Tax Planning

Improving your financial health

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Staying on track to achieving specific financial goals

All of your financial decisions and activities have an effect on your financial health. To help improve your financial health during this period of rising inflation rates and household costs, we look at three areas that could help keep you on track to achieving your specific financial goals.

Beat the national insurance rise

The National Insurance rise from April this year has gone ahead for workers and employers despite pressure to reverse the decision to increase this by 1.25%, which is aimed at raising £39 billion for the Treasury. From April 2023, it is set to revert back to its current rate, and a 1.25% health and social care levy will be applied to raise funds for further improvements to care services.

One way to beat the National Insurance increase is by taking advantage of salary sacrifice, which means you and your employer pay less National Insurance contributions. Some employers may decide to maximise the amount of pension contributions by adding the savings they make in lower employer National Insurance contributions (NICs) to the total pension contribution amount they pay. This is also a way to make your pension savings more tax-efficient. If you choose to take up a salary sacrifice scheme option, you and your employer will agree to reduce your salary, and your employer will then pay the difference into your pension, along with their contributions to the scheme. As you are effectively earning a lower salary, both you and your employer pay lower NICs, which could mean your take-home pay will be higher. Better still, your employer might pay part or all of their NICs saving into your pension too (although they don’t have to do this).

Review your savings

Accounts and rates

Money held in savings accounts hasn’t grown much in recent years due to historically low interest rates. But with inflation running higher, your savings are now at risk of losing value in ‘real’ terms as you will be able to buy less with your money.

In some respects, inflation can be seen as a positive. It’s a sign of strong economic recovery post-COVID, increasing salaries and higher consumer spending. But it’s bad news for your cash savings. Relying solely or overly on cash might prevent you from achieving your long-term financial goals, which may only be possible if you accept some level of investment risk.

In an environment where the cost of living is rising faster than the interest rates received on cash, there is a danger that your savings will slowly become worth less and less, leaving you in a worse position later on. If you have money in savings, it is important to keep an eye on interest rates and where your money is saved. Rates are low and you will lose money in real terms if inflation is higher than the interest rate offered on your savings account or Cash ISA.

Shift longer term savings into equities

During times of high inflation, it’s important to keep your goals in mind. For example, if your investment goals are short term, you may not need to worry much about how inflation is impacting your money. But if you’re investing for the long term, inflation can have a larger impact on your portfolio if it’s sustained – although high inflation that only lasts for a short period may end up just being a blip on your investment journey.

If you have large amounts of money sitting in cash accounts one way to beat inflation is to invest some of your money in a long-term asset that will appreciate with time, thus increasing your buying power over time. There are many ways to invest your money, but most strategies revolve around one of two categories: growth investments and income investments.

Historically, equities have offered an effective way to outperform inflation. Cyclical stocks – like financials, energy and resources companies – are especially well-suited to benefit from rising prices. These sectors typically perform better when the economy is doing well, or recovering from a crisis. Depositing funds into your investment portfolio on a regular basis (such as monthly from salary) can help you invest at different prices, averaging out the overall price at which you get into the market. Known as pound-cost averaging, this can help you smooth out any fluctuations caused by market volatility over the long term. While volatility will always exist, it can be managed and reduced by taking this approach.

Would you like advice on how to improve your financial health? Speak to us to find out how we can help.

Family playing in the snow after discussing tax planning

New Year’s Tax Planning Opportunities

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Family playing in the snow after discussing tax planningMake full use of your relevant tax planning opportunities

With the tax year end (5 April) on the horizon, taking action now may give you the opportunity to take advantage of any remaining reliefs, allowances and exemptions.

We have provided some key tax and financial planning tips to consider prior to the end of the tax year. Now is also an ideal opportunity to take a wider review of your circumstances and plan for the year ahead.

Check your paye tax code

It’s important to check your tax code. Your tax code is based on the amount of tax you should be paying and the amount you can earn before tax applies. The tax code is the identifier that tells your employer how much tax should be deducted from your salary each time you get paid. If you have multiple employers or pension providers, you may get more than one tax code. If you’re on the wrong one, you could be paying HM Revenue & Customs (HMRC) more than you ought to be. On the other hand, you risk getting penalised if you’re paying too little.

Transfer part of your personal allowance

Married couples and registered civil partners are permitted to share 10% of their personal allowance between them. The unused allowance of one partner can be used by the other, meaning an overall combined tax saving.

The amount you can transfer is £1,260 for 2021/22 and a transfer is not permitted if the recipient partner pays tax at a rate higher than the basic rate of 20% (higher than the intermediate rate of 21% for Scottish taxpayers).

