Category: News

The amount of Income Tax paid to HMRC has doubled since the turn of the millennium. With tax bands now frozen until 2026, more workers are likely to find themselves in the higher- or additional-rate tax band. It means it’s more important than ever to make use of allowances to make your money go further.

In the 1999/2000 tax year, £93 billion was paid in Income Tax, according to a Financial Times report. The most recent figures for 2018/19 show that that figure more than doubled to £187 billion. For the current 2021/22 tax year, HMRC predicts that £199 billion will be paid in Income Tax.

The rise is partly linked to the number of workers paying Income Tax. In 1999/2000, there were around 27.2 million taxpayers, compared to 31.6 million in 2018/19. But the tax brackets freezing is likely to have a huge impact over the next few years.

Why does freezing tax brackets matter?

In the 2021 Budget, chancellor Rishi Sunak had to address the hole left in public finances by the pandemic. Rather than increase Income Tax, he froze Income Tax bands. This has been dubbed a “stealth tax”.

Usually, Income Tax thresholds would increase each tax year in line with inflation. This preserves workers’ spending power as the cost of living rises because, as wages increase, the amount you continue to pay in Income Tax remains broadly in line with this. However, tax bands are now frozen up to the 2025/26 tax year.

The Income Tax thresholds in England are expected to remain:

Band	Taxable income	Tax rate
Personal allowance	Up to £12,570	0%
Basic rate	£12,571 to £50,270	20%
Higher rate	£50,271 to £150,000	40%
Additional rate	Over £150,000	45%

This freeze means thousands more people will find themselves in a higher tax bracket, even though they’re no better off when you factor in inflation. HMRC estimates that there will be an extra 440,000 additional-rate taxpayers in 2021/22, an increase of 10.3% when compared to 2018/19.

With more of your money potentially going to HMRC through Income Tax, it’s more important than ever that you make use of tax allowances to make your money go further.

Here are two allowances to consider in your financial plan.

1. ISA allowance

If you’re a higher- or additional-rate taxpayer, you may have to pay tax on your savings. The personal savings allowance (PSA) lets basic-rate taxpayers earn up to £1,000 in interest without paying tax on it. However, this falls to £500 for higher-rate taxpayers, and additional-rate taxpayers do not benefit from the PSA.

So, finding a home for your savings that minimises tax is important. An ISA offers a way to save without incurring additional tax. For the 2021/22 tax year, you can place up to £20,000 into ISAs.

ISAs also offer a tax-efficient way to invest. Opting for a Stocks and Shares ISA, rather than a Cash ISA, means your savings are invested and returns aren’t taxed. If you have long-term goals, a Stocks and Shares ISA can make financial sense. You need to consider the investment risks you’ll be exposed to but, as a high earner, a Stocks and Shares ISA can help you make the most of your money.

2. Pension Annual Allowance

As a higher- or additional-rate taxpayer, you can benefit more when contributing to your pension.

Tax relief is paid at the highest rate of Income Tax you pay. So, as a higher-rate taxpayer you can receive 40%, or 45% if you’re an additional-rate taxpayer. It can give your retirement savings an instant boost. To add £100 to your pension, you’d need to pay just £60 or £55, respectively.

Usually, your pension provider will claim 20% tax relief for you. To receive the extra relief due, you’ll need to complete a self-assessment tax return.

However, you can’t simply put as much as you can in your pension and benefit from tax relief on all contributions. The Annual Allowance limits how much you can claim each tax year. Usually, this is £40,000 or 100% of your annual earnings, whichever is lower. However, if your annual income is more than £200,000 you may be affected by the tapered Annual Allowance, which could reduce your allowance by up to £36,000. If you’re not sure what your Annual Allowance is, please contact us.

If you’re increasing your pension contributions, you need to be mindful of the Lifetime Allowance. This is the total amount you can hold in your pension in your lifetime without incurring additional tax charges.

