Category: News

Financial planning doesn’t have a lot in common with science fiction. Yet, cashflow modelling could allow you to explore the lives you could lead if you made different decisions. So, it has more in common with the multiverse theory than you might initially think. 

The multiverse theory suggests there is a hypothetical group of multiple universes with many different worlds. It proposes that every time an outcome is observed, there is another “world” in which a different outcome becomes reality. 

So, while here you may have made certain career decisions, or started a family, there are countless other realities where you’ve made different choices. 

Despite some scientists searching for evidence to support the multiverse theory, they haven’t found any yet, and others are sceptical. Yet, it’s continued to be a huge source of inspiration in science fiction. 

Indeed, one of this year’s Oscar nominations Everything Everywhere All at Once suggests that every decision you make creates a parallel universe. You can see the influence of the theory in literature too, from Matt Haig’s Midnight Library to thriller Recursion by Blake Crouch. 

But, what does the multiverse theory have to do with cashflow modelling?

You can “test” your decisions through cashflow modelling 

Cashflow modelling can forecast your future finances in different scenarios. 

You start by inputting information, such as how much you have in savings, the value of your investments, or your income. By making certain assumptions, like expected investment returns or income growth, you can project how your wealth will change over your lifetime. 

Once the information has been added to a cashflow model, you can then model different scenarios and take a peek into what could happen in those other realities. You can see how decisions you make, or things outside of your control will affect your financial future.

Let’s focus on investments. A cashflow model could show what may happen if:

• You increased how much you invested by 10% each month
• Investment returns were 5% or 7% a year
• You used your investment portfolio to boost your retirement income by £5,000 a year. 

Sadly, cashflow modelling doesn’t let you experience other lives like you see in films. But it can help you visualise different scenarios and how the decisions you make could lead to very different outcomes. 

2 compelling reasons to make cashflow modelling part of your financial plan 

1. It can give you confidence in your financial decisions 

As cashflow modelling can help you understand how your decisions could affect your wealth in the short, medium, and long term, it can give you confidence.

If you’ve been deliberating over whether you can afford to give your child a property deposit, or if you have enough to retire early, cashflow modelling could mean you’re able to move ahead with plans with fewer doubts. By understanding the implications of your financial decisions, you can focus on what’s important in your life. 

2. It can help you prepare for different outcomes 

One of the challenges of creating a long-term financial plan is that things outside of your control can affect it. Cashflow modelling can help you answer “what if?” questions like:

• What if I was forced to retire earlier than expected due to ill health?
• What if my investments don’t perform as well as hoped?
• What if I passed away? Would my spouse and children be financially secure? 

By modelling these types of scenarios, you can see what effect they would have on your wealth and lifestyle. That puts you in a position to prepare for them to give you peace of mind. It could include putting more away for your retirement now or taking out life insurance to provide for your family if you pass away. 

As a result, cashflow modelling can mean you and your loved ones are more financially secure and better prepared to overcome unexpected life events. 

Are you ready to consider the multiverse? Get in touch

If you want to better understand how the financial decisions you’re making could affect your life in the future, please contact us. We can help you visualise different outcomes, and then create a financial plan that could turn your aspirations into reality.

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

The benefits of having a will in place are well-documented, although if you don’t have a will, or haven’t updated it in some time, you’re not alone. A recent survey from MoneyAge has found that 51% of adults in the UK currently don’t have a will in place.

Of those with a will, 43% haven’t updated it since it was first written. 

A will can be a fantastic way to: 

• Allocate your assets to loved ones
• Nominate legal guardians for your children
• Divide your estate as painlessly as possible
• Reduce your liability for Inheritance Tax. 

If you don’t have an up-to-date will, there’s a chance your loved ones won’t receive the wealth you intended for them. So, continue reading to discover why having an up-to-date will is vital. 

It ensures your assets pass to the people you want them to 

Perhaps the most obvious benefit of having an up-to-date will in place is knowing your assets will pass to the people you wish. 

If you die without a will in place, or “intestate”, you’ll have no say over how your assets will be distributed. Instead, the laws of intestacy will dictate how your estate is divided. 

This is especially important if you have a partner and you’re not married. While your blood relatives and/or spouse will usually inherit according to the laws of intestacy, a cohabiting partner and any stepchildren you have will likely not.  

Your will is the perfect way to dictate where you want your money to go after you pass away, giving your loved ones more financial security after you die. 