Contribute up to £9,000 into your child’s junior ISA

The fund builds up free of tax on investment income and capital gains until your child reaches age 18, when the funds can either be withdrawn or rolled over into an adult ISA. Relatives and friends can also contribute to your child’s Junior ISA, as long as the £9,000 limit for 2021/22 is not breached.

Tax-free savings and dividend allowances

For 2021/22, savings income of up to £1,000 is exempt for basic rate taxpayers, with a £500 exemption for higher rate taxpayers. The tax-free dividend allowance is £2,000 for all taxpayers. Married couples and registered civil partners could save tax by ensuring that each person has enough of the right type of income to make use of these tax-free allowances.

Individual Savings Account (ISAs)

You can put the entire amount into a Cash ISA, a Stocks & Shares ISA, an Innovative Finance ISA, or any combination of the three (or up to £4,000 out of the overall £20,000 allowance into a lifetime ISA if aged between 18 to 39). Usually when you invest, you have to pay tax on any income or capital gains you earn from your investments. But with an ISA, provided you stick to the rules on how much you can pay in, all capital gains and income made from your investments won’t be taxed. Every tax year you have an ISA allowance, which is currently £20,000 for the 2021/22 tax year.

Utilise any capital loses

If you realise capital gains and losses in the same tax year, the losses are offset against the gains before the capital gains tax exempt amount (£12,300 in 2021/22) is deducted. Capital losses will be wasted if gains would otherwise be covered by your exempt amount. Consider postponing a sale that will generate a loss until the following tax year, or alternatively realising more gains in the current year.

Maximise pension contributions

The annual allowance for 2021/22 is £40,000. To avoid an annual allowance tax charge, the pension contributions made by yourself, and by your employer on your behalf, must be covered by your available annual allowance. If you haven’t used all your allowances in the last three tax years, it might be possible to pay more into your pension plan by ‘carrying forward’ whatever allowance is left to make the most of the tax relief on offer, though bear in mind that your own personal tax-relievable contribution amount is still capped at 100% of your earnings.

However, different rules apply if you’ve already started to take money flexibly out of your pension plan and you’re affected by the Money Purchase Annual Allowance, or if your income when added to your employer’s payments are more than £240,000 and your income less your own contributions is over £200,000.

Pay pension contributions to save NICs

If you pay pension contributions out of your salary, both you and your employer have to pay National Insurance Contributions (NICs) on that salary. When your employer pays a contribution directly into your pension scheme, the employer receives tax relief for the contribution and there are no NICs to pay – a saving for both you and your employer.

You could arrange with your employer to cover the cost of the contributions by foregoing part of your salary or bonus. You must agree in writing to adjust your salary before you become entitled to that salary or bonus and before the revised pension contributions are paid for this arrangement to be tax-effective, although pension contributions are not caught by the clampdown on salary sacrifice arrangements.

Make a Will and review it

If you die without making a Will, your assets will be divided between your relatives according to the intestacy rules. Your surviving spouse or registered civil partner may only receive a portion of your estate, and Inheritance Tax will be due at 40% on anything else above £325,000 (up to £500,000 if the Residence Nil Rate Band is available).

Leave some of your estate to charity

Where you leave at least 10% of your net estate to charities, as well as the gift to charity being free from Inheritance Tax, the Inheritance Tax on your remainder estate is charged at 36% instead of 40%. The exact calculation of your net estate is quite complicated, so it’s important to receive professional advice when drawing up or amending your Will.

Make regular IHT-free gifts

As long as you establish a pattern of gifts that can be shown to be covered by your net income, without reducing either your capital assets or your normal standard of living, these gifts will be free of Inheritance Tax. The recipients of the gifts need not be the same people each year.

Use the IHT marriage exemption

If your son or daughter is about to marry, you and your spouse can each give them £5,000 in consideration of the marriage, and the gift will be free of Inheritance Tax. The marriage exemption can also be combined with your £3,000 a year Inheritance Tax exemption to allow you to make larger exempt gifts. You can make an Inheritance Tax-free gift of £2,500 for a grandchild’s wedding. Registered civil partnerships attract the same exemptions.

Make IHT-free gifts each tax year

These gifts are free of Inheritance Tax and, if you forget to make your £3,000 gift one year, you can catch up in the next tax year by giving a total of £6,000 but you can only carry forward the £3,000 allowance for one tax year and must fully use the current year’s allowance as well. Remember, you and your spouse or registered civil partner can each give £3,000 out of your capital every tax year, in addition to gifts you make out of your regular income.

Do I need personal tax planning advice?

It is crucial that year-end tax planning reviews are undertaken as soon as possible, as you will need time to consider all the options available. Many of the allowances and reliefs cannot be applied retrospectively after 5 April 2022. We can provide a comprehensive review, tailored to your individual needs and circumstances. Don’t delay, please contact us if you require further information.

Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from, taxation are subject to change. The value of investments and income from them may go down. You may not get back the original amount invested. Past performance is not a reliable indicator of future performance.

An older lady on her iPad planning for her retirement

The Power of a Plan

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An older lady on her iPad planning for her retirementHow to create a personal financial plan in 8 steps

When thinking about your future financial wellbeing, it can be helpful to consider a plan. It is a good idea to have a clear sense of what you want from life and use this as a guide for making important decisions.

A comprehensive financial plan helps you achieve your goals by analysing your current situation, planning for the future and providing continuous monitoring of progress towards those goals. A well-thought out plan can help you protect yourself from unexpected events that could affect your ability to meet long-term financial commitments. What do you want to do in life? Who are the people who matter most to you? What do you worry about at night?

Step 1: Set your goals

Without them, it’s hard to know what direction you’re headed and even harder to remember where you came from. Critical goals come before needs and wants.

When life changes – and it always does – your goals help guide your financial decisions and focus on what’s important.

Step 2: Make a budget

So you’ve decided to start keeping track of your income and expenditure, but how do you know where to begin? Creating a budget can seem like a daunting task, especially if you are not familiar with the process.

Not only is it important to know how much money is coming in and going out of your household each month, it’s also vital that you understand where that money is being spent. With a budget, you can align what you make with what you spend. With goals set, you can now organise your money.

In fact, when creating your budget, it’s important to remember that there will be some things that don’t fit into your monthly spending plan, and emergency savings make a great way to cover these unexpected costs.

Step 4: Protect your income

Falling ill or having an accident doesn’t have to become a financial burden on you or your family. What if you or your partner got too sick or hurt to work? Or passed away unexpectedly? Could those who depend on you still pay the bills – and save for the future? Planning your financial future isn’t only about savings and investments.

Of equal importance is putting protection in place for you and your family for when you die or if you become ill. Most people have heard of life insurance, but may not know about the different types or about the options for people affected by ill health. No one likes to think of these things. But life can change in an instant. It’s good to hope for the best, but be ready for the unexpected. Insurance helps you do that.

Step 5: Pay down debt

The importance of paying down personal debt cannot be understated. But it can be difficult to prioritise paying down debt while still paying for essential day-to-day living expenses. However, ignoring the significance of personal debt could lead you to major financial trouble in the long run.

Paying off your debts will not only free up cash flow to allow you to save, it will also go towards improving your credit score. The lower your debt-to-income ratio is, the better your credit rating. Your credit rating affects the interest rates that lenders charge you for mortgages, car loans and other types of financing.

Step 6: Save and plan for retirement

Everyone needs to save and plan for retirement. No matter how much you make or whether you have a job, you should always start saving as early as possible. It is important for you to take control of your retirement planning and make decisions regarding your pension. It is often not appreciated that contributing to a pension arrangement can help you build up an extremely valuable asset.

People are living longer and leading more active lives in retirement. As a result, it is more important than ever for you to think about where your income will come from when you retire. Pension saving is one of the few areas where you can still get tax relief.

Step 7: Invest some of your savings

Saving and investing are important parts of a sound financial plan. Whereas saving provides a safety net for unexpected expenses, investing is a strategy for building wealth. Once you have an emergency savings fund of three to six months’ worth of living expenses, you can develop a strategy to grow your wealth through investing.

Investing gives your money the potential to grow faster than it could in a savings account. If you have a long time until you need to meet your goal, your returns will compound. Basically, this means in addition to a higher rate of return on investments, your investment earnings will also earn money over time.

Step 8: Make your final plans

The importance of estate planning is necessary for all individuals, not just the wealthy. Without proper estate planning in place to protect your assets, you could end up leaving large amounts of money to be fought over by your loved ones and a large Inheritance Tax bill.

Your estate planning should sit alongside making your Will, both key parts of putting your affairs in order later in life. Working out the best ways to leave money in a Will before you pass away can help to make the lives of your loved ones easier when you’re no longer around.

I am ready to start a conversation

Financial planning may be complex, but it doesn’t have to be difficult. We’re committed to ensuring you feel comfortable, informed and supported at each stage of your financial planning journey. To find out more, or to discuss how we could help you and your family, please contact us.

Younger couple on a boat thinking about their financial future

Steps towards a better financial future

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Younger couple on a boat thinking about their financial futureSteps towards a better financial future – grow, protect and transfer your wealth

Financial planning is a step-by-step approach to ensure you meet your life goals and achieve a better financial future. Your financial plan should act as a guide as you move through life’s journey. Essentially, it should help you remain in control of your income, expenses and investments so you can manage your money and achieve your goals.

