Author: Mark

While it can be tempting to actively monitor and manage your investments, taking a back seat could lead to better outcomes.

There’s a saying that “the best investors are dead” because they’re not tempted to try and time the market. Daily movements mean it’s tempting to try and guess when the market is at a high to sell, and when to buy at a low. However, it’s impossible to predict market movements consistently, and even missing out on a handful of the best performing days could cost you.

Previous research from Schroders found that if you had invested £1,000 in 1986 in the FTSE 250 and left that investment alone, you could have £43,595 by 2021. On average, the annual return would be 11.4%.

However, if you had been tempted to make changes to your portfolio and ended up missing just the 30 best performing days of the 35 years, the average annual return falls to 7%.

Periods of volatility are part of investing

Investment volatility can make it tempting to regularly buy and sell. However, it’s part of investing and learning to ride out the peaks and troughs could make you a better investor.

When you start investing, doing your research is important. If you understand which investments are right for you and your goals, you can create a portfolio that has a long-term view. You should then have faith in the portfolio you’ve created so you can take a hands-off approach, even during times of uncertainty.

Working with a financial planner can give you the confidence you need to get through the ups and downs of investing.

While markets have historically delivered returns over the long term, you should remember returns cannot be guaranteed. You should understand if investing is right for you and what is an appropriate level of risk. Please contact us if you have any questions.

5 practical investment tips for holding your nerve during market volatility

1. Try not to review your portfolio too frequently

While checking your investment performance can be addictive, especially during periods of volatility, it can make it far more tempting to try and time the market. Having access to the information with just a few taps on your phone means it’s easier than ever to get caught in a cycle of checking your portfolio’s performance every day or week.

So, while it might seem strange not to check the performance regularly, it could help you stick to your long-term plan.

2. Tune out the noise from the media

The media is often filled with sensational headlines about share prices plunging overnight or soaring on the back of other news. It can make it seem like you should be doing something to get the most out of your investments.

Remember, market movements are a normal part of investing, and the headlines often report the extremes. As a result, the movement in your portfolio may not be the same as the media reports. Try to ignore the noise and focus on the steps you’re taking to reach your long-term goals.

3. Take your time when making investment decisions

There are times when it’s appropriate to make changes to your investment portfolio. However, these should carefully consider and reflect your wider financial circumstances and goals. While it may seem like you must act fast when investing, take your time. Giving yourself time to look through your options could mean you make better choices.

4. Look at the investment performance over a long time frame

When you see your investment portfolio’s value has fallen when compared to your last review, it can be frustrating. Yet, over your full investment time frame, you will likely have benefited.

Look at how much your portfolio has grown since you first started investing to get the full picture. Looking at long-term trends can put short-term market movements into perspective and ease concerns you may have.

5. Remember, losses are only realised when you sell

It can be disheartening when the value of your investments falls. However, remember, they are only paper losses unless you sell the assets. Historically, markets have recovered even after periods of downturn.

Do you want help building an appropriate investment portfolio?

Understanding which investments make sense for your goals and when you should make changes can be difficult. Working with a financial planner can help you create a portfolio you have confidence in, so you feel comfortable taking a hands-off approach. Please contact us to talk about your investments.

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.

Over the last few months, you may have heard the term “stealth taxes”. While you may not be affected by changing tax rates or lowered thresholds immediately, your tax bill could rise without you noticing due to freezes in certain allowances or exemptions.

The term stealth tax is used to refer to a levy that you might not think of as a tax hike but nonetheless has the same effect.

The phrase has been seen in the headlines since chancellor Jeremy Hunt laid out a package of tax rises worth £24 billion in the autumn statement last year.

It’s clear how some of the measures will affect your wealth. For example, the Dividend Allowance will fall from £2,000 to just £500 by 2024. So, if you receive dividends, your tax liability may rise. However, Hunt also announced other measures that could affect how much tax you pay that you may have overlooked.

Read on to find out what stealth taxes could affect your wealth.

Chancellor Jeremy Hunt froze key tax thresholds until 2028

During the autumn statement, Hunt announced that some thresholds and allowances would be frozen until 2028:

• Income Tax bands, including the Personal Allowance
• National Insurance thresholds
• Nil-rate band, which is the threshold for paying Inheritance Tax (IHT).

