The Rest is Elections

The British electoral system does not lend itself to coalition governments. Ask anyone from the Liberal Democrats how they feel about the Conservative/Lib Dem coalition of 2010 and they probably won’t refer to it in glowing terms. Historically, this means that the UK is subject, every now and then, to a lurch from right to left, or vice versa. With this lurch we tend to see fairly fundamental changes in policy. At least, we used to.

I don’t think I am being controversial by suggesting there is a strong possibility that Kier Starmer will be the next Prime Minister at some point this year. The last time we had a change from Conservative to Labour was Tony Blair’s victory, 27 years ago, in 1997, with a majority of 179. According to a recent poll, Labour is heading for a majority of 298! We’ll see. But already, many of our clients are thinking about what a Labour Government will mean for them and what, if anything, should they be doing to protect their finances.

Arrange your free initial consultation

For Financial Advisers, we are always in a difficult position when it comes to offering advice on an unknown. At the time of writing, the Labour manifesto has yet to be written and we are short of precise detail. Without a crystal ball it would be unwise for us, or any other adviser, to recommend a course of action based on speculation. 

To a certain extent, we experience the same thing every year with the budget. I have been advising clients for over 35 years and every year I hear the same fears. Are we going to see the end of tax-free cash in pensions? Will higher rate tax relief on contributions be removed? Will any changes be retrospective? They are, in essence, the same fears as those before an election.

Will Labour tax the rich and give to the poor? 

Labour, in blunt terms, has always been associated with taxing the rich and redistributing to the poor. The Labour administration of the 70s imposed an eye-watering top rate of income tax at 83% for those with incomes above £20,000 (£221,741 in today’s terms). With the investment income surcharge of 15% added, this resulted in the now famously high-water mark of 98%, the highest rate since the war.

I think it is worth pointing out that politics from the 70s was far more polarised than it is today.  Tony Benn was openly attempting to nationalise virtually every British industry in sight, and the unions were hell bent on removing anyone from government who was more right wing than Che Guevara. If you haven’t done so already, I thoroughly recommend listening to the excellent ‘The Rest is History’ podcast ‘Britain in 1974’. Apart from highlighting this polarity, it is also a stark reminder of just how bad things had become.

Since the 90s the major parties have become (in historical terms at least) more centrist, and both Labour and Conservatives exhibit the same general desires when it comes to taxation and government debt. The current tax take (under the Tories) is the highest it has been since the war. The highest rate of income tax now is 45%, higher than it was under Labour in 2010. Admittedly, both parties have, in recent years, examined their political extremities (Corbyn for Labour and the Reform breakaway for the Conservatives) but the truth seems to be that monetarism has won the day and the days of ultra-high taxation and reckless borrowing seem to be history. At least for now.

How can you protect yourself? 

So, returning to the steps our clients can take to protect their positions, in advance of the general election, I think it will probably focus on the peripheral subjects such as the Lifetime Allowance, or good savings fundamentals, which apply regardless of elections.

The Lifetime Allowance (LTA) has just been abolished, but as soon as its demise was announced, Labour publicly stated that they would reinstate it. But without knowing what shape this will take, it is impossible for us to advise. They could simply reinstate the previous level (£1,073,100). If this is the case, it may be in our clients’ interests to ‘crystallise’ their pensions above this figure beforehand. But what if they don’t? What if the LTA is increased to £1.8 million and tax-free cash is increased to 25% of this figure as a conciliatory gesture? In this case, you would be penalised by crystallising pensions now, up to this number. This is because there is now a new ‘Lump Sum Allowance’ (LSA) which is £268,275, and this represents the aggregate maximum amount of tax-free cash that can be taken from all schemes. There is also no guarantee that any change, whatever it might be, wouldn’t be retrospective.

So, what else might change? As I mentioned earlier, this is a question which also crops up every budget and the best protection anyone can take is probably to make the most of any tax breaks which are currently available. 

First on the list is pensions. Obtaining tax relief on contributions is, and always has been, an extremely tax efficient move, especially for higher rate and, particularly, additional rate taxpayers. Not only do you receive tax relief on contributions (subject to annual allowance limits) but all pension funds grow free of capital gains tax and personal income tax. The pension fund is also outside of the estate for inheritance tax purposes.

ISAs are probably the next port of call with individuals permitted to invest up to £20,000 each tax year (plus a forthcoming British ISA allowing a further £5,000 each tax year). ISA funds are also free from capital gains tax and income tax which makes them superb retirement planning vehicles.

If a new government chooses not to change them then, well, they were a good idea anyway, and if they do change them (for the worse) then you have maximised tax efficiency beforehand (subject to there being no retrospective changes).

I think one thing is fairly certain. The UK is not in fine financial health and handouts will not be the order of the day. But like him or loathe him, Kier Starmer is no Tony Benn and, to quote Benjamin the donkey in Animal Farm, I suspect things will continue much the same as they did before. That is to say, badly! 

Arrange your free initial consultation

This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

The opinions shared in this article are solely those of the individual and they do not necessarily reflect those of The Private Office. 

Financial Conduct Authority does not regulate tax planning.

A pension is a long-term investment. The value of an investment and the income from it could go down as well as up.  The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.

The information in this article is based on current laws and regulations which are subject to change as at future legislations.

Following the announcement that the state pension would rise by 8.5% this year, research from Standard Life showed that 22% of adults still don’t know what state pension they will be receiving. This rose to 29% for those aged between 55 and 64, which either demonstrates a lack of pension knowledge or a lack of concern for those already at pension age.

It’s no secret that the UK state pension is known for being insufficient for a complete source of income in retirement, often unable to cover even the basic costs of living. This situation has been exacerbated by rocketing inflation over recent years. However, even for those with higher incomes, the state pension remains a valuable additional income source and an essential one for those who earn little or no additional retirement income.

