Category: News

In a bid to encourage early retirees back to work, chancellor Jeremy Hunt unveiled several changes to pension allowances during the Budget. The announcements could mean you’re able to save more in your pension and boost your retirement income. 

Here are the four key pension changes Hunt announced. 

1. The Lifetime Allowance will be abolished 

Previously, the Lifetime Allowance (LTA) has limited the amount of pension benefits you could tax-efficiently build up in total. Those that exceeded the allowance could face an additional tax charge when they accessed their savings. In the 2022/23 tax year, the LTA was £1,073,100. 

It meant that some savers stopped pension contributions or even retired early because they didn’t want to cross the threshold. 

For the 2023/24 tax year, the charge for exceeding the LTA has changed to 0%, and it’s expected the government will abolish the LTA in April 2024. So, if you were nearing the LTA threshold, you could add more to your pension without worrying about paying more tax. 

2. The Annual Allowance has increased to £60,000

While the government is scrapping the LTA, the Annual Allowance will remain in place. However, the maximum amount you can save into a pension tax-efficiently each tax year will rise from £40,000 to £60,000. 

This means you can place up to £60,000 (or 100% of your annual earnings) and receive tax relief on your contributions. Tax relief is given at the highest rate of Income Tax you pay, so it could provide a welcome boost to your retirement savings. 

As a result, it’s worth reviewing your current pension contributions and calculating if increasing them could make sense for your financial plan. 

3. The Money Purchase Annual Allowance is now £10,000

If you’ve flexibly accessed your defined contribution (DC) pension, you may be affected by the Money Purchase Annual Allowance (MPAA). 

The MPAA reduces how much you can tax-efficiently save into your pension. As retirement has become more flexible, the MPAA is affecting more people. It may affect workers who use their pension to create an income during a career break and then return to work, or those that have semi-retired and want to continue adding to their pension.

During the Budget, Hunt announced the MPAA would rise from £4,000 to £10,000. So, if you’ve taken an income from your pension, you may now be able to save more tax-efficiently.  

4. The amount high earners can tax-efficiently save has increased 

The amount high earners can tax-efficiently save into their pension is affected by the Tapered Annual Allowance. This allowance has now increased from £4,000 to £10,000. 

The “threshold income” for the Tapered Annual Allowance has also increased from £240,000 to £260,000. 

The amount you could tax-efficiently save into a pension falls by £1 for every £2 your income exceeds the threshold for the Tapered Annual Allowance. It can fall by a maximum of £50,000 to £10,000.

The changes mean that high earners will now be able to contribute more to their pension tax-efficiently, and some may no longer be affected by the Tapered Annual Allowance.  

Should you increase your pension contributions in 2023/24? 

The changes announced in the Budget mean many workers could tax-efficiently contribute more to their pension in 2023/24. So, should you increase your contributions?

There are many reasons why adding more to your pension makes sense. It’s a way to invest in your future and could mean you enjoy a more comfortable retirement. As you could receive tax relief on your contributions and investment returns are free from Capital Gains Tax, a pension could be a valuable way to invest for the long term.

However, you should keep in mind that pension contributions aren’t usually accessible until you are 55, rising to 57 in 2028. As a result, you couldn’t make a withdrawal to cover emergencies or other outgoings before you reach retirement age. 

If you are thinking about increasing your pension contributions, you should review your wider financial plan to balance short- and long-term goals. 

Contact us to create a tailored financial plan

A tailored financial plan could help you reach your retirement goals, whether you’re close to the milestone or it’s still years away. Please contact us to arrange a meeting and discuss what steps you could take to get on track for the retirement you want.

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.  

Retirement planning is a way to ensure that you can generate an income that supports the kind of lifestyle you lead in later life, whatever that looks like.

While your pension is likely to provide the foundation of your income during retirement, fears about inflation and volatile markets are encouraging people to look for alternatives, and you may be considering property. If so, you’re not alone.

