Monthly Archives: June 2023

HOW THE CHANGES AFFECT PENSIONS AND TAXES

The Spring Budget 2023 was delivered by Chancellor of the Exchequer, Jeremy Hunt, on March 15. Among key changes announced were those made to pensions, aimed at making it easier for individuals to save for their retirement and encouraging retirees to return to work.

The 2023/24 tax year started on 6 April, and with it come some significant changes to pensions and taxes. We’ve provided a summary of the key measures.

CAPITAL GAINS TAX (CGT)

The Capital Gains Tax (CGT) exemption has reduced from £12,300 to £6,000. This reduction means that any gains above the exemption amount will be taxed at either 10% for basic rate taxpayers or 20% for higher rate taxpayers. The rates are even higher for gains on second properties, with 18% and 28% for basic rate and higher rate taxpayers, respectively.

The change means that a higher rate taxpayer making a capital gain of £20,000 in the 2023/24 tax year could face a CGT bill of £2,800, with
this rising to £3,400 in 2024/25. This represents a significant increase from the £1,540 bill for the 2022/23 tax year.

It’s important to keep in mind that the CGT exemption cannot be carried over from one tax year to the next, so it’s essential to make full use of the exemption each year. By investing in an Individual Savings Account (ISA), it offers the opportunity to reduce your CGT liability as any gains made within an ISA are exempt from CGT. By being proactive and taking advantage of any available tax allowances, you can help to prevent unexpected tax bills and ensure that you are maximising your investment returns.

ANNUAL DIVIDEND ALLOWANCE

The annual dividend allowance has been reduced from £2,000 to £1,000, with a further reduction to £500 to be implemented in 2024/25. This means that dividend income exceeding the allowance will be taxed at rates of 8.75%, 33.75% and 39.35% for basic, higher and additional rate taxpayers respectively.

For instance, a higher rate taxpayer receiving £5,000 in dividend income could pay over £1,350 in dividend tax by 2023/24, up from £1,012.50 in 2022/23, which is set to increase to £1,518.75 in 2024/25. One way to avoid dividend tax is by investing in an ISA or contributing to a pension fund, which offer tax-free dividends. If appropriate, maximising these tax-efficient options is a popular strategy when mitigating dividend tax.

PENSION LIFETIME ALLOWANCE CHARGE

The pension Lifetime Allowance (LTA) charge has been abolished, which means there will no longer be a tax charge on the amount of money that can be built up in pensions tax efficiently over an individual’s lifetime. From 6 April 2023, the LTA charge has been completely removed, with total abolition set for April 2024.

Previously, any excess over £1,073,100 in pensions incurred a tax charge when the individual drew their pension benefits assuming no protection was in place. Despite the removal of the LTA charge, the pension tax-free lump sum has been capped at £268,275 (unless protection is in place).

So, while people can now build a larger pension pot without incurring a LTA tax charge, the tax-free lump sum will not increase along with it. This change may impact an individual’s decision to begin drawing money from their pension, also known as ‘crystallising’ their pension.

PENSION ANNUAL ALLOWANCE

The pension Annual Allowance has increased from £40,000 to £60,000. This means that individuals can pay up to £60,000 or 100% of their UK relevant earnings (whichever is lower) into pensions every tax year and receive tax relief.

However, those with high adjusted incomes above £260,000 per year (previously £240,000) may have a lower Annual Allowance due to the Annual Allowance taper. This taper reduces the annual allowance by £1 for every £2 of adjusted income that exceeds the threshold, to a minimum floor of £10,000 (up from £4,000).

MONEY PURCHASE ANNUAL ALLOWANCE

The Money Purchase Annual Allowance (MPAA) increased from £4,000 to £10,000. The MPAA comes into play when savers first access Defined Contribution (DC) pensions flexibly, and replaces their standard annual allowance.

This means that individuals who access their DC pensions flexibly for the first time can now pay up to £10,000 per year into their pension without having to worry about reducing their tax relief.

ARE YOU LOOKING TO SECURE YOUR FINANCIAL FUTURE?
We’ll work closely with you to understand your unique financial situation and help you create a personalised plan to achieve your future goals. By navigating the complexities of the financial world, you can secure a prosperous future for you and your loved ones. Contact us today to learn more.

