Monthly Archives: February 2024

HOW TO NAVIGATE FINANCIAL CONVERSATIONS WITH YOUR FAMILY

Money, a subject often seen as taboo within family conversations, is surprisingly more entwined in your family’s affairs than you might think. Engaging in frank discussions about financial matters can create opportunities for strategic financial planning, potentially enhancing your family’s financial future. The sooner these discussions begin, the better the chances of safeguarding your legacy and strengthening your children’s fiscal stability. Let’s delve into some potential discussion points.

PLANNING YOUR LEGACY

Inheritance is a topic fraught with emotion. While discussing who will get a share of your estate after your demise may appear grim, such a conversation can prevent future complications or disagreements. This discussion lets you clarify your intentions and the reasoning behind your choices.

This is also an opportune time to revisit your Will. For instance, you might need to adjust your Will to ensure your estate can leverage the residence nil-rate band, possibly reducing your estate’s Inheritance Tax (IHT) bill.

GIFTS THAT KEEP GIVING

While it’s essential to avoid depleting funds needed for future expenses like care costs, contemplating the transfer of wealth to future generations during your lifetime is worth considering.

Employing pensions, trusts and life assurance are a few ways to achieve this. Although this process can be intricate, we can collaborate to provide peace of mind, ensuring you’ve set a robust foundation for your family’s future.

Gifting tax-efficiently throughout your lifetime is feasible, using various allowances and exemptions. For instance, you can bestow up to £3,000 per year free from IHT, make small gifts of up to £250 per person per tax year, or even make further tax-free gifts such as potentially exempt transfers (PETs), which become exempt from IHT if you live for at least another seven years after making the gift.

ESTABLISHING POWER OF ATTORNEY

Facing a decline in your mental capacity can be particularly challenging for your family. If you become incapable of making decisions, it’s crucial to have a trusted individual legally appointed. You can establish a power of attorney, a legal document that allows you to designate one or more people to manage your affairs if you lose capacity.

Without this document, an application must be made to the Court of Protection (the Sheriff Court in Scotland), which could be a complex, costly and lengthy process for your loved ones.

COMPILE YOUR ‘WHEN I’M GONE’ LIST

Discuss where you’ll securely leave essential information regarding your bank accounts, savings, investments and utility providers. Drafting a list of these details is time well spent, as it could prove invaluable to your family if you lose capacity or pass away.

Starting a conversation about inheritance with your family might seem daunting, but we’re here to help initiate the dialogue and guide you through what might be an emotional journey. We’ll help you create a succession plan tailored to your individual needs, reassuring you that you’ve laid the strongest foundations for your family’s future.

READY TO TAKE THE NEXT STEP TOWARDS SECURING YOUR FAMILY’S FUTURE?
Don’t hesitