Monthly Archives: May 2022

KEY FINANCIAL CHANGES THAT HAVE AFFECTED MILLIONS OF PEOPLE FROM APRIL

Most taxpayers started to see their tax bills increase from April 2022. As we move into the new 2022/23 tax year, now is the time to review your tax affairs to ensure that you have taken advantage of all reliefs available and have considered some planning opportunities to help reduce your tax liabilities.

Here’s what changed at the beginning of the 2022/23 tax year, and what you need to be aware of.

NATIONAL INSURANCE INCREASE

From 6 April, National Insurance increased by 1.25%. That’s an increased cost of £255 for those earning £30,000, or £505 for those earning £50,000. The National Insurance threshold increased to £9,880 per year, meaning you don’t pay National Insurance if you earn below that level. This means you pay National Insurance at a rate of 13.25% on earnings between £9,880 and £50,270 per year, and 3.25% on earnings above £50,270 a year.

In July 2022, the National Insurance threshold will increase again so that you only start paying National Insurance on earnings above £12,570. This means the threshold will align with the personal allowance. You will pay National Insurance at a rate of 13.25% on earnings between £12,570 and £50,270 per year, and 3.25% on earnings above £50,270 a year.

There’s been a similar rise for employers’ National Insurance. One way to help to mitigate it is to consider salary sacrifice schemes for pensions and other benefits, which allow you to take some of your benefits before your salary is paid, essentially avoiding National Insurance on these items.

STATE PENSION

State Pension payments increased by 3.1% to align with inflation in the year to September 2021. The full new State Pension increased to £185.15 a week. Full basic State Pension payouts rise to £141.85 a week.

RISE IN DIVIDEND TAX RATES

The dividend tax rates vary depending on your income. Dividend tax is payable on earnings from dividends above £2,000 a year. If you are
a self-employed director of a company and pay yourself with a combination of tax and dividends, this will affect you too.

If you have shares outside of an Individual Savings Account (ISA) or pension, you may end up paying more tax on the income from them. From April 2022, the dividend tax rates increased by 1.25%. This means the dividend tax rates are 8.75% for basic rate taxpayers; 33.75% for higher rate taxpayers; and 39.35% for additional rate taxpayers.

NATIONAL LIVING WAGE INCREASE

For those on lower incomes, and their employers, an increase in the National Living Wage of 6.6%. The living wage for workers over 23 increased to £9.50 an hour, while for under-18s and apprentices it is £4.81, £6.83 for 18-20-year-olds and £9.18 for 20-21-year-olds.

FROZEN THRESHOLDS

The Chancellor often uses a new tax year to update the thresholds for basic rate tax, higher rate tax, stamp duty and other taxes in line with inflation. This year, nearly all will be frozen, meaning that most of us are worse off in real terms.

The personal allowance (the amount most of us can earn without paying tax) remains at £12,570, and the threshold for paying higher rate tax remains at £50,271. From earnings of £100,000, the personal allowance begins to be withdrawn, and the additional rate threshold remains at £150,000.

Freezing thresholds contributes to something called ‘fiscal drag’, which means that, as wages rise, more people are subject to higher rate tax because the threshold doesn’t keep pace with the rises.

HIGHER COUNCIL TAX

Councils were permitted to raise your tax rates by up to 3% from April, with prices up by a quarter in the past decade. Those in bands D and above receive a £150 tax rebate, aimed at dealing with higher energy prices, while those in bands E and below will have no recourse to this.

CHILD BENEFIT

Child Benefit payments increased in line with inflation of 3.1% in line with other benefits. This means that parents will be able to receive £21.80 a week for their eldest or only child and £14.45 a week for any additional children. This works out at £1,133.60 a year for one child, and £751.40 a year for subsequent children.

If one parent in your household earns more than £50,000, they have to start paying the Child Benefit back through their tax return. Once they earn more than £60,000 they have to pay all the Child Benefit back.

HIGHER ENERGY PRICES

Although the change in the energy cap is not pegged to the tax year, for most of us our energy bills will go up at roughly the same time. Unless you are on a fixed rate for energy, the capped amount your provider can charge for energy increased by 54% from 1 April.