THIS ARTICLE DOES NOT CONSTITUTE TAX OR LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. TAX TREATMENT DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF EACH CLIENT AND MAY BE SUBJECT TO CHANGE IN THE FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE.

THE VALUE OF YOUR INVESTMENTS CAN GO DOWN AS WELL AS UP, SO YOU COULD GET BACK LESS THAN YOU INVESTED. PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.

A PENSION IS A LONG-TERM INVESTMENT NOT NORMALLY ACCESSIBLE UNTIL AGE 55 (57 FROM APRIL 2028 UNLESS PLAN HAS A PROTECTED PENSION AGE).

THE VALUE OF YOUR INVESTMENTS (AND ANY INCOME FROM THEM) CAN GO DOWN AS WELL AS UP, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.

YOUR PENSION INCOME COULD ALSO BE AFFECTED BY THE INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS.

WHAT WILL YOUR LEGACY LOOK LIKE?

April brought a host of changes to the UK’s tax regime, with some thresholds for taxes such as additional rate Income Tax being lowered while others, such as Corporation Tax, are increased.

However, the Inheritance Tax (IHT) nil-rate band has remained stagnant at £325,000 since 2009, despite the meteoric rise in property prices over the same period. This has resulted in an all- time high of £6.1bn being collected in Inheritance Tax in 2021/22.

FREEZING OF THE NIL-RATE BAND

Chancellor Jeremy Hunt announced in the Autumn Statement on 17 November 2022 that the government had frozen the IHT thresholds for two more years. As the threshold was already frozen until April 2026, it means that the threshold is now frozen until April 2028.

If you own a home worth over £1 million, there is a risk that your loved ones may face a costly IHT bill upon inheritance, due to the freezing of the nil-rate band. While there is an additional residence nil-rate band (RNRB) of £175,000 that can apply when passing on the property you lived in, married couples or those in registered civil partnerships can transfer the allowance, enabling most couples to pass on up to £1 million tax-free, assuming they pass on their home to their direct descendants.

WEALTH TO FUTURE GENERATIONS

However, if your total estate exceeds £2 million, the RNRB will be tapered. For every £2 by which your individual estate exceeds £2 million, the RNRB will be decreased by £1. Professional financial advice can help homeowners plan to mitigate the impact of IHT.

Downsizing is a popular method to manage IHT, but this presents the challenge of passing on the sale balance to your loved ones. Planning for the transfer of wealth to future generations can be an uncomfortable topic for many families. However, proper estate planning can ensure a smooth and stress-free transition of family wealth to loved ones.

FEELING FINANCIALLY SQUEEZED

It’s understandable that many people are feeling financially squeezed in the current climate, and as a result, we are likely to see a rise in ‘giving while living’. This refers to the practice of lifetime gifting to loved ones, particularly adult children who may be struggling to make ends meet during the ongoing cost of living crisis.

However, it’s important to note that the extended freeze on thresholds will mean that many people will now need to seek professional financial advice more than ever to protect their wealth and ensure that it is passed on according to their wishes, without being caught out by unforeseen taxes in the future.

NEED ADVICE TO SECURE YOUR FAMILY’S FINANCIAL FUTURE?
We understand the importance of addressing these issues in a calm and objective manner. We can assist you in creating a comprehensive succession plan that maximises the amount of wealth passed down to future generations while minimising tax implications. Let us help you secure your family’s financial future with careful estate planning. To find out more, please speak to us.

THIS ARTICLE DOES NOT CONSTITUTE TAX OR LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. TAX TREATMENT DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF EACH CLIENT AND MAY BE SUBJECT TO CHANGE IN THE FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE.

INHERITANCE TAX AND ESTATE PLANNING ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.

WELCOME BUT UNEXPECTED CHANGES TO PENSION TAX

Chancellor Jeremy Hunt’s first proper Budget 2023, on Wednesday 15 March, brought some welcome but unexpected changes to pension tax. The changes are designed to alleviate the impact of strict pension rules, which are believed by Mr Hunt to have had a negative impact on the country’s labour market.

Britons can now expect significant changes that will affect their retirement savings. But to fully understand how these changes could impact on your pension and secure your retirement plans, it is essential to obtain professional financial advice.