Life rarely stands still. Priorities shift, circumstances change, opportunities come and go and plans need to adapt. But regular discussion and reviews are the key to keeping on top of things. This means adapting your plans when things change, to keep you on course.

1. What are my financial goals?

Generally, people’s financial goals change as they progress through different life stages. Here are some themes which might help you  consider your own goals:

  • In your twenties, you may want to focus on saving for large purchases, such as a car, wedding or your first home
  • In your thirties, you may be planning for your family, perhaps school fees or your children’s future
  • In your forties, your focus may move to retirement planning and growing your wealth
  • In your fifties, paying off your mortgage and feeling financially free is likely to be a priority
  • In your sixties, it is usually about making sure you have enough money to retire successfully
  • In your seventies, your attention may turn to inheritance planning and later-life care

Other plans may also include starting your own business, buying a second home or travelling the world. Of course, everyone is different, so you might have a goal in mind we haven’t mentioned.

2. Are my goals short, medium or long term?

You are likely to have a mixture of short-term (less than three years), medium-term (three to ten years) and long-term (more than ten years) goals. Moving to a larger property might be a short-term goal, while saving for your children’s university fees might be a medium-term goal and retirement planning a long-term goal (depending on your life stage).

You’ll need different strategies, and different saving and investment risk levels, for each of these goals.

3. How hard is my money currently working?

If your cash is currently in a savings deposit account, the interest rate you’ll likely be receiving is probably not going to be sufficient to keep your money growing as quickly as inflation is rising over the longer term. So your savings could eventually lose buying power in real terms over the years ahead.

If you want your money to grow faster, you might want to consider allocating a portion of your savings towards  investments. This may involve more risk than a savings account, but the amount of risk involved will be dependent on you and what you are looking to achieve, so you decide. Obtaining professional advice will ensure you choose investments at a risk level that suits your preferences.

4. Have I paid off my debts?

It’s not always wise to start investing if you have debts that you need to pay off (excluding longterm debts like student loans and mortgages).
That’s because overdrafts, credit cards and other short-term debts can charge you more in interest than you could expect to gain in  investment returns. In most instances, it will benefit you more in the future to become debt-free before you start to grow your wealth.

5. Am I making the most of my tax-efficient allowances?

All UK taxpayers receive certain allowances to help with saving and investing. For example, you may already have an Individual Savings Account (ISA) and be taking advantage of your annual allowance. You also have a capital gains allowance, a dividends allowance and a pension annual allowance. All of these will help you to grow your wealth faster, if you know how to use them.

Tax allowances can be complex though, and they can change without much notice, so if you’re not careful you risk an unexpected tax charge. If in doubt, talk us to review your options.

6. What are my retirement plans?

A key factor in any financial plan is the date you plan to retire, as that typically marks a turning point from accumulation of wealth built up throughout your working life, to the reduction of wealth as you start to spend your savings and pass your assets on to loved ones. Ensuring that those two elements of your life are well balanced is an important part of the financial planning process.

Are you planning with a purpose?

Once you’ve answered these six questions for yourself, your financial plan will start to take shape. But you might still have more questions about how to reach a particular goal, how to reduce a potential tax bill, how to invest without taking on too much risk, how to pay off your debts or how much money you’ll need to retire successfully, in which case we can help. Please speak to us – we look forward to hearing from you.

Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from, taxation are subject to change. The value of investments and income from them may go down. You may not get back the original amount invested. Past performance is not a reliable indicator of future performance.

Generation Covid-19

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Financial support to younger members as a direct result of the pandemic.
The coronavirus (COVID-19) pandemic has led to more people supporting younger family members financially. New research shows that 5.5 million older family members expect to provide additional financial support to younger members as a direct result of the pandemic[1].

Of these, 15% estimate they will provide an additional sum of £353 in financial aid. The most common reasons given for the payments were to help cover household bills, rent payments, allowing them to move back to the family home or paying off debts. This equates to £1.9 billion  being given to younger family members needing financial support.

Regular Gifts

This COVID-19 specific support comes in addition to regular ongoing financial support provided by older family members. Over a third (39%) of young adults, around 3.3 million people, receive regular financial support from their older family members and depend on it to cover their monthly outgoings.

Older family members provide on average £113 a month, collectively giving £372 million to loved ones each month in the form of regular gifts. While the majority (31%) say they use monthly gifts to save for ‘big ticket’ items like a housing deposit, over a quarter use it to pay for everyday essentials (29%) and a similar number to pay their bills (27%).