TIME TO TAKE A FRESH LOOK AT YOUR FINANCES?
It can be difficult to stay on top of the key tax rates and allowances amid day-to-day living. With taxes increasing from April 2022, you need to consider what steps you can take from a tax planning perspective to maximise tax reliefs that are available in the 2022/23 tax year. We look at your wealth and tax planning as a whole. To find out more, please contact us for more information.

30 MILLION PARENTS WANT TO LEAVE WEALTH IN THEIR WILL

Millions of Britons say they want to plan to pass on wealth to their children and grandchildren in a Will – but fewer than half have written one, according to new research. Failing to plan to write a Will or complete estate planning could potentially lead to a significant Inheritance Tax (commonly called IHT for short) bill being levied on a person’s estate when they die.

ANYTHING THAT ISN’T EXEMPT WILL BE TAXED

IHT is a tax that may be paid on your estate (your money, possessions and your share of any property) when you die, reducing how much value will ultimately pass to your beneficiaries. The starting point for IHT in the current 2022/23 tax year is £325,000. When the value of an estate exceeds this amount, anything that isn’t exempt will be taxed at 40%.

The tax year runs from 6 April to the following 5 April. So, the tax year 2022/23 started on 6 April 2022 and finishes on 5 April 2023.

RISING NUMBER OF PEOPLE COULD UNEXPECTEDLY FACE IHT BILLS
Recent rises in houses prices mean the estates of a rising number of people could unexpectedly face IHT bills. The research found that 30 million (88%) people with children say they plan to leave money to their children and/ or grandchildren in their Will but only 41% have written one. Twenty million (59%) parents do not currently have a Will.

Although over half (57%) of people with children are considering seeking professional financial advice about the best way to pass on wealth, only 13% have done so. More than half (56%) of people with children say they are considering writing wealth into trust but only 12% have actually done so.

HOW PARENTS PLAN TO PASS ON WEALTH

• Leaving it in a Will 88%
• Bank transfer/cash 67%
• Consulting financial adviser 57%
• Writing wealth into trust 56%
• Putting money into investment 53%
• Putting money into a pension for their children 43%

MINIMISING THE AMOUNT OF IHT YOU COULD BE LIABLE FOR
The research identified that mass affluent consumers – those with assets of between £100,000 and £500,000 excluding property – are more likely to have their affairs in place to pass on an inheritance. More than half (51%) of mass affluent parents have a Will in place. 20% of mass affluent parents have put money into an investment for their children or grandchildren (compared to 12% of all parents). 17% of mass affluent parents have obtained professional financial advice to discuss the best way to pass on wealth. And 13% of mass affluent parents have written wealth into trust for their children. The average amount written into a trust was £184,000 while more than one in five (21%) wrote more than £250,000 into a trust.

HOW WILL I PASS ON MY ESTATE EFFICIENTLY?
Tax rules depend on individual circumstances and may change. You should always obtain professional financial advice for more information on tax. We provide all the elements you need to protect, grow and pass on your wealth. To discuss your plans or for further information, please contact us.

IMPACT ON WORK, WEALTH AND WELLBEING PUTTING FURTHER PRESSURE ON AGE GROUP

The financial decisions made by individuals as they reach retirement could have significant consequences on their finances and standards of living. Midlifers (people aged 40 to 60) are facing a challenging backdrop, with rising inflation and increasing energy bills putting further pressure on an age group that is already juggling multiple headwinds.

Midlifers spend £10 billion a year in financial help for loved ones, while support costs have risen by £300 annually over the last 15 years. According to new analysis[1], responsibility peaks at the age of 45, with midlifers having the greatest level of financial responsibility at this stage of their life.

GREATER PRESSURE

Unpaid caring responsibility also becomes more common from the age of 58, meaning many 40-60-year-olds are struggling to juggle their responsibilities. Many midlifers already feel the level of support they provide is unsustainable (10%). With inflation set to continue to rise throughout 2022, energy prices reaching record highs and an increase to National Insurance, this support will be under even greater pressure.

