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A salary sacrifice scheme could provide a valuable boost for both employers and employees. So, if your business does not already offer this perk, read on to discover some of the key reasons you might want to consider it.

According to a report in the Guardian, salary sacrifice schemes are more popular among larger businesses. It’s estimated that only around 5% of small- and medium-sized businesses currently have a salary sacrifice scheme in place. Yet, small businesses could have just as much to gain by introducing a salary sacrifice scheme.

Salary sacrifice reduces an employee’s income in return for non-cash benefits

In simple terms, salary sacrifice is an arrangement you make with an employee where they agree to reduce their earnings in return for a non-cash benefit of the same value.

For example, if an employee accepts lower earnings, they might instead receive:

Additional pension contributions
Childcare vouchers
A car or bicycle.

A salary sacrifice scheme could offer something your employees want or would benefit from over the long term.

In addition, as the employee’s income is lower, the amount they pay in Income Tax and National Insurance contributions (NIC) may fall.

Let’s say your employee earns £35,000 a year and is contributing 5% of their salary to their pension. In 2024/25, they’d usually pay around £4,136 in Income Tax and £1,794 in NICs.

If they choose to sacrifice £1,750 to receive additional pension contributions, they’d benefit from a boost to their pension savings. Their take-home pay would also rise as their NICs would fall to around £1,654. So, in this scenario, the employee’s short- and long-term finances would benefit.

As a result, from your employees’ perspective, a salary sacrifice scheme could help them get more out of their money.

Employers could also benefit from a lower National Insurance bill

It’s not just your employees that could benefit from lower NICs either – your business could too.

In the above example, if your employee agreed to reduce their salary from £35,000 to £33,250, in 2024/25, employer NICs would typically fall from around £3,574 to £3,332 – a saving of £242. If your entire team opted to join a salary sacrifice scheme, it could lead to a sizeable reduction in your NICs bill.

There are other potential benefits for employers too.

A salary sacrifice scheme can help your employees get more out of their earnings, which might have a positive impact on employee satisfaction, retention rates, and hiring new staff. It’s also a way to show you’re concerned about their financial wellbeing.

At a time when 66% of businesses told the British Chambers of Commerce they’ve faced challenges finding new staff, taking steps to show your employees they’re valued could prove worthwhile.

We can help you implement an appropriate salary sacrifice scheme for your business

If you’re considering setting up a salary sacrifice scheme for your business, we can offer support. From assessing the different options to calculating the financial benefit for your business, we could offer tailored advice that considers your needs.

Setting up a salary sacrifice scheme is just the first part of the challenge. You’ll also need to consider how to communicate the benefits to your employees and encourage them to opt in.

As a financial planning firm, this is an area we could offer support in too. We may be able to work with your employees to explain how a salary sacrifice scheme would affect their finances to demonstrate the value of the perk.

Monitoring how your employees view the salary sacrifice scheme and other perks you provide could also be useful. It may highlight when further education could be important, if changes should be made, or demonstrate to employees that their opinions are valued.

Yet, a study in HR Magazine suggests that more than half of employees have rarely, if ever, been consulted about benefits schemes that directly affect their work-life satisfaction.

If you’d like to benefit from our expertise when setting up a salary sacrifice scheme for your business, 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.

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 performance.

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.

Workplace pensions are regulated by The Pension Regulator.

When you received your last promotion or pay rise, your first instinct might have been to celebrate by splashing out on a new gadget, booking a holiday or allocating more of your money to your disposable income. However, if you overlook reviewing your finances, “lifestyle creep” could affect your ability to reach long-term goals, including your retirement plans.

Lifestyle creep leads to your regular expenses rising

Lifestyle creep refers to your regular expenses rising in line with your income. So, after you’ve received a pay rise, your outgoings would start to creep up.

It can be more difficult than you expect to spot lifestyle creep. It might be as simple as choosing a more expensive bottle of wine when you’re at the supermarket or stopping by a café on the way to work each morning to pick up a latte. It could include larger expenses too. Perhaps you start to upgrade your phone every year instead of every three years, or eating out becomes a regular habit rather than a treat.