It could mean less hassle for your family

After you die, your family will need to administer your estate. This can be a stressful process, especially while they’re dealing with the grief of your passing. So, having a will in place that clearly outlines your wishes may make it easier for your family to make any necessary arrangements. 

For instance, if you don’t have a will, dividing your estate could be incredibly stressful and time-consuming, and it could take longer for your assets to pass to your loved ones. 

It could help avoid disputes

As mentioned, it’s a common occurrence for families to experience periods of heightened stress and grief after you die. As such, the dividing of an estate can be the perfect storm of stress and emotion, which can, unfortunately, often lead to disputes. 

Indeed, data from IBB Law shows that 75% of people are likely to experience a will or inheritance dispute case at some point in their life.

Disputes can have lasting adverse effects on your family – they could permanently damage relationships or even cause schisms in the family, not to mention costing thousands in legal fees.

With a will in place, these disputes could potentially be avoided, making the process of dividing your estate as simple and painless as possible. 

Even if you already have a will, you’ll need to update it regularly as your circumstances change. For example, if you remarry your existing will is automatically revoked. So, if you don’t write a new one, your estate could pass to the “wrong” people and cause arguments or disputes. 

You can assign guardians for your children

While you may think your will is only used to allocate your estate, it can also be used to express your wishes about what will happen to your children after you die.

If your dependents are below the age of 18, you can use your will to nominate legal guardians. If you don’t nominate a guardian in your will, a family court would need to decide what happens to your children and their care could be left in the hands of a person you wouldn’t have chosen. 

Even if you do have a will, it may be worth updating it regularly to fit your current circumstances – for example, as you have more children. 

You could potentially mitigate an Inheritance Tax bill

When you die, the total value of your estate will dictate the amount of Inheritance Tax (IHT) that will be payable. 

As of the 2023/24 tax year, the IHT threshold stands at £325,000, though you can also benefit from the additional £175,000 “residence nil-rate band” if you leave your home to a direct descendant, such as a child or grandchild. 

Then, anything left in your estate above this threshold will typically be subject to the standard IHT rate of 40%. 

With a well-written will, you can often reduce your IHT liability. For example, suppose you specify that you want your home left to a direct lineal descendant. In this case, you could make full use of the additional residence nil-rate band, substantially reducing the IHT liability of your estate. 

Wills can help you to make your estate plan as tax-efficient as possible. 

It ensures that nothing is left behind

After you die, there will be plenty of paperwork relating to your finances that your family will need to deal with. 

If you haven’t clearly outlined your assets in your will, your family could miss something they didn’t know existed, such as a previous pension, an old savings account, or even any protection you had. 

When your will is in place, you can clearly identify your assets and distribute them to your beneficiaries. This could ensure that your family doesn’t miss out on any of your hard-earned wealth. 

This is another great reason to update your will regularly. If you have acquired assets later in life and fail to update your will to include them, they could be missed out entirely when your estate is divided. 

It can give you peace of mind

Another beneficial reason to have a will in place is that it gives you the peace of mind that your affairs will be dealt with in the way you desire after you die. You can rest assured that your loved ones’ future is secure, and you can start living in the present. 

For instance, if you die without a will, the intestacy laws will rule on issues ranging from the guardianship of your children to the dividing of your estate. If you write a will now, you can regain control and relax, knowing that the right people will receive your assets after you die. 

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 planning, tax planning or will writing.

Do you find pension information confusing? You’re not alone; 50% of people in the UK describe the information they receive about their pension as “overwhelming”, according to a Standard Life study.

Fortunately, there are places where you can seek guidance or advice. The survey found 83% of people think financial advisers offer useful support.

If you’re not sure if your pension is on the right track, a financial planner could help put your mind at ease. Here are four reasons why. 

1. A financial planner can cut through jargon

Pension information can be filled with jargon that makes it difficult to understand exactly what it is saying. 

From “annuities” to the “Tapered Annual Allowance”, a financial planner could help you cut through confusing terms and take the time to explain what they mean and, more importantly, whether they’re relevant to you. 

Having someone you can turn to for answers that you know you can rely on is invaluable. 

2. A financial planner can help you make sense of pension statements 

Your pension provider will provide a statement each year; this may come in the post or be online.

It will cover pension contributions, including your own, those made by your employer, and tax relief. These figures can help you understand how much is going into your pension.

As your pension will usually be invested, the statement is likely to include investment performance too. As investments can be volatile, it can be difficult to know whether your investments are performing well or not, and it’s also essential to ensure they match your risk profile and goals. As financial planners, we can help you get to grips with pension investments. 

