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.

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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).

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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.

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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.

The latest update to the Pensions and Lifetime Savings Association’s (PLSA) ‘Retirement Living Standards’ has revealed that a ‘moderate’ standard of living in retirement could now require over a third more income to account for the rising cost of living.

This means that for the ‘moderate’ retirement, which many savers aim for, a single person would need roughly £8,000 more in 2023/24 than they did in 2022/23. A total of £31,300 in 2023/24 is required, up 34% from £23,300 the year prior.

The thresholds for ‘minimum’ and ‘comfortable’ retirements also increased from the previous year, with a ‘minimum’ retirement living standard costing 13% more, up from £12,800 to £14,400, and a ‘comfortable’ retirement living standard costing 16% more, up from £37,000 to £43,100.

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The table below displays the exact updated figures for each threshold. It’s important to note that these figures only represent the cost of retirement living now and do not account for future changes. If you don’t plan to retire for years, it’s important to consider how these thresholds may increase with future inflation. 

Figure 1 - PSLA Retirement Living Standards, Source: Pensions and Lifetime Savings Association, 2024

With the state pension potentially rising to 71 by 2050, it’s more important than ever to seek professional financial advice to ensure you’re prepared as retirement living costs continue to increase.

How do the thresholds work?

The thresholds, called the ‘Retirement Living Standards’, are intended to provide a very rough guide to how much different retirement lifestyles might cost and what they would generally allow for in terms of budget. The ‘minimum’, ‘moderate’ and ‘comfortable’ categories attempt to convey a realistic picture of life by assuming that everyone, including those targeting a ‘minimum’ standard of living, will want to at least have some kind of social life and the occasional takeaway while still being able to pay essential bills.

For example, the ‘minimum’ living standard assumes one weeklong UK holiday per year. By contrast, the ‘comfortable’ living standard, budgets for a fortnight 4 star holiday in the Mediterranean with spending money and three long weekend breaks in the UK. The moderate living standard assumes a more realistic 3 star all-inclusive fortnight holiday in the Mediterranean and a long weekend break in the UK.

Some of the key assumptions that inform the Retirement Living Standards are detailed in the table below. These living standards assume no mortgage or rental costs. 

Figure 2 - Types of expenditure, Source: Pensions and Lifetime Savings Association, 2024

*The figures shown are the amounts of annual expenditure required to achieve the living standard (ie they are not gross income figures).

With the cost of living in retirement on the rise, it’s more important than ever to manage your retirement plans carefully to ensure you don’t get caught out. If you want to find out more about how you can navigate these changes, why not give us a call on 0333 323 9065 or book a free non-committal initial consultation with one of our chartered advisers to find out how we might be able to help you. 

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

Chancellor Jeremy Hunt will unveil his Spring Budget on 6 March, which is likely to be his last fiscal announcement before the upcoming General Election. 

Before the Autumn Statement in November 2023, there were rumours of Inheritance Tax being scrapped, a change in the calculation of the State Pension, and an ISA aimed at boosting investment into the UK. Instead, pensioners received a boost as the calculation of the State Pension remained unchanged, so they will receive the full 8.5% increase in April. Additionally, instead of the other changes we were expecting, National Insurance was reduced, resulting in an annual saving of up to £754 p.a. for workers.

The Prime Minister, Rishi Sunak, is under pressure personally with the Conservatives still trailing Keir Starmer's Labour Party significantly in the polls, so there is an expectation that big changes need to be announced to change the minds of voters. So, what can we expect?

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Inheritance Tax

After opting to cut National Insurance rather than Inheritance Tax in the Autumn Statement, it would seem unlikely that the Chancellor would opt to cut Inheritance Tax now, especially given the relatively small number of voters any change would affect, relative to a further cut in National Insurance or Income Tax. 

By way of reminder, Inheritance Tax is payable at 40% when the estate of an individual exceeds £325,000 (though there are increased allowances when main residences are left to direct descendants) and gifts, both directly and into trust, must also be accounted for. Please speak to your TPO adviser for further information. 

Additionally, there could be unintended consequences if Inheritance Tax were to be scrapped as previously reported.  An example of this could be the impact on some small UK companies, as investors into these can potentially benefit from inheritance tax relief (although these investments are high risk and not suitable for all investors), so the removal of this relief could reduce their appeal to investors.

Income Tax / National Insurance

For the reasons mentioned above, it’s likely Income Tax or National Insurance may be cut rather than Inheritance Tax, in a move that can be framed as a pre-election giveaway.  However, as was widely reported after the National Insurance reduction in the Autumn Statement, any reduction’s impact is likely to be minimal when compared with the combined impact of frozen tax bandings and high inflation over the past few years.

This theory is supported by The Resolution Foundation, who have calculated, “Cutting the basic rate of Income Tax by 1p while maintaining the personal allowance freeze next year would mean anyone earning less than £38,000 would see their personal tax bills rise rather than fall.”

Child Benefit Threshold

Another option for the Chancellor could be to raise or scrap the current £50,000 earnings threshold above which Child Benefit starts to reduce.

This would prove popular with some voters, but it would be expensive and would benefit a smaller percentage of the voting public than an outright reduction to Income Tax or National Insurance.

Conclusion

A study by Capital Economics calculates Chancellor Jeremy Hunt has about £15bn in headroom with which he can cut taxes.  It will be interesting to see which areas any pre-election giveaways are targeted at and how far Mr Hunt’s tax cuts will go. If he does not go far enough, the Conservative Party could face a wipeout at the next election, but if he goes too far and bond markets view the tax cuts as unfunded, we could have a repeat of Kwasi Kwarteng’s “Mini-Budget’ which caused chaos in bond markets in September 2022.

Mr Hunt has sought to gain market confidence through financial discipline during his tenure as Chancellor and he will not want to jeopardise this in what could be his final budget, he will be under pressure to give Conservative candidates a budget upon which they can build an election campaign.

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.

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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.

The latest figures from HM Revenue & Customs showed that inheritance tax (IHT) receipts have reached £5.7bn, £400m higher than during the same period last year.

At the current rate, the previous year’s record high £7bn in inheritance tax receipts is on track to be beaten come tax year end, continuing a concerning upwards trajectory. According to the Office of Budget Responsibility, total IHT intake could reach or exceed £8.4bn in the 2027/28 tax year. 

Additionally, in a bid to boost IHT receipts further, HMRC has launched an investigation into more than 2,000 households between April and November 2023 that they believe may not be paying enough IHT. Often, a sizable portion of IHT recovered comes from HMRC investigations that were opened months or even years previously. 

With rumours around the Government reducing or even scrapping IHT, despite the record highs, and with Labour saying that they would reverse any abolition should they win the next general election, the hot topic of IHT is leaving many with more questions than answers.

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What is IHT?

Inheritance Tax (IHT) is a tax levied by the Government on the estate of a deceased person in the UK. This includes all of their assets including property, personal belongings, and investments. 

However, this levy only applies to the total value of the estate that exceeds the IHT threshold or ‘nil-rate band’. As of the 2023/24 tax year, the threshold is set at £325,000. Anything above £325,000 could be subject to up to 40% inheritance tax and anything below this threshold is tax-free.

Following the introduction of the residence nil-rate band (RNRB) in April 2017, you can also add an extra £175,000 to the total tax-free threshold, provided you are passing down your assets and property to direct descendants.

Why are IHT receipts continuously on the rise?

The number of estates across the UK that are being pulled into the IHT net are increasing each year. 

Total IHT receipts collected by the Government have been steadily on the rise with the situation accelerating since the IHT tax free threshold was frozen at current levels. This was initially announced by the then Chancellor, Rishi Sunak, in his 2021 Budget. The Budget outlined that the IHT threshold, along with many thresholds and allowances, would be frozen for five years until 2026. However, this was further extended for two more years until April 2028. 

However, due to the rising rate of inflation coupled with ever increasing property values across the UK, the freeze essentially means that a greater number of people will cross the inheritance tax threshold each year. Many have been calling this move an example of ‘shadow tax’, as the simple act of freezing allowances rather than upping tax rates means the Government will have collected billions in extra tax.

The inheritance tax allowance of £325,000 was increased from £312,000 on 6 April 2009.  This means the IHT nil rate band has been frozen for over 14 years now and will keep allowances frozen until at least 5 April 2028. That’s a staggering 19 years of higher taxes on death.

With the Government cracking down on thousands of households that owe money who might not even realise they have breached the allowance, it’s more important than ever to seek professional advice to help navigate the threshold and avoid any possible penalties. Inheritance tax is often referred to as a voluntary tax as there are many ways you can mitigate it, with the right amount of time and planning. If you’re interested in learning more about how to manage IHT on your estate, to ensure the best possible wealth protection for you or your family, we can help. Give us a call on 0333 323 9065 or book a free non-committal initial consultation with a member of our team to find out more.

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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.

Often referred to as the ‘death tax’, Inheritance Tax (IHT) is a financial levy imposed on a deceased person’s estate that determines the distribution of wealth to their beneficiaries. Despite popular belief, IHT is not exclusive to the wealthy; its impact resonates across a wide spectrum of society. 

IHT is calculated on the total value of the deceased’s estate, with a headline rate of 40% applied to estates that exceed the £325,000 nil-rate band (NRB). The misconception that only the wealthy need concern themselves with IHT is ousted, as longer life expectancies and changes in demographics bring the impact of this tax closer to home.

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The current landscape

The Office for Budgeting Responsibility (OBR) are predicting that IHT receipts in the UK will rise sharply from the record-breaking £7.1 billion collected in 2022-2023 to £8.4 billion by 2027-2028. According to HMRC data, one in every 25 estates are subject to IHT, meaning that this tax is no longer exclusive to the wealthy. Recent data from HMRC reveals a staggering £2.6 billion in IHT receipts were collected in just 13 weeks between April and July of 2023, which is more than the total IHT bill for 2009. Based on projections, the average IHT bill is expected to rise to £304,567 in 2025-2026 and £345,084 in 2027-2028. 

With its tax-free allowance, known as the NRB, remaining unchanging at £325,000 since April 2009, IHT may be considered as one of the longest-standing stealth taxes. Over the past decade there has also been no increase to the £3,000 gifting allowance. Rising house prices and frozen allowances are drawing more households into the IHT net, debunking the common misconception that IHT is solely for the wealthy. 

The Office of National Statistics has released figures showing a 73% increase in house prices in the ten years from 2013 to 2023. This consistent rise in house prices over the last decade has contributed significantly to the rise in IHT receipts. Although an individual’s property value is not the sole contributor to the value of their entire estate, it accounts for a substantial proportion of it, therefore expanding the number of households within the scope of IHT. To help somewhat offset IHT, there is an additional threshold, the residence nil-rate band (RNRB), which was introduced in 2017. If an individual leaves their main residence to a direct descendant, they are able to pass on an additional £175,000 IHT free.

Figure 1: House price growth vs IHT revenue % growth from April 2010, Source: RSMUK, 2023.

The political elephant in the room

Rumours around Government changes to IHT?

Navigating potential changes to IHT and political uncertainties is essential, as rumours concerning the possible elimination of IHT, or introduction of a wealth tax continue to circulate ahead of the next Budget on 6th March. In an effort to win over votes, reports indicate that the Conservative Party may abolish IHT, while a wealth tax on the wealthiest individuals is also being considered, however, with the potential of a changing government with an impending General Election, how long any changes stay in place is impossible to call. To effectively plan and reduce IHT, individuals should instead concentrate on the rules and regulations currently in place, rather than basing their decisions on rumours and speculation.

How can you ensure as much as possible of your estate goes to your loved ones?

In order to mitigate IHT, a thorough strategy combining strategic financial planning and maximising available allowances is needed.

Some key strategies include:

Increase your spending - Spending additional cash to lower the value of your estate is a straightforward yet effective tactic. While this may seem straightforward, individuals should aim to strike a balance between reducing their estate, whilst ensuring they don’t compromise their long-term financial security. For this, putting in place a robust financial plan is key.

Responsible financial planning – IHT encourages individuals to engage in financial planning. It is key for this to be updated each year to ensure individuals can enjoy their desired lifestyle whilst also maximising various allowances. Working with a qualified financial adviser can help you comprehend the potential effects of IHT and encourage you to look into mitigation techniques. 

Annual gifting – Making use of the £3,000 annual gifting allowance per person offers an opportunity to reduce the taxable estate. If you have not used your annual exemption in the previous tax year, then you are eligible to combine this to your current tax year to make an allowance of £6,000. Utilising additional exemptions above the £3,000 yearly allowance can also be achieved by making use of small gifting of up to £250 to different individuals, although not to anyone who has already received a gift of your whole £3,000 annual exemption. 

Regular gifting - A less known allowance is gifting out of surplus income. If individuals can demonstrate that their regular income can comfortably meet their lifestyle expenditure with surplus income remaining, this can be gifted to one  beneficiary or split across several. It is important that this gifting has a regular pattern as it is supposed to come out of surplus income. Given that these requirements are met, these gifts out of surplus income would not be subject to IHT. 

It is very important to ensure that these gifts would not be classified as a gift out of capital.

As a reminder, any capital gifts over the annual allowance of £3,000, will be classified as Potentially Exempt Transfer (PET). This means that 7 years need to pass following the capital gift, so it is IHT exempt. Careful financial planning can help to determine, if regular gifting out of surplus income is affordable. 

Gifts to charities – Gifting to charities can lower the net value of your estate whilst simultaneously giving to a charity you wish to help. Furthermore, charitable donations are free from IHT, offering a strategic way to reduce the total IHT obligation. If you leave 10% of your estate to a charity, then IHT payable above the £325,000 threshold will reduce from 40% to 36%. 

Contribute to a defined contribution pension – Since the introduction of pension freedoms in 2015, pensions have emerged as one of the most tax-efficient means of wealth transfer as they do not form part of your estate for IHT purposes. Most pensions are written under a form of trust, meaning the entire pot, including tax relief, can be passed down to loved ones without incurring IHT. Older defined contribution pensions might not be written into trust, which can mean that they might still be paid into the individual’s estate, therefore this should be checked. Since most defined contribution pensions do not form part of your estate on death, pension savings aren’t usually covered in a Will. It is essential to ensure expression of wish forms are set up and kept up to date with pension providers, so they know who to pay out the benefits. 

What can you do as the Budget and Tax Year end draw near? 

Making the most appropriate use of the above exemptions and annual allowances can help to reduce the taxable value of your estate. These need to be tailored to your individual needs and it is key that a bespoke gifting strategy is put in place without compromising your own lifestyle.  Early engagement with a financial adviser plays a key role in ensuring you are making an informed decision in the ever-changing financial landscape. With careful financial planning, individuals can make sure their hard-earned assets are protected for their chosen beneficiaries.

Key dates to have in mind: The Budget on 6th March and the end of the current tax year on 5th April.

If you’d like to learn more about how you can minimise the tax bill on your estate, why not get in touch for a free initial consultation with one of our experts.

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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 also based upon our understanding of current law, HM Revenue and Custom's practice, tax rates and exemptions which are subject to change.

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

Announced by Chancellor Jeremy Hunt in the November 2023 Autumn Statement, the National Insurance (NI) cuts are now in effect as of 6 January 2024, with further cuts for self-employed taxpayers scheduled to arrive 6 April 2024. 

For those who can afford it, these cuts to National Insurance rates could present a perfect opportunity to increase your pension over time. A basic-rate taxpayer will in theory see their income rise by up to £62.83 a month, as a result of the NI reduction. If they pay this straight into their pension, it will be worth £78.53 a month because of the 20% tax relief from the Government on contributions. Over time, these contributions could quickly compound into something significant for your future financial security.

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What are National Insurance Contributions?

National Insurance (NI) is an umbrella term for universal health care, unemployment benefits and the public pension program.

National Insurance Contributions (NICs) are a form of tax that employees and employers pay to the Government through payroll deductions. NICs are paid automatically through the PAYE (Pay As You Earn) system, which deducts an amount based on a percentage of your income, and this generally continues until you reach retirement age. Employees are able to make additional voluntary payments to increase the pension amount that they will be entitled to receive. 

NICs are collected in order to fund various state benefits, such as the NHS and state pensions.  