Over time, lifestyle creep can lead to former luxuries becoming your new essentials. If you don’t keep an eye on your budget, the amount you spend could rise much further than you expect.

According to a survey carried out by Aqua, 89% of Brits say they exceed their social budgets every month. The average person is spending around £61 more on social activities than they plan for.

When you consider how lifestyle creep could affect other areas of your spending, it’s easy to see how it could lead to your regular outgoings rising by far more than you initially thought.

On the surface, lifestyle creep might seem like it’ll have little impact. After all, the £3.50 you might spend on a coffee during your commute is small change. Yet, grab a coffee three times a week, and you’ve added almost £550 to your expenses over a year.

Increased spending means you can become dependent on a higher income. Once you’ve established a habit of spending more, it can be difficult to go back to your original budget.

Lifestyle creep could mean you don’t save as much for your retirement

Small rises in your regular outgoings might seem relatively small in isolation, but when they’re combined, they could add up to thousands of pounds unwittingly spent every year.

As a result, you might divert a smaller portion of your new income to your retirement. Contributing less to your pension, investment portfolio, or savings could have a much larger effect than you first believe, especially once you calculate the returns you’ve potentially missed.

Another way lifestyle creep could affect your future is by changing your desired retirement income.

According to a 2022 survey published in FTAdviser, the top retirement aspiration among those nearing the milestone is to maintain their standard of living. If your regular expenses have crept up during your working life, your pension might need to provide a greater income than you’ve previously calculated.

As a result, some retirees could find they face an income shortfall in retirement or risk using their pension too quickly and running out of money later in life.

A financial plan could help you strike a balance between enjoying today and securing your future

While lifestyle creep may be harmful to your long-term plans, you don’t have to put all your new income to one side for the future – it’s about striking a balance that suits you.

From planning an annual holiday to an exotic location to days out with your family, there are lots of ways you might plan to spend a pay increase. Making these expenses part of your overall financial plan could help you assess what’s right for you.

It may be worth considering which expenses add joy to your life when you’re prioritising them. For example, a cup of coffee on the way to work might become a habit that doesn’t improve your mood or outlook. On the other hand, regularly buying a coffee as you catch up with friends could be an important part of your social routine that you look forward to.

Creating a financial plan and being aware of lifestyle creep is about more than cutting back your expenses. It’s about being intentional with how you use your wealth now and in the future.

Contact us to talk about your finances and how to avoid the negative effects of lifestyle creep

If you’ve received an income boost or would like to review your finances, we could assist you in formulating a financial plan that could help secure the lifestyle you want. 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 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 a historic victory, the Labour Party won a majority in the 4 July 2024 general election. After 14 years of Conservative government, you might be wondering what the change means for you and your financial plan.

Since Keir Starmer took office, a day has barely passed without headlines speculating about the changes Labour will enact. The news can affect your emotions and spur you to make decisions that don’t align with your financial plan.

For example, after reading that some investors are already acting to “protect their pension” from Labour, you might think you need to do the same. Or suggestions that Starmer could raise revenue by increasing the standard rate of Inheritance Tax may mean you start thinking about how to pass on wealth now.

Indeed, according to a poll from interactive investor, in the weeks before the general election, 15% of investors made changes to their portfolio, and a third considered doing so. Of those that did make changes, 30% said they were holding more money in cash, and a quarter said they reduced their exposure to UK investments.

While the markets may have experienced some volatility due to the uncertainty of the upcoming general election, this is often short-lived. History suggests that markets will recover as a new government sets out their agenda and some of the conjecture dies down.

For instance, Morningstar reported that the FTSE 100, an index of the 100 largest companies on the London Stock Exchange, increased slightly after the general election results.

It’s important to remember that investment returns cannot be guaranteed. However, if you’re making investment decisions based on political speculation, you could miss out. Some of those investors who tweaked their portfolio before the public headed to the polls might wish they hadn’t with the benefit of hindsight.

