Category: News

While the State Pension may not be your main source of income in retirement, it’s often an important one. If you’re not on track to receive the full amount, there might be things you could do to boost it.

For 2023/24, the full new State Pension is £203.85 a week, adding up to around £10,600 a year. However, your National Insurance (NI) record will affect the amount you receive. 

To claim the full new State Pension, you’ll usually need 35 qualifying years on your NI record. If you have between 10 and 35 years, you’ll normally receive a proportion of the State Pension. 

There are many reasons why you may have gaps in your NI record, such as taking time away from work to raise children. If you don’t have the 35 years needed to claim the full amount, reviewing how to boost your State Pension entitlement could be worthwhile.

You can use the government’s State Pension forecast tool to see how much you could receive. 

The State Pension may be valuable in retirement for two key reasons.

• It provides a guaranteed income. In retirement, your other sources of income may not be reliable, so having a guaranteed base income that will cover essentials could improve your financial resilience. Knowing that you’ll receive the State Pension every four weeks could provide peace of mind. 

• It increases each tax year. Under the triple lock, the State Pension rises each tax year by at least 2.5%. This can help preserve your spending power throughout retirement, as the cost of goods and services may rise. In 2023/24, pensioners benefited from a record 10.1% increase in the State Pension due to high inflation. 

To increase your State Pension, you often need to add more qualifying years to your NI record. Here are two options that could boost your retirement income by thousands of pounds. 

1. Claim NI credits if you’re caring for grandchildren 

Working parents struggling to balance childcare costs and careers often turn to grandparents or other family members for support. But did you know if you’re under the State Pension Age and provide care for a child under the age of 12 regularly, you could apply for NI credits? 

According to Royal London, almost 6 in 10 over-50s aren’t aware NI credits can be claimed as a carer or grandparent.

In fact, it’s estimated that grandmothers could be missing out on more than £6,300 worth of State Pension payments for every year of NI contributions they don’t claim. 

There’s no minimum number of hours you need to look after the child.

However, the child’s parent must register for Child Benefit, even if they earn too much to receive it. Child Benefit entitles the parent to an NI credit if they aren’t working or earn a low income. If they aren’t claiming the NI credit, they can transfer it to those providing childcare, such as grandparents.  

If you’ve cared for a child under 12 in the past, you may be able to backdate your claim to 2011 and boost your State Pension. 

2. Purchase additional qualifying years 

The government has extended the deadline for a scheme that allows you to fill in gaps in your NI record until April 2025. 

Currently, you can fill in gaps going back to 2006. After the April 2025 deadline, you’ll only be able to fill in gaps from the last six tax years. So, it could be worth reviewing your NI record to identify potential gaps now. 

The cost of a full NI year will vary depending on which tax year you’re filling in. However, for some people, purchasing an NI year could pay for itself within a few years of reaching the State Pension Age. 

Don’t immediately fill in gaps you find – take some time to work out if it could boost your State Pension first. If you’re still several years away from retiring, will you reach the necessary 35 qualifying years without filling in the gaps?

If you decide to fill in gaps in your NI record, you’ll need to contact HMRC by phone and send the money either through bank transfer or cheque.

Do you have questions about your State Pension and other income in retirement?

We can help you create a retirement plan that combines the State Pension with other sources of income you may have. Please contact us to talk about how you could use your assets to fund your retirement. 

Please note:

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

Over the last few months, you’ve read about the potential benefits of investing, what to consider when creating a risk profile, and how you could improve tax efficiency. 

Now, read on to discover why reviewing your investment portfolio is a crucial part of managing your assets over the long term. 

Reviewing your investments too frequently could encourage short-term thinking 

Reviewing your investments provides an opportunity to ensure your portfolio still suits your needs and understand whether you’re on track to meet your goals. So, how frequently should you be reviewing your portfolio?

With daily headlines about company stocks that have risen or fallen, it can seem like you should be checking your portfolio every day or week. Yet, this could encourage a short-term mindset when managing your investments. 

Looking at your investments too frequently can make it tempting to try and time the market. While selling high and buying low is something every investor wants, many factors affect the markets and it’s impossible to consistently time it right. It could mean you miss out on long-term growth opportunities. 

Instead, reviewing your portfolio once or twice a year is often enough for many long-term investors. This frequency may help you strike a balance between understanding how your portfolio is performing and focusing on the long term. 