Previously, the Lifetime Allowance, which limits the amount of pension benefits you can tax-efficiently save during your lifetime, was also frozen at £1,073,100 until 2026.

At first glance, keeping allowances at their current level may seem like it’ll have little effect on your tax bill or wealth. Yet, in real terms, it can.

Frozen thresholds mean the value of allowances falls over the long term

Freezes to thresholds can affect your wealth when you consider the effect over years. As the cost of goods rise, the value of allowances falls in real terms, so they’re not as valuable as they once were.

Let’s say you benefit from a pay rise each year that’s in line with inflation. This maintains your spending power as the costs of goods and services rise.

If Income Tax thresholds don’t rise in line with inflation, a larger proportion of your wages will be deducted. You could also find that you’re in a higher tax band, even if your income hasn’t increased in real terms once inflation is considered.

According to the BBC, freezing the Income Tax bands until 2028 will create an additional 3.2 million new tax payers and mean 2.6 million more people will pay a higher rate of tax. So, while your Income Tax bill may not immediately increase, in real terms you could end up paying more.

The issue is currently exacerbated by high levels of inflation. However, even when inflation is stable – the Bank of England has an inflation target of 2% a year – the effect of prices rising adds up.

The freezes can also affect your long-term plans.

Take the IHT nil-rate band, for instance. The current threshold means you can pass on £325,000 before your estate could be liable for IHT. However, over the next five years while the threshold is frozen, the value of your assets could rise.

As a result, more families will need to consider if their estate could be liable for IHT and how it’d affect the wealth they leave behind for their loved ones.

The Office for Budget Responsibility estimates that freezing the nil-rate band will boost the government’s income from IHT by £1 billion by the 2027/28 tax year.

What can you do to limit the effect of stealth taxes?

With key allowances frozen until 2028, it’s vital you understand how they could affect your financial plan and the options that could reduce the effect. To make the most of your money, it’s more important than ever to make use of allowances that are right for you.

A regularly reviewed financial plan can help you manage your finances and reflect changes in thresholds, including freezes. We can work with you to identify:

• The allowances that could be right for you
• How to make the most of your wealth so it grows in real terms
• Steps that could help you mitigate a tax bill in the future.

If you’d like to arrange a meeting with us or have any questions about how the chancellor’s announcements could affect your long-term wealth, 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.

Last year, chancellor Jeremy Hunt made some key announcements during the autumn statement that could affect how much tax you pay from April. Reviewing your financial plan could help you understand if you’ll be affected and make changes if necessary.

In sharp contrast to the mini-Budget delivered by former chancellor Kwasi Kwarteng in September, Hunt’s statement, delivered just two months later, increased taxes. As a result, you may find that you need to update your existing financial plan or that the amount of tax you pay increases.

The new tax year starts on 6 April 2023 and there are three changes to thresholds and allowances you should keep in mind when reviewing your tax liability.

1. Additional-rate Income Tax threshold

Your Income Tax liability may increase for the 2023/24 tax year because the threshold for paying the additional rate of tax has been lowered.

From April, the 45% rate will now apply for earnings above £125,140, this compares to the previous threshold of £150,000. The tax rates for the 2023/24 tax year are:

• Personal Allowance: 0% (up to £12,570)
• Basic rate: 20% (£12,571 to £50,270)
• Higher rate: 40% (50,271 to £125,139)
• Additional rate: 45% (more than £125,140)

Income Tax rates and thresholds have also been frozen until 2028.

The combination of these two factors means that 4 million more people are expected to pay a higher rate of Income Tax than they are currently, according to a Telegraph report. It’s estimated that the number of taxpayers paying the higher- or additional-rate of Income Tax will double to 8 million.

How much you’ll be affected by this change will depend on your income. The lowering of the additional rate threshold means that if you earn £150,000, you will pay just over £1,200 more in tax each year.

Being aware of the changes ahead of the tax year means you can adjust your budget if needed and there may be steps you can take to lower your tax liability.

2. Dividend Allowance

The Dividend Allowance will halve over the next two years. It could affect you if you’re an investor or business owner.

As an investor, you may receive dividend payments from companies you invest in. Dividend-paying companies are usually well-established businesses that have stable earnings. How much you receive through dividends is often linked to performance and stock prices.

As a business owner, you may choose to pay dividends to yourself to boost your income in a tax-efficient way.