So, if you shouldn’t respond to speculation, how should you react to the new Labour government?

Sticking to your long-term financial plan often makes sense for most people

As difficult as it can be, doing nothing could actually yield better results than responding to the changing government.

Having confidence in your financial plan and sticking to it often makes sense for most people as decisions reactive to the latest news headline could lead to changes that aren’t right for you.

So, while there are still plenty of rumours about Labour’s plans over the next few years, try to tune out the noise. Instead, focus on your financial goals and how your financial plan was built to achieve them, including the steps you’ve taken to mitigate the effects of the unexpected.

It’s also worth noting that when the government announces changes that affect personal finances, they don’t usually come into effect immediately. For instance, changes to the tax treatment of different assets will often take effect when a new tax year starts on 6 April.

As a result, you don’t normally need to rush when responding. Instead, you can take some time to consider your position and how the changes may affect you.

We can help you assess the impact of government announcements on your financial plan

While reacting to speculation could be harmful to your financial plan, between now and the next general election, the Labour government could announce changes that do affect your personal finances.

As your financial planner, we’ll be on hand to help you assess what announcements mean for your finances and, if necessary, what steps you may take to reduce negative effects. Rather than making a knee-jerk reaction following announcements, we’ll help you review the changes in the context of your financial plan so you have the information you need to make decisions that are right for you.

We’ll help keep you informed about changes you might need to be aware of and when updates to your financial plan are appropriate as part of your regular reviews.

Contact us if you have any questions about your financial plan

If you’d like to review your financial plan or have any questions about how a Labour government could affect your wealth, please contact us. We could provide tailored advice that tunes out the speculation and focuses on the facts.

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 investments (and any income from them) 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.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

Often dubbed “death tax” or “Britain’s most-hated tax” in the media, Inheritance Tax (IHT) may seem complex, and you might be unsure if it’s something you should consider as part of your estate plan.

Over the next few months, you can read about the essentials you need to know, how to reduce a potential tax bill, and the importance of regular reviews.

IHT is a tax that’s levied on the estate of someone who has passed away if its value exceeds certain thresholds.

Around 4% of estates were liable for IHT in 2023/24 and it led to the Treasury receiving a record £7.5 billion, according to a Professional Adviser report. That’s an increase of £400 million when compared to the previous tax year.

With a standard tax rate of 40%, IHT could have a huge effect on the wealth you pass on to loved ones. According to HMRC, the average IHT bill in 2020/21 was £214,000.

There are often ways you could reduce an IHT bill if you’re proactive. One of the first steps to take is to find out if your estate could be liable for IHT.

So, read on to find out how the IHT thresholds work.

Most estates can pass on up to £500,000 before Inheritance Tax is due in 2024/25

Your estate encompasses all your assets. So, you might need to consider savings, investments, property, and material items when you’re calculating its value.

In addition, you may also need to include gifts when assessing if your estate could be liable for IHT. Some gifts may be included in your estate for IHT purposes for up to seven years after they are given, these are known as “potentially exempt transfers” (PETs). As a result, it may be useful to keep a record of gifts. If you’re unsure whether a gift is a PET, please contact us.

The threshold for paying IHT is £325,000 in 2024/25; this is known as the “nil-rate band”. If the total value of your estate is below this amount, no IHT will be due.

Many estates can also make use of the residence nil-rate band. In 2024/25, this is £175,000. To use this allowance, you must pass on your main home to children, grandchildren, or other direct descendants.

As a result, the majority of estates can pass on up to £500,000 before they need to consider IHT.

If the net value of your estate (the value of assets less any liabilities) exceeds £2 million, you could be affected by the tapering of the residence nil-rate band. If you have any questions about your IHT allowances, please contact us.

Importantly, if you’re married or in a civil partnership, your partner can inherit your entire estate without having to pay an IHT bill. In addition, your partner could also inherit unused allowances when you pass away.

In effect, when you’re planning as a couple, this means you could pass on up to £1 million before IHT is due.