Arrange your free initial consultation

It’s worth remembering that not everyone gets the same state pension amount. How much you get depends on your National Insurance record. For many people, the State Pension is only part of their retirement income, as the maximum a person in the UK can receive from their state pension currently is £221.20 a week for the 2024/25 tax year. Instead, they may also have money from a workplace pension, other pension and/or earnings, which is increasingly essential.

Sadly, even those who are able to access the current maximum £11,502.40 a year are still almost £3,000 shy of what is considered, by the pension industry guidelines, to be the amount required to have a minimum standard of living. And following the Governments freeze on allowances, many more pensioners, even on low-income levels that push them over the annual allowance, will be paying more tax. In fact, charities including Age UK, have reported an increase in concern among pensioners who fear being dragged into paying income tax.

How the state pension compares across the world

While the state pension is certainly not enough to live on alone, it’s interesting to see what the state pension looks like in other major countries to get a complete picture of where the UK stands comparatively.

In the UK, if you have 35 years of National Insurance contributions, you are currently eligible to receive the full state pension amount of £958 a month. Between Australia, Denmark, France, Germany, the Netherlands, Spain and the United States, the UK has by far the lowest state pension, according to recent figures from This is Money. Most offer between the equivalent of £1,500 - £2,500 a month, with Spain offering the equivalent of £3,060, more than triple what the UK state pension pays to pensioners.

One reason for this is due to the UK’s flat-rate pension. You get the same amount regardless of earnings, while in many other countries the state pension is linked to your earnings. This means that while the maximum may be high in other countries that have pensions based on earnings, this would not necessarily be what the average pensioner would receive, with many receiving less than the flat-rate amount offered for UK pensioners. The flat-rate approach is more beneficial for those on low incomes and, by the same token, higher earners in the UK get less from the state pension than their international counterparts who are enrolled in systems based on what they earn.

Another point of comparison to consider is what is required to access these state pensions. In the UK, you are required to have 35 years’ worth of National Insurance contributions before you can access the modest state pension on offer. By contrast, the Netherlands, which offers a more attractive £1,230 a month, requires a full 50 years’ worth of National Insurance contributions. Even though the state pension is higher in the Netherlands, the extra 15 years of National Insurance contributions that you have to make, should not be understated.  

If you’re thinking about or approaching your retirement and would like to speak to an expert to assist in mapping out your financial future, why not get in touch. We’re offering all of those with £100,000 or more in pensions, savings or investments a free initial consultation.

Arrange your free initial consultation

This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

This article is based on our understanding of Government practice as at 6 April 2024. 

This article is accurate and correct as the time of writing 01/05/2024.

Pensions serve as a fundamental element of retirement planning, providing you with a source of financial security during retirement. Yet, navigating the evolving pension landscape, with ever-changing rules and regulations, alongside the array of retirement options available, can be daunting.

Questions inevitably arise such as “when can I access my pension?” and “what are my retirement options?”. Here we aim to address these questions, providing some clarity on how and when you can withdraw from your pension.

Arrange your free initial consultation

How to withdraw money from your pension

In the UK, there are generally two types of pensions that can be set up: defined benefit and defined contribution pensions. 

• Defined benefit pensions (also known as a final salary scheme, but also include public sector schemes for example, Career Average Revalued Earnings or CARE) guarantee a fixed income in retirement determined by salary and length of service, with a degree of inflation protection built in. 
• Defined contribution pensions build a fund through contributions from you, your employer, or both, with your retirement income dependent on the pot’s growth. Defined contribution schemes can be workplace or personal pensions and typically provide more flexibility with retirement options. 

It is therefore important to understand the different options available to you.

Since the enactment of pension freedoms legislation (‘pension reforms’) in April 2015, accessing and managing your pensions has become more flexible. You can now access your defined contribution pension from the age of 55 (increasing to age 57 in 2028) with access to a wider range of options. While this flexibility is advantageous, it is important to understand the implications of each option and how any decision will impact your future. 

What are my retirement options? 

1. Lump sum withdrawal(s) - Otherwise known as uncrystallised funds pension lump sum (UFPLS), this option allows you to either withdraw your entire pension as a cash lump sum all at once, or in stages (dependent on what your provider offers). The initial 25% will typically be tax-free (up to the standard lump sum allowance of £268,275), and the remainder subject to income tax. For larger pots, this could create a significant income tax liability. This approach provides flexibility by allowing you access to your funds when needed, while also maintaining investment possibilities and phasing your tax-free cash over the years. It is important to note that if you opt to cash in your pension entirely, you could miss out on future investment growth opportunities and face potential financial shortfall in later years.
2. Purchase an annuity – An annuity provides a guaranteed income for life, allowing you to convert your pension pot into a reliable stream of payments over a lifetime or a predetermined period. You can opt to receive up to 25% of your funds tax-free upfront, with the remaining funds being used to purchase the annuity where the income you receive is taxable. You have the freedom to buy an annuity from any provider, not necessarily the one your funds are held with, although some may require a minimum investment. It is possible to build in annual annuity increases or protection for a spouse or other beneficiary, however, this reduces the starting level of income. It is worth noting though that once you purchase an annuity, the decision is irreversible, and you cannot change your mind and switch to another plan or provider.
3. Pension drawdown – This option offers the greatest flexibility, allowing you to withdraw a tax-free lump sum of up to 25%, followed by regular taxable income, while keeping the remaining funds invested. You have the freedom to manage your investments and withdraw funds according to your needs and income tax position. Not all pension schemes or providers offer drawdown, so you may need to move to a different provider to facilitate this.
4.  Keep your pension pot as it is – Lastly, you do have the option to take nothing at all and keep your pension pot where it is which allows for continued investment growth. However, fluctuations in market performance can lead to your fund decreasing in value as well as going up. In all cases, it is also important to check the death benefits position on your current arrangements to ensure they are tax-efficient for your beneficiaries.