In April the amount you can receive in dividends before tax is due will fall from £2,000 to £1,000. It will then halve again to £500 in April 2024.

How much tax you pay on dividends that exceed the allowance depends on your Income Tax band.

• Basic rate: 8.75%
• Higher rate: 33.75%
• Additional rate: 39.35%

So, if the Income Tax changes mean you’re now an additional-rate taxpayer, you could find your tax liability increases more than you expect if you receive dividends.

If dividends form part of your income, you should review how your tax bill will change in the upcoming tax year. Taking dividends may no longer be as tax-efficient as it once was, and may not be right for you anymore.

3. Capital Gains Tax annual exempt amount

The Capital Gains Tax (CGT) annual exempt amount represents how much profit you can make each tax year before CGT is due. The annual exempt amount will also fall significantly over the next two years.

CGT is paid when you make a profit when you sell or dispose of certain assets, including investments that aren’t held in an ISA, second properties, and personal possessions worth more than £6,000, excluding your car.

In the 2022/23 tax year, the annual exempt amount is £12,300. It will fall to £6,000 in April 2023, and then to £3,000 in April 2024.

The rate of CGT depends on your other taxable income, but it can substantially reduce the profit you make.

• Standard CGT rate: 18% on residential property, 10% on other assets
• Higher CGT rate: 28% on residential property, 20% on other assets.

If you plan to dispose of assets, it could make sense to do so before the annual exempt amount falls. For long-term plans, you should be aware of how the changes could affect your wealth.

Could the changes affect you?

If the changes could affect your financial plan or you have questions about what they mean for you, please get in touch. We’re here to help you create a plan that suits your needs and reflects current legislation to help you get the most out of your money.

Please note: This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

Retirement is a milestone that’s often greeted with celebration. But what do you need to do to be happy during your later years? Research has revealed that it’s experiences, rather than material items, that are important.

A survey from Royal London found that 72% of those aged over 55 favoured experiences over material possessions. From seeing more of the world to trying a hobby you’ve always wanted to do, retirement offers an opportunity to create the life you want.

It’s not just the big-ticket experiences that those approaching retirement believe are important either. Many are looking forward to spending more time with loved ones.

When asked about their life goals, retirees are focusing on creating lasting memories. The most important goals were:

• Spending time with family and friends (52%)
• Relaxing (47%)
• Maintaining health and fitness (45%)
• Travelling (37%)
• Spending time on hobbies (37%).

The research found that 17% of those nearing retirement are worried about a lack of experiences, and the same proportion said a lack of purpose was a concern. While worries are normal when you approach a big life event, setting out a plan now can help you realise your goals.

Gary Beyer, protection product lead at Royal London, said: “It is clear to see that those aged 55 and over value experiences more than anything else, including material possessions. Being able to lead an active, healthy lifestyle, try new things, and travel to new places, combined with spending more time with family is the key to retirement happiness.”

Many people approaching retirement are focused on experiences that will create lifelong memories. However, the research also found that finances could mean retirement doesn’t live up to expectations.

40% of over-55s say money is the biggest barrier to achieving their goals

Among over-55s that have yet to achieve their life goals, 40% said money was the biggest barrier.

The cost of living crisis is further exacerbating financial challenges for those planning their retirement. 3 in 10 over-55s said they are changing their plans as a result.

If you’re looking forward to a retirement that’s filled with experiences that will make you happy, financial planning is crucial. It can give you confidence about your long-term finances, so you can focus on what’s really important.

Calculating if you’re on track to have enough to reach your retirement goals can be broken down into two key questions:

1. What income do you need in retirement to reach your goals?

Having a target retirement income in mind is essential for understanding if you’re saving enough.

Many retirees find that their income needs fall when they stop working. You may have finished paying off your mortgage or no longer need to budget for commuting.

Research from Which? suggests a couple needs an annual income of £28,000 to live comfortably. While this figure is a useful starting point, keep in mind living expenses can vary significantly. You should review your expected outgoings to create a goal that’s tailored to you.

Remember, your income needs may change throughout retirement and could be affected by outside factors, like inflation.

2. How much are you saving for retirement?

With an annual goal in mind, you can then start looking at if you’re saving enough for retirement. How much do you already have in your pension? What contributions are you making? And are there other assets you plan to use, such as savings?

Bringing together all the information you need to understand if you’re on track can be difficult. As financial planners, we’re here to help. We can help you understand how the value of your assets may change between now and retirement, and how you can use them to create an income. If there is a gap in your savings, we’ll work with you to create a plan to get you back on track.

Contact us to review your retirement plan

Please contact us to talk about what your retirement goals are and the steps you can take to reach them.

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.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Have you thought about how you’ll use assets later in life or what you’d like to happen to them when you pass away? Planning for the future with an estate plan now could improve your long-term security and ensure your wishes are followed.

While it can be difficult to think about long-term challenges and understand what decisions are right for you, an estate plan is important. It’s the process of organising your affairs to effectively manage your estate in a way that reflects your wishes, gives you peace of mind, and could reduce potential taxes.

An estate plan that’s tailored to you could mean you feel more confident about how your estate will be managed in a range of circumstances, including if you were unable to make decisions or pass away.

Over the next few months, you can read on our blog the steps you should take to create an estate plan and the things you need to consider.

If an estate plan is something you’ve been putting off, read on to find out why you should make it a priority.

5 reasons you should prioritise creating an estate plan

1. An effective estate plan ensures your wishes are carried out when you pass away

One of the main reasons to create an estate plan is that it’s a way to ensure your wishes are carried out when you pass away. You no doubt have people or organisations that you want to benefit from your estate.

Without an estate plan, some of your loved ones may be overlooked or assets may not be distributed in the way you want. For example, you may want someone to inherit particular sentimental items, but this could be missed if your instructions aren’t clear.

Even if you’re married, in a civil partnership, or have children, you shouldn’t assume your estate will be distributed according to your wishes if you don’t take steps like writing your will.

2. You can use an estate plan to protect your beneficiaries

An estate plan ensures your wealth goes to those it’s intended for, and it can protect them over the long term too, whether you want to pass on assets now or through an inheritance.

You may want to consider things like what would happen if a relationship broke down. You may want to gift a property to your child, but if they divorced their partner, would it remain within your family? An estate plan can help you address concerns like this and put steps in place to protect your beneficiaries.

If your beneficiaries are children or vulnerable adults, an effective plan can also protect their best interests.

3. An estate plan can protect you if you lose mental capacity

An estate plan can be used to protect you in your later years. It could, for instance, include naming a Lasting Power of Attorney to act on your behalf if you’re unable to make decisions for yourself.

Thinking about needing extra support in your later years or losing mental capacity can be difficult. However, creating a care plan and ensuring your loved ones know what your preferences are can provide security when you need it most.

By making later-life planning part of your estate plan, you can take steps to ensure you have the necessary finances and legal documents in place to give you peace of mind.

4. An estate plan can help you focus on what’s important

One of the most valuable benefits of having a tailored estate plan is the peace of mind it provides. It means you can focus on what’s important, safe in the knowledge that your affairs are in order.

Knowing that your later years or loved ones will be secure, even if something happens, can help you live your life to the fullest and enjoy the things that are important to you.

5. It could help you reduce your estate’s tax bill

If your estate exceeds certain thresholds, it could be liable for Inheritance Tax (IHT). It could reduce how much you leave behind, but there are often steps you can take to reduce the potential tax bill. However, you need to be proactive.

An estate plan that considers IHT could mean you leave more behind for your loved ones or causes that you support. Depending on your circumstances, this could include gifting assets to loved ones now, making a charitable donation, or even spending more during your lifetime.

If you have any questions about IHT and your options for mitigating tax, please contact us.

Contact us to talk about your estate plan

Next month, read our blog to find out how to better understand the value of your estate and how it could change during your lifetime. It’s a process that could change your plans.

If you have any questions about your estate plan or want to work with us to create one, 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 Financial Conduct Authority does not regulate will writing, estate planning, or tax planning.

When you’re buying a home with a partner, thinking about the relationship breaking down is the last thing on your mind. However, it’s important to think about protecting yourself and ensuring assets would be divided fairly.

Having a conversation with your partner about what would happen if you were to break up can be difficult. But tackling challenging “what if” questions can give you more confidence and ensure you’re both on the same page as you take this next step.

According to data from Zoopla, 68% of Brits who buy a property with their partner risk losing tens of thousands of pounds by not protecting their share of the purchase.

More than a quarter of people who bought a home with a partner and then split up claim the proceeds of the sale were not split fairly.