Remember, the value of your assets may change

While the value of your estate could be under the IHT thresholds now, will that still be the case in the future?

Both the nil-rate band and residence nil-rate band are frozen until April 2028. This freeze is expected to pull more estates above the threshold. Indeed, the Institute for Fiscal Studies estimates that 7% of estates could be liable for the tax by 2032/33.

So, if the value of your assets increases, you might unexpectedly find that the value of your estate now exceeds the threshold for paying IHT. Regular reviews of your assets and estate plan could help you assess if IHT might be something you need to consider in the future.

Contact us to discuss if your estate could be affected by Inheritance Tax

If you’re worried that IHT could affect your estate, please contact us. We could help you formulate an estate plan that’s tailored to you and your wishes.

Read our blog next month to discover some of the ways you might be able to mitigate an IHT bill.

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients 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 Inheritance Tax planning or estate planning.

Your relationship with money may play a huge role in how you handle financial decisions and your long-term security. Many factors affect your financial decisions, but you might be surprised by how much your childhood experiences still influence you today.

The majority of parents recognise how important financial education is. Indeed, according to Nationwide, almost 9 in 10 parents to children aged between 8 and 13 say personal finance education would help their children better understand the value of money. 59% also agreed that personal finances were more important than maths.

Yet, studies suggest these parents might be considering the positive effects of financial education too late.

Research: Money habits could be set by age 7

A 2013 study from Cambridge University indicated that financial habits are formed by the age of seven. The research suggests that children have often formed core behaviours by the age of seven which they will take into adulthood and could affect financial decisions for the rest of their lives.

While skills like being able to count money are important for handling day-to-day finances, the study recognised that other factors affected money relationships, such as the ability to regulate emotions and think reflectively.

Your approach to finances when you’re an adult might be just as much about your mindset as your financial knowledge.

For instance, you might understand the tax benefits of using a Stocks and Share ISA to invest in the future. However, letting emotions rule your decisions could mean you miss out on potential returns if you change your investment strategy during market volatility.

In fact, a report in FTAdviser previously suggested that emotional decision-making costs investors at least 2% in foregone returns each year. Over your investment time frame, those lost opportunities could add up to a substantial sum.

The Cambridge University research noted that once habits form, it can be difficult to reverse them later in life. However, it’s not impossible, so read on to find out more.

4 practical ways to overcome potentially harmful money habits

1. Understand your money habits

If you want to improve your relationship with money, a good place to start might be to take some time to understand your habits.

When you’re making changes to your investment strategy, are you more likely to base your decisions on facts or emotions? If you received an unexpected lump sum, would you splurge or use it to support long-term goals?

Retrospectively examining your financial decisions could help you identify patterns in your behaviour. You might realise that while you’re good at managing your day-to-day budget, emotions are more likely to have an effect when you’re handling long-term investments.

By understanding potentially harmful money habits, you’re in a better position to recognise when they could have an effect in the future.

2. Review your finances regularly

Busy lives can make keeping on top of your finances difficult. Yet, carving out time to regularly review your short- and long-term finances could also help you spot where money habits are harming your wealth or ability to reach your goals.

Seeing the effect money habits may be having on your finances may be useful when you’re trying to change your mindset. For example, if you’re often tempted to dip into your savings to cover non-essential expenses, seeing how it could affect your capacity to retire early, support loved ones, or overcome a financial shock could give you pause next time.

3. Give yourself time when you’re making financial decisions

Sometimes poor money decisions stem from not giving yourself enough time to think through your options or the long-term implications. So, next time you’re making a decision that could affect your financial future, don’t decide right away.

Allowing yourself a few days to think it through could mean emotions or other factors that were influencing your decision have subsided. It could help break negative money habits and start to form new ones.

4. Work with a financial planner

A financial planner doesn’t just help you navigate areas like tax liability or how to use a pension, we can help you manage your money more effectively too.