4 key questions to answer during the review process 

1. Have your long-term investing goals changed?

The reasons you’re investing may affect which options are right for you. As well as looking at figures, taking some time to review your investment goals may be important. 

If your goals have changed, it could affect the investment time frame and how much risk is appropriate. As a result, you might adjust your portfolio to ensure it continues to reflect the outcomes you want. 

2. Are your financial circumstances the same?

As well as your goals, you may want to consider if your financial circumstances have changed since your last review.

Again, your financial security and other assets you hold often influence your risk profile when investing. So, significant changes to your situation could mean adjustments to your portfolio make sense.

For example, if you’re approaching retirement, you may decide to reduce the amount of risk you’re taking to preserve your wealth. Or, if you’ve received a wealth boost, you might want to increase the size of your portfolio and allocate a proportion of it to higher-risk investments. 

3. How has your portfolio performed?

While it’s often a good idea not to review your portfolio’s performance too frequently, the returns are a crucial part of the review process. 

If your portfolio hasn’t performed as well as you’d hoped, be cautious of making knee-jerk decisions in response. The key thing is to focus on long-term trends rather than short-term movements.

Volatility is part of investing, and it’s normal to see the value of your portfolio rise and fall. Yet, when you look at the performance over the years, the peaks and troughs often smooth out. 

Even after market shocks, such as when the markets fell sharply during the Covid-19 pandemic, historically, they have recovered and gone on to deliver returns when you look at the bigger picture.

Rather than reviewing just the last 6 to 12 months of data, consider how your portfolio has performed since you set it up. You may also want to consider long-term projections too, although keep in mind these cannot be guaranteed. 

As well as looking at your portfolio’s performance, reviewing the wider market may be useful. If your portfolio has suffered a dip, has the rest of the market fared similarly? 

4. What investment fees have you paid?

The fees you pay when investing will reduce your overall returns. As a result, it’s also worth considering what fees you’re paying, how they relate to your portfolio, and how they compare to alternative options. 

We can help create and manage your investment portfolio 

Whether you’re just starting to invest or want support managing your portfolio on an ongoing basis, we could offer professional advice. 

An investment strategy that’s tailored to you could reflect your aspirations, financial circumstances, and tax-efficient opportunities. We can also incorporate your investments into a wider financial plan that’s focused on your goals. 

Please contact us if you have any questions about investing or would like 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.

For many people, their pension is a crucial part of their retirement plan. With Pension Awareness 2023 starting on 11 September, it’s the perfect time to learn more about your pension savings.

Despite pensions often being essential for reaching retirement goals, a survey suggests many savers lack pension knowledge and don’t plan to seek support.

According to a report in FTAdviser, 31% of savers either don’t know where to go for retirement advice or won’t accept support. In fact, 26% of over-55s say they won’t seek any support in the run-up to retirement. For some, not seeking advice could place their retirement at risk.

The potential knowledge gap is especially concerning given the current cost of living crisis. Rising prices could hamper people’s ability to save and place pressure on those that have already retired, who may not have planned for a period of high inflation.

Similarly, the Great British Retirement Survey 2022 found 59% of retirees worry about the rising cost of living.

The survey results also suggest people tend to be overoptimistic about their income in retirement and aren’t sure how much they need to save to reach their goals. Not fully understanding your pension or what steps you could take to secure the retirement you want could lead to the next chapter of your life falling short of your expectations.

So, here’s why you should embrace the Pension Awareness campaign to boost your knowledge.

1. Planning for retirement could mean you’re more likely to reach your goals

It’s never too soon to start planning for your retirement. Having a goal in mind and being aware of the steps you need to take to reach it could mean you’re more likely to enjoy the retirement you want.

Without a target for your pension, it can be difficult to understand what income it may provide. According to the Great British Retirement Survey, 6 in 10 pension savers have no idea what their income will be in retirement.

Taking steps to improve your knowledge about your pension now could lead to more financial freedom later in life.

2. You could identify potential gaps in your pension

Analysis from Scottish Widows suggests 1 in 3 Brits could struggle financially in retirement. A third of people are on track to receive a retirement income that means they’re “at risk of not covering their needs”.

Engaging with your pension now could help you identify potential gaps sooner. It could provide you with an opportunity to increase contributions or take other steps to bridge the shortfall. If you spot a gap in your 40s, you may have more options to close it compared to if you didn’t review your pension until you were ready to retire.