85% say buying property is as big a commitment as marriage but many aren’t protecting their wealth

Despite 85% of people viewing buying a home as big a commitment as marriage, the findings suggest that many aren’t taking steps to secure their assets.

In some cases, partners may equally contribute to buying a home, which can make it easier to divide assets if a relationship breaks down. But it’s still not always straightforward.

44% of buyers said they haven’t taken steps to protect themselves because they assume they’d automatically receive a fair share after paying half of the costs. Yet, they may not receive 50% of the property, especially if children are involved.

There are many other reasons why you may not want to split property wealth equally.

One partner may contribute more to the deposit or pay a larger share of the monthly repayments. This can cause conflict when deciding how to split property wealth.

In addition, more couples than ever are relying on family support to buy a home, and discussing how this would affect splitting assets is important.

As well as a lack of awareness, 1 in 10 people admitted that having a conversation about potentially breaking up would be too awkward.

Even when couples discuss the issue, it’s often an informal agreement that’s reached. It’s important to remember that feelings can change and that an informal agreement wouldn’t hold up in law.

So, if you’re buying a property with a partner, what are your options?

3 options to consider if you’re buying a home with a partner

1. Have a deed of trust or cohabitation agreement in place

Among couples that have taken steps to protect their stake in a property, a deed of trust or cohabitation agreement is the most common option – 15% of couples have used this.

Both of these options are legal agreements that let you specify how a property is held between joint owners. This includes whether it’s split 50/50 or some other way to reflect your circumstances. For instance, an agreement may state that one partner is entitled to a larger share as they provided the property deposit.

These agreements can also be used if couples are cohabiting but only one person owns the property. So, if you own your home and a partner moves in at a later date, the agreements could be used to ensure your partner wouldn’t have a claim on your home.

2. Set out a floating deed

A floating deed, also known as a “commensurate share deed”, is legally binding and records the financial arrangement between joint owners. This means that if the property is sold, it’s clear what proportion of the proceeds each party is entitled to.

It can help avoid disagreements and miscommunication as it can provide an accurate way to assess and record each person’s interest in the property.

This option is used by 10% of couples.

3. Create a prenuptial agreement

The Zoopla research found that 7% of couples had considered property as part of a prenuptial agreement, also known as a “prenup”.

A prenup is a legal agreement that sets out how assets would be divided between a couple if they divorce. As a result, it’s an option if you’re planning to get married.

Parents that are helping children step onto the property ladder are increasingly demanding prenups, according to an FTAdviser report. This arrangement could mean that a gifted deposit would remain within the family if a couple split up.

UK law related to prenups is complex and it’s important it’s legally sound to provide you with the protection you want. So, seeking legal advice can be beneficial.

Contact us to talk about your mortgage needs

Whether you’re buying a home alone or with a partner, understanding your financial commitments and which mortgage is right for you is important. We can help you find a mortgage lender that’s right for you and answer questions you may have about the application process. Please contact us to discuss your needs.

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

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

With the rise in house prices and the cost of living crisis, saving for a house deposit for first-time buyers is a difficult task. So, it’s no surprise that increasing numbers of younger buyers are turning to their family for financial support when it comes to getting on the housing ladder.

Property experts Savills estimate that from now until 2024, 470,000 first-time buyers will receive financial help from their parents or other family members.

Further analysis by Savills also states that gifts from the Bank of Mum and Dad will total £25 billion over the next three years. These gifts or loans from the Bank of Mum and Dad will support nearly half of all first-time buyers’ deposits.

Not only are parents helping their children get on the property ladder, but grandparents are too. Recent research by Aviva has found that 25% of grandparents have, or are hoping to, help their grandchildren become first-time homeowners.

With this in mind, here is what you need to know before helping your children or grandchildren get on the property ladder.

Decide whether the money is a gift or a loan

One of your first decisions when providing support to a child or grandchild is whether the money will be a gift or a loan.

Gifting the money to your child is one way that can easily help them get onto the property ladder. A gifted deposit is accepted by most mortgage lenders.

However, a gifted deposit could also be subject to Inheritance Tax (IHT). If you live longer than seven years after gifting the deposit, the gift will no longer be considered a part of your estate and no IHT will be due. However, if you die within seven years of gifting the deposit, IHT may become due.

Another concern could be what will happen to your gift if your child ends their relationship with the person they may be moving in with. To prevent the other person from claiming part of the gift, read below for the steps to take.