Financial Aid

Despite the significant sums handed out, 80% of older family members who gift money feel it is only natural to provide support to their younger relatives and are more than happy to do so. Of the 50% of adults who have received financial aid from a family member, many have sought further support during this year.

16% have utilised the government furlough scheme, 15% moved back to their family home to live rent free and 13% have taken out a one-off
loan. The trend of younger family members moving back home is becoming more common, with the most recent data from the Office for
National Statistics (ONS) showing that over the last two decades, there has been a 46% increase in the number of young people aged 20-34 living with their parents, up to 3.5 million from 2.4m[2].

Gift Money

While the majority (62%) of those who give away money do so knowing they can afford to maintain their current lifestyle, the research  suggests that selfless relatives are occasionally making changes to their own finances to meet the expense. Over a third (38%) of those who gift money to family members have made sacrifices in order to do so. While many (31%) reported cutting back on some day-to-day spending in order to gift money, a fifth (21%) admitted they struggled to pay some bills having helped out a loved one.

Most parents and grandparents will gladly help out when they can, but people are often making personal compromises to provide this support. Giving money to a family member has the potential to be a special experience, but the key is not to lose sight of your longer-term plan.

Property Wealth

There is a risk that people could be underestimating what they need to fund a comfortable retirement, and therefore it’s important to gift sensibly. Utilising property wealth, by either downsizing or using equity release, can often be helpful here as it allows the opportunity to give a living inheritance without touching your income.

These decisions aren’t easy, and the tax rules mean gifting money can be complicated. When gifting, HM Revenue & Customs stipulates you
must be able to maintain your current standard of living from your remaining income to take advantage of tax exemptions and there are
tax implications for anything gifted over the £3,000 annual allowance.

“Bank of Mum and Dad” Open for Financial Support

Younger generations, who stand to be impacted most by the crisis, may need to call on you – the ‘Bank of Mum and Dad’ – for financial support. If this is the case you need to evaluate how any cash calls could impact your own retirement plans. To discuss any concerns that you may have, please contact us.

Source data:
[1]Opinium Research ran a series of online interviews among a nationally representative panel of 4,001 UK adults between the 25 September and 3 October 2020

[2]https://www.ons.gov.uk/peoplepopulationandcommunity/birthsdeathsandmarriages/families/datasets/youngadultslivingwiththeirparents

Budget 2021: Key announcements at a glance

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What was announced in Chancellor Rishi Sunak’s speech?

The Chancellor of the Exchequer, Rishi Sunak, says he would do ‘whatever it takes’ during the pandemic, and that he has done and will continue to do so. ‘It’s going to take this country, and the whole world, a long time to recover from this extraordinary situation,’ he told Parliament.

Mr Sunak said he wants to be honest about the government’s plans for fixing the public finances, and set out plans for the future. These are the key Budget 2021 takeaways announced from his Budget 2021 speech on 3 March.

Economy

  • UK economy contracts by 10% in 2020
  • Chancellor forecasts a ‘swifter and more sustained’ recovery
  • 700,000 people have lost their jobs since the coronavirus (COVID1- 9) pandemic began
  • Unemployment expected to peak at 6.5% next year, lower than 11.9%previouslypredicted

Growth

  • Economy set to rebound in 2021, with projected annual growth of 4% this year
  • Economy forecast to return to pre-COVID levels by middle of 2022, with growth of 7.3% next year

Borrowing

  • UK to borrow a peacetime record of £355 billion this year
  • Borrowing to total £234 billion in 2021/22
  • Debt levels set to peak at 97.1% of GDP in 2023/24

Personal taxation , investments and pensions

  • No changes to rates of Income Tax and National Insurance (CPI rise from April 2021)
  • Personal Income Tax allowance to be frozen at £12,570 from April 2022 to 2026
  • Higher Rate Income Tax threshold to be frozen at £50,270 from 2022 to 2026
  • No changes to Inheritance Tax or Lifetime Pension Allowance or Capital Gains Tax allowances until April 2026
  • Adult Individual Savings Account (ISA) annual subscription limit for 2021/22 remains unchanged at £20,000
  • Annual subscription limit for Junior Individual Savings Accounts UISAs) and Child Trust Funds for 2021/22 remains unchanged at £9,000
  • The government has maintained the Lifetime Allowance at its current level of£1,073,100 until April 2026

Coronavirus (COVID-19)

  • Extension to Coronavirus Job Retention Scheme (CJRS) u ntil the end of September
  • 80% of employees’ wages to continue to be paid by the government for hours they cannot work
  • Employers will be asked to contribute 10% in Jul y, 20% in August and 20% in September, as the economy reopens
  • Support for the self-employed extended until September
  • 600,000 more self-employed people will be eligible for help as access to grants is widened
  • Working Tax Credit claimants will get £500 one-off payment
  • Minimum wage to increase to £8.91 an hour from April
  • £20 increase in Universal Credit worth £1,000 a year to be extended for another six months