EXCEEDING THE ALLOWANCE

The most significant change was the abolition of the pension Lifetime Allowance (LTA) charge. As of 6 April 2023, the LTA for registered pension schemes has been completely removed, with total abolition set for April 2024. The LTA was previously the maximum amount of savings an individual could make in a registered pension scheme without incurring a tax penalty.

The standard LTA for the 2022/23 tax year was set at £1,073,100, which meant those with pensions exceeding this amount would face a tax charge. However, with the abolition of the LTA, individuals can now contribute as much as they like to their pension schemes without fear of being penalised for exceeding the allowance.

TAX-FREE LUMP SUM

This is particularly good news for those with pensions of significant value, as the value their pension funds can grow to will no longer be capped. It is also worth noting that the government tax relief on pension contributions will still be available, which means individuals can continue to benefit from this incentive. Additionally, under the previous LTA rules, an individual could withdraw up to 25% of their pension savings as a tax-free lump sum, but that has now changed. The tax-free lump sum that can be drawn at age 55, moving to 57 from 2028, is now capped at £268,275 (unless protection is in place).

UK’S PENSION SYSTEM

To ensure that your retirement plans are not impacted by these changes, it is essential to obtain professional financial advice and discuss what is the best course of action for your situation.

The removal of the LTA charge marks a significant change to the UK’s pension system, and it remains to be seen how this will impact pension savings and retirement planning in the years to come.

ATTRACTIVE INVESTMENT OPTION

The tax-relievable annual pension contribution limit has also increased from £40,000 to £60,000, unless tapering applies, which is good news for most people.

Pensions have always been an attractive investment option with tax-relievable contributions, tax-free returns, and in most cases no Inheritance Tax. The removal of the LTA tax regime and the opportunity to rebuild pension benefits with an increased allowance are excellent news for long-term financial wellbeing.

BURDEN OF INCOME TAX

While Individual Savings Accounts (ISAs) have remained unchanged, they still are an essential part of a tax-efficient savings and investment strategy. This strategy removes the burden of Income Tax and Capital Gains Tax (CGT). With the current reduction in the CGT allowance to only £6,000, ISAs and pensions become even more critical.

In summary, the Chancellor’s budget was constrained, but the message is clear – it’s time to take advantage of the saving incentives.

ARE YOUR EXISTING PENSION PLANS SUFFICIENT TO PROVIDE YOU
WITH A COMFORTABLE RETIREMENT?
If you’re feeling unsure about how the recent changes in pension tax rules might have impacted your retirement plans, we’re here to help. We can offer expert advice and guidance on your retirement planning, whether you’re in the middle of building your pension pot or preparing for retirement. To learn more about how we can help you, please don’t hesitate to get in touch.

A PENSION IS A LONG-TERM INVESTMENT NOT NORMALLY ACCESSIBLE UNTIL AGE 55 (57 FROM APRIL 2028 UNLESS PLAN HAS A PROTECTED PENSION AGE).

THE VALUE OF YOUR INVESTMENTS (AND ANY INCOME FROM THEM) CAN GO DOWN AS WELL AS UP, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.

YOUR PENSION INCOME COULD ALSO BE AFFECTED BY THE INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS.

TWO IN FIVE OVER-55S PLAN TO GRADUALLY PHASE OUT WORKING LIFE BEFORE STATE PENSION AGE

Semi-retirement is an option to consider for individuals who may not be ready to fully retire, but still wish to reduce their work hours and gradually phase out working life. By choosing to semi-retire, you can maintain a good work-life balance while still earning an income.

Many people choose to semi-retire as it allows them to enjoy their hobbies, travel and spend more time with their loved ones. This option also provides a smooth transition into retirement, enabling you to adjust and focus on what truly matters in life.

CHANGING ATTITUDES TOWARDS EMPLOYMENT
A recent study has identified that more than two in five (44%) 55-64-year-olds plan to move into ‘semi-retirement’ before they reach 65, allowing them to draw on their pension savings while continuing to work part-time.

The study investigated changing attitudes towards employment and retirement as a result of the Covid-19 outbreak. The findings highlighted people’s shifting emotional and financial wellbeing as they deal with post-pandemic job insecurity.