Instead of making a gift, providing a loan to your child may be the better option for you. You will still have some control over the money and there is the understanding that all the money will be paid back to you.

A loan could still be subject to IHT as it would be classed as part of your estate when you die. It will only become exempt from IHT if you dismiss the debt and gift the money instead.

Also, be aware that if you charge your children interest on the loan, you could be taxed on this interest as it would be a part of your income.

Providing a loan for your child instead of a gift could also make it more challenging for them to obtain a mortgage as many lenders will not accept a loaned deposit.

Steps to take if your child is buying with someone else

If your child is buying with their partner or friend, issues with your financial help can arise if their relationship breaks down.

To protect the money you have gifted to your child, a declaration of trust or a deed of trust can be drawn up by the solicitor working on the property purchase.

The declaration of trust will clearly state to who you gifted the money. In case of a breakup, the document will ensure your child retains your financial gift rather than having to split it with their partner or friend.

Additionally, a Living Together Agreement is often recommended by many experts, especially if your child is unmarried and buying with someone else. A Living Together Agreement allows everyone to discuss and record details of all financial contributions and what will happen if the relationship ends.

Your financial security

Gifting money for a deposit usually results in a large sum for your child, but can you afford it?

Consider whether you have the finances available after gifting money to live the life you want, whether you have enough savings for any unforeseen circumstances, and whether you have the finances to ensure you can afford your desired lifestyle during retirement.

Before making any gift, assess your finances first and then determine how you can afford to help. Getting advice and guidance from a financial planner can help you to do this.

Other ways you can help your child get on the housing ladder

After assessing your financial security, you may decide gifting or loaning a large sum of money is no longer an option.

However, there are alternative ways that you could still help your child get onto the property ladder:

1. Equity as security – You can use a part of the equity in your home as additional security against the mortgage your child takes out.
2. Family offset mortgages – Your savings would be used to form part of the deposit. However, you would have to leave your savings with the lender for 3-5 years.
3. Guarantor mortgage – This is where you would act as a guarantor for 100% of the mortgage debt.
4. Take out a joint mortgage with your child – You and your child take out a mortgage together. This could allow your child to borrow more but there could be tax implications for you if the house was later sold. As the property would be classed as a second property, you could be subject to Capital Gains Tax.

Seek financial advice before being the Bank of Mum and Dad

The main barrier to your child or grandchild getting on the housing ladder will be the ability to save for a deposit. Those who have the option to turn to family members and the Bank of Mum and Dad will find it easier.

The Bank of Mum and Dad will become even more vital when the Help to Buy Scheme closes in March 2023, when more young people will be looking for a way to fund their deposits.

However, before gifting or loaning any money, seek advice from financial professionals to ensure you are doing the right thing financially for you. Please contact us to talk about your plans.

Please note: This article is no substitute for financial advice and should not be treated as such. To determine the best course of action for your individual circumstances, please contact us.

More people are choosing to gift wealth during their lifetime rather than leaving assets as an inheritance. There are benefits to choosing a living legacy, but there are things you need to consider too, including your long-term financial security and the potential tax implications.

According to an Aviva survey, more than half of those over 55 want to give a living legacy. It’s a trend that suggests a move away from leaving money to your family when you pass away.

There are many reasons why you may want to create a living legacy, including:

1. You can see the benefit of your gift

One of the key benefits of a living legacy is that you can see the joy and security that your gift brings to loved ones. For some people, this may be a motivation for creating a living legacy.

2. Help family members when they need it most

Longer life expectancy means that many people won’t receive an inheritance until they’re retired. As younger generations face financial security challenges, like struggling to buy their first home, a living legacy can have a much larger effect. A gift earlier in life can help your family reach their goals.

While there are benefits to a living legacy, there are some key areas you need to consider first.

Will a gift now affect your long-term security?

Taking a lump sum or assets out of your estate now could affect your financial security. To have confidence in the steps you’re taking, you need to think about how they could affect your long-term plans.

According to the Aviva survey, 33% of people said they would be uncomfortable helping a family member get onto the property ladder without knowing how much money they’d need for retirement. For many, this worry is likely to apply if you’re helping loved ones achieve other goals or simply want to provide a gift.