The changes to National Insurance rates

There are three changes to NICs which were announced in the 2023 Autumn Statement. These changes are:

• A cut in the main rate of NICs paid by employees (‘primary Class 1 NICs’) from 12% to 10%. This rate cut applied from 6 January 2024
• A cut in the main rate of NICs paid by the self-employed (‘Class 4 NICs’) from 9% to 8%. This rate cut would apply from 6 April 2024.
• Cancelling the requirement of the self-employed to pay the flat rate NICs charge (‘Class 2 NIC's’), which applies when someone’s annual profit exceeds a set threshold (the ‘lower profits threshold’). This threshold is currently £12,570. This change would take effect from 6 April 2024.

These measures extend and apply to the whole of the UK. All workers earning over the annual national insurance threshold of £12,570 have seen a fall in their national insurance tax bill as of January 2024.

Source: Blick Rothenberg. 

How the NI cut could boost your pension?

We have calculated that a 25-year-old basic-rate taxpayer who works and saves until they are 67 years old could end up with as much as £118,900 extra in their pension pot. And even if you’re later in life, for a 55-year-old the uplift could be an extra £15,405. So still worth it, no matter at what point you start to make the extra saving. Although clearly the younger you are the bigger the increase to your pension pot.

For higher-rate taxpayers, the figures are substantially higher. The original £62.83 contribution turns into £104.72 because of the 40% tax relief they get. This means that, for example, a 25-year-old higher-rate taxpayer could be as much as £158,550 better off by age 67. For a 55-year-old, there could be an extra £20,543.

There are some caveats to these calculations. The figures assumes no further changes to NI contributions and that these pots grow by 5% before any fees are deducted. 

There are also other factors to consider that could increase the final figures such as employers matching or partly matching extra contributions made by employees, resulting in an even bigger pot over time.

Instead of continuing to work until they reach their planned retirement age, if you divert the extra cash into your pension, you could in theory retire from work a few years earlier as an alternative but feasible strategy, giving you more time to enjoy the best years of your retirement.

Due to the NI reduction involving “class 1” contributions made on earnings received by anyone between the age of 16 and state pension age who is getting more than £242 a week from one job, it means that employees now pay 10% on earnings between £242 and £967 a week.

If you’re thinking about your retirement plans, we’re offering anyone a free initial consultation and cash flow analysis worth up to £500 for those with £100 000 or more in pensions, investments and savings to help with retirement planning. Why not get in touch for a free non-committal initial consultation where you can discuss your savings plans with one of our accredited advisers who will be happy to guide you through the process. Alternatively, you can give us a call on 0333 323 9065 to get in touch with a member of our team to find out more.

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

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. 

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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. 

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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. 

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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. 

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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).

In an era of instant information and digital connectivity, obtaining financial advice has become more accessible than ever. However, it's important to consider the reliability of your sources, particularly on the internet and from individuals lacking the necessary qualifications and expertise to provide advice. Research by the Financial Service Compensation Scheme (FSCS) revealed that 22% of individuals seek advice from friends, family, or colleagues, 31% turn to online forums or tools, and 9% rely on advice from Social Media Influencers. 

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While the internet offers a plethora of sources for managing finances, the crucial question remains: is it trustworthy? The easy spread of information on social media and the internet has created a risky environment with unregulated content directing financial decisions. Without regulatory oversight, misleading or inaccurate advice can quickly circulate, posing a potential threat to unsuspecting investors.

Additionally, while seeking advice from close relationships can create a comfortable space for discussing financial matters, it's key to exercise caution. The existing trust and comfort within such relationships may foster a sense of security, but it's equally important to evaluate the individual's expertise. Just as you wouldn't turn to your electrician for medical advice, the same principle should apply to decisions impacting your financial well-being. 

The FSCS study further delved into the reasons individuals hesitated to enlist the services of a regulated financial advisor, revealing intriguing insight. Specifically, 23% believed the value of their savings and investments fell short of the amount needed, and 38% expressed concerns about associated costs and value for money. These findings highlight a significant gap in understanding regarding the financial and emotional benefits derived from seeking professional financial advice, contributing to the emergence of the Advice Gap. 