According to FTAdviser, 25% of savers plan to invest in property as an alternative way of generating income in retirement. You often see news stories about record-breaking house prices so many people see property as a viable investment, and you can also potentially generate income by renting it out.

However, there are certain additional costs and tax implications associated with property that you need to be aware of. It is important to consider your personal retirement goals to determine which option is best for you.

Read on to learn the potential benefits and downsides of investing in property.

Property prices increased 6.3% in the year to January 2023

According to MoneyAge, the total value of UK housing stock hit a record high of £8.68 trillion at the end of 2022. Naturally, you may be interested in property because it’s more valuable than ever and historically, prices have increased. 

Data from the Office for National Statistics (ONS) shows that house prices rose an average of 6.3% in the 12 months to January 2023. While past performance can’t tell us what the future holds, this is a healthy annual return and, if you invest your money in property, you benefit from the potential for capital growth. 

Equally, of course, property prices could fall and your investment could lose value. As the ONS report, on a seasonally-adjusted basis, the average UK house price decreased by 0.6% in January 2023, following a decrease of 0.4% in December 2022.

One of the other issues with property is that it is generally a less liquid asset than cash or savings. It’s usually relatively easy to access funds tied up in savings accounts, funds or shares, whereas you may have to either sell a property or borrow against it to raise capital – both of which can take weeks or months to conclude.

Buy-to-let properties cost an average of £3,134 a year to maintain

The income generated by renting out property is often the thing people point to when considering it as a retirement strategy. Demand for rental homes has historically remained strong and, as such, you may be able to earn a healthy income with a buy-to-let property.

According to Property Data, the average rental yield in the UK – your annual rental income divided by the total value of the property – is 4.75%. But in some areas, it can be much higher than this. For example, the NG7 area of Nottingham has the best returns in the UK with average rental yields of 11.3%.  

While the rent may generate an income for you, the maintenance costs associated with buy-to-let investments could negate some of this.

A study from LV= found that landlords spend an average of £3,134 a year on their buy-to-let properties. 

If you don’t have a tenant in the property – commonly called a “void period” – you may have to absorb these costs yourself as you won’t have rent payments to cover them.

Additionally, borrowing to purchase a buy-to-let property can be more expensive than borrowing to buy your own home. According to Money Helper, buy-to-let mortgages usually have higher fees and interest rates, and often require a minimum deposit of 25% of the property’s value. So, you will likely need a larger lump sum to invest in property. 

There may also be additional costs including: 

• Stamp Duty Land Tax (if the property costs £40,000 or more) in England and Northern Ireland – this includes an additional 3% on top of the normal rate because it is a second home. There are similar taxes in Wales and Scotland
• Estate agent, solicitor, and conveyancing fees
• Insurance
• Refurbishment costs.

You may need to factor these costs in when deciding if property is a suitable way to fund your retirement.

Property may be less tax-efficient than other options

Tax efficiency is an important part of retirement planning. If you can find ways to reduce your tax burden, that ultimately means you keep more of your savings or income, it may be easier to achieve the lifestyle you want in retirement. It may also mean you can pass more of your wealth on to your family.

If you own property outside a limited company, you are normally liable to pay Income Tax on rental profits, and if you sell the property, you could pay Capital Gains Tax (CGT) on any value growth. 

Property, whether it is your home or a buy-to-let investment, is also normally considered part of your estate for Inheritance Tax (IHT) purposes. If the total value of your estate, including any properties, is above the IHT nil-rate bands, your family may be liable to pay IHT.

Get in touch

If you want to explore your options for generating an income in retirement, get in touch and we can advise you.

Please note:

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

Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.

Buy-to-let (pure) and commercial mortgages are not regulated by the FCA.

Think carefully before securing other debts against your home.

Statistics suggest that some of the pressures facing economies, such as high inflation and recession concerns, are starting to ease. However, there is still a risk that economies could fall into a recession in 2023. Read on to find out what influenced the markets in February 2023. 