For the 2021/22 tax year, the Lifetime Allowance is £1,073,100. This allowance is also frozen until 2026. That figure may seem high, but this threshold doesn’t just consider your contributions; it also considers the total value of your pension. This includes employer contributions, tax relief, and investment returns, so it can be easier to exceed this threshold over your working life than you might think.

If you’d like to talk about how to reduce your tax liability and get the most out of your money, please give us a call. We’re here to help you put a tailored plan in place to suit your goals.

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 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. 

In the space of just 12 years, the global economy experienced two events that are considered “once in a lifetime” occurrences. As well as having an impact on economies, the 2008 financial crisis and 2020 Covid-19 pandemic are likely to have affected your finances too.

Many people will remember the impact of the 2008 financial crisis that triggered a global recession and the uncertainty it caused. From job insecurity to large falls in the markets, it had a far-reaching impact. Then, just 12 years later, the Covid-19 pandemic created uncertainty again.

While government support in the UK through the furlough scheme has helped to protect jobs and limit redundancies, it’s come at a cost. The latest fiscal report from the Office for Budget Responsibility show that over £1 trillion was added to the public debt, which is now above 100% of GDP for the first time since 1960.

With two unlikely events occurring so close together, can this be put down to bad luck? The report warns that while there are no guarantees, larger economic shocks could become more common.

The report says: “The arrival of two major economic shocks in quick succession need not constitute a trend, but there are reasons to believe that advanced economies may be increasingly exposed to large, and potentially catastrophic, risks. While the threat of armed conflict between states (especially nuclear powers) appears to have diminished in this century, the past 20 years have seen an increase in the frequency, severity, and cost of other major risk events, from extreme weather events to infectious disease outbreaks to cyberattacks.”

The report outlines the fiscal impact of the events and how to mitigate risk at a national level. But what can you do as an individual investor to protect your assets?

1. Think long term

One of the most important things to do when making financial decisions is to keep the long term in mind.

While investors experienced high levels of market volatility in 2020 due to the pandemic, this has calmed in the space of a year. Many investors who held their nerve and stuck to their investment strategy have seen their investment values recover or even rise in the months since. The same can be said of the 2008 financial crisis. It may have taken longer for the market to recover, yet, when you look at the bigger picture, investments overall did recover from the crash.

It can be easier said than done when an event is happening, but focusing on your long-term goals can help. If you’re saving for retirement in your 40s, market volatility is unlikely to knock your plans off course. That’s not to say you should never make changes to your plans or adapt. However, these should be carefully considered rather than knee-jerk reactions to what’s happening now.

2. Diversify your assets

Both the 2008 financial crisis and the 2020 pandemic have highlighted how interconnected the world is. Events happening on the other side of the world can quickly spread and influence markets globally.

However, even during these periods of downturns, some sectors were stable and, in some cases, even thrived in the circumstances that were negatively affecting others. Spreading your wealth across various assets and investments can help reduce the impact should markets experience volatility. This may mean choosing to invest in companies that operate in various industries, geographical locations, and have different risk profiles.

3. Understand the risks

You can’t eliminate risk entirely, but that doesn’t mean you can’t manage risk or ensure that you take an appropriate amount for you.

All investments come with some risk. However, investments can have very different risk profiles. An established company with a record of delivering profits and growth is likely to be far less of a risk than a start-up. It’s important to understand your own risk profile, which should consider a range of factors, from goals to other assets, when making any decisions.

As a general rule, higher-risk investments have the potential to deliver higher returns. So, it can be tempting to invest in higher-risk ventures. However, if this doesn’t align with your risk profile, you could end up taking far more risk than is appropriate for you and potentially lose your initial investment.

Not all your investments need to have the same risk profile. As you create a diversified portfolio, you want the overall portfolio to reflect your investment needs.

If you would like to discuss your financial plan and the decisions you need to make about assets, please contact us. We can work with you to create a plan that puts you on the right path to reach your goals, with potential risks in mind, so you can pursue your goals with confidence.

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.