3. It could put your mind at ease

Retirement is a big step and you may need to make decisions that could affect your finances for the rest of your life. So, it’s natural to worry about if you have “enough” or how you’d cope if the unexpected happens.

Taking some time to learn more about your pension and seeking support if you need it could provide peace of mind. Tailored financial planning could help you understand the lifestyle your pension will realistically provide and what you can do to improve your financial resilience.

4. You could find ways to get more out of your pension contributions

Often, pension contributions are deducted from your salary automatically. So, you may give little thought to whether you’re getting the most out of your money.

There may be things you can do to boost your pension savings or even reduce how much tax you pay now. For example:

• Are you claiming all the pension tax relief you’re entitled to?
• Would your employer increase their contributions if you put more into your pension?
• Could salary sacrifice schemes reduce your tax liability now?

Learning more about how pensions work and why they could be a useful way to save for retirement may help your savings go further.

5. You may better understand how your pension is invested

Usually, your pension savings are invested. By investing, the aim is that your pension will grow over the long term.

If you’ve not selected how you’d like your contributions to be invested, they will often be in your provider’s default fund. It’s worth taking a look at how your pension is invested and what the other options are. Typically, a pension provider will offer several funds to choose from, with various levels of investment risk.

How you invest your money will have a direct effect on the value of your pension when you retire. So, spending some time understanding how it could help your savings grow to support your goals may be worthwhile.

We can offer you advice about your pension

Retirement advice that’s tailored to you could provide peace of mind when you reach the milestone and help you get the most out of your money. If you’d like to talk about your pension, whether retirement is years away or just around the corner, 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.

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. 

Investing may provide a useful way to grow your wealth, but getting started can be overwhelming. There are some important decisions to make when investing that could affect the outcomes and the tax you’re liable for, and we’re here to offer support.

Last month, you read about investment risk and what to consider when creating a risk profile. Now, read on to discover what your options are if you’re ready to start investing.

Shares v funds: What’s the difference?

Investing is filled with terms that can seem confusing. When you’ve looked at investing, you may have come across options like investing in shares or through a fund.

You may want to consider both options and understanding the differences is important.

Shares

When you purchase a share, you’re investing in a single company. When you hold a share, you essentially own a very small portion of the business. You can then sell the share at a later date and, hopefully, make a profit.

The value of shares is affected by demand. A whole range of factors can affect demand, from company performance and long-term plans to global economic conditions.

If you purchase shares, you’re in control and can decide which companies to invest in and when to sell them.

It’s normal for the value of shares to fluctuate, even daily. It can be tempting to try and time the market by buying when the price of a share is low and selling when it’s high. However, consistently timing the market is impossible. For most investors, buying shares to hold them for the long term often makes sense.

Funds

A fund pools together your money with that of other investors. This money is then used to purchase shares in a range of companies.

A fund is managed on behalf of investors. So, you wouldn’t make decisions about which companies to invest in or when to buy or sell shares.

There are lots of funds to choose from, so you can select an option that suits your risk profile and goals.

Funds can be a useful way to ensure your investments are diversified. As your money is spread across many companies, it can help create balance. When one company performs poorly, the success of another could balance this out. So, the value of your investment in a fund may be less volatile than individual shares.

However, the value of your investment will still rise and fall, and investing with a long-term plan is often advisable.

2 tax-efficient ways to invest and reduce your potential tax bill

When you sell certain assets and make a profit, you could be liable for Capital Gains Tax (CGT). This includes investments that aren’t held in a tax-efficient wrapper.

For the 2023/24 tax year, individuals can make £6,000 of gains before CGT is due – this is known as the “annual exempt amount”. If profits from the sale of all liable assets exceed this threshold, you could face a CGT bill. In 2024/25, the annual exempt amount will fall to £3,000.

The rate of CGT depends on your other income, but when selling investments, it can be as high as 20%. So, CGT may significantly affect your profits.

The good news is that there are tax-efficient ways to invest that could reduce your bill, including these two:

1. Invest through a Stocks and Shares ISA

ISAs provide a tax-efficient way to save and invest. For the 2023/24 tax year, you can add up to £20,000 to ISAs. The returns made on investments held in a Stocks and Shares ISA are not liable for CGT.