CONTINUING TO WORK THROUGH RETIREMENT
More than nine in ten (91%) people said they were ‘much happier’ after reducing their working hours, implying that semi- or partial retirement– ‘part-tirement’ – could be the solution for more than half (55%) of workers who like the idea of continuing to work through retirement, giving them freedom in later life while remaining part of the workforce.

Retirement can account for up to a third of an individual’s life as life expectancy continues to rise and more individuals than ever are surviving to age 100 and beyond. Recent changes in government policy, such as the increase in the State Pension age to 67 in 2028, have caused people of all ages to reconsider their plans for work and retirement.

FLEXIBLE STRATEGY TO WORKING LATER IN LIFE
Over three-quarters of 18-34-year-olds, or 59%, say they intend to semi-retire before the age of 65, rising to 61% of those aged 35-44. The findings show that longer working lives are prompting younger people to consider a flexible strategy to working later in life in order to keep their career.

According to recent ONS data, 48,000 over- 50s have lately returned to the workforce, as Chancellor Jeremy Hunt encourages people who have retired or are considering retirement to pursue part-time or full-time work to help alleviate some of the UK’s labour shortage challenges.

HELP IMPROVE MENTAL AND PHYSICAL HEALTH
But the study indicates that people prefer to work past the age of retirement, implying that the UK’s workplace participation problems would not just be solved by encouraging people to return to work. Four in five, or 80%, of those over the age of 65 said they enjoyed the notion of working into retirement, with at least two in five, or 41%, of other age groups, agreeing.

Continuing to work can help improve mental and physical health, which informs overall wellbeing, and it can also keep loneliness and isolation at bay. The urge to retire early is frequently motivated by persons seeking more independence while being physically strong and healthy enough to enjoy it.

SEMI-RETIREMENT CAN BE A WIN-WIN SITUATION
The study shows that semi-retirement can be a win-win situation for both employers and employees, as companies gain from preserving the skills and knowledge of skilled workers in the workforce, while workers can make decisions about maintaining a healthy lifestyle and income in retirement.

In a climate where longer working lives are becoming the norm, semi-retirement is a chance to experience the ‘best of both’, which can benefit both employees and employers. Retaining connection to the workplace is an appealing option for many people who are still working towards their financial goals or are simply not ready to stop working.

MAKE A BIG, POSITIVE DIFFERENCE IN THE LONG TERM
It also provides an opportunity for employers to continue to harness the knowledge and expertise of more experienced staff for longer. As people live longer, investing time in ourselves and considering every option available in later life is the best way to ensure we have the retirement we aspire to. Starting to think and plan further ahead is a small step that can make a big, positive difference in the long term.

The study clearly identifies that semi- retirement looks set to continue to be a popular option for many retirees, and for good reason. Whether you choose to work part-time for financial reasons or simply because you enjoy it, semi-retirement can be a great option for anyone looking to make the most of their retirement years.

WILL YOU ENJOY FINANCIAL STABILITY DURING YOUR GOLDEN YEARS?
Planning and saving for retirement is essential if you want to enjoy financial stability during your golden years. It’s important to start early to take advantage of compound interest and give yourself the largest possible nest egg. To discuss your retirement plans, please contact us for more information.

A PENSION IS A LONG-TERM INVESTMENT NOT NORMALLY ACCESSIBLE UNTIL AGE 55 (57 FROM APRIL 2028 UNLESS PLAN HAS A PROTECTED PENSION AGE).

THE VALUE OF YOUR INVESTMENTS (AND ANY INCOME FROM THEM) CAN GO DOWN AS WELL AS UP, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.

YOUR PENSION INCOME COULD ALSO BE AFFECTED BY THE INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS.

DOES THE EARLY BIRD GET THE ISA WORM?

If you’re an investor looking to maximise your Individual Savings Accounts (ISA) returns, it’s worth considering investing your ISA allowance as soon as possible each year, as soon as it becomes available on 6 April. Not only will this help ensure that your money is protected from taxes right off the bat, but it also means that your investment has more time to grow in the market. This can result in a bigger ISA pot in the long run.

Of course, this strategy may not be right

for everyone, and there are risks to investing in the market. It’s important to carefully consider your investment goals, risk tolerance and overall financial situation before making any investment decisions. However, for many investors, investing their ISA allowance early on can be a smart move that pays off over time.