Have you ever thought about the impact your money has? You may have considered how your money is invested, but how about where your money is saved? Good Money Week raises awareness of sustainable, responsible, and ethical finances. This year it runs between 2–8 October, making now the perfect time to learn more about the impact your money has.

But what does “ethical” money mean?

There are pressing global issues, from climate change to inequality, and, in many cases, companies are contributing to these problems in some way. You may already make decisions in light of these challenges, such as choosing fair trade grocery products or clothes made from sustainable materials. Ethical finance means making the same thought process a part of your financial decisions. How you use money, whether spending or saving, has an impact on the world.

When you think of ethical decisions, climate change and the environment may spring to mind, but the term encompasses far more than this. It could also mean how a company treats its employees or an executive’s bonus pay, and whether these reflect your values.

Ethical money decisions are becoming more popular. According to an FT Adviser report, ESG funds, which take environmental, social, and governance factors into consideration, accounted for 90% of equity inflows in July.

If you want to reflect ethical values in your financial decisions, where should you start?

Review your savings account

When saving, you probably focus on the interest rate, but the account and provider you choose can have an impact on the world too.

You can choose a bank or building society that has internal ethical policies, such as promoting gender equality within the workplace or paying a living wage to all staff.

It’s common to view savings as static, that the money you place there simply stays in your account. However, providers use this money for a variety of purposes, such as lending money to people and businesses. Does the bank or building society use your money in a way that aligns with your values?

It can be difficult to know if your bank is ethical or how it compares to your views. The Good Shopping Guide provides a rating table that allows you to compare different options and see how different organisations are rated across a range of criteria, from political donations to environmental destruction.

If you decide to switch your current account, there is a seven-day switch guarantee that makes it simple. Your new bank will switch your payments, such as direct debits, then transfer your balance, and close your old account within seven days.

Choose ethical investments

As mentioned above, ESG investing is on the rise, and it may be something you want to consider too.

ESG investing doesn’t mean discounting the usual considerations you make. You should still consider things like your investment goals and risk profile. However, in addition to these factors, you’ll also look at how a company’s practices have an impact on environmental, social, and governance issues.

It is possible to select investments with your own ESG criteria in mind, but this can be a time-consuming process and requires a lot of resources. For most investors who want to incorporate ESG issues into their portfolio, they can choose an ESG fund that aligns with their financial situation and values. This allows you to invest in a variety of companies that meets the fund’s criteria.

Remember, your pension is invested too. As your pension is typically invested over decades, the decisions you make can have a large impact. Usually, your pension will be invested in a default fund if you don’t choose one. However, there will often be several funds you can choose from, including an ethical fund or ones with different risk profiles.

You should consider your risk profile before switching your pension, as returns could affect your retirement plans. If you do decide to switch your pension fund, it’s often possible to switch by logging into your online account.

Do you want to reflect your ethical values in your financial decisions? We can help you understand what changes you could make to your finances. Please get in touch if you have any questions. 

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. 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.

The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.

The Independent reports that 76% of parents and guardians in the UK are saving money for their children under the age of 18. Helping your child step into adult life with some savings could prove vital for their mental wellbeing and financial stability and could help them further down the line.

But, of those saving, 83% do so exclusively in cash. While perhaps the easiest and simplest option, it may not be the best way to generate a nest egg for your child. In an environment of low interest rates and rising living costs, the cash you have saved now will likely not have the same value in 5-, 10-, or 15-years’ time.

One alternative to saving in cash is to invest your money. Making an investment may seem daunting, but it could prove to be the most efficient way to save for the future. Read on to find out why investing your money might be the best way to save for your children.

Inflation reduces the value of cash over time

The purchasing power of your savings will reduce over time thanks to inflation. Inflation represents the average rise in the prices of goods and services and stands at 2.5% as of June 2021 when compared to a year earlier. Simply put, something that cost £100 in June 2020 cost £102.50 in June 2021.

If the money you are saving for your child is kept in a savings account, you may gain a little interest on the amount, but it’s unlikely to keep up with inflation.

As of the start of August 2021, Moneyfacts states that the junior savings account with the highest interest rate pays an Annual Equivalent Rate (AER) of 3%. This is the only account that pays a rate that beats the rate of inflation. If your money is in any other account, it’s likely losing money in real terms.

Saving for your children is a long-term project as you’re likely to be putting money aside for 10 years or more. Because of this, it could be worth investing your money for better returns.

Investing could provide higher returns than savings accounts, but it isn’t without risk

As interest rates are so low, if you’re setting money aside for a period of five years or more, it could pay to invest the cash instead.

Online investment manager Nutmeg looked at available market data between January 1971 and May 2020 and found that long-term investing dramatically increases your chances of returns.

For example, investing for one day during that period gives an investor a 52% chance of generating a profit, but investing for 10 years raises this to 94%.

And the longer you’re invested, the better. Nutmeg found that “an investor that invested in the stock market for more than 13 and a half years at any point between January 1971 and May 2020 never lost money.”

In a 2020 blog, Financial Expert reported that if you had put £1,000 in a 2% interest savings account in 2010, that money would have been worth £1,148 in 2020. However, if you had invested £1,000 in the FTSE 100 in 2010, that money would have been worth roughly £1,579 in 2020.

However, returns cannot be guaranteed, and all investments carry some level of risk. Investment values can fall as well as rise. It’s important to weigh up the risks when making investment decisions. If you have any questions, we’re here to help.

A Stocks and Shares Junior ISA is a tax-efficient, hassle-free investment opportunity

There are a few ways to go about investing for your children. One of the most tax-efficient methods is through a Stocks and Shares Junior ISA (JISA), where you don’t pay Income Tax or Capital Gain Tax on your returns. When you contribute to a Stocks and Shares JISA, your money is typically invested in a range of assets across the globe, from shares to government bonds.

You can contribute up to £9,000 into a JISA in the 2021/22 tax year. Remember that the money cannot be accessed before your child turns 18 and your returns will be based on the performance of the underlying investments.

Research from Schroders, published by City AM, show that saving money into a Cash ISA between 2000 and 2018 returned four times less than a Stocks and Shares ISA. However, remember that the past performance of an investment is not necessarily indicative of the future.

Investing could help you build up a bigger nest egg for your child

If you’d like to see the money you’ve worked hard to save for your child increase faster than the rate of inflation, saving in cash may not be the best idea. Though riskier, investing your money may generate higher returns.

While it is important to remember that the past performance of a stock is not indicative of the future, stock market investments tend to outperform cash savings accounts in the long term.

The method of saving that you choose should be personal to you depending on your situation, so be sure to contact us and speak to a financial adviser when weighing up your options. We can help plan for you and your children and come to a decision on the best course of action for your situation.

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

Lockdowns and restrictions have affected the financial security of millions of people. While the short-term impact has been the focus, it could have a long-term effect on your financial security too if it affected your pension savings.

Over the last 18 months, those who faced financial uncertainty in the pandemic may have cut back pension contributions, stopped paying into their pension altogether, or even dipped into their savings. These actions can have a long-lasting impact at any point in your working life. But it’s particularly worrying for those who are nearing retirement.

The over-50s have been among the most affected by the pandemic. According to a Scottish Widows study, this age group were the most likely to face job and income losses. Almost a quarter (23%) of people in their 50s lost their job or income due to the impact of Covid-19.

This age group also has more self-employed workers. Some 17% of people in their 50s are self-employed, compared to only 12% of 25–49-year-olds. With less job security and gaps in government support, self-employed workers have faced challenges. More than half of self-employed workers said their finances have suffered.

As a result, it’s not surprising that more than half of over-50s fear running out of money in retirement.

Did you reduce or stop your pension contributions?

When money is tight, the first step is often to review where you can cut back. As your retirement might be some time away, reducing or stopping pension contributions can seem harmless. But the impact might be bigger than you think.