Having a tailored financial plan in place can highlight how you may work towards your larger goals and the effect day-to-day decisions might have. It could help you overcome previously established money habits that could harm your long-term financial security.

In addition, you have someone to talk to when you’re making large financial decisions. Discussing your options can be a useful way to process information and look at your options from a different perspective. It could lead to you making decisions that have a better long-term outcome.

Contact us to arrange a meeting to talk about your finances

If you’d like to discuss how we could help you manage your finances with your circumstances and goals in mind, 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.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

Imagine you could time travel to understand how your financial decisions today might affect your lifestyle in 10 or 20 years. You may be in a better position to turn your goals into a reality. Read on to find out how working with a financial planner could give you a glimpse into the future.

Time travel films and books offer plenty of warnings about the perils of changing the timeline – even a seemingly small change can have a huge impact. With this in mind, a “time travelling” financial plan could help you make better decisions as it could enable you to see the effect they might have on your long-term security and happiness.

The good news is that you don’t need a DeLorean or the help of an eccentric scientist to look at your financial future.

Cashflow modelling could let you see the impact of the decisions you’re making

Cashflow modelling might not sound as exciting as hopping into a time machine, but it can be an invaluable tool when you’re creating a long-term financial plan.

To start, you’ll need to input data into a cashflow model. This might include the value of your assets, like savings, investments, or property, your regular income, and your outgoings. You’ll also want to add the financial decisions you’ve already made. For instance, how much you’re contributing to your pension each month.

With the basic information added, you can make certain assumptions to predict how your assets might change over time. So, you might include your investment portfolio’s expected annual rate of return to understand how the value could change or consider how inflation may affect your expenses.

The results can then help you visualise your assets and financial security in the future. With this information, you can start to understand whether you’re on track to secure the future you want.

In some cases, you might identify a potential gap, which could lead to you adjusting your plans or making changes to your finances now so you can reach your goals. Again, you can use cashflow modelling to assess changes.

Adjusting your cashflow model may help you understand alternative outcomes

One of the most useful benefits of cashflow modelling is that it doesn’t just allow you to see the outcome of the actions you’re already taking. You can also model other scenarios.

So, you could see how adjusting your decisions now might improve your ability to reach your goals or even make aspirations you previously thought were out of reach achievable.

For example, you could model how:

Retiring early may affect how much you can withdraw from your pension sustainably
Increasing your pension contributions might afford you a more comfortable retirement
Using your savings to travel the world now may impact your long-term financial security
Boosting your regular investment contributions could grow your wealth over a long-term time frame
Gifting inheritances to your children and grandchildren now will affect the value of your estate in the future.

As a result, using a cashflow model to understand the long-term implications of alternative options could help you find the right approach for you. Understanding the various possible outcomes may give you the confidence to adjust your actions and stick to a long-term financial plan.

It’s not just your behaviours you can model either, but unexpected events or changes outside of your control. Understanding the effect of a market downturn or period of illness where you are unable to work might enable you to create a safety net that offers you peace of mind.

Of course, the results of a cashflow model cannot be guaranteed and factors outside of your control, such as investment volatility, might also affect the outcome. Even so, it can be a valuable way to identify potential shortfalls or opportunities.

Contact us to time travel and discover how you could reach your goals

If you’d like to take a look at your financial future and understand what it could mean for your lifestyle, please get in touch. We can help you assess how the decisions you make could affect 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 Financial Conduct Authority does not regulate cashflow planning.

2024 is a historic election year – elections will take place in 50 countries. More than 2 billion voters will head to the polls in countries including the UK, US, France, and South Africa throughout the year. Political uncertainty can affect investment markets and there was evidence of this in June.

During market volatility, remember that markets have, historically, recovered in the longer term. And, for most investors, sticking to their long-term investment strategy makes financial sense.

Read on to find out what affected investment markets around the world in June 2024.

UK

Despite hopes that the UK economy had turned a corner when it exited a recession in the first quarter of 2024, GDP figures were disappointing in April. Official figures show the economy flatlined when compared to a month earlier.