When can I access my pension?

The minimum pension age for accessing pension pots typically stands at 55 years. However, this is increasing to 57 from 6 April 2028, aligning with the planned increment in the minimum State Pension Age to 67 between 2026 and 2028.

Can I withdraw from my pension early?

Early withdrawal from your pension, typically before the age of 55, is primarily contingent upon your health status. If you are required to retire early due to illness, you may qualify for access to your pension pot before reaching the minimum age threshold. Eligibility varies from provider to provider, but usually applies when your health prevents you from continuing employment and earning income. Withdrawing funds before age 55 and without any qualifying circumstances incurs substantial tax charges.

Summary

As evident, there are various options available for withdrawing money from your pension, but it is essential to consider the implications of each option. Seeking advice from a financial adviser who can provide tailored advice based on your individual circumstances is therefore recommended.

We’re offering a free cash-flow plan worth £500 to all those with £100,000 or more in pensions, savings or investments. Find out more here. 

Arrange your free initial consultation

This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions. 

A pension is a long-term investment. The value of an investment and the income from it could go down as well as up.  The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.

The information in this article is based on current laws and regulations which are subject to change as at future legislations.

2024 will see some huge changes to pensions, not least the much-publicised abolition of the Lifetime Allowance (LTA). So how do you prepare for a rapidly changing pension landscape? With a general election around the corner and the likelihood of a changing Government how can you plan for changes in legislation that could well be scrapped later down the line?

Arrange your free initial consultation

Lifetime Allowance

Taxation on pension funds has been a hot topic since the 2023 Spring Budget when the Chancellor announced his intention to abolish the ‘Lifetime Allowance (LTA)’. The LTA is the total value that someone can accrue within a pension over their lifetime without incurring certain tax charges. Under LTA rules you could face a tax charge of up to 55% on pension savings above £1,073,100. So, for people with large pension pots, the prospect of abolishing this allowance was welcomed.

The announcement also signposted the introduction of two new allowances which will restrict the amount of tax free lump sums which could be paid under the new pension regime from 6 April 2024.

The new Lump Sum Allowance is the upper limit on the tax-free cash someone can take from their pensions during their lifetime and is capped at 25% of the previous LTA (£268,275). 

The second allowance, the Lump Sum and Death Benefit Allowance will restrict the tax free lump sum which can be paid from your pension funds to your beneficiaries if you die before your 75th birthday. The Lump Sum and Death Benefit Allowance is set at £1,073,100 and the new regulation does not have any provision for these to increase over time to keep pace with inflation. 
If you had previously registered for one of the many forms of protection against the Lifetime Allowance and have not broken the conditions for maintaining your protection you will benefit from a higher Lump Sum and Lump Sum and Death Benefit Allowance. 

To account for benefits taken between 6 April 2006 and 5 April 2024 a transitional calculation has been provided so that individuals can calculate their remaining available Lump Sum Allowance and Lump Sum and Death Benefit Allowance.
There is a secondary calculation which can be undertaken for individuals who did not receive the full tax free cash lump sum entitlement of 25% when pension benefits were taken previously which may enable them to receive an increased Lump Sum and Lump Sum and Death Benefit Allowance. It is advisable to take financial advice when undertaking these calculations as they can be complex.

As soon as the Chancellor announced the abolition of the LTA, Labour announced that they would reintroduce the LTA if they are elected following the impending General Election with the current Prime Minister, Rishi Sunak, suggesting this will happen in the second half of this year. 

The number of people paying tax for breaching the LTA has been increasing in recent years (See Figure 1) , and the reintroduction of the limit after a period of overcontributing will push this number even higher. If the LTA is reintroduced at its previous level, it is estimated that around 250,000 people will be over the limit. 

Figure 1: Tax Paid for breaching lifetime allowance, Source: HMRC, 2024

Many are concerned that bringing back the cap will push senior NHS doctors into an early retirement. One of the key motivations for scrapping the LTA initially was to deter NHS doctors from retiring early to avoid tax bills.

Could a Labour government reverse the rules?

In the run up to the election we could see a sudden flurry of savers rushing to draw down on their pensions before the potential reintroduction of an LTA. To prevent this, Labour may decide not to go ahead with the reversal. 

Now that the legislation has been passed and HMRC have almost completed the implementation of the changes, tax experts have said it will be more difficult for policymakers to reverse the rules. This uncertainty leaves savers in a tricky position, as they try to second-guess the next move by a government.

So, do you make the most of the current pension rules or stay cautious in case Labour reverses the changes? In the past when the LTA has been changed HMRC has introduced protections for those who breached the new lower limit. Therefore, if the cap is reintroduced savers who are over the limit might be able to protect their pot. It is hard to predict how a new government might behave but many are hopeful for some form of protection.

If you are thinking about crystalising your pension early to avoid issues with a Lifetime Allowance tax charge, given the complexity of the matter, you should first consult your financial adviser.

Annual Allowance

It is also worth noting that the pension annual allowance changed from £40,000 to £60,000 on the 6th April 2023. Although there is not a limit on the amount that can be saved into pensions each year, there is a limit on the amount that can benefit from tax relief. The ‘Annual Allowance’ is the limit that an individual can contribute to a pension personally in any given tax year, whilst benefiting from tax relief. 

For example, someone receiving a salary of £40,000, would only receive tax relief on personal contributions up to £40,000, but someone on a salary of £80,000, would only attract tax relief on contributions up to  £60,000. It is important to note that lower limits apply to high earners or individuals who have already accessed some of their pension funds flexibly.

State Pension

The state pension is due to receive an 8.5% rise this month, taking it from £10,600 to £11,502 a year. This is the second largest percentage rise in the last 30 years. It is worth remembering that this isn’t the case for everyone who is entitled to the state pension, and there is no guarantee that the next government will retain the current “triple-lock” status afforded to the State Pension. 