Your pension doesn’t only miss out on the contributions you make. You could also lose tax relief and employer contributions. On top of this, your pension is usually invested and benefits from the effects of compounding over the long term. A relatively small break or reduction in pension contributions can have a much larger impact when you assess the forecast value.

So, how does this affect your retirement?

In some cases, you’ll still be able to meet your retirement goals even though you’ve changed your pension contributions. But it’s important to check. A quick review means you can still look forward to your retirement in confidence or highlight where there may be a shortfall.

A pension shortfall doesn’t mean you have to give up retirement dreams. The sooner you know, the better the position you’ll be in to make changes. A small increase in pension contributions once you’re more financially secure could mean you bridge the gap by the time you retire.

What’s important is that you understand the long-term implications changing your pension contributions could have. If you’d like to talk to a financial planner, please contact us.

2 things to keep in mind if you’ve dipped into your pension savings early

If you’re over the age of 55, you may have accessed your pension to tide you over during the pandemic. While useful, you also need to consider whether it could affect your retirement lifestyle.

According to Scottish Widows, the number of over-55s dipping into their pension savings has jumped 10%. In the first three months of 2021 alone, 383,000 people withdrew money from their pensions. While some may be ready to retire, the jump suggests that thousands of people are using their pensions to cover the financial impact of the pandemic.

If you dipped into your pension early, here are two questions to answer.

1. Will it affect your retirement?

As with changing your pension contributions, you should first assess the impact of making an early pension withdrawal. Your pension is designed to provide you with an income throughout retirement. Taking a lump sum early could mean that you’re no longer on track to achieve the lifestyle you want.

Do you still have enough to reach your retirement goals, or do you need to increase your contributions? It can be difficult to understand how a pension will translate into an income. If you need some help with this, please contact us.

2. Has it reduced your Annual Allowance?

If you’re not ready to retire yet, you may want to continue paying into your pension. Accessing your pension can trigger the Money Purchase Annual Allowance (MPAA), which reduces the amount you can tax-efficiently save through a pension.

Usually, you can save up to £40,000 or 100% of your annual earnings, whichever is lower, into your pension each tax year while still benefiting from tax relief. However, once the MPAA is triggered, this is reduced to just £4,000. It can have a huge impact on the amount you’re able to tax-efficiently save between now and retirement, and, therefore, towards your retirement income.

If your pension savings have been affected, you don’t need to panic. There are often steps you can take to ensure your retirement plans stay on track. Being proactive and assessing the impact now means you can bridge a gap if necessary. Get in touch if you need to assess your pension.

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. 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.

The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.

Have you thought about how you’ll pass wealth on to those who are important to you? Traditionally, this has been done through inheritance, but it’s becoming more common to gift during your lifetime.

Our latest guide explains why more families are choosing to gift during their lifetime and the pros and cons of each option. Whichever option you decide is right for you, our guide will enable you to fully understand your situation and make sure your wishes are carried out, and will explain everything from writing a will to calculating the long-term impact of gifting.

It can be difficult to think about how you’ll pass on wealth to loved ones, but it’s important to set out a plan.

Download Leaving an inheritance vs gifting during your lifetime to discover the steps you should take.

If you have any questions about passing on wealth, please contact us. 

When you think about your future, how far ahead do you plan? Perhaps you’ve thought about what your life will look like in 10 years, but have you considered your later years?

While retirement planning is common, it’s often the early years of retirement that people focus on. However, your needs and lifestyle wishes can change drastically over a retirement that could last decades. It’s just as important to think about how you’ll spend your later years as those first years when you are still celebrating retirement.

You can download The guide to later-life planning and care to start thinking about your long-term plan. It’s here to help you understand why it’s important and what steps you can take. It covers:

• Reasons to make later-life planning part of your financial plan
• How to create long-term financial security
• Why care is something you should think about.

If you have any questions about your long-term plan or care, please contact us.

Search the internet and you’ll find a myriad of self-help sites aimed at helping you to improve your life and get the most out of it. Our latest guide explores some practical steps you can take to improve your overall wellbeing now and in the future.