The Advice Gap

In the United Kingdom, the Advice Gap refers to a staggering 39 million adults who currently abstain from seeking any form of professional financial advice. Research conducted by the Financial Conduct Authority (FCA) in 2022 sheds light on this issue, revealing that a 60% of individuals with £10,000 or more of investable assets do not consider financial advice, due to the perception that they wouldn't benefit from it. Further insights from the FSCS investigation, revealed interesting thresholds for considering financial advice worthwhile. 13% of respondents believed that a minimum of £100,000 in funds was necessary, while 21% admitted they were uncertain about the financial threshold. This reveals a substantial segment of the population, hesitant to seek advice due to uncertainty about the potential benefits awaiting them.

The real value of Professional Guidance

A study conducted in 2019 by the International Longevity Centre (ILC) in the UK, illuminates the financial impact of seeking professional advice. The research uncovered that those individuals who sought financial guidance during the period from 2001 to 2006, experienced a total wealth boost of £47,706 in their assets over the following decade, compared to those who navigated the financial landscape independently. While the estimated average cost of a one-off independent financial consultation may be approximately £2,000, the benefits accrued over a 10-year period exceed this cost by an impressive 24 times, resulting in a net gain of £4,570 per year. This emphasises that investment in financial advice is essentially an investment in securing a more resilient and prosperous financial future.

The study goes beyond highlighting the importance of a single consultation; it emphasises the significant impact of continuous advice. Individuals who sought financial guidance more than once over the decade, experienced a remarkable 61% improvement in overall financial well-being compared to those who sought advice only once. Achieving financial well-being is not a destination, but a journey. It involves adapting to changing circumstances, making informed decisions, and staying proactive in financial planning. The study's findings highlight the importance of having a trusted advisor who can provide ongoing support, helping individuals navigate the complexities of the financial landscape.

The FSCS study brought to light a common scepticism regarding the minimum asset requirement for benefiting from financial advice. Contrary to the notion that financial advice primarily caters to those with high net worth, the ILC study, mentioned above, demonstrated that individuals who consider themselves in the "just getting by" category experienced a more substantial financial enhancement compared to their wealthier counterparts. For instance, while the affluent group saw an 11% increase in pension wealth, the "just getting by" group experienced an impressive 24% boost in pension income. The key takeaway is quite evident; irrespective of your income level, seeking financial advice can indeed exert a meaningful influence on your financial well-being.

Emotional value of advice

In reference to the ILC study, a whopping 88% of people who have taken advice think it’s good value for money. However, the worth of advice extends beyond financial gains. Amidst the backdrop of market volatility and continuing uncertainty in the political and economic spheres over the past year, it’s good to see that the emotional benefits of advice plays an important role.

A study conducted by Royal London delves into the emotional well-being advantages of seeking advice, revealing that it can offer more than just financial perks. The top three cited benefits include:

1. Enhanced confidence in financial plans and the future.
2. Heightened control over one's finances.
3. Peace of mind and sense of preparedness to navigate life's unforeseen challenges.

Moreover, individuals reported being less anxious about their financial preparedness for retirement, highlighting the emotional impact that sound advice can have at various stages of life.

In conclusion, the studies provided by the FSCS, FCA, ILC and Royal London, paint a compelling picture of the misconceptions around financial advice and the hidden value both for financial and emotional well-being in seeking professional guidance. If you've found yourself questioning the relevance of financial advice in your life, this body of research strongly indicates that taking professional guidance could be a crucial step toward unlocking a more prosperous financial future. So don’t just take our word for it, the research speaks for itself.

If you’d like to learn more about how we can help you achieve the financial future you want, why not get in touch and speak to one our qualified financial advisors for a free initial consultation. 

And why not have a look on independent website VouchedFor, to see what our existing clients have to say about us. 

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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 or tax advice.

Were you among the 4,757 individuals who completed their tax return on Christmas Day? Or the 12,136 who did so on Boxing Day? Leaving your tax returns to the last minute is unfortunately a common experience for many taxpayers. In the tax year 2020/21, approximately 290,000 individuals incurred fines for late filing and accrued the automatic £100 late filing penalty.  

And with more than 1 million people being drawn into self-assessment for the first time due, in the main, to rising inflation and the freeze, by the Government, in many annual allowances until 2028, a larger number of taxpayers are finding themselves at risk of getting hit by the late filing penalties.  