Gifting some assets can have a larger effect on your plans than you think. For instance, if you took money out of an investment portfolio, you would also lose the potential returns you could earn from those investments. So, it’s important you review your entire financial plan when gifting.

Longer life expectancy is one of the reasons people are turning to living legacies, as it can help family when they need it most. However, it also means you need to consider the long term and what could happen if you face financial shocks.

Making gifts part of your financial plan means you can hand over assets to loved ones with confidence.

A robust plan will help you understand how your wealth and income needs may change over the years. You can also take steps to protect yourself from income shocks – for example, by taking out appropriate financial protection or having emergency assets you can fall back on.

How will a gift affect your Inheritance Tax liability?

If your estate could be liable for Inheritance Tax (IHT), it may be a reason you’re considering gifting assets now. However, not all gifts are outside of your estate for IHT purposes.

If the value of all your assets is more than £325,000, your estate could be liable for IHT. With a standard rate of 40%, IHT can significantly reduce what you leave behind for loved ones.

Gifting to bring the value of your assets under the threshold can seem like a straightforward way to reduce IHT but it’s not that simple.

Some gifts are considered immediately outside of your estate for IHT purposes. This includes up to £3,000 each tax year known as the “annual exemption”, the small gift allowance of up to £250 for each person, and gifts that support someone’s living costs.

However, other gifts may be considered “potentially exempt transfers” (PET). PETs can be included as part of your estate for IHT purposes for up to seven years.

So, if you gifted assets and died within seven years, the IHT bill could be more than you or your family expect.

If IHT is a key reason why you’re considering a living legacy, it’s important you understand the effect this could have.

There are things you can do to increase how much you can leave behind before IHT is due, including making use of the residence nil-rate band. We can answer any questions you may have about IHT and the steps you could take to reduce liability.

Contact us to discuss living legacies

If you’d like to gift your loved ones cash or assets during your lifetime, please contact us. We can help you understand if it’ll affect your long-term security and what other implications you may need to consider, such as a tax liability.

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 estate or tax planning.

How do you think retirement in the UK compares to other countries? According to a report in the Telegraph, the UK ranks 19th, falling behind the likes of Australia, Germany, and Ireland. Read on to find out why and what you can do to overcome the challenges UK retirees face.

The research incorporated several factors for assessing how comfortable and secure retirement is. Among the areas measured were the quality of financial services, a pensioner’s ability to preserve their savings, access to health services, and general living conditions.

In a list of 44 developed countries, the top 10 places to retire are:

1. Norway
2. Switzerland
3. Iceland
4. Ireland
5. Australia
6. New Zealand
7. Luxembourg
8. Netherlands
9. Denmark
10. Czech Republic

While the UK fell behind these countries by ranking 19th, it did place higher than France and came just behind the United States.

3 reasons UK retirement is falling behind

The research suggested that retirement prospects in the UK have fallen in the last five years. Among the reasons were these three.

1. Rising tax burden

The tax you pay in retirement will have a direct effect on your income. So, ensuring you’re creating an income tax-efficiently, such as making the most of allowances, is important.

When you’re withdrawing an income from your pension or other sources, you should maximise your Personal Allowance, which is £12,570 for the 2022/23 tax year, and be mindful of the higher-rate threshold.

Withdrawing savings or investments from an ISA can also be a tax-efficient way to boost your income.

Depending on your circumstances, you may also want to take advantage of the Dividend Allowance, Capital Gains Tax allowance, and more. We’re here to help you understand which ones could be right for you.

Careful planning could help reduce your tax burden in retirement and help your money go further.

2. Growing income inequality

The research identified a growing wealth gap among retirees in the UK.

Understanding your retirement income and how long it needs to last can give you confidence about your future.

While the State Pension often isn’t enough to cover all your expenses, it’s an important building block. How much you receive from the State Pension will depend on your National Insurance record. If you have gaps in your record, you may be able to make voluntary contributions that could boost your income throughout your retirement.

It’s also important to understand how your pension will create a sustainable income, whether you have a defined benefit (DB) or a defined contribution (DC) pension. You may need to consider areas like life expectancy to ensure you have a reliable source of income for the rest of your life.

You may also have other assets that you could use to support your security in retirement, such as savings and investments.

It’s never too soon to review how your decisions will affect your retirement. A long-term plan can help you achieve financial peace of mind.

3. Low returns on savings

In the last decade, retirees have faced significant challenges when it comes to getting the most out of their money.

