the payout goes to the right person. 

A life insurance payout that’s not placed in a trust could also be included in your estate for IHT purposes. So, it could inadvertently lead to an IHT bill that you’ve not considered. 

In addition, by placing a life insurance policy in a trust, the money paid out wouldn’t need to go through the probate process. As a result, your family could receive the money much quicker. This could be particularly important if your loved ones rely on your income to cover daily expenses.

In contrast, the survey found simpler alternatives are far more likely to be followed, which could suggest part of the reason families are overlooking trusts is because they don’t understand them. 

4 questions to answer if you’re thinking about setting up a trust

1. Why are you considering a trust? 

There are several different types of trust. Which option may be right for you will depend on your goals. 

A trust that holds assets for a grandchild until they’re an adult would be very different to a trust that’s designed to provide a regular income for future generations. So, setting out why you think a trust could be right for you is useful – it could help you identify which type of trust could be used and if there are any alternative solutions you may want to consider. 

2. Do you want to benefit from the assets held in the trust during your lifetime?

In some cases, you might want to benefit from the assets you place in a trust during your lifetime. For instance, you may receive an income from investments held in a trust, which will be inherited by your children when you pass away. 

Doing this could reduce a future IHT bill, but there are other benefits too. It could provide security in the future if you were unable to manage your assets or finances, as the trustee would be responsible for doing this according to the terms of the trust.  

It’s important to be clear if you want to continue using the assets as it may affect the type of trust that’s right for you and how it’s set up.

3. Who will be your beneficiaries? 

Setting out who would be the beneficiary of the trust may be important when you’re deciding which assets you’d like to pass on.

Your beneficiaries may also affect the terms of the trust. For some people, you may be happy for them to access the assets, while for others you may want the trust to provide a regular income instead. 

4. Who will act as trustee? 

Trustees are responsible for managing the trust in line with your instructions. 

You can choose someone you know personally, such as a close friend or family member, or a professional trustee, like a solicitor, which would come with a cost. 

If you decide to ask a relative or friend to act as a trustee, it’s a good idea to speak to them first. Ensuring they understand what their duties would entail and your wishes can help them decide if it’s a responsibility they want. 

Seeking professional help is often advisable if you want to set up a trust

Once a trust is set up and assets are transferred, it can be difficult, and, in some cases, impossible, to reverse the decision. So, seeking professional support is often advisable.

As financial planners, we can help you understand which assets to place in trust to meet your goals and the effect it could have on your wealth. It can give you confidence in the steps you’re taking.

Legal advice may also be valuable. Depending on your needs, setting up a trust can be complicated and a solicitor could help you avoid potentially costly mistakes.

Contact us to discuss if a trust could help you pass on your wealth

Trusts can be useful in a variety of scenarios but it can be difficult to understand if they’re right for you and the steps you need to take to use them effectively. We can provide advice tailored to your circumstances to help you create an estate plan that aligns with your wishes, including setting up a trust if it’s appropriate. 

Please get in touch to arrange a meeting to discuss your estate plan. 

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The Financial Conduct Authority does not regulate trusts, estate planning, tax planning, or legal services. 

Regular financial reviews may help keep you on track to meet your goals and give you confidence in the steps you’re taking. As well as reviewing your assets, you might also want to make changes to your plan.

Last month, you read about why you shouldn’t skip your financial reviews and how they could help you reach your goals. Now, read on to discover two reasons why you might want to make changes to your financial plan during a review. 

Updating your plan in response to short-term movements could harm your goals

While there are times when it’s appropriate to update your financial plan, you should be aware of the risks of responding to short-term movements or bias.

Stock market volatility can be nerve-wracking. If you’ve read about the value of shares falling, it can be tempting to withdraw money from the market to preserve your wealth. However, it could have a negative effect on your progress towards your long-term goals.

Historically, markets have delivered returns over the long term, and investors who weather the ups and downs have benefited in the long run. By taking money out of investments during a downturn, you turn paper losses into actual ones.

Of course, investment returns cannot be guaranteed and do carry risks. Understanding which investments align with your circumstances and objectives may help you take an appropriate level of risk.

Similarly, after speaking to a friend about how they’re investing in a certain asset that’s going to deliver “great returns”, you might want to follow suit. Behavioural biases, like following the crowd, could lead to you making unnecessary changes to your plan, which could harm the projected outcomes. 

Remember, your goals and circumstances should be at the centre of your financial plan. If changes are tempting, taking a step back to calculate what’s driving the decisions could be useful. 

So, following a financial review, why might you make changes? There are several reasons why it may be appropriate, including these two.

1. Your goals or circumstances have changed

Your financial plan should be built around your goals and circumstances. Over time, these may change, and altering your plan may ensure it continues to reflect your lifestyle.

Perhaps you want to bring forward your retirement date, so you increase pension contributions as a result to provide you with financial security? Or becoming a parent might mean taking out life insurance would provide peace of mind, or you’d like to build a nest egg for your child. 

A financial review is a chance to let your financial planner know about changes in your life.

It means they can offer advice that’s suitable for you and your aspirations. In some cases, it could mean altering your plan so that it continues to align with your life. 

2. Government changes will affect your plans

Sometimes government announcements will affect what’s suitable for you. Changes to allowances, tax hikes, and more could mean adjusting your financial plan would help you get more out of your assets. 

The recent announcement that the government will abolish the pension Lifetime Allowance is a good example.

From 2024, there’s expected to be no limit on how much you can save into your pension over your lifetime. It might mean it’s appropriate to increase your pension contributions or it could alter your retirement date. 

Keeping on top of the latest news and then understanding what it means for you can be difficult.

Your financial reviews provide an opportunity for your financial planner to explain what announcements mean for you. Tailored advice can help you identify potential risks or opportunities that may lead to changes in your long-term plan. 

Contact us to discuss your financial plan

If you have any questions about your financial plan or would like to understand how we could support you, please get in touch.

Next month, read our blog to find out why financial reviews may help you reduce impulsive financial decisions and focus on your long-term aims. 

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.