As an investor, remember to focus on your long-term goals when making decisions. Volatility is part of investing, and you should ensure that any investment matches your risk profile. 

UK

Official figures for the end of 2022 meant the year started with some good news – the UK narrowly avoided a recession.

GDP in December declined by 0.5%, but this was offset by gains in the previous two months. A technical recession means an economy has contracted for two consecutive quarters. As the UK economy contracted in the third quarter of 2022, there was a recession risk. Investors should still be prepared for volatility though, as economists are predicting a recession this year. 

The Bank of England (BoE) also believes the UK will face a recession, although it expects it to be shallower and shorter than previously forecast. The BoE predicts economic output will fall, from peak to trough, by less than 1%. This compares to more than 6% during the 2008 financial crisis and 3% during the 1990 recession. 

After a year of high inflation, it is starting to ease and fell to 10.1% in January. The figure is still much higher than the BoE’s 2% target, so it’s not surprising the central bank increased the base interest rate to tackle the rising cost of living. 

The BoE’s Monetary Policy Committee voted to increase rates from 3.5% to 4% – a 14-year high – and cautiously said it believed the peak of inflation was now behind us. 

One of the key factors continuing to drive inflation is high energy prices. So, energy firms announcing huge profits has led to criticism and calls for further windfall taxes. In February:

• Oil giant Shell reported earnings of almost $40 billion (£33.2 billion).
• BP posted record profits of almost $28 billion (£23.2 billion).
• The owner of British Gas, Centrica, reported its profits tripled to more than £3 billion. 

The cost of living crisis has led to nationwide industrial action. The Office for National Statistics found that more than 840,000 working days were lost due to strike action in December. During February professionals from teachers to Border Force staff participated in strikes.

There could be some good news for workers struggling because of the rising cost of living. Research from the Chartered Institute of Personnel Development found that 55% of recruiters plan to lift pay this year to improve staff retention and hiring. 

Data suggests that many businesses are still facing challenges:

• The S&P purchasing managers’ index (PMI) for the manufacturing sector found it has contracted in the six consecutive months to January. However, the pace of the downturn slowed when compared to December. 
• The UK service sector suffered its worst month in terms of output in two years as both consumers and businesses cut back their spending.
• Figures from the Insolvency Service show insolvencies jumped 7% year-on-year in January. When compared to the start of 2020, just before the pandemic hit, insolvencies are 11% higher. 

Despite reports showing there are still obstacles ahead, the FTSE 100 reached record highs during the month. At the start of the month, it surpassed the previous record set in May 2018, which was then beaten several times during the next few weeks. 

Europe

Similar to the UK, the European economy narrowly avoided a technical recession at the end of 2022. The European Commission (EC) expects the final growth figure for 2022 to be 3.5%.

An S&P Global report also indicates the eurozone economy grew for the first time since June 2022 in January. The reading lends weight to the hope the bloc could avoid a recession as companies report higher levels of business activity.

Looking to the year ahead, the EC expects Ireland to lead the recovery. The country is forecast to grow by 4.9% in 2023 following last year’s estimated annual growth of 12.2%, which made it the fastest-growing economy in Europe. 

In contrast, Germany, which is often deemed the powerhouse of the EU, could face challenges. Signs suggest the country could fall into a recession after industrial output fell by 3.9% in December. This fall is linked to high energy prices, with output from energy-intensive industries falling by 6.1%.

Inflation remains a key challenge in the eurozone, but, again, it is easing.

In January inflation was 8.5%, down from 9.2% a month earlier, according to Eurostat. High energy costs, which increased by 17.2%, are still driving the rate of inflation.

After increasing interest rates by 50 basis points, the European Central Bank said it will “stay the course in raising interest rates significantly at a steady pace”. So, households and businesses should expect further rises throughout 2023. 

US

The US also beat recession fears after GDP increased by 2.9% in the final quarter of 2022.