Self Assessment Tax Returns 

Self Assessment is a system HM Revenue and Customs (HMRC) uses to collect Income Tax. 

Tax is usually deducted automatically from wages and pensions known as PAYE (Pay As You Earn). People and businesses with other income must report it in a tax return. 

The idea of Self Assessment is that you are responsible for completing a tax return each year if you need to, and for paying any tax due. It is your responsibility to tell HMRC if you think you need to complete a tax return. 

If you complete a Self Assessment tax return, you include all your taxable income, and any capital gains. You should also claim any tax allowances or reliefs that you are entitled to on the tax return. 

You send the form to HMRC either on paper or online. The information on the tax return is used to calculate your tax liability. This process is called Self Assessment. 

What is the deadline for completing a Self Assessment Tax Return? 

31st October 2023 - The deadline for submission of tax returns in paper format for the tax year ending 5th April 2023. 

30th December 2023 - The deadline to submit your online tax return for automatic payment of owed taxes from your pension and wages. 

31st January 2024 - The deadline for online self-assessment tax returns for the 2022/23 tax year to be completed. 

For more information about tax dates and thresholds, check out our up-to-date guide. 

Who needs to complete a tax return? 

According to the gov.uk website, you must send a tax return if, in the previous tax year (6 April to 5 April), any of the following applied: 

• You were self-employed as a ‘sole trader’ and earned more than £1,000 (before taking off anything you can claim tax relief on) 
• You were a partner in a business partnership 
• You had a total taxable income of more than £100,000 
• You had to pay the High Income Child Benefit Charge
• You had to pay Capital Gains Tax when you sold or ‘disposed of’ something that increased in value 

You may also need to send a tax return if you have any untaxed income, such as: 

• Some COVID-19 grant or support payments 
• Money from renting out a property 
• Tips and commission 
• Income from savings, investments and dividends 
• Foreign income 

What do I need to complete a tax return online? 

For those filing online, having a Government Gateway login and a Unique Taxpayer Reference (UTR) number is required. You can find everything you need to know about creating a login on the gov.uk website. 

What happens if I don’t complete the self-assessment in time? 

If you don’t file your tax return correctly by the deadline, you will be sanctioned with a penalty depending on how late you file your return. This penalty will begin at an initial £100 fixed fee and progress as follows: 

• After 3 months, daily penalties of £10 will start, up to £900 in total. 
• After 6 months, you will be sanctioned for 5% of the total tax due or £300, whichever is greater. 
• After 12 months, you will be sanctioned for a further 5% of the total tax due or £300, whichever is greater - in some cases, you may have to pay 100% of the tax you owe

Additionally, the interest rate that HMRC charges on unpaid tax recently rose to the highest it has been in 14 years. The amount is calculated as the base rate plus 2.5% - so currently this is a rate of 7.75%. This is in contrast to the interest rate paid to those that are owed money by HMRC, they will only apply the base rate minus 1% (4.25%), known as the repayment interest rate.

Late filing isn't the only trigger for penalties. Failure to pay the owed tax on time will result in further penalties. In that 2020/21 tax year, 1.43 million people faced fines for overdue payments, up from 1.24 million the previous year. Interestingly, despite HMRC granting a one-month waiver for late filing and payment penalties that year, due to the challenges posed by the Covid-19 pandemic, the numbers continued to rise. 

However, seeking assistance over the phone might prove challenging. HMRC announced in January 2024 that it would focus on addressing priority calls leading up to the months end, with reported waiting times increasing from 5 minutes in 2017 to 20 minutes in 2022. Many callers have faced prolonged persistence to connect with the right person for assistance, despite generally positive experiences once contact was established. 

That said, HMRC has made it clear that for those that can demonstrate a genuine reason why they cannot make the deadline, they will be ‘lenient’ in their penalty process. The penalties mainly exist to punish deliberate tax evaders and those who persistently fail to complete their tax returns.

There are many ways you can minimise the tax you pay, with some taxes mitigated altogether. For those with higher earnings, check out our free guide on tax planning strategies. Alternatively, give us a call on 0333 323 9065 to book a free non-committal initial consultation with a member of our team to find out how we can help. 

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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.