Yet, the Bank of England (BoE) remains optimistic. The central bank raised its second-quarter growth forecast to 0.5% after it revised upwards its May 2024 prediction of 0.2%.

There was further good news for the BoE too – UK inflation fell to its official target of 2% in the 12 months to May 2024 for the first time since 2021. The news led to speculation that the bank would cut its base interest rate, but the Monetary Policy Committee opted to hold it at 5.25%.

The positive inflation data sets the stage for a rate cut later this year, with the BoE saying it will keep interest rates “under review”.

As inflation pressures started to ease, figures from the Insolvency Service suggest fewer businesses are failing. The number of firms that became insolvent fell by 4% in May when compared to a month earlier. Even so, the number is 3% higher when compared to the same period in 2023.

Readings from the S&P Global Purchasing Managers’ Index (PMI), which measures business conditions, are also positive. In May:

UK factories returned to growth with the most rapid expansion of output in two years. The boost was mainly supported by domestic demand, as new export orders fell.
The service sector lost momentum but still posted growth. The slower pace is partly due to new orders easing when compared to the 11-month high recorded in April.

Uncertainty as UK political leaders campaigned ahead of the 4 July 2024 general election was partly linked to the FTSE 100 index, which includes the largest 100 companies listed on the London Stock Exchange, falling by 0.4% on 4 June.

Amid political turmoil in France, London regained its crown as Europe’s biggest stock market, which Paris has held for the last two years. According to Bloomberg, as of 17 June, stocks in the UK were collectively worth $3.18 trillion (£2.52 trillion) compared to France’s $3.13 trillion (£2.48 trillion) valuation.

Europe

At the start of the month, the European Central Bank (ECB) slashed its three key interest rates by 25 basis points in the first cut since the start of the Covid-19 pandemic.

Yet, figures released by Eurostat just two weeks later showed inflation was 2.6% in the year to May 2024 across the eurozone, up from 2.4% in April. The news prompted some commentators to speculate the cut to interest rates had been made too soon.

PMI data was positive in the eurozone as business activity grew at the fastest rate this year. Of the top four economies in the bloc, only France contracted slightly, while Germany, Spain, and Italy posted growth.

President of France Emmanuel Macron called a snap election, which is set to be held between 30 June and 7 July. The election has added to the political uncertainty affecting markets.

Indeed, on 10 June, France’s CAC index, which is comprised of 40 of the most prominent listed companies in the country, was down 2%. The effects were felt in other stock markets too, with Germany’s DAX falling 0.9% and Italy’s FTSE MIB losing 0.95%.

In response to the snap election, credit ratings agency Moody’s issued France with a credit warning, stating there was an increased risk to “fiscal consolidation”. Citigroup also downgraded its rating for European stocks to neutral from overweight due to “heightened political risks”.

US

The New York Stock Exchange got off to a rocky start in June. On 3 June, a technical issue led to large fluctuations in the listed prices of certain stocks. Warren Buffett’s Berkshire Hathaway was affected by the glitch, which suggested shares had fallen in value by 99%. Fortunately, the issue was resolved within an hour.

The rate of inflation fell to 3.3% in May 2024 but remains above the Federal Reserve’s target of 2%.

The drop in inflation led to a boost for Wall Street. On 12 June, both the S&P 500 index, which includes 500 of the largest companies listed in stock exchanges in the US, and tech-focused index Nasdaq opened at all-time highs.

Figures from the US Bureau of Labor Statistics indicated that businesses are feeling confident about their future. 272,000 jobs were added in May, far higher than the 185,000 Wall Street has forecast. Yet, unemployment also increased slightly to 4%.

Tesla shareholders voted in favour of CEO Elon Musk’s huge $56 billion (£44 billion) pay package – the largest corporate pay package in US history by a substantial margin. The results of the annual general meeting led to Tesla shares rising by around 6.6%, which helped recover some of the 28% losses they’ve suffered so far this year.