However, the PMI data indicates businesses are still facing headwinds. Output declined at the start of 2023, driven by a sharp contraction in new orders and subdued sales from both domestic and export markets. 

Despite this, job figures indicate businesses are feeling optimistic. The US job market added 517,000 jobs in January, far surpassing the 185,000 economists predicted. 

Like Europe, inflation is slowing in the US. The cost of living increased by 6.4% in January. 

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.

The decision to take out financial protection is often triggered by significant life milestones. However, research suggests that the cost of living crisis and changing lifestyles mean many families are overlooking the importance of a financial safety net. 

Financial protection can provide you with money when you need it most. When it would pay out will depend on the type of financial protection you choose, but it could include if you’re unable to work due to an accident or if you’re diagnosed with a critical illness. 

The payout can mean you’re able to meet immediate or long-term financial commitments if your income stops. It can also give you financial security so you can focus on what’s important, like recovering from an illness. 

A third of under-35s say the rising cost of living is preventing them from getting on the property ladder

People often first think about financial protection when something in their life changes, including reaching traditional milestones. However, changing goals and lifestyles coupled with the rising cost of living means that many millennials are skipping or delaying these events. 

Purchasing a home is often a common trigger for seeking financial protection. It’s easy to see why – a mortgage is normally the largest loan you’ll take out and it’s a huge financial commitment. According to a report in Professional Adviser, 1 in 5 people that have taken out life insurance did so when they purchased a property with a mortgage. 

However, the cost of living crisis is affecting the age younger generations are becoming homeowners.

Almost a third of people under 35 said the rising cost of living has already stopped them from getting on the property ladder. A similar proportion also said that rising costs have either prevented them or will prevent them from moving out of their parents’ house. 

So, many people are missing a key trigger that would lead to them thinking about financial protection. 

Other life milestones may also be triggers for thinking about long-term financial security, such as getting married or starting a family. Again, these milestones are something younger generations are doing later in life or missing altogether as lifestyles change.

According to the Office for National Statistics, the average age to get married has been increasing since the 1970s – it’s now around 38 for men and 36 for women. 

Similarly, the Professional Adviser report also found that 3 in 10 people under 35 are delaying starting a family because of the cost of living crisis. 

If a financial shock could affect your plans, protection could provide security 

While life milestones have traditionally led to people seeking information about financial protection, that doesn’t mean it can’t add value in other circumstances.  

You may not have a mortgage, for example, but you could still face significant financial commitments, including rent. Or you may not have children, but want to take steps to ensure your partner would be financially secure if you passed away. 

If you could struggle to meet your outgoings or maintain your lifestyle if you faced a financial shock, reviewing your safety net is worthwhile. It can give you peace of mind and improve your long-term security.

Financial protection could support other steps you’ve taken to boost your financial wellbeing, like creating an emergency fund. 

Which type of financial protection is right for you?

There are several different types of financial protection to choose from. You can also select the deferment period and level of cover. So, it can be difficult to know which option is right for you and the security it would provide over the short or long term. We’re here to help.

Please get in touch if you want to understand how financial protection could provide a vital safety net for you, with your priorities and concerns in mind.

Please note:

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

Note that life insurance plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.

Rishi Sunak is reportedly drawing up plans to provide a “midlife MOT” to assess the financial health of workers and retirees. Taking stock of your finances in your 40s and 50s could lead to greater financial freedom in the future. Read on to discover five initial steps you can take to review your wealth. 

Sunak’s plans are focused on encouraging people to get back to work as employment figures are still not back to the levels they were before the Covid-19 pandemic. Early retirees that gave up work during the pandemic are now feared to be hampering the UK’s economic recovery.

There are also concerns that some early retirees made the decision based on assumptions about their finances before the cost of living crisis. Over the last year, inflation has been high and it could mean some retirees face a financial shortfall now or in the future.

While Sunak’s plans are designed to encourage more people to join the workforce, a midlife MOT can be useful for keeping your plans on track.