There are many ISAs to choose from. They can hold shares or you can invest in a fund through one. Usually, you can access your investments that are held in an ISA when you choose.

2. Use your pension to invest for the long term

If you’re investing with your long-term wealth in mind, you may want to consider pensions. Pensions are tax-efficient for two reasons.

• First, you could claim tax relief on the contributions you make. This provides a boost to your contributions, which may grow further too, as tax relief would be invested alongside other deposits.
• Second, your investment returns are not liable for CGT when held in a pension. Instead, you could pay Income Tax when you start to access your pension once you reach retirement age.

In 2023/24, you can usually add up to £60,000 (up to 100% of your annual earnings) into a pension while retaining tax relief – this is known as your “Annual Allowance”.

If you are a high earner or have taken an income from your pension already, your Annual Allowance may be lower. Please contact us if you’re not sure how much you can tax-efficiently save into a pension.

Before you start investing in a pension, one key thing to consider is when you’ll want to access the money. Usually, you cannot make withdrawals from your pension until you are 55, rising to 57 in 2028. So, your goals and other assets should play a role in deciding if investing more into a pension is right for you.

Contact us if you have questions about your investment portfolio

We can work with you to create an investment portfolio that suits your risk profile and goals. We’re also on hand to answer any questions you may have, from deciphering financial jargon to explaining tax-efficient options. Please contact us to arrange a meeting to talk about your investments.

Once you’ve set up an investment portfolio, how often should you review the performance? Why is ongoing advice useful? Read our blog next month to learn about managing investments on an ongoing basis.

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.

Inflation continues to be a challenge for economies around the world, but figures released in June suggest the pressure is starting to ease. Read on to discover some of the factors that influenced investment markets during June. 

Remember, you should take a long-term view when investing, as markets can experience short-term volatility. If you have any questions about the market or what movements mean for you, please get in touch. 

UK

Inflation in the UK remains stubbornly high – it was 8.7% in the 12 months to May 2023.

In response to high inflation, the Bank of England once again increased its base interest rate. As of June 2023, the rate is 5% – the highest it’s been since 2008. The move is set to place significant pressure on both households and businesses. 

Rising interest rates are having a direct effect on mortgages. According to Moneyfacts, the average two-year fixed-rate deal hit 6% and thousands of families will face higher outgoings as a result. 

In fact, the National Institute of Economic and Social Research warned 4% (1.2 million) of all households will run out of savings because of higher mortgage repayments and become insolvent by the end of the year.

Unsurprisingly, rising mortgage interest rates are affecting the property market. New mortgage approvals and property prices have both stalled. Ratings agency Moody’s predicts property prices could fall by 10% over the next two years. 

Despite increasing interest rates for borrowers, many people aren’t seeing the interest rate on their savings increase as much. The chair of the Treasury Committee, Harriet Baldwin MP, said banks need to “up their game” to encourage saving. 

From a business perspective, the Insolvency Service linked interest rates and the rising cost of living to the 40% increase in company insolvencies in May when compared to a year earlier. 

Retail businesses are also facing difficulties as consumers curb their spending. Business advisory firm BDO’s High Street Sales Tracker shows retail sales fell 1.5% in May when compared to 2022. Online sales were hit particularly hard and declined by 3.3%. 

With many businesses uncertain about the months ahead, some are cutting back on hiring new employees. A job survey from KPMG reveals permanent staff appointments fell for the eighth consecutive month.

Economic data for the UK paints a mixed picture.

The good news is the UK avoided falling into a recession, though experts warn there are still risks. Growth in April 2023 means the UK economy has finally recovered from its Covid-19 slump and it is now above pre-pandemic levels. 

However, the national debt hit 100% of GDP. National borrowing is at its highest level since 1961. Figures show borrowing more than doubled in May as it was affected by the cost of energy support schemes, inflation-linked benefit payments, and interest payments on debt. 

Despite the challenges of high inflation and Brexit, there was some good news for the financial services sector. According to a report from EY, the City of London is still the most attractive destination for financial services investment in Europe. 

Europe 

The eurozone has fallen into a recession. Data from Eurostat shows eurozone GDP fell by 0.1% between January and March this year, following a decline in the final quarter of 2022.  

However, the wider EU swerved a recession after GDP increased by 0.1% in the first three months of the year. 

Inflation in the eurozone fell to its lowest level since the start of the war in Ukraine – consumer prices increased by 6.1% in the year to May. This was partly attributed to energy prices falling.