Housing

  • Stamp Duty Land Tax (SDLT) holiday on property purchases in England and Northern Ireland extended to June, with no tax liability on sales costing less than £500,000

Transport, environment and infrastructure

  • Leeds will be the location for a new UK Infrastructure Bank
  • The new UK Infrastructure Bank will have £12 billion in capital, with the aim of funding £40 billion worth of public and private projects
  • £15 billion in green bonds, including for retail investors, to help finance the transition to net zero by 2050

Health

  • £19 million announced for domestic violence programmes, funding a network of respite rooms for homeless women
  • £40 million of new funding for victims of 1960s Thalidomide scandal and lifetime support guarantee
  • £10 million to support armed forces veterans with mental health needs
  • £1.65 billion to support the UK’s COVID vaccination rollout

Nations and regions

  • First eight sites for Freeports in England announced
  • £1.2 billion in funding for the Scottish government, £740m for the Welsh government and £41Om for the Northern Ireland executive

Other announcements

  • Duties on all alcohol frozen for a second year
  • No extra duties on spirits, wine, cider or beer
  • Eleventh consecutive year fuel duty to be frozen
  • £100 million to set up an HMRC taskforce with 1,000 investigators to tackle fraud in COVID support schemes

Business

  • Corporation Tax on company profits set to rise from 19% to 25% in April 2023
  • Corporation Tax rate to be kept at 19% for companies with profits of less than £50,000
  • Tax breaks for firms to ‘unlock’ £20 billion worth of business investment
  • VAT registration and deregistration thresholds will not change for a further period of two years from 1 April 2022
  • VAT rate for hospitality firms to be maintained at reduced 5% rate until September
  • Interim 12.5% VAT rate to apply for the following six months
  • Firms will be able ‘deduct’ investment costs from tax bills,reducing taxable profits by 130%
  • Incentive grants for apprenticeships to rise to £3,000 and £126 million for traineeships
  • For firms in England, the business rates holiday to continue until June followed by a 75% discount
  • £5 billion in Restart grants for shops and other businesses that closed due to COVID
  • £6,000 grant for premises for non­ essential outlets due to re-open in April and £18,000 for gyms, personal care providers and other hospitality and leisure businesses
  • New visa scheme to help start-ups and rapidly growing tech firms source talent from overseas
  • Contact less payment limit will rise to £100 later this year
  • Review of the current 8% bank surcharge to make sure the sector ‘remains internationally competitive’

For a more detailed insight, download our Guide to Budget 2021

Planning for tomorrow, today

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4 pension facts to help you create a happy and wealthy retirement.

The future may seem far away. Regardless of your retirement goals, there are things you can do to increase your chances of success.

It is important to look objectively at your plans and adapt them as your priorities change over the years and you go through different life events.

Your retirement will be as individual as you are and it may arrive earlier than you had anticipated. Time really does fly. Planning ahead is almost certainly going to give you more choice and freedom and pensions can be the most tax-efficient way to save for your retirement.

1. Tax Relief

Most UK taxpayers receive tax relief on their pension contributions, which means that the Government effectively adds money to your pension pot.

Basic rate tax relief: The pension scheme administrator will claim the basic rate tax relief for you from HM Revenue & Customs (HMRC). With basic rate Income Tax at 20%, for every £80 you pay into the pension plan you receive basic tax relief of £20 which is also paid into your plan. The total amount paid into the plan is therefore £100.

Scottish taxpayers and tax relief: Scottish taxpayers receive tax relief based on Scottish Income Tax rates and bands. If you pay tax at the Scottish starter rate, HMRC will not ask you to repay the extra tax relief claimed by the pension scheme administrator.

Welsh taxpayers and tax relief: From 6 April 2019, the Welsh Assembly has devolved powers to set their own Income Tax rates. Currently they have set the rates at the same level as the UK rates.

Please note that the Scottish and Welsh rates may change in the future

Higher rate and additional rate tax relief: Intermediate, higher or top rate tax payers may be able to claim further tax relief from HMRC. If you are eligible for further tax relief on your payments, you can ask HMRC to change your tax code by contacting them or you can complete a Self-Assessment Tax Return after the tax year has ended.

2. Employer Contributions

The Government introduced auto-enrolment as a way of helping employees save for retirement. It means that employers must automatically enrol certain staff into a workplace pension scheme.
When you pay into a workplace pension, your employer and the Government also contribute. The amount paid depends on your employer’s pension scheme and your earnings, but minimum contribution rates are set.