Your mid years are often crucial for building wealth that could mean you are financially secure in the future. So, taking stock now is a worthwhile task.

Here are five areas you should cover in your financial midlife MOT.  

1. Review outstanding debt

Reducing your expenses as you near retirement could provide far more financial freedom. One key way of doing this is to create a plan to reduce outstanding debt.

One of the largest debts you have is likely to be your mortgage. If you can, a plan to own your home outright when you retire can significantly reduce the income you need. Paying off credit cards or loans could also boost your disposable income in the future. 

Having debt, including a mortgage, doesn’t mean you can’t retire, but you should factor repayments into your budget when assessing the income you need. 

2. Assess your savings 

Spend some time assessing your savings and understand if they would provide a safety net if you faced a financial shock, like an unexpected property maintenance bill or being unable to work due to an illness. 

Having savings to fall back on when you need them can provide vital financial security now and in the long term. It means you could weather financial shocks and you don’t have to dip into other assets that you earmarked for other goals. 

As the Bank of England has increased interest rates, it’s worth shopping around to see if you’re getting the most out of your money. 

3. Look at your investment portfolio 

Regularly reviewing your investment portfolio can help you understand how it’s performing – remember to review returns with a long-term view, rather than focusing on how the value of investments have changed over weeks or months. 

It’s also a good opportunity to ensure your portfolio continues to reflect your goals. Changes to your circumstances or aspirations could mean adjustments to your investments make sense. 

If investing isn’t something you’re already doing, it could help you reach long-term goals. 

While investing does involve risk and the value of investments can fall, historically, markets have delivered returns over longer time frames. So, if you’re saving for a goal that is more than five years away, investing could grow your wealth and help your assets keep pace with inflation.

When you invest, it’s essential you consider the level of risk that’s appropriate for you and your circumstances. 

4. Set out your retirement plans

When you think about retirement planning, it may be finances and pensions that come to mind. However, when and how you want to retire are crucial pieces of information if you’re to create a reliable retirement plan.

Set out what your retirement plans are – do you want to phase into retirement by working part-time? Or are you hoping to retire early? 

You should also consider what you want your lifestyle to look like when you give up work. This can be useful for understanding the income you need your pension and other assets to deliver to reach your goal. 

5. Check if you’re on track to reach your pension goal

With a clearer understanding of your retirement plans, you can review your pension – are you on track to have enough to live the retirement lifestyle you want?

It can be difficult to understand how the value of your pension will change between now and retirement, and what the value needs to be to provide financial security. As well as considering what contributions you’ll make, you may also need to consider things like investment returns. So, working with a financial planner here can be valuable. 

Going through your pension now could uncover potential gaps and provide an opportunity to fill them. 

Get in touch to arrange your midlife MOT

A financial review can help you take stock of where your finances are now and the steps you could take to reach your goals. Please contact us to arrange a meeting. 

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.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The value of your investments (and any income from them) can go down as well as up, 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. The tax implications of pension withdrawals will be based on your individual circumstances. Levels, bases of and reliefs from taxation may change in subsequent Finance Acts.  

ISAs are a vital part of effective financial planning for many people. According to official statistics, around 12 million adults deposited money in an ISA during 2020/21. 

Around 66% of these accounts hold cash, while the rest are Stocks and Shares ISAs. In total, consumers added £72 billion to ISAs during the year.

Under current rules, you can add up to £20,000 to ISAs each tax year. You can place the money in a Cash ISA to earn interest, or invest through a Stocks and Shares ISA. ISAs are tax-efficient, so you won’t need to pay Income or Capital Gains Tax (CGT) on the interest or returns you receive. As a result, they can be a useful way to reduce your overall tax liability.

Now, however, a think tank is calling for changes that could make them less tax-efficient. Find out why the organisation wants to change how much you could save in an ISA and whether it’d affect your plans here.

The think tank report proposes a £100,000 cap on ISAs

While there is a limit to how much you can deposit each tax year into an ISA, there isn’t a lifetime allowance. This is what a new report is calling for.