You can read more about specific pension details published in the Autumn Statement here. 

Arrange your free initial consultation 

This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

The information contained within this article is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change. 

The new report from the Pensions Policy Institute revealed that the gap in pension value between men and women is still significant, with 67% of pensioners in poverty being women.

According to the report, a girl would need to start saving from 3 years old to match the pension of a man who began at 22, and a woman in her late 50s has approximately a third of the retirement savings of an average man of the same age.

This difference means that women are more likely to struggle financially in retirement than men. Even though the gender pensions gap shrank by 7% between 2006 and 2020, according to official figures, it remains a gender-based issue that continues to put pressure on the financial equality between the sexes to this day.

Arrange your free initial consultation 

Only this week, there have been protests by Women Against State Pension Inequality (WASPI) -  a voluntary UK-based organisation founded in 2015 that campaigns against the way in which the state pension age for men and women was equalised. They call for the millions of women affected by the poorly communicated change in pension age for women to receive compensation. The Parliamentary and Health Service Ombudsman ruled that those affected should be compensated. Depending on the numbers affected, the total bill could end up being in the billions of pounds – more than £10bn if all women born in the 1950s are compensated. The Prime Minister's spokesperson said that the Government would be taking time to consider the report, and it is unclear whether any actual payout will take place.

What is the gender pension gap?

The gender pension gap is the difference in pension savings, and then retirement income, between the genders. The research shows that men have substantially larger pension pots than women as they approach retirement, resulting in a significant difference in retirement security between the genders.

For men and women just beginning their career, the gender pension gap doesn’t exist. After all, we all start with an empty pension pot. Then men gradually take the lead until their early 30s where the gender pension gap actually shifts in the other direction – for those eligible for auto-enrolment – with women having larger pension savings than men.

After 35 is where the real gender pensions gap begins to emerge in favour of men. There is a 10% gender pension gap between the ages of 35 and 39. By late 40s, this has expanded to a huge 47%, according to the Government’s Gender Pensions Gap report.

Why does the gender pension gap exist?

There are a number of factors that contribute to the startling gap between the genders in pensions wealth.

Firstly, the gender pay gap, which naturally contributes to the difference due to women taking home less pay on average and therefore contributing less into their pensions. 

Women historically perform the bulk of unpaid labour in society. For example, women are more likely to put their careers on hold while raising a family and they are more likely to work part-time, especially during the initial period of parent life. Data from the Office for National Statistics (ONS) showed that 38% of women were working part-time compared to just 14% of men in 2022. And while this is changing, with paternity leave becoming more common, it remains that women statistically are the ones that sacrifice their hours, and therefore their pensions contributions, in order to help raise a family. 

Additional factors at play that contribute to the pensions gap include: career paths, gender pay discrimination, how pensions are split following divorce, to name but a few.

But the bottom line is, if you’re a woman, you’re statistically more at risk of having significantly less pension wealth than you should for a healthy retirement.

The key to avoiding these shortfalls is to plan in advance. Considering how all of these factors can affect your pension wealth down the road, planning accordingly can go a long way to mitigating some of these inherent disadvantages. Specifically, a female-focused retirement planning approach is the most effective way to secure a comfortable retirement.

If you’d like to find out more about how to navigate potential pension shortfalls, or are simply interested in finding out more about how you can best plan for the future of your pension, why not give us a call on 0333 323 9065 or book a free non-committal initial consultation with one of our experts to find out how we can help.

Arrange your free initial consultation

This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

The Spring Budget 2024 confirmed some rumours, such as the introduction of a British ISA, and at the same time, contained a few surprises too. 

The main points are summarised below along with a reminder of some of the other changes coming into effect in April 2024.

Some measures are potentially subject to change until enacted into legislation.

If you have any questions or would like to speak to one of our expert financial advisers about the changes announced, contact us to arrange a free initial consultation.

Arrange your free initial consultation

Pensions

Abolition of Lifetime Allowance (LTA) from 6 April 2024

A further Pension Schemes Newsletter / Lifetime Allowance Guidance Newsletter is expected this week but no further detail was issued as part of the Budget itself. Further information will be issued once it’s available.

State pension

Triple lock means new state pension and basic state pension will increase by 8.5% in April 2024. Full new state pension figure will be £221.20 per week.

Investments

Individual Savings Accounts (ISA)

The annual subscription limits all remain at their current levels in 2024/25, i.e.

• £20,000 ISA
• £4,000 Lifetime ISA
• £9,000 Junior ISA (and Child Trust Fund)

A new British ISA is to be introduced from a date to be confirmed. This will give investors an additional £5,000 ISA allowance each tax year, so on top of the current £20,000. There is a consultation paper in place to obtain feedback from ISA managers, but the idea is for allowable investments to include UK equites and potentially UK corporate bonds, gilts, collectives. 

As previously announced at the Autumn Statement, the government is to make changes to ISAs to simplify the scheme and widen the scope of investments that can be included in ISAs. To simplify the scheme the government will:

• Allow multiple subscriptions in each year to ISAs of the same type, from 6 April 2024
• Remove the requirement to make a fresh ISA application where an existing ISA account has received no subscription in the previous tax year, from 6 April 2024
• Allow partial transfers of current year ISA subscriptions between providers, from 6 April 2024
• Harmonise the account opening age for any adult ISAs to 18, from 6 April 2024
• Digitise the ISA reporting system to enable the development of digital tools to support investors

Reserved Investor Fund

The Reserved Investor Fund is a new type of investment fund designed to complement and enhance the UK’s existing funds rule. This meets the industry demand for a UK-based unauthorised contractual scheme, with lower costs and more flexibility than the existing authorised contractual scheme. The introduction date is still to be confirmed. 

Taxation

Income tax

All income tax rates and bands remain at their current levels in 2024/25. See our latest tax tables 2024/25.  