Among the steps that can help create a better you are:

• Setting out your goals
• Making your mental wellbeing a priority
• Spending time on the things you enjoy
• Getting outdoors
• Creating a financial plan.

Download “10 simple but effective ways to create a better you” to discover some of the things you can do to improve your life in the short and long term.

The Bank of England interest rate has been below 1% for 12 years. If you’re a saver, you may think there’s little point in shopping around for the best deal or opening an ISA. But there are still valid reasons for making the most of your ISA allowance.

Each tax year, you can deposit up to £20,000 into an ISA. If you don’t use this allowance during the tax year, you lose it. In the past, ISAs offered an effective way to save with interest rates that helped your money grow. However, the low-interest rate environment means that savings have been earning little for more than a decade. But that doesn’t mean you should discount your ISA just yet, here are five reasons to use your allowance.

1. ISAs provide a tax-efficient way to save

Most people benefit from the Personal Savings Allowance, the amount you can earn in interest from your savings before Income Tax is due. Your Personal Savings Allowance depends on your Income Tax band:

• Basic-rate taxpayers: £1,000
• Higher-rate taxpayers: £500
• Additional-rate taxpayers: No allowance

If the interest earned in a tax year exceeds your allowance, or you don’t have an allowance, the interest earned will count as income and increase your tax bill. ISAs are a tax-efficient way to save, so you won’t have to pay any Income Tax on the interest you earn.

2. A fixed-rate ISA could give you access to higher interest rates

If you opened an ISA a couple of decades ago, you may have expected an interest rate of 5%, but now the rates on offer are much lower. However, by shopping around, you can find some accounts that are higher than the average. Often, these ISAs will mean you need to lock your money away for a certain period. If you’re saving for medium- or long-term goals, this type of savings account could suit you.

3. It provides a way to invest tax-efficiently

ISAs aren’t just an efficient way to save. You can use them to invest tax-efficiently too. The money you earn in returns is not subject to Capital Gains Tax. So, if investing is part of your financial plan, it makes sense to use your ISA allowance first.

A Stocks and Shares ISA offers you a way to invest your money, which can help you generate higher returns than a savings account. However, investing does come with some risks and the value of your investments may fall as well as rise. To smooth out the volatility of the investment markets, it’s advisable to invest with a long-term timeframe in mind.

4. A Lifetime ISA could boost your savings

If you’re eligible for a Lifetime ISA (LISA), it could provide a 25% boost to your savings. To open a LISA, you must be between 18 and 40. You can only deposit £4,000 each year into a LISA, but you’ll receive a 25% bonus from the government so it’s worth taking advantage of if you can.

One thing to keep in mind is when you’ll want to access your savings in a LISA. If you make a withdrawal before you turn 60 for a purpose other than buying your first home, you’ll lose the bonus and a portion of your own savings. Money in a LISA can either be held in a cash account or invested.

5. An ISA can make financial sense as part of your estate plan

If you’re married or in a civil partnership, an ISA can make sense as part of your estate plan. When you pass away, a surviving spouse will automatically receive a one-off additional ISA allowance. For instance, if your partner has £100,000 held in ISA when they pass away, you’d be able to deposit this amount in your own ISA, alongside using your usual £20,000 allowance.

This means your partner will be able to inherit your savings or investments and continue to hold them in a tax-efficient way. The additional prescription applies even if the money is intended for someone else. So, even if you want to leave your ISA savings to your children, your spouse will benefit from an increased ISA allowance.

Don’t forget about Junior ISAs

As well as an effective way to save and invest for yourself, a Junior ISA (JISA) offers a way to build a nest egg on behalf of a child. Each tax year, a child can have up to £9,000 deposited on their behalf into a JISA. Like adult ISAs, they offer a tax-efficient way to save and invest. However, keep in mind, the money will be locked away until the child turns 18.

If you’d like to discuss how ISAs can help you reach your goals, please contact us.

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.