Unlike other ways of saving, a workplace pension means you aren’t the only one putting money in. Your employer has to contribute too, as long as you earn over £6,240 a year. You will also receive
a contribution from the Government in the form of tax relief. This means some of your money that would have gone to the Government as income tax, goes into your workplace pension instead.

You and your employer must pay a percentage of your earnings into your workplace pension scheme. The earnings trigger is one of the three key factors which ultimately governs who gets enrolled into a workplace pension scheme through automatic enrolment (the existing threshold is £10,000 for the tax year 2020/21, which runs from 6 April to 5 April the following year).

Under auto-enrolment schemes, you make contributions based on your total earnings between £6,240 (Lower limit qualifying earnings band) and £50,000 (Upper limit qualifying earnings band) a year before tax.

Your total earnings include:

  • salary or wages
  • bonuses and commission
  • overtime
  • statutory sick pay
  • statutory maternity, paternity or adoption pay

From April 2019 the amount of total minimum contributions increased to 8% – your employer will contribute 3% and you will contribute 5%. These amounts could be higher for you or your employer because of your pension scheme rules. They’re higher for most Defined Benefit pension schemes.

In some schemes, your employer has the option to pay in more than the legal minimum. In these schemes, you can pay in less as long as your employer puts in enough to meet the total minimum contribution.

3. Flexible access

A Defined Benefit pension scheme pot is highly flexible from age 55. Almost all pensions allow you to take some of your money as tax-free cash. With this option, you can take some or all of your 25% tax-free cash first. What’s left in your pension pot remains invested, giving it a chance to grow; however, as with all investments, your money can go down as well as up.

After you’ve taken all of your tax-free cash, any money you take out will be subject to tax. This means that you can take money from your tax-free amount first and then take the taxable amount when you need it. Remember, you don’t have to take all of your tax-free cash in one go.

To help you minimise the tax you pay, you can take the taxable money whenever you like. So, for example, you can take it over a number of different tax years. This spreads it out, and if you do it this way it could help keep you in a lower tax bracket.

4. Effects of compounding

While it is never too late to start saving and planning for retirement, the earlier you start, the better. Starting earlier means more time for your savings to benefit from the effects of compounding returns. Conversely, the longer you wait, the less time you have for your money to grow and the harder you’ll have to work to reach your retirement goals.

The basic concept is simple. Compounding returns is where the profits you earn on your money are re-invested and start earning more money, which is then re-invested again and so on. With compound returns, it’s less about how much you can afford to put aside and more about for how long the money has time to grow, with your money snowballing into a pot.

Are you approaching retirement, or about to retire?

In the years leading up to retirement, you might start to wonder if you have saved enough to retire comfortably and thought about everything you need to consider. Are you ready to retire? Do you know what you might get? Do you understand your income options, tax and your State Pension? Please speak to us to discuss your options.

Accessing pension benefits early may impact on levels of retirement income and your entitlement to certain means tested benefits and is not suitable for everyone. You should seek advice to understand your options at retirement.

Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from, taxation are subject to change. Tax rules are complicated, so you should always obtain professional advice. 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. Past performance is not a reliable indicator of future performance. Pensions are not normally accessible until age 55. Your pension income could also be affected by 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.

Tax-wise

 560 315 Jess Easby
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Make the most of your valuable allowances, reliefs and exemptions

Once we enter January, the end of the 2019/20 tax year will be just over three months away on 5 April. As this date approaches, the window of opportunity reduces if you want to make the most of valuable allowances, reliefs and exemptions that could help reduce your tax bill and make sure your finances stay tax-efficient.

Some of these allowances will be lost forever if they are not used before the tax year end – and the sooner you claim them the better. Every year, some people leave end-of-year tax planning until the last minute. But leaving planning until the eleventh hour increases the risk that you will discover you have left it too late and missed out on the chance to improve your financial position.

Acting well before the tax year end means you can also be sure that you are maximising your opportunities and minimising your stress. The list we’ve provided below isn’t exhaustive, but it highlights some of the main areas to consider if appropriate to your particular situation. If you would like to discuss your own financial position, please contact us.

Income Tax

Consider making use of lower-rate tax bands. It’s important to review the tax implications of transferring income-producing assets and taking note of anti-avoidance and settlements legislation.

The way you receive an income, and the rates and allowances that apply, should be at the front of your mind. How much you pay depends on where you live in the UK, with Scotland and Wales in receipt of devolved powers to set their own Income Tax bands on top of the personal allowance.

The annual dividend allowance remains at £2,000 for 2019/20 after reducing from £5,000 this time last year. With the new personal allowance of £12,500 added to the frozen dividend allowance, the maximum tax-free income you can receive through dividends is £14,500 in 2019/20.