FINANCIAL SUPPORT

The study examined the unique challenges faced by those in midlife and the impact of these on people’s work, wealth and wellbeing. It finds that millions of midlifers are propping up their families, with more than six million people aged 40 to 60 (33%) currently providing financial support or unpaid care to at least one loved one, on top of their job and other family commitments.

More than one in six (17%) people in midlife provide financial support to an adult in their life, such as an elderly parent or grown-up child, at a collective cost of £10.4 billion a year. Those supporting adult children will spend an average of £247 a month, whereas midlifers who provide financial support to an elderly parent or relative will spend an average of £282 a month, in addition to their own household expenses.

TIME PRESSURES

Alongside financial support, those aged 40 to 60 are also relied on to provide unpaid care (15%) to elderly relatives or childcare for grandchildren while also juggling their lives and careers. The average amount of time taken up by unpaid care is the equivalent to a part-time job, at nearly 15 hours a week. As a result of these time pressures, one in four people in midlife (25%) get less than an hour to themselves in the average day and one in five (19%) spend no time on their financial wellbeing.

MIDLIFE SPENDING

The financial and caring commitments required of people in midlife have already increased in recent years. Based on analysis of ONS data, spending in areas that includes support for other generations has increased by £300 in the last 15 years, placing further pressure on this age group.

The COVID-19 pandemic has increased this further, with those in midlife spending more time and money supporting their loved ones. Just over half (52%) of 40-60-year-olds in the UK have seen their financial pressures grow, while 34% say that it has increased the time pressure they face.

LOOKING TO GROW YOUR WEALTH?

Time to create a personal financial plan tailored to your needs and goals? We’ll work together to develop wealth-building strategies that focus on what’s important to you, your needs and those of your loved ones. To discuss your requirements, speak to us to find out how we can help you.

Most Millennials and Gen Z have two or more pension pots

If you’ve worked multiple jobs over the years, you may have been auto- enrolled into a number of pension plans by past employers. You might also have a few pension plans that you opened yourself. Keeping track of all your plans’ policy numbers and knowing exactly how much is in each of them might start to get confusing as the years go by.

Ten years after auto-enrolment was introduced, new research shows almost two-thirds (63%) of Millennial and Gen Z workers aged 18 to 41 have two or more pension pots. The government’s Pensions Dashboards programme is due to launch in 2023 and will enable people to see information about all of their pensions in one place.

DIFFERENT AGES

The research also identified the average number of pension pots at different ages. Two-thirds (66%) of workers have more than one pension, with two pension pots being the most common (30%). More than 60% of 18 to 41-year-olds have two or more pension pots. 15% of working-age people have four or more and the proportion doesn’t change much with age – 13% of under-40s compared with 16% of over-40s – suggesting that more frequent job moves among the younger generation, together with auto-enrolment, are having a significant impact on the experience of building up a pension. One in 17 (6%) did not know how many pension pots they had.

PENSION HOLDINGS

This will be more of an issue for Millennials (1980 to 1995) and Gen Z (those born between 1996 and 2010), who have the most to gain from seeing all their pensions in one place. The Department for Work and Pensions previously estimated that people would have an average of 11 jobs over their working lives.

Younger workers tend to move more quickly between jobs than the older generation did earlier in their working lives. This change in the way careers are built – from ‘jobs for life’ to jobs for two or three years – occurring at the same time as auto- enrolment means that as people build up experience and pay rises between dierent employers, they also build up an increasingly complex pension history.

The research also identified the average number of pension pots at dierent ages. Two- thirds (66%) of workers have more than one pension, with two pension pots being the most common (30%). More than 60% of 18 to 41-year-olds have two or more pension pots.

SECURING THE FUTURE YOU WANT

Although the Pensions Dashboards will be extremely useful, it doesn’t fully mitigate the need to keep all of your pension information for yourself. It will still be a good idea to keep documentation from different providers and pensions – if you wish to make changes to any of your pensions, for example, to the underlying investments, you would still need to contact the providers directly. To find out more or to discuss your situation, please contact us.