As you may not be receiving any income in retirement, your savings growth is important. This can help provide long-term financial security and mean that the value of your assets keeps pace with inflation.

Interest rates have been at historical lows since the 2008 financial crisis. Over the last year, interest rates have gradually started to rise as a way to combat increasing inflation. In September 2022, the Bank of England increased its base interest rate to 2.25%.

Despite the recent rises, it’s unlikely that your savings are delivering returns that match inflation. So, in real terms, the value of your savings is falling. This can present problems, especially as your income needs may increase because the cost of living is rising.

For some retirees, investing a portion of their wealth can make sense. If your savings are held in a pension, they will usually be invested.

Keep in mind that investing comes with some risk and you should assess your risk profile to choose appropriate investments.

Contact us to talk about your retirement

Having a plan could help you retire in greater security and comfort.

We can help you understand how to get the most out of your assets, assess what’s important to you, and consider what steps are appropriate to minimise risks. A robust financial plan means you can focus on enjoying this next stage of your life without having to worry about where your finances stand.

If you’re ready to start planning your retirement, 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.

As the cost of living rises, you may be considering increasing how much you withdraw from your pension. While it could solve short-term challenges, it’s important that you think about how it could affect your future too.

Several factors, including the war in Ukraine and the long-term effects of the pandemic, mean that inflation is much higher than it has been in recent decades. In the 12 months to September 2022, the rate of inflation was 10.1%.

Your regular outgoings are likely to have increased, as well as the cost of discretionary spending, like holidays or days out. As a result, the budget you set out when you initially retired may not be adequate now.

If you’re struggling financially or are having to make lifestyle compromises, increasing your pension income may seem like a simple solution.

Data published in FTAdviser suggests that pension savers would need an extra £90,000 to maintain their standard of living because of rising costs. While costs will vary depending on your lifestyle, the research estimated that an income for a “comfortable” lifestyle would need to increase by £2,000 a year, and by £3,000 a year for a “luxurious” lifestyle.

If you’re taking a flexible income from your defined contribution (DC) pension, it’s easy to increase your withdrawals if you need to. However, you also need to weigh up the long-term consequences of doing so.

For example, could taking more from your pension now mean you potentially run out of money in the future? Or could taking a flexible income now place you under financial stress if something unexpected happens later on?

This is why it is important to consider the long-term effects before you take more from your pension to cope with the rising cost of living.

3 things you need to do before you increase your pension withdrawals

1. Calculate how much your expenses have increased

Before you increase your pension withdrawals, it’s essential you understand how much income you need.

While the rate of inflation can provide you with a good baseline of how much costs have increased, your personal inflation rate may be very different. Take some time to set out what your budget covers and review how these costs have changed in the last year.

It’s a good idea to split costs into essential and discretionary spending. This means you can understand what level of income you need and the extra that would allow you to live the lifestyle you want.

It’s expected that inflation will remain high in the coming months. So, ensuring you have some room in your budget for potential increases in the future can also make sense.

2. Understand how increased withdrawals could affect your long-term security

One of the challenges of accessing your pension is understanding how withdrawals will affect your long-term financial security.

To take an income with confidence you should consider how long your pension will need to provide an income and how your needs might change. Ignoring this issue could lead to financial challenges in the future, including running out of money in retirement.

Taking a higher income or a lump sum from your pension now can have a larger effect on your long-term wealth than you may think. As your pension is usually invested, you will need to consider how potential returns could be lower than you expect.

3. Include other assets in your decision

If you need to boost your income, you may have other valuable assets – don’t just consider your pension.

Depleting savings or investments could make more sense for you, so it’s important you review your entire financial plan and assets before you make a decision. There are many things to consider when deciding how to create an income, from long-term security to tax liability.

It can be difficult to understand what your options are, and which solution is right for you. If you need support when weighing up your options, you can contact us.

Do you want to review your retirement income needs?

If you’re worried about the rising cost of living and the effect it could have on your retirement plans, please contact us.

We’ll help you review your retirement plan with the current circumstances in mind. Whether you want to increase your withdrawals now or have confidence you could in the future if you need to, we’re here to answer your questions.

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 value of your investments (and any income from them) can go down as well as up, which would have an impact on the level of pension benefits available.

Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances. Levels, bases of and reliefs from taxation may change in subsequent Finance Acts.