The International Monetary Fund (IMF) said rising corporate profits were fuelling Europe’s inflation, as companies have increased prices by more than spiking costs of imported energy. The organisation said profits accounted for 45% of the price rises since the start of 2022. 

Despite inflation easing, Christine Lagarde, president of the European Central Bank (ECB), warned there was no clear evidence that underlying inflation in the eurozone had peaked yet. 

In response to inflation figures, the ECB increased interest rates by 25 basis points. Lagarde also said the central bank could raise rates again in July.

The challenges firms are facing were reflected in the Ifo Institute’s business climate index as Germany experienced a larger decline than expected. Clemens Fuest, the president of the organisation, said: “Sentiment in the German economy has clouded over noticeably.” 

US

Inflation in the US fell in May when compared to a month earlier to 4%. Declining energy prices, which were 11.7% lower than they were a year ago, helped to reduce the overall rate. 

There was good news in the US when the Labor Department announced 339,000 jobs were added in May – far higher than the 190,000 previously predicted. It led to the Dow Jones Industrial Average, an index of 30 of the US’s largest companies, jumping by 2.1% at the start of June. 

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.

Investing in property is often seen as a savvy way to boost your long-term wealth. But, if you’re thinking about becoming a landlord, there are three taxes you need to factor into your plans to avoid an unforeseen bill. 

Property prices have steadily increased in recent decades, so it’s not surprising that people are considering property investments. Even after short-term downturns in the market, such as the one that followed the 2008 financial crisis, property prices have recovered. 

The average UK house price at the start of 2013 was almost £168,000, according to Land Registry data. A decade later, it had increased to more than £288,000. So, historically, property investors have had the opportunity to generate a sizeable return. 

Of course, as well as the property increasing in value, landlords hope to receive a regular income from tenants too. 

High inflation and stock market volatility mean more people are thinking about how they could use property to improve their long-term financial wellbeing. A report in FTAdviser suggests a quarter of savers plan to invest in property to support their retirement goals.

Before you move ahead with plans to purchase a buy-to-let property, there are lots of pros and cons you should weigh up first. Among the areas to consider are the taxes associated with buying a second property and being a landlord, including these three. 

1. Stamp Duty

When buying a second property, the first tax charge you’re likely to need to pay is Stamp Duty. 

This is a tax you pay when purchasing property or land. There is usually a 3% Stamp Duty surcharge when buying a second property, including a property you intend to use as a buy-to-let.

For 2023/24, the Stamp Duty tax rates for a second property in England and Northern Ireland are:

The government’s Stamp Duty calculator can help you understand what charge you may need to pay. 

You should note, Scotland and Wales have similar taxes when purchasing property. However, the thresholds and rates are different. 

Normally, you’ll need to pay any Stamp Duty due within 30 days from the completion of the purchase. As a result, it’s essential that you’ve calculated the bill and included it in your budget for buying a buy-to-let property. 

2. Income Tax

If you’re renting out a property, you’ll usually pay Income Tax on the profit. 

The profit you make will be added to any other income you receive, such as your salary. So, the rate of Income Tax you pay as a landlord will depend on which tax bracket you’re in. You should be mindful of property income pushing you unexpectedly into a higher tax bracket. 

There are potentially ways to reduce your Income Tax bill as a landlord. However, allowances are not as generous as they were in the past, so it’s important to calculate your expected bill when deciding if investing in property is right for you. 

You can deduct “allowable expenses” from your rental income when calculating profit. These expenses must be wholly and exclusively for the purpose of renting out the property.

You could, for example, deduct general maintenance work, like repairing a leaking roof, treating damp, or replacing existing fixtures and fittings. However, you cannot deduct improvements, such as switching laminate kitchen countertops for high-end granite ones.

It’s also no longer possible to deduct mortgage expenses from your rental income to reduce your tax bill, although you may receive a tax credit on 20% of your mortgage interest payments.

So, while there may be ways you can reduce Income Tax on the rental yield, you could still face a significant bill that you need to weigh against the profit. 

3. Capital Gains Tax

When you’re thinking about investing in property, you may not have considered when you’ll sell it or the tax charge you could face when you do. However, it’s a crucial part of understanding if buy-to-let makes financial sense for you. 