Asia

Moody’s raised China’s growth forecast to 4.5%, up from 4%. While growth of 4.5% would be great news in many developed countries, it would mark a slowdown for China, which saw its GDP rise by 5.2% in 2023.

However, signs of a trade war starting between China and the EU loomed and could dampen growth expectations.

The EU notified China that it intended to impose tariffs of up to 38% on imports of Chinese electric vehicles. The move would trigger duties of more than €2 billion (£1.69 billion) a year. The announcement followed an investigation into alleged unfair state subsidies and similar tariff increases from the US earlier this year.

In retaliation, China opened an anti-dumping investigation into imported pork and its by-products from the EU. China is the EU’s largest overseas market for pork, which was worth $1.8 billion (£1.42 billion) in 2023.

Please note:

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

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

The tapering of the Personal Allowance means some higher-rate taxpayers effectively pay an Income Tax rate of 60%, sometimes without realising. Fortunately, if you’re affected, there could be ways to reduce your tax bill.

A report in the Telegraph suggests 1.35 million workers were affected by the 60% tax trap in 2023/24. Collectively, they paid an extra £4.7 billion to the Treasury. Read on to find out if you could unwittingly be paying a higher rate of Income Tax than you expect.

The tax trap affects those earning more than £100,000

You might think the highest rate of Income Tax is 45%, and officially you’d be correct. Most people pay the standard rates of Income Tax. In 2024/25, Income Tax rates and bands are:

Please note, that different Income Tax bands and rates apply in Scotland.

However, the Personal Allowance is reduced by £1 for every £2 you earn over £100,000. If you earn more than £125,140, you don’t have a Personal Allowance and pay tax on all your income.

For example, if you earn £101,000, on the £1,000 above the threshold, you’d pay £400 of Income Tax at the higher rate. In addition, you’d lose £500 of your Personal Allowance, so this portion of your income would also be subject to Income Tax at 40%, adding up to £200.

So, out of the £1,000 you’ve earned above the tapered Personal Allowance threshold, you’d only take home £400 – a 60% effective tax rate. It’s led to the tapering being dubbed a “stealth tax” in the media.

Further compounding the issue is the fact that the Personal Allowance and Income Tax bands are frozen until 2028.

While the thresholds are frozen, many people are likely to receive wage increases. As a result, more people are expected to be caught in the 60% tax trap in the coming years.

Don’t forget your salary might not be your only income that’s considered when calculating your Income Tax bill. For example, you could be liable for interest earned on savings that aren’t held in a tax-efficient wrapper.

3 legal ways to avoid falling into the 60% tax trap

If you’re affected by the tapered Personal Allowance, thinking about how you structure your earnings may provide an opportunity to reduce how much you’re giving to the taxman. Here are three excellent options you might want to consider.

1. Boost your pension contributions

One of the simplest ways to avoid paying 60% tax if you could be affected is to increase your pension contributions.

Your taxable income is calculated after pension contributions have been deducted. As a result, boosting pension contributions could be used to reduce your adjusted net income so you retain the full Personal Allowance or reduce the proportion you lose.

Increasing pension contributions could help you secure a more comfortable retirement too. However, keep in mind that you cannot usually access your pension savings until you’re 55 (rising to 57 in 2028).

2. Use a salary sacrifice scheme

If your workplace has a salary sacrifice scheme, it could also provide a useful way to reduce your overall tax liability.

Salary sacrifice enables you to exchange a part of your salary for non-cash benefits from your employer. This could include higher pension contributions, childcare vouchers, or the ability to lease a car.

By essentially giving up part of your income, you might be able to bring your taxable income below the threshold for the tapered Personal Allowance.

You should note that salary sacrifice options vary between employers, so it may be worthwhile to check your employee handbook to see if any options could suit you.

3. Make charitable donations from your income

If you’d like to reduce your Income Tax bill and support good causes, you could make a charitable donation. Again, by deducting donations from your salary before tax is calculated, you could manage how much of the Personal Allowance you lose.