In addition, your pension statement will include a forecast. This is a projection based on assumptions that the provider makes, including your retirement date and investment performance, so it’s not a guarantee. 

The pension forecast can be incredibly useful when thinking about how your savings will add up to deliver a retirement income. But understanding if it’s “enough” is another challenge. 

3. A financial planner can help you calculate if you’re saving “enough”

Calculating how much you should be saving into your pension can be complex. There’s no one-size-fits-all figure, so you’ll need to consider your circumstances and goals to understand what is “enough”. 

Not only will you need to calculate potential investment returns, but also the income you need to create the retirement lifestyle you want. As a result, setting a pension target often means pulling together different pieces of information, from life expectancy to other assets you’ll use to create an income, like savings. 

A financial plan can help you understand what is “enough” for you to retire on, and, importantly, the steps you can take to reach the goal. With a clear blueprint, you’re more likely to retire with enough savings to live the lifestyle you want. 

4. A financial planner can create a plan that means you can enjoy retirement

A financial plan can help you get the most out of your money, and allow you to really enjoy your retirement. 

There’s strong evidence that taking control of your finances could boost your wellbeing. In fact, 93% of people that planned for retirement with an income of less than £20,000 say they are enjoying life after giving up work. However, only 66% of people that didn’t plan could say the same.

Despite this, 7 in 10 people are doing very little, if anything, to plan for their retirement.

So, arranging a meeting now to create a plan for when you give up work means you’re more likely to enjoy the next stage of your life. It’s never too soon to start retirement planning, and doing so earlier could grant you more freedom in the future. 

Contact us to talk about your pension

If you want to talk about your pension and start thinking about what it means for your retirement, please contact us. We’ll work with you so you can have confidence in your retirement savings and look forward to the milestone. 

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.  

Inheritance Tax (IHT) can affect what you leave behind for loved ones. It’s essential you understand if it’s something you need to think about, as there could be steps you can take to reduce a potential bill.

Over the last few months, you’ve read about what estate planning is and how to calculate the value of your estate. Mitigating an IHT bill should be an important part of your estate plan if you could be liable for it. Read on to find out when IHT is due.

The standard rate of Inheritance Tax is 40%

With a standard rate of 40%, IHT could substantially reduce the value of what you leave behind for loved ones. According to HMRC, around 3.76% of estates pay IHT.

IHT is a tax on your estate after you pass away if the total value exceeds certain thresholds. There are two allowances that you could use:

1. If the value of your estate is below the nil-rate band, your estate will not be liable for IHT. For the 2023/24 tax year, it is £325,000. 
2. Should you leave your main home to your children or grandchildren, you may also be able to use the residence nil-rate band. For the 2023/24 tax year, it is £175,000. 

As a result, you could leave up to £500,000 before IHT is due.

You can also pass on unused allowances to your spouse or civil partner. So, if you plan as a couple, you could leave an estate valued at up to £1 million before it’s liable for IHT. 

The portion of your estate that exceeds these allowances is usually taxed at 40%.

Let’s say you leave behind assets worth £600,000 to your child, including your main home to take advantage of the residence nil-rate band. The first £500,000 can be passed on without being liable for tax. However, there would be a tax charge of £40,000 on the £100,000 that exceeds the allowances. 

You should note both the nil-rate and the residence nil-rate band are frozen at the current level until April 2028. While the value of your estate is below the threshold now, will this still be the case in five years?

To plan effectively, you should consider how the value of your estate could change. 

A plan is essential if you want to mitigate Inheritance Tax

There are often steps you can take to reduce a potential IHT bill. Creating a plan now could mean your loved ones inherit more of your estate.

There are lots of steps you can take to reduce IHT during your lifetime, including: 

• Gift assets during your lifetime. You could support your loved ones by gifting assets now or during your lifetime. However, keep in mind that only some gifts will be outside of your estate for IHT purposes immediately. Others may still be included when calculating IHT for up to seven years. Contact us to discuss how to gift to reduce IHT liability now. 
• Place assets in a trust. Placing assets in a trust could mean they are outside of your estate and, in some cases, you may still be able to benefit from the assets. You will need to name a trustee that will manage the assets on behalf of your beneficiaries. Trusts can be complex, especially if you need to consider IHT, so professional advice can be useful. 
• Leave some of your assets to charity. This could bring the value of your estate below the IHT threshold. If you leave more than 10% of your entire estate to charity the IHT rate will fall from 40% to 36%, which could lower the bill for some families. 
• Keep the value of your estate below the IHT threshold by spending. Make the most of your later years by spending more – it could mitigate an IHT bill if it brings the value of your estate below the threshold for paying IHT. 