You pay Capital Gains Tax (CGT) when you make a profit when you sell certain assets, including property that isn’t your main home. The CGT rate depends on the rate of Income Tax you pay and the size of your gain. For residential property, it can be as much as 28%. 

The CGT annual exempt amount could provide you with a way to reduce the bill when you sell buy-to-let property. In 2023/24, you can make a profit of up to £6,000 before CGT is due. In 2024/25, the CGT exempt amount will halve to £3,000. 

Keep in mind that the CGT exempt amount covers gains made when you sell some other assets too. So, if you’ve sold shares for a profit during the same tax year, you’ll need to consider how this would affect your CGT exempt amount and your overall bill. 

Calculating CGT can be complex, and seeking tailored financial advice can be useful. 

Do you have questions about buy-to-let mortgages?

There are some key differences between traditional and buy-to-let mortgages. If you’re considering buying a buy-to-let property and have questions, from how much you could borrow to how much the repayments could be, 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.

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

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

When people think about inheritances, they often view it as a lump sum. But you could leave your loved ones an inheritance that will deliver a passive income, and, in some cases, it’s an option that could improve their financial security.

Take the work of author J. R. R. Tolkien – his family still benefit from the passive income the copyright his work delivers 50 years after he passed away. 

More than 80 years after the first edition of The Hobbit was released, Tolkien’s work is still hugely popular. Every year, his works generate tens of millions of pounds in royalties. 

In fact, it’s thought Amazon paid as much as $250 million (£198 million) for the right to produce TV shows based on Tolkien’s work in 2017 – that’s 1,000 times more than Tolkien sold the movie and merchandise rights for in 1969. This money goes to the Tolkien estate. 

Once you add up royalties from the books, film adaptions, and a range of licenced products, the Tolkien estate provides the author’s descendants with a huge amount of financial freedom. 

You don’t have to pen a literary classic to leave your loved ones with assets that could provide them with a passive income. 

There are lots of options that may be right for your family. For instance, passing on dividend-paying shares could provide them with an income. Or leaving behind a buy-to-let property is another option.

If you’re worried about how your family will cope financially over the long term or manage a lump sum, an inheritance that delivers an income could put your mind at ease. However, it may not be straightforward and there are some questions to consider first. 

1. How would you pass the assets on?

If you want to leave a passive income to your family, there’s more than one way to do so. You should weigh up the pros and cons of the different options, including these three: 

• Gifting during your lifetime: You may want to pass on assets during your lifetime. This could improve your loved ones’ financial security now and mean you can see the benefits of your gift. Before gifting, assessing your own financial security is useful – could taking assets out of your estate now affect your lifestyle or security in the future? 
• Leaving assets in a will: By writing a will, you can state who you want to receive assets when you pass away. Assets would usually be given directly to the beneficiary once the probate process is complete. 
• Placing assets in a trust: If you want to place restrictions on how and when the assets can be used, a trust may provide a solution. For example, you can place assets that will deliver a passive income in the trust, but not allow the beneficiary to sell the assets. Trusts can be complex and it’s important they’re set up with your goals in mind, so legal and financial advice may be useful. 

In some cases, you may want to mix the above options and still leave a traditional inheritance. For example, your child may receive a passive income through shares you’ve placed in a trust and receive other assets when you pass away because you’ve named them in your will. 

A tailored estate plan allows you to create a solution that suits your goals.

2. What tax could be due on your estate and the income the assets generate? 

If the value of your entire estate exceeds certain thresholds, it may be liable for Inheritance Tax (IHT). With a standard rate of 40%, IHT can significantly reduce what you leave behind for loved ones, and you may want to consider which assets your family could use to pay a potential bill.

There are often steps you can take to reduce a potential IHT bill during your lifetime. If IHT is a concern, please contact us to talk about the steps you could take. 

As well as IHT, if your family receive an income from the assets, they may need to pay Income Tax on the gains. The rate of tax they pay will depend on other income they receive, such as their salary. So, understanding the tax position of your beneficiaries might be important when you’re deciding how to pass on wealth. 

In addition, if they decided to sell the assets, they may need to pay Capital Gains Tax. So, understanding how they would use the assets they inherit could help minimise a tax bill. 

3. Does inheriting a passive income make sense for your beneficiaries? 

Before you decide to leave loved ones a passive income, it may be useful to discuss your plans with your beneficiaries.