National insurance (NI)

National Insurance is paid by people between age 16 and State Pension age who are either an employee earning more than £242 per week from one job or self-employed and making a profit of more than £12,570 a year.

Following on from the NI cuts made in the Autumn Statement when the 12% rate of employee NI reduced to 10% from January 2024, the government is cutting the main rate of employee NI by 2p from 10% to 8% from 6 April 2024.

They are also cutting a further 2p from the main rate of self-employed National Insurance on top of the 1p cut announced at Autumn Statement and the abolition of Class 2.

This means that from 6 April 2024 the main rate of Class 4 NICs for the self-employed will now be reduced from 9% to 6%.

Child Benefit charge

The adjusted net income threshold for the High Income Child Benefit Charge (HICBC) will increase from £50,000 to £60,000, from 6 April 2024.

For individuals with income above £80,000, the amount of the tax charge will equal the amount of the Child Benefit payment. For those with income between £60,000 and £80,000, the rate at which HICBC is charged is halved, and will equal one per cent for every £200 of income that exceeds £60,000.

New claims to Child Benefit are automatically backdated by three months, or to the child’s date of birth (whichever is later). For Child Benefit claims made after 6 April 2024, backdated payments will be treated for HICBC purposes as if the entitlement fell in the 2024/25 tax year if the backdating would otherwise create a HICBC liability in the 2023/24 tax year.

In his Budget speech, the Chancellor announced that the plan is to move assessment for the HICBC to a system based on household income from April 2026. This is to remove the current unfairness meaning that a couple who each have income below the threshold, so could in 2023/24 have £49,000 pa each (£98,000 pa in total), wouldn’t be subject to the HICBC whereas another household with one person with income of £51,000 for example would.

Dividend allowance

As we are already aware, the dividend allowance reduces from £1,000 to £500 on 6 April 2024. Dividend tax rates remain the same at 8.75% in basic rate band, 33.75% in higher rate band and 39.35% in additional rate band (and 39.35% for discretionary trusts).

Arrange your free initial consultation

Capital gains tax (CGT)

Annual exemption reduces from £6,000 to £3,000 on 6 April 2024 (a maximum of £1,500 for discretionary/interest in possession trusts – shared between all settlor’s trusts subject to a minimum of £600 per trust).

CGT rates remain as they currently are apart from the higher CGT rate for residential property gains (the lower rate remains at 18%):

• 10% for any taxable gain that doesn’t fall above the basic rate band when added to income and 20% on any gain (or part of gain) that falls above the basic rate band when added to income
• For residential property gains these rates increase to 18% and 24% (formerly 28%) respectively
• Discretionary/interest in possession trustees and personal representatives pay at the higher rates (20%/24% (formerly 28%))

Simplifications for trusts and estates

From April 2024 trustees and personal representatives of estates will no longer have to report small amounts of income tax to HMRC and taxation of estate beneficiaries will be simplified, as shown below:

• Trusts and estates with income up to £500 will not pay tax on that income as it arises
• The £1,000 standard rate band (effectively basic rate band) for discretionary trusts will no longer apply
• Beneficiaries of UK estates will not pay tax on income distributed to them that is within the £500 limit for the personal representatives

Stamp duty land tax (SDLT)

SDLT Multiple Dwellings Relief is being abolished from 1 June 2024. This applies to purchasers of residential property in England and Northern Ireland who acquire more than one dwelling in a single transaction or linked transactions. 

Changes to the taxation of non-doms

The concept of domicile is outdated and incentivises individuals to keep income and gains offshore. The government is therefore modernising the tax system by ending the current rules for non-UK domiciled individuals, or non-doms, from April 2025. A new residence-based regime will take effect from April 2025.

From April 2025, new arrivals, who have a period of 10 years’ consecutive non-residence, will have full tax relief for a 4-year period of subsequent UK tax residence on foreign income and gains (FIG) arising during this 4-year period, during which time this money can be brought to the UK without an additional tax charge.

Existing tax residents, who have been tax resident for fewer than 4 tax years and are eligible for the scheme, will also benefit from the relief until the end of their 4th year of tax residence.

Liability to inheritance tax (IHT) also depends on domicile status and location of assets. Under the current regime, no inheritance tax is due on non-UK assets of non-doms until they have been UK resident for 15 out of the past 20 tax years. The government will consult on the best way to move IHT to a residence-based regime. To provide certainty to affected taxpayers, the treatment of non-UK assets settled into a trust by a non-UK domiciled settlor prior to April 2025 will not change, so these will not be within the scope of the UK IHT regime. Decisions have not yet been taken on the detailed operation of the new system, and the government intends to consult on this in due course.

Furnished holiday lets (FHL)

The FHL tax regime, which relates to short-term rental properties, is to be abolished from April 2025.

Currently, if an individual lets properties that qualify as FHLs:

• The profits count as earnings for pension purposes
• They can claim Capital Gains Tax reliefs for traders (Business Asset Rollover Relief, relief for gifts of business assets and relief for loans to traders)
• They’re entitled to plant and machinery capital allowances for items such as furniture, equipment and fixtures

Raising standards in the tax advice market

A consultation has been issued to discuss the government’s intention to raise standards in the tax advice market through a strengthened regulatory framework. It sets out three possible approaches to strengthening the framework: mandatory membership of a recognised professional body, joint HM Revenue and Customs (HMRC) – industry enforcement, and regulation by a separate statutory government body. The consultation also explores approaches to strengthen the controls on access to HMRC’s services for tax practitioners.

This has relevance to anyone who may receive or provide tax advice or offers services to third parties to assist compliance
with HMRC requirements. For example, accountants, tax advisers, legal professionals, payroll professionals, bookkeepers, insolvency practitioners, financial advisers, customs intermediaries, charities and other voluntary organisations that help people with their tax affairs, software providers, employment agencies, umbrella companies and other intermediaries who arrange for the provision of workers to those who pay for their services, people who engage workers off-payroll, promoters, enablers and facilitators of tax avoidance schemes, professional and regulatory bodies, and clients, or potential clients, of all those listed above.