There may be other things you can do too. Contact us to create a tailored estate and IHT plan.

As well as steps to mitigate IHT, you may also want to create a plan for paying a bill. This could include setting money aside so it’s there when your family need it.

Another option is to take out a life insurance policy. You’d need to pay premiums and the policy proceeds could give your family the cash they need to cover an IHT bill.

You must ensure a life insurance policy that’s intended to cover IHT is written in trust, otherwise, the payout will be considered part of your estate when calculating IHT. 

Contact us to talk about your estate plan and Inheritance Tax 

If you’d like help understanding if your estate could be liable for IHT, or you want to discuss your options to potentially reduce a bill, please get in touch.

While estate planning often focuses on organising your affairs to pass on assets when you die, it can also cover steps to improve your long-term financial security. Next month, read our blog to discover what steps you could take to make your later years more secure. 

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.

2022 ended with uncertainty and volatility that’s persisted for much of the year. Read on to find out what happened in December and how it affected investment markets.

Looking ahead, uncertainty is likely to be something investors will need to negotiate in 2023 too. As economies continue to struggle with high levels of inflation, Goldman Sachs CEO David Solomon warned that “bumpy times” were still ahead.

Keep in mind that volatility is part of investing and you should keep your long-term plan in mind when reviewing performance. You should also consider your risk profile and the investment opportunities that are appropriate for you.

UK

Inflation fell slightly in the 12 months to November 2022 to 10.7%. It’s led to hopes that inflation has peaked, but high levels are expected to persist in the first half of 2023. In response to inflation, the Bank of England (BoE) increased interest rates again, this time by 0.5% to 3.5%.

The soaring cost of living has led to strikes across the country, which has affected a range of services, from post to transport. Dubbed the “winter of discontent” by the media, figures from the Office for National Statistics (ONS) show that strike action is at its highest level for more than a decade. Around 417,000 working days were lost due to labour disputes in October.

One positive piece of data released in December was the GDP figure. It’s estimated that GDP grew by 0.5% in October after falling 0.6% in September.

However, experts have warned that the economy is still likely to fall into a recession. The Institute of Directors explained that the latest figure was most likely due to the extra bank holiday in September for the Queen’s state funeral, rather than the economy bouncing back.

Readings from S&P Global’s purchasing managers index (PMI) suggests that business output is falling. A reading below 50 indicates contraction.

• A “lethal cocktail” of Brexit, logistic challenges, high costs, and falling demand, means that the PMI for UK factories fell to its lowest level since April 2020, when the first wave of Covid-19 affected operations. The 46.5 reading suggests business is contracting.
• The reading for the service sector fell to 48.8 as cost of living challenges hit discretionary spending.
• The construction sector is still growing, although it is near the 50 mark, which indicates stagnation due to the rising cost of borrowing affecting the industry.

Businesses are also struggling to find the talent they need. According to an ONS survey, a third of UK businesses with 10 or more employees said they are experiencing a shortage of workers. This rises to 54% in the human health and social work sector.

While many businesses are suffering from falling demand, one bright spot was car sales. They increased for the fourth consecutive month. Industry leaders said a recovery for the sector was “within grasp” after November sales were 23.5% higher when compared to a year earlier.

US carmaker Ford also unveiled investment plans. It will invest an extra £125 million in its Merseyside factory to make electric vehicle parts. The move is part of the company’s zero-emission goals.

Europe

In a similar move to the BoE, the European Central Bank increased its base interest rate by 50 basis points due to inflation.

PMI data suggests that the eurozone is falling into a recession. Private sector output fell as demand for goods and services contracted. Job creation was also at its weakest level in almost two years as businesses are affected by uncertainty.

While manufacturing increased slightly when compared to the previous month. The PMI figures show it’s still in contraction as new orders fall.

This falling demand is affecting Germany, which is the largest economy in the eurozone. Exports declined by 0.6%.

USA

Statistics from the US paint a mixed picture. Like other economies, the US is facing high inflation, rising interest rates, and uncertainty.

PMI data suggests industries are contracting. For instance, the reading for the service sector fell from 47.8 in October to 46.2 in November.

However, job data suggests that businesses are still optimistic. The job market was positive, with 260,000 new jobs added in November. The unemployment rate also remained at 3.7% – an almost 50-year low. The figures indicate that businesses feel confident enough to invest in their workforce.

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.

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.