The report from the think tank Resolution Foundation and charity abrdn Financial Fairness Trust calls on chancellor Jeremy Hunt to reduce the total amount people can tax-efficiently save or invest through an ISA to £100,000. 

The report claims this would cut waste and focus the government’s savings policy on getting more people to save, rather than rewarding those that already have a significant nest egg. 

The report found the wealthiest tenth of families own 29% of ISA savings.

Wealthier families are also more likely to benefit financially from using the Lifetime ISA (LISA) allowance. The LISA aims to help first-time buyers save a deposit. Each tax year, savers with a LISA can add up to £4,000 and receive a 25% government bonus. The report estimates that 47% of the £670 million of government support given through LISAs is going to the richest fifth of households. 

The report also notes that ISAs are set to cost £4.3 billion each year in forgone tax revenue by the end of 2023/24. So, how do you benefit from saving or investing through an ISA? 

How much do you save in tax by using an ISA?

How much tax you could be liable for if you moved your savings or investments from an ISA will depend on a range of factors, including your income and other assets.

Savings outside of an ISA may be liable for Income Tax

The combination of the Personal Savings Allowance (PSA) and ISA annual subscription limit means that most people don’t need to consider paying tax on the interest their savings earn. 

The PSA is how much interest you can earn before Income Tax is due. For the 2023/24 tax year:

• Basic-rate taxpayers have a PSA of £1,000
• Higher-rate taxpayers have a PSA of £500
• Additional-rate taxpayers do not have a PSA. 

So, if ISA rules changed, some savers could find they need to start paying Income Tax on interest earned if they exceed the PSA or don’t benefit from it. 

Investments outside of an ISA may be liable for Capital Gains Tax

Investments that aren’t held in a tax-efficient wrapper, such as an ISA or pension, could be liable for CGT. This is a tax you pay when you make a profit when you dispose of certain assets.

Each tax year, you can make a certain amount before CGT is due – this is known as the “annual exempt amount”. For the 2023/24 tax year, you can make up to £6,000 before CGT is due, but this allowance will fall to £3,000 in 2024/25.

The rate of CGT depends on which tax band the gains fall into when added on top of your other income. For 2023/24, the CGT tax rates are:

• Standard CGT rate: 10% (18% on residential property)
• Higher CGT rate: 20% (28% on residential property).

As a result, CGT can significantly reduce the amount you make when selling investments. 

So, whether you’re saving or investing, changes to the ISA to implement a cap on the total value could mean some households see their tax bill rise. 

Contact us to create a financial plan you can rely on 

While the government hasn’t announced an ISA cap, you should keep in mind that things can change. It’s important that your financial plan continues to reflect current legislation.

As a financial planner, we’re here to work with you on a financial plan that suits your needs. This includes ensuring you’re up-to-date with changes and understand what they could mean for you.

Please contact us to arrange a meeting. 

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.

A key part of your estate plan is setting out how you’d like to pass on assets to loved ones. There’s more than one option to consider, so read on to find out more. 

Your estate plan should consider how you’ll use your assets during your life and what you’d like to happen to them when you pass away. Last month, we explained what you may need to consider when taking stock of your estate and how the value of your assets may change during your lifetime. This is an important step to understanding your estate and who you’d like to benefit from it.

Now, read on to find out your options when you want to pass on assets. 

3 useful options to consider when passing on wealth

1. Leave an inheritance through a will

A will is a common way to leave assets to loved ones when you pass away. It’s a legal document where you set out exactly how you’d like assets to be distributed. 

There are several different ways you can pass on assets through your will. For instance, you may leave a proportion of your estate to each beneficiary, or you may choose to name specific assets you’d like them to receive. 

Even if your affairs are straightforward, you should still take the time to write a will. Without a will, your assets will be passed on according to intestacy rules, which may not reflect your wishes. Not having a will could also lead to delays in the probate process and conflict among beneficiaries. 