Understanding what their goals and challenges are can help you leave an inheritance that suits their needs. While a passive income may mean they are financially stable, it might not be suitable for other goals. For example, if they want to purchase a home, a lump sum inheritance could make more sense. 

Of course, you can pass on passive income assets to your loved ones without restrictions on how they use it. So, they could choose to sell the assets if they’d prefer a lump sum. 

You could also involve your family in the estate planning process. It would provide an opportunity to talk about the different options and how they might use an inheritance.

Introducing your loved ones to financial planning could mean they make informed decisions that improve their financial wellbeing in the short and long term. 

If you involve your family in the process, you don’t have to share all the details of your financial plan. You can decide which aspects of the plan and assets you discuss. 

Get in touch to talk about your estate plan and passing on a passive income 

If you want to discuss how you could support your family with a passive income, please contact us.

We can help you understand what your options are and how you could provide long-term financial support to your loved ones through an inheritance. We can also work with children, grandchildren, or other beneficiaries to ensure you’re all on the same page and they get the most out of the gift you leave them. 

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 will writing, estate planning, or tax planning. 

After more than a decade of low interest rates, many people will be pleased to see the amount their savings are earning is starting to rise. Yet, it could mean you need to pay a tax charge. 

Interest from saving accounts may be liable for Income Tax. When the average interest rate was below 1%, you usually had to have a substantial amount held in cash accounts to face a tax charge. However, as interest rates rise, you could unexpectedly cross the tax threshold.

So, read on to find out when you need to pay tax on interest and how you could avoid a bill. 

Do you benefit from the Personal Savings Allowance?

The Personal Savings Allowance (PSA) lets you earn interest on savings without paying tax. Not everyone benefits from the PSA, and the amount varies depending on your Income Tax bracket.

For 2023/24, the PSA is:

• £1,000 a year if you’re a basic-rate taxpayer
• £500 a year if you’re a higher-rate taxpayer
• £0 if you’re an additional-rate taxpayer. 

The PSA covers any interest you earn from savings accounts, as well as corporate bonds, government bonds, and gilts. It could also include interest earned on other currencies you hold in a UK-based savings account.

If the interest you earn exceeds the PSA, or you don’t benefit from it, it’s added to your other income when calculating tax liability. So, if you’re an additional-rate taxpayer, you could pay 45% tax on the interest your savings earn. 

Usually, HMRC will make changes to your tax code to cover the tax charge on the interest you earn. For example, you may get a lower Personal Allowance if you exceeded the PSA in the previous tax year.

You don’t normally need to act to pay the tax, but you should let HMRC know if the interest you earn is no longer above the PSA so they can adjust your tax code accordingly. 

Using your ISA allowance could reduce your tax bill

If you’re not using your ISA allowance, doing so could reduce your tax bill.

In 2023/24, your annual ISA allowance is £20,000. The interest cash savings generate when they’re held in a Cash ISA are free from Income Tax. So, if you could exceed the PSA, it’s worth reviewing if you’re using your full ISA allowance and the interest rates available on Cash ISAs. 

To access the most competitive interest rates from an ISA, there may be additional requirements. For instance, some may require you to deposit a set amount each month or won’t allow you to make withdrawals for several years. Make sure you assess the terms and conditions of an account and that it suits your needs first. 

A savings account may not be the most appropriate place for your money

While interest rates are increasing, if you benefit from the PSA, you’ll typically need to have a substantial amount held in your savings account before a tax charge is due. 

According to MoneySavingExpert, as of May 2023, a top easy access account pays an interest rate of 3.71% (AER). With this interest rate:

• A basic-rate taxpayer could place £26,954 into the account before exceeding the PSA
• A higher-rate taxpayer could deposit £13,477 into the account before facing a tax charge.  

Savings accounts play an important role in many financial plans. As well as being useful for your day-to-day spending, they often make sense for your emergency fund, which you want easy access to. However, you should be mindful of keeping large sums in cash accounts, as the value may fall in real terms.

While an interest rate of 3.71% may seem good when you compare it to recent years, it’s still much lower than the rate of inflation. When the cost of goods and services rises at a faster pace than your savings are growing, the value of savings in real terms decreases. 

If you could face a tax charge because you’re holding large sums in cash, it may be worth looking at alternatives. One option, depending on your circumstances, could be to invest, which may potentially deliver returns that keep pace with inflation. However, there are still tax considerations if you decide to invest.