Contact us to talk about how to manage your tax bill effectively

There may be other steps you could take to reduce your overall tax bill. A tailored financial plan will consider your tax liabilities, including from other sources, such as your savings and investments, to highlight potential ways to cut the amount you pay to the taxman.

If you’d like to arrange a meeting, please get in touch.

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients 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 tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.

Every day you’ll take mental shortcuts, known as “heuristics”, to help you solve problems quickly. This can be incredibly useful in some circumstances and help you avoid becoming overwhelmed by decisions. Yet, when you’re making large decisions, including how to handle your finances, it could be harmful.

Heuristics are necessary for people to navigate their day. Indeed, according to a report in Harvard Business Review, the average adult makes more than 30,000 decisions every day, from what you’ll eat to what you’ll say.

Gerald Zaltman, a Harvard Business School professor, suggests that 95% of our cognition occurs in the subconscious mind. He adds this is necessary – your brain would short-circuit if it had to weigh up each decision one by one.

So, mental shortcuts are essential for functioning. However, this “autopilot mode” could lead to bias and decisions that aren’t right for you. Recognising which decisions would benefit from more careful analysis could help you seek out opportunities and identify potential risks you might have overlooked if you took a mental shortcut.

4 mental shortcuts that may affect your financial decisions

1. Anchoring effect

Anchoring effect is a cognitive bias where your view and decisions are fixed on a particular piece of information.

For example, if you read in the newspaper that a company is poised to grow and its value is above the current market valuation, you might fixate on this number. You may dismiss new information that suggests the initial figure was incorrect because you’ve anchored your view.

It’s a bias that could lead to you minimising potential risks or failing to adjust your view as circumstances change.

Anchoring can be difficult to avoid, but taking time to review new information and the reliability of sources could help identify where it may affect your decisions.

2. Herd mentality

Herd mentality can affect many areas of your life, not just your financial decisions.

The instinct that there’s safety in numbers could lead to you following the crowd even if it’s not the right option for you. You may simply believe that a large group of people can’t all be wrong, or that others have carried out research, so you can rely on their decision-making skills.

However, herd mentality overlooks the fact that a decision that may be right for one person isn’t necessarily the right option for another.

If you hear a group of your friends are investing in a particular fund that they’re excited about, you might be tempted to do the same. Yet, perhaps they’re investing with a very different time frame or are taking more risk than is appropriate for you.

Assessing financial opportunities with your circumstances in mind could help you avoid following the crowd.

3. Confirmation bias

Confirmation bias refers to the tendency to favour information that supports your beliefs and ignore the data that refutes them.

Confirmation bias can be a challenge when you’re making financial decisions because it might mean you bypass key pieces of information simply because it doesn’t support your preconceived notions. So, it could mean steps to carry out research aren’t as valuable as you might expect.

Not letting your views cloud how you view information can be challenging. Yet, taking a step back to weigh up the value of the information objectively could help you make better financial decisions.

4. Familiarity bias

You might gain some comfort from sticking to what you know. However, familiarity bias could mean you miss out on opportunities and, in some cases, might even mean you’re taking more risk.

For instance, from an investment perspective, it might mean that your portfolio is heavily invested in one geographical region or sector. While the familiar might feel “safer”, the lack of diversity in your investment could actually mean you’re taking more risk.

Similarly, many people choose to hold their money in a savings account where it could be falling in value in real terms once inflation is considered because they’re scared to invest.

According to a survey from interactive investor, 78% of UK adults don’t invest and a lack of knowledge is one of the key reasons. While investing isn’t right in all circumstances, some people may be neglecting to consider investing simply because saving is more familiar.

Working with a financial planner could help you step out of your comfort zone to seize opportunities that are right for you.

Working with a financial planner could help you view your finances from a different perspective

Looking at your finances from a different perspective could help you identify where heuristics could be affecting your decision-making skills. A tailored financial plan could help you set out a path that’s right for you, based on your goals and circumstances, and may help you reduce the effect of bias.

If you’d like to arrange a meeting to discuss how we could support your goals, please get in touch.

Please note:

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

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.