Some smaller amounts of income are tax-free up to annual limits. Under the Government’s renta-room scheme, you can continue to earn taxfree income of up to £7,500 a year from letting out a furnished room in your home.

Individual Savings Account (ISA) Allowance

With a Cash ISA or a Stocks & Shares ISA (or a combination of the two), you can save or invest up to £20,000 a year tax-efficiently.

If you are in a position to, it makes sense for you and your spouse to take advantage of each other’s ISA allowance, particularly if one of you has more financial resources than the other. That way, combined, you can save (in the case of Cash ISAs) or invest (in the case of Stocks & Shares ISAs) up to £40,000 tax-efficiently in 2019/20.

Currently, 16 and 17-year-olds actually get two ISA allowances, as they’re able to open a Junior ISA (which for 2019/20 has a limit of £4,368) and an adult Cash ISA. This means that you can put away up to £24,368 in your child’s name tax efficiently this tax year.

People aged 18–39 can open a Lifetime ISA, which entitles them to save up to £4,000 a year until they’re 50. The Government will top up the savings by 25%, up to a maximum of
£1,000 a year.

Pension Contributions

The annual pensions allowance enables you to contribute up to £40,000 in 2019/20. If your adjusted income exceeds £150,000 in 2019/20, your annual allowance will be reduced by £1 for every £2 that exceeds this threshold down to a limit of £10,000.

Any unused pensions annual allowance can be carried forward for three tax years, providing you were a member of a registered pension schemeduring that period. This unused allowance can be added to your 2019/20 annual allowance, giving a maximum pension contribution of £160,000, all of which will attract personal tax relief if you have the required level of relevant earnings.

You can also increase your basic State Pension by paying voluntary Class 3 National Insurance Contributions (NICs).

Consider contributing up to £2,880 towards a pension for your non-earning spouse or children. Tax relief is added to your contribution, so if you contribute £2,880, a total of £3,600 a year will be paid into the pension scheme, even if you earn less than this or have no income at all.

You begin to lose your personal allowance once your adjusted net income exceeds £100,000, such that the allowance reduces to £0 when adjusted net income reaches £125,000.

Inheritance Tax

You can act at any time to help reduce a potential Inheritance Tax (IHT) bill when you’re no longer around.

Gifts of up to £3,000 per year can be made on an IHT-free basis. The limit increases to £6,000 if the previous year’s annual exemption was not used.

A married couple can therefore make IHT exempt gifts totalling £12,000 – if unused, the annual allowance can be carried forward to the next tax year only. This simple technique could save a possible IHT bill of £4,800 in the event of your untimely death.

You should also consider using other annual gifts such as gifts in consideration of marriage or £250 small gifts.

Business Relief (BR) is a valuable IHT relief, with business property potentially receiving up to 100% relief if certain criteria are met. BR is an important part of succession planning, but due to the complexity of the BR rules, the relief may not be due even though you expect to meet the conditions.

It is important to regularly review your BR position to ensure that it continues to apply and that your business activities do not jeopardise your BR position.

Capital Gain Tax Allowance

Capital Gains Tax (CGT) is a tax on the gains and profits you make when you sell something, such as an investment portfolio or second home.

Everyone has an annual allowance of £12,000 (in 2019/20) before CGT applies. Like the ISA allowance, it doesn’t roll over – so if you don’t use it, you’ll lose out. And you may have to pay more CGT in the future.

Also, it’s worth remembering the allowance is for individuals, so couples have a joint allowance for 2019/20 of £24,000. In some situations, it may be appropriate to transfer assets into your joint names so you both stay within your individual allowances. However, this is only effective if the gift is a genuine gift of beneficial ownership, and the transferor does not continue to benefit from the asset following the transfer.

Not every investment portfolio is subject to CGT. If you’re looking for a tax-efficient way to invest, a Stocks & Shares ISA could be for you. Just like any investment, it carries risk – meaning you could lose some or all of your money – but if you do make a profit due to share price increases, you won’t be required to pay CGT on it.

A Bed & ISA will allow you to utilise the current year’s ISA allowance by moving investments from an unwrapped environment to the ISA tax-efficient wrapper. This is achieved by disposing of the unwrapped investment and repurchasing it via an ISA. The disposal of the unwrapped investments may be liable to CGT, but once inside the ISA, the investments are sheltered from CGT in the future.

Don’t lose it, use it

As we make our way towards the end of the tax year, now is the ideal time to review your tax affairs to ensure that you have taken advantage of all the valuable allowances, reliefs and exemptions available to you. To discuss the planning opportunities available to help you, your family and business to reduce your tax bill, please contact us.