Creating a tailored plan could help you get the most out of your money and manage your tax liability. 

Contact us to review your financial plan

Factors outside of your control affect your financial plan, from rising interest rates to inflation. As a result, it’s important to review your plan with these circumstances in mind to ensure it’s still appropriate for reaching your long-term goals. 

If you have any questions about how rising interest rates or other factors may affect you, 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.

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.

Spending too much money in retirement is a common fear. Yet, some retirees struggle with the opposite challenge – they spend too little. Read on to find out why and what you can do if you’re too frugal in retirement.

Underspending once you give up work may be more common than you think. It’s easy to see why some retirees adopt this approach. As many retirees are responsible for managing their income and ensuring it lasts, there is a real danger of overspending and facing a shortfall in your later years. 

In fact, interactive investor’s The Great British Retirement Survey found 40% of retirees worry about running out of money. 

However, underspending can be dangerous in a different way. It could mean you don’t get the most out of your retirement despite working hard to achieve financial security later in life. 

Striking a balance to sustainably use your assets in retirement is just as much about your mindset as it is about wealth.  

Switching from a saving to a spending mindset

One of the key challenges for some retirees is that they need to change how they view and use money when they enter retirement. 

For decades, you may have prioritised building your wealth. From adding to an investment portfolio to contributing to a pension, a saving mindset may have been important to reach your goals. 

However, many people start to deplete the assets they’ve built up in retirement. Even though you’ve diligently saved so you can use your assets now, it can be difficult to switch to a spending mindset. After all, you may have developed positive saving habits over the years that are difficult to break. 

You may also have heard of “rules” about using your wealth that could curb your spending.

Perhaps you’ve read that you shouldn’t withdraw more than 4% each year from your pension. While this may be a useful guide, keep in mind that what is a sustainable income for you will depend on a whole range of factors, from the age you retire to other assets you may have.

So, creating a plan that’s tailored to you can give you the confidence to enjoy your retirement while considering long-term security.   

4 reasons why financial planning could help you spend more in retirement 

While you may think of financial planning as focusing on growing your wealth, it’s about creating a plan that helps you reach life goals. For some retirees, that plan could be to increase their spending. There are several ways financial planning could help, including: 

1. Assessing how long assets need to last

One of the difficulties of knowing how much to spend in retirement is that it’s impossible to know how long your assets need to provide an income.

Considering life expectancy is a key part of a financial plan. This means you can understand what spending is sustainable for you and provide peace of mind if you’re worried about running out of money. 

2. Demonstrating how the value of your assets could change

A useful financial planning tool is cashflow forecasting. It can help you visualise how different decisions will affect the value of your assets. 

Cashflow forecasting works by inputting information and making certain assumptions, such as estimated investment returns. While the results cannot be guaranteed, it’s an effective way to see the potential outcomes of different scenarios. 

So, you could see the effect on your assets if you increased the income you take from your pension by 20% throughout retirement. Or whether you could afford to double your outgoings for three years to tick off bucket list goals, before returning to a lower income. 

If you’re frugal in retirement because you’re worried about the long-term effects, cashflow forecasting could demonstrate how your decisions will affect your finances in the short and long term. 

3. Creating a reliable income if it’s right for you

Some retirees struggle with the uncertainty of their retirement income. For example, if you use flexi-access drawdown to access your pension, investment returns could affect its value. You may worry about what would happen if the markets experienced a downturn. 

There are ways to create a reliable income and some will find this provides peace of mind.

For example, an annuity is something you can purchase, which would then deliver an income for the rest of your life. If you know the income from an annuity will cover your essential expenses, you may feel more comfortable spending other assets on things you enjoy.

What’s appropriate will depend on your circumstances and priorities. You can speak to us about ways you could create a reliable income in retirement. 

4. Giving you someone to turn to

Even with a financial plan in place, there may be times when you still need some reassurance. Perhaps you’re not sure if investment volatility will affect your income sustainability. Or you want to withdraw a lump sum to spend on a once-in-a-lifetime experience, but don’t understand how it’ll affect your finances long term.

Once you have a financial plan in place, regular reviews with your financial planner can help you keep it up to date.

Want help understanding your retirement income? Contact us

If you are retired or nearing the milestone and aren’t sure how much you can sustainably spend, please contact us. We’ll help you review your finances and goals to create a plan that reflects your needs. 

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.