The consultation runs until 29 May 2024. 

VAT

The VAT threshold is increasing from £85,000 to £90,000 from 1 April 2024, the first increase in seven years. See our tax tables 2024/25 for more details. See our tax tables 2024/25 for more details.

If you’d like to discuss any of the changes announced in the Budget or would simply like to explore ways that you can minimise the amount of tax you pay on your wealth, why not get in touch and speak to one of our expert team of advisers. We’re offering anyone with £100,000 in savings, investments or pensions a free financial review worth £500.

Arrange your free initial consultation

This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

The Financial Conduct Authority (FCA) does not regulate tax advice.

Hunt’s politically charged budget gives the voting public a second National Insurance cut in six months, but will it be enough to save the Tory party in the upcoming General Election?

Chancellor Jeremy Hunt delivered what could be his last Spring Budget (on 6 March 2024), with a further 2% National Insurance cut making the headlines, but there were other measures introduced which could have an impact on your finances.  So, what was announced?

Arrange your free initial consultation 

National Insurance

Following the 2% National Insurance reduction announced in the Autumn Statement last November, a further 2% National Insurance reduction was announced.  This will again affect earnings between £12,570 and £50,270 p.a. and will take effect in April 2024 in the pre-election giveaway that was widely anticipated following speculation in the press.  This will save workers up to a further £753 p.a., on top of the up to £753 p.a. saving as a result of the reduction announced in the Autumn Statement.

Child Benefit

It was announced that the High Income Child Benefit Charge (HICBC) will be replaced by a household income based system in April 2026 following a consultation.  In the meantime, from April 2024 the threshold above which the HICBC starts to apply on a tapered basis will increase from £50,000 to £60,000 and the top of the taper will increase from £60,000 to £80,000 in a move that Mr Hunt will hope will please working families.

Savings/Investments

Following speculation prior to the Autumn Statement, a British ISA was announced. This will be a further £5,000 tax free ISA allowance for investments into British companies, which will be available in addition to the standard £20,000 ISA allowance.

A new British Savings Bond will also be made available through National Savings and Investments (NS&I), which will offer a fixed rate over three years, though the rate payable has not been announced.

Pensions

Regarding the lifetime allowance, currently 0% and due to be scrapped in April 2024, there were no further changes announced. However, Mr Hunt did not miss the opportunity to reference Labour’s plans to reintroduce the allowance, stating “Ask any Doctor what they think about Labour’s plans to bring it back, and they will say “don’t go back to square one'.”

There were also new rules announced requiring Defined Contribution and Local Government pension funds to disclose how much UK equity exposure they have relative to their international equity exposure.  This could prove controversial given the funds’ mandates will be to produce the best risk adjusted return they can for investors, irrespective of their asset allocation.

Property

It was announced that higher rate Capital Gains Tax (CGT) rates on property sales will be reduced from 28% to 24% in April 2024, in a move that the government claims will be revenue generating.  The Furnished Holiday Lettings (FHLs) regime will also be abolished. 

‘Non-doms’

The current ‘non-dom’ rules, a tax advantageous regime for those who are non-UK domiciled (their ‘permanent home’ is outside the UK), will be replaced by a residency based system from 2025.

Inheritance Tax

After strong rumours that Inheritance Tax would be scrapped before last year’s Autumn Statement, it was not mentioned in the Chancellor’s budget statement.

Conclusion

In what was always going to be a politically charged speech given the proximity to the general election, Chancellor Jeremy Hunt will hope he has done enough to convince voters to give the Conservative Party another term in office in his Spring Budget.  In what the Labour Party leader Keir Starmer described as a ‘Last Desperate Act’; the speech was filled with warnings about the potential implications of a future Labour government (the budget speech transcript on the gov.uk website has ‘political content removed’ 27 times!).  

However, workers, families, those selling second homes and those already benefitting from last year’s Lifetime Allowance changes may see themselves as in a better position than they were previously, and they could see a future Labour Government as a risk to the longevity of the recently announced changes.  

If this is to be the case, there could be a limited opportunity to plan over the next few months.  So now is the time to seek advice, to make sure you are doing all you can to protect you and your family’s wealth. If you'd like to learn more about how you can minimise the amount of tax you pay on your wealth, why not get in touch and speak to one of our experts for a free initial consultation or please speak to your adviser if you would like to discuss any of the changes detailed above.

This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

The opinions shared in this article are solely those of the individual and they do not necessarily reflect those of The Private Office.

The Financial Conduct Authority (FCA) does not regulate tax advice.

Arrange your free initial consultation 

In the 2023 Spring Budget, Chancellor of the Exchequer Jeremy Hunt took many by surprise with his chosen policy changes, particularly in regard to pension allowances. Not only was the Annual Allowance increased from £40,000 to £60,000 and the more restrictive Tapered Annual Allowance increased from £4,000 to £10,000, but it was also announced that the Lifetime Allowance would be abolished.   

Consequently, and taking into account a looming election and possible change of government, now could be an opportune time to consider whether you are aiming to maximise your pension contributions prior to the end of the current tax year to take advantage of these tax benefits. 

Arrange your free initial consultation

What is the Annual Allowance?

The annual allowance is the maximum amount of pension savings an individual can make each tax year without an annual allowance allowance charge applying.

As noted above, from the start of the current tax year, the annual allowance was increased to £60,000, and you can receive tax relief on your personal contributions up to 100% of your relevant UK earnings (including salary, bonuses, commission). 

However, high earners could be subjected to a tapered annual allowance, which gradually reduces their annual allowance to a minimum of £10,000 for those with taxable income over £260,000.

Personal pension contributions are eligible for tax relief at an individual’s marginal rate of income tax. This means that a basic rate taxpayer will receive a 20% uplift on the money they contribute to their pension. A higher or additional rate taxpayer can then also claim an additional 20% or 25% via their self-assessment tax form, resulting in an overall potential tax saving of 40% or 45%! 

Employer or Company contributions are also paid gross and can receive corporation tax relief as a business expense.

What is ‘Carry Forward’ and does it apply to me?

Unlike with an ISA, whereby if you do not contribute the full ISA allowance of £20,000 by the 5th of April in a given tax year then this unused allowance is lost forever, this rule does not apply to pensions. The Government introduced the carry forward rules in April 2011, allowing individuals to utilise any unused pension annual allowance from the previous three tax years. 

Those with a tapered annual allowance can also still use carry forward if they have any unused annual allowances remaining in previous three tax years.

In order to carry forward any unused annual allowance from these tax years, you must:

• Be a member of a UK-registered pension scheme and had a qualifying pension (this does not include the state pension) since the 2020/21 tax year.
• Have used up your entire annual allowance in the current tax year.
• Have remaining unused annual allowance in previous tax years. 
• Have sufficient relevant UK earnings in the current tax year for a personal contribution.

Lifetime Allowance & Transitional Protections  

Due to the tax advantages of making pension contributions, the Government previously placed a limit on the amount of pension benefits an individual could accumulate over their lifetime, without incurring a tax charge. This tax charge is known as the Lifetime Allowance (LTA) charge and applied to individuals with pensions valued over £1,073,100. 

However, with the UK Government announcing that the LTA charge would be removed from 6 April 2023 and then the LTA abolished from 6 April 2024, this means there is an opportunity for those who are near to or who have exceeded the £1,073,100 threshold to consider recommencing pension contributions. 

Historically, the Government has provided individuals with the opportunity to apply to protect their LTA before any changes in legislation. Certain types of transitional protection were introduced with the stipulation that you could no longer make any further pension contributions, but this restriction was then also lifted for those with existing protection before 15 March 2023.

Therefore, this has presented another potential opportunity, as those previously unable to make any contributions due to the risk of losing their protection, may have a significant level of unused annual allowance from previous tax years.

Use it or lose it

With wage growth reaching 7.3% for the period between August to October 2023 (according to the ONS), the tax band freeze means people are technically paying more income tax than ever before. Therefore, it would be prudent to look for ways to maximise the tax-efficient legalisation currently on offer. 

Aside from the fact that any unused annual allowance from the 2020/21 tax year will be lost after 5th April 2024, there is no predicting if or when changes will be made again to this legislation. It seems as if the UK population collectively hold their breath at the sign of any Budgets which have seen a vast array of changes to pension rules over the years. 

Whilst the most recent changes were positive for pension savers, it is important to consider the implications of the impending election in the next 6-12 months; if there is a change in government then this policy change could be reversed. With that and all the above in mind, it is worth exploring your options and taking appropriate action concerning your carry forward allowance; use it before you lose it! 

Pensions can be a complicated and daunting matter to navigate, from obtaining the relevant information from your pension providers to a thorough understanding of ever-changing UK legislation. Therefore, please do reach out to a financial adviser if you would like help making the best use of your savings and pension allowances. 

Arrange your free initial consultation

This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

A pension is a long-term investment. The value of an investment and the income from it could go down as well as up.  The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.

The Financial Conduct Authority (FCA) does not regulate tax advice.

There’s no getting away from it, costs have risen exponentially. With a growing cost of living crisis throughout the country, the need for cash retention to act as a buffer in these circumstances remains vital for everyone. This increase in costs will likely mean most people will need to try and save money where they can. Nevertheless, while cash is a crucial component of a well-rounded financial strategy, it's essential to strike a balance. Allocating too much cash for an extended period could expose your wealth to inflation risk, where the purchasing power of your money will decrease over time. It is therefore imperative to assess your overall financial goals, time horizon and risk appetite when deciding how much to keep in cash versus how much to invest in other assets.   

There are many reasons to hold money in cash, so we look to explore the importance of cash and its inherent benefits within personal finance, whilst also considering the common risks associated with cash investments. Of course, managing your savings is a highly personalised process, and how much you save should reflect your individual circumstances. 

Arrange your free initial consultation

Emergency Fund 

The term ‘emergency fund’ or ‘buffer’ refers to money set aside for the sole purpose of being used in times of financial distress. The fund provides a financial safety net to cover any unexpected, and typically costly, expenses that may arise such as those following a loss of job or unexpected tax bill. The amount you should target for an emergency fund depends on a number of factors, including your financial situation, expenses, lifestyle, and debts. Typically, consideration may be given between three to six months of normal expenditure in cash, to be drawn from in the event of an emergency. This is considered a prudent financial practice because it helps avoid unnecessary debt and financial stress.

Top Tip: Starting off small is better than not starting at all! 

The Stock Market 

While investing in the stock market offers great potential opportunities for accumulating wealth and financial growth, it is important to be aware of the fundamental downsides and risks, and striking the right balance between investments and cash has proven particularly relevant over the past few years with investment markets going through a turbulent time. 

Although investors are attracted to the idea of growing their wealth through stock market investments, this should always be looked at as a long-term strategy given the risks associated. 

Up until November 2021, there were very few options for your lower risk portion of your wealth, as interest rates were extremely low. However, since the recent interest rate hikes many investors are turning their attention towards setting aside some cash into savings account and are benefiting from some of the highest returns in almost two decades. Unsurprisingly, the last few years have witnessed huge inflows of cash into savings, particularly fixed time deposits, with investors looking elsewhere from the stock market in providing safer and guaranteed returns.

Nonetheless, whilst saving rates have risen, cash has been a depreciating asset, after inflation, with ‘real returns’, remaining negative over the long term. So, for many, it is fundamental to have a comprehensive financial plan in place, to ensure your investment and cash allocations are aligned to meet your objectives and goals.