2. Place assets in a trust

A trust can be a useful way to pass on wealth during your lifetime or when you pass away while retaining more control over the assets if you wish to.

A trustee that you choose will manage the assets placed in a trust on behalf of the beneficiary. You can set out how you want the trustee to use or distribute the assets.

You may create a trust for a child and state you want them to have the assets when they reach the age of 25. Or you can set up a trust to provide an income for loved ones without giving them control of the assets held in it.  

Trusts may be right for your estate plan if you want the assets to be used in a specific way, or you want to ensure they remain within the family, for example, to protect assets being lost in a divorce. 

Trusts can be complex, and you may not be able to reverse the decisions you make. So, taking both financial and legal advice before you proceed can be useful and ensure the trust acts in the way you want. 

In some cases, you can use a trust to reduce a potential Inheritance Tax (IHT) bill, as, provided it meets certain conditions, the assets placed in a trust are no longer yours. You may need to consider IHT if the total value of your estate exceeds the nil-rate band, which is £325,000 for the 2023/24 tax year. 

3. Gift assets during your lifetime 

While leaving an inheritance is the traditional way to pass on wealth, gifting during your lifetime could be beneficial too. Not only could you lend loved ones financial support during key moments in their life, but it also means you get to see the impact of your gift. 

According to a report from the Institute for Fiscal Studies, around 5% of adults receive a substantial gift over a two-year period. This rises to around 30% among adults in their 20s and early 30s. 

The research found gifts are most commonly received to mark milestones, such as purchasing a home or getting married, or in response to an unexpected life event, including being widowed. 

When making gifts, it’s essential you consider your own long-term financial security; could gifting mean you have to adjust your lifestyle later in life or that you couldn’t weather a financial shock? Reviewing your financial resilience first means you can feel confident when gifting. 

If your estate could exceed IHT thresholds, it’s important to note that some gifts could be included in your estate for IHT purposes for up to seven years. These are known as “potentially exempt transfers”. 

Some gifts are immediately outside of your estate when calculating IHT, so if you’re thinking about gifting to reduce a tax bill, making use of these could be valuable. Please contact us to talk about gifting and IHT to create a plan that’s tailored to you. 

Contact us to talk about your estate plan

When you’re deciding how to pass on wealth, there’s no right or wrong answer. Your circumstances and priorities play a key role in what makes sense for you. Please contact us if you have any questions about passing on wealth and creating an estate plan you can rely on. 

Read our blog next month to learn more about IHT and the steps you could take to reduce a potential tax bill and leave more to your family. 

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 tax planning or estate planning.

Globally, inflation and recession risks continued to affect markets in November.

Head of the International Monetary Fund (IMF) Kristalina Georgieva suggested that inflation could be nearing its peak.

However, the Organisation for Economic Cooperation and Development (OECD) urged central banks around the world to keep raising interest rates to tackle moderate levels of inflation. So, while some of the pressure may be starting to ease, households and businesses are likely to still face challenges in 2023. 

Remember, while markets may experience volatility, you should focus on your long-term goals. While it is impossible to guarantee returns, markets have historically recovered from downturns. 

UK

Official statistics show that the UK economy contracted by 0.2% in the third quarter of 2022. This means the economy is on the brink of recession. Inflation also increased to another 40-year high in the 12 months to October to 11.1%.

Against this backdrop, new prime minister Rishi Sunak and chancellor Jeremy Hunt delivered the autumn statement. 

In sharp contrast to the mini-Budget delivered just a few months ago under the leadership of Liz Truss, the autumn statement increased taxes. Key changes were made to the Capital Gains Tax annual exempt amount, Dividend Allowance, and the threshold for paying additional-rate Income Tax. 

Hunt also confirmed that the State Pension triple lock would be maintained. This will give pensioners a record rise in income as the State Pension will increase by 10.1% in April 2023. 