HIGHLY EFFICIENT WAY TO PROTECT INVESTMENTS FROM TAX
An Individual Savings Account (ISA) is a highly tax-efficient way for people to protect their investments from tax. In the 2022/23 tax year, everyone in the UK had an annual Capital Gains allowance of £12,300, which was reduced to £6,000 in the Autumn Statement on 17 November 2022. This will reduce further to £3,000 from April 2024.

However, when you invest into an ISA, you can enjoy tax-efficient returns and don’t need to declare any interest from an ISA or any income or capital gains made from it when completing your annual tax return.

MAKE SURE YOU USE YOUR FULL ISA ALLOWANCE
The maximum amount that can be invested into an ISA in the 2023/24 tax year is £20,000. This allowance hasn’t changed since April 2017 when it was increased from £15,240 and is higher than the £7,000 maximum allowance offered in 2008. However, any unused allowance will not carry over to the next tax year, meaning that it’s essential to make sure you use your full ISA allowance during the current tax year if possible.

Investing early can certainly offer many benefits, including an extra year of tax-sheltered growth. However, it’s important to be aware that investing outside of an ISA can come with tax risks. The halving of the dividend tax allowance this tax year means that you may end up paying tax on dividends earlier in the year if you hold investments outside of an ISA.

TAKE ADVANTAGE OF POUND COST AVERAGING
Starting an ISA early in the tax year provides many benefits when investing, particularly when it comes to setting up regular monthly payments into a Stocks & Shares ISA. By doing so, you can take advantage of pound cost averaging, which is a process of drip-feeding money into an investment over time in order to reduce the impact of market ups and downs.

The idea behind pound cost averaging is that when you invest a fixed sum every month, you’ll buy more units when an investment’s price falls, which can provide the potential for greater profits if they then rise.

ESTABLISHING A REGULAR INVESTMENT PLAN EARLY ON
Of course, the opposite can also be true – if prices rise, you’ll buy less. However, over time, pound cost averaging can help to smooth out the ups and downs in an investment’s value, reducing the risk of dramatic swings in your portfolio.

By establishing a regular investment plan early on, you’ll also be able to take advantage of the full tax year for your investments, allowing you to spread your investments across the entire year. This can help to reduce the risk of investing all of your money at a time when the market may be overvalued.

GOOD NEWS IS THAT YOU CAN TRANSFER YOUR ISA
Transferring an existing ISA could also be a practical option if you’re looking for a more competitive deal or want to consolidate your investments. The good news is that you can transfer your ISA at any point during the tax year, but it’s essential to take note of some things before you do.

For instance, you need to transfer the whole ISA, so you cannot partially transfer your existing Stocks & Shares ISA for the current tax year. It’s wise to check with your current provider if they impose fees for transferring out. Taking this step can help you avoid unnecessary costs and ensure that you get the most out of your investment.

CONSISTENTLY MAX OUT YOUR ISA ALLOWANCE EACH YEAR
The old adage holds true when it comes to investing: time in the market is more important than timing the market. This means that the longer your money is invested, the more time it has to grow and potentially compound over time.

Investing in an ISA can be a great way to grow your savings pot beyond the limits of a tax-efficient allowance. It’s important to consistently max out your ISA allowance each year, if affordable, and enjoy generous investment returns. Even if you don’t have a large lump sum to invest, you can still benefit from regular, small contributions from the beginning of the new tax year. So start saving and investing today and see how far you can go!

READY TO PUT YOUR 2023/24 ISA ALLOWANCE TO WORK NOW?
If you’re considering using your ISA allowance this year, don’t wait until the last minute. Invest early and give yourself the best chance of maximising your returns. Whatever your investment goals, we’ll help you to grow your wealth in a way that’s right for you. So why wait? Let us help you make the most of your ISA allowance today. To find out more please contact us.

THIS ARTICLE DOES NOT CONSTITUTE TAX OR LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. TAX TREATMENT DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF EACH CLIENT AND MAY BE SUBJECT TO CHANGE IN THE FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE.

THE VALUE OF YOUR INVESTMENTS (AND ANY INCOME FROM THEM) CAN GO DOWN AS WELL AS UP, SO YOU COULD GET BACK LESS THAN YOU INVESTED. PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.