When it comes to investing, however, one particular benefit of holding some money in cash is managing sequencing risk with your investments. This refers to the impact of the timing of investment returns on a portfolio, particularly when withdrawals are made. If an investor needs to sell assets to cover income or emergency expenses, this can significantly affect the overall portfolio value. As such, the benefit of holding some money in cash is that you help reduce the chances of becoming a forced seller during an investment market downturn. By having this safety measure in place, you can help cover some expected or unexpected expenditure without negatively impacting your long-term investment strategy.

If you are interested in exploring what savings accounts have to offer, please check out the Savings Champion website, which compares the best accounts on the market.

Retirement

Holding cash as you approach retirement plays a vital role in providing financial flexibility, security and peace of mind when we consider aforementioned risks with invested pension provisions. 

As we have covered, sequencing risk can be a major issue for investors. This risk is more common during retirement, as you are far more dependent on your retirement income through your invested pension pots. Significant market downturns alongside taking pension income could be detrimental on your long-term retirement goals, where cash reserves are not in place, as you could be realising losses that could impact the value of your future pension provisions. 

Furthermore, healthcare costs are increasingly forming a large part of unexpected costs during retirement. Health spending per person steeply increases after the age of 50, so having cash buffers in place to cover immediate healthcare needs is important. 

Using cash in place of drawing from your pension can also have tax benefits, as some pensions sit outside the scope of inheritance tax. This means that the assets held within a pension fund may not be subject to inheritance tax when passed on to beneficiaries. However, given the complexity of inheritance tax laws, it is recommended to seek advice from professionals who have the expertise to guide you through your estate and pension planning.

If you’d like to learn more about how cash can best play a part in your wealth strategy, why not get in touch and speak to one of our experts. 

Arrange your free initial consultation

This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

Investment returns are not guaranteed, and you may get back less than you originally invested. Past performance is not a guide to future returns.

The Financial Conduct Authority (FCA) does not regulate cash flow planning, estate planning or tax advice.

Savings Champion and their associated services are not regulated by the Financial Conduct Authority (FCA).

Are you the one who deals with the finances in the home? Would your loved ones know where to look if something were to happen to you?

Traditionally, writing a will would be the crucial difference between having your final wishes granted when it comes to the distribution of your assets after death. But is it enough in the new digital world? 

Arrange your free initial consultation

We, like most of the world, rely on technology. It connects us to friends, fulfils our shopping needs and most importantly it gives us access to our financial accounts and all manner of private and confidential documents. Gone are the days when a loved one passes that you’re searching through the cabinet to find old statements and building society savings books. Now, with what appears to be an ever increasing number of people online, it’s a virtual search you need to undertake. So how do you store your documents? In a separately labelled email folder? On your hard drive?  Maybe you saved them to the cloud in an online filing system? However they are saved, the question is are they easily accessible when you pass away?

According to Statista, a global statistic gathering company, more than 90% of adults in the UK used online banking in 2022, for the combination of speed, convenience and ease of use. With the rise of a cashless payment system, it really does show how the digital world has taken over in recent years.  

What is the TPO digital filing cabinet?  

All clients of The Private Office have access, at no additional cost, to our online portal, TPO Wealth. Here, you can store all personal documents in a safe and secure space. Where this portal is useful is, with your consent, we are able to grant access to your accountants and solicitors to access your relevant information, such as tax folders and other personal documents to make it a seamless and effortless experience for you. This can be particularly useful for the self-employed.  

As of March 2022, the Office for National Statistics (ONS) states there are a grand total of 4.2 million people who are self-employed – that’s 13% of the working population! Most self-employed people operate with an accountant to help with filing tax returns and completing their annual accounts. However, this all requires paperwork which needs to be kept on top of, so it’s important to collate all of this into one easy-to-use and secure place. 

Navigating the death of a loved one is one of life’s biggest challenges, without the additional complexity of trying to track down and locate all the relevant documents to manage their estate.  While you are able to name a ‘digital executor’ within your will, unfortunately that doesn’t mean consolidation of all your personal and important documents.   

Here’s a list of some of the types of things our clients share on TPO Wealth, both for personal filing and to share with their other professional contacts:  

• Tax Information 
• In Case of Emergency 
• Will 
• Invoices and fees 
• Details of professional contacts 
• Insurance details  

With TPO Wealth, your loved ones can reach out to your adviser and know everything is stored in one place, which many of our clients have found to be a great help at a difficult time.  

What about if you become incapacitated? 

Aside from the death of a loved one, there are other instances where information may be required, such as critical illness or incapacity. With the average time for a Lasting Power of Attorney (LPA) to be processed and granted in the UK taking between 20-21 weeks, according to Clare Fuller of Compassion in Dying, searching through paper filing or numerous accounts could be the difference between your loved ones being able to afford your care or not. This increases the need for your loved ones to be able to access your finances almost instantly and seamlessly.   

The added value comes where your adviser can reach out to your accountants and solicitors on your behalf as well as granting loved ones access to your TPO Wealth account and accounts within Power of Attorney (POA) rights.   

TPO Wealth doesn’t stop at just secure storage of important files, you can view all your investments and savings accounts too. It has a built-in property calculator where you can estimate the value of your main residence and any other properties, as well as being able to track the value of your net worth. You are able to securely message your adviser and provide any necessary signatures through the portal.   

The flexibility in making the portal what you need is the benefit. Storing any file you wish on the portal could make it the one-stop-shop you need for a secure filing system of non-financial related files as well!  

If you’d like to learn more about how TPO Wealth could help you keep your important details secure and organised, why not get in touch. 

Arrange your free initial consultation

This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions. 

TPO Wealth is only available to clients of The Private Office.

The Financial Conduct Authority (FCA) does not regulate estate planning or tax advice.