In response to high inflation, the Bank of England (BoE) increased its base interest rate again. The rate is now 3% and the highest it’s been since the financial crisis. The central bank also warned that the UK could face a prolonged recession. 

The economic and political turmoil meant that Britain lost its title as Europe’s largest equity market to France. 

The Standard & Poor (S&P) Global Purchasing Managers Index (PMI) for the UK manufacturing sector fell to 46.2 in October. A reading below 50 suggests the sector is contracting and it’s the lowest reading since May 2020 when the pandemic affected operations. The war in Ukraine, weaker demand from China, and ongoing challenges related to Brexit were linked to the downturn.

People reigning in their spending are affecting the retail sector. Data from the Office for National Statistics (ONS) suggests that retail sales are still below their pre-pandemic levels. 

Several high street brands, including Joules and Made, have fallen into administration due to the challenging circumstances. 

The economic uncertainty is affecting households too.

The UK jobless rate increased to 3.6%, according to the ONS, which also found that wages are lagging behind inflation.

A report from think tank the Resolution Foundation found that two decades of wage stagnation is costing the average British worker £15,000 a year. The report suggests that wages will not return to the level before the 2008 financial crisis in real terms until 2027. 

Budgets are being stretched by household essentials. A report from Kantar Worldpanel found that grocery inflation hit 14.7%. This means that the average grocery bill has increased by £682 in a year.

With inflation in mind, it’s not surprising that a GfK report found that British consumer confidence is at a record low. 

Consumer confidence is also affecting the housing market, with many people reluctant to move or increase the amount of debt they have as interest rates rise. 

Figures from Nationwide show that house prices fell by 0.9% month-on-month in October. Many experts are predicting that house prices will fall in 2023. Savills predicts a fall of 10%.

In turn, this is affecting UK builders, as new orders fell for the first time since May 2020, when the first Covid-19 lockdown was in force. 

Europe

The situation in Europe is similar to the UK, with recession risk and high inflation affecting business confidence. 

According to Eurostat, inflation across the eurozone hit 10.6% in the 12 months to October. The energy crisis is the biggest factor pushing up the rate of inflation as prices were 41.5% higher than they were a year ago. There’s also significant variance between the countries that are part of the eurozone. France had the lowest rate of inflation at 7.1%, compared to 22.5% in Estonia. 

Unsurprisingly, concerns are having a knock-on effect on businesses. The S&P Global PMI for manufacturing in the eurozone fell to a 29-month low of 46.4. The reading shows the sector is contracting, which could indicate the region is in recession. 

As Europe’s largest economy, Germany is often used as an indicator of the region. German factory orders fell 4% month-on-month, partly driven by a fall in foreign orders.

This has affected business sentiment. A survey conducted by the Association of German Chambers of Commerce and Industry found that 82% of businesses see the price of energy and raw materials as a business risk. This is the highest since records began in 1985. 

US

Official statistics suggest that inflation in the US is stabilising. In the 12 months to October 2022, it was 7.7% after a slight dip when compared to the previous month.

Figures from the Bureau for Labor Statistics also indicate that businesses are feeling optimistic. Despite economists expecting a drop in the number of job openings, there was an increase of more than 400,000 in September. The findings suggest that businesses are continuing to invest and feel confident enough to expand their workforce. 

Revenue updates from some American companies also paint a positive picture.

Pharmaceutical firm Pfizer raised its 2022 earnings guidance and Covid-19 vaccine sale forecast. It now expects earnings per share to be between $6.40 and $6.50 (£6.20 to £6.30), compared to its previous forecast of $6.30 to $6.45 (£6.11 to £6.25). 

US company Uber also saw its shares rise after it beat revenue forecasts. Year-on-year, revenue increased by 72% to $8.3 billion (£8.05 billion) after lockdowns were lifted. 

On the flip side, Mark Zuckerberg, owner of Meta (formerly Facebook), admitted he had got it wrong and that things were worse than he had expected. The company is set to cut 11,000 jobs, the equivalent of 13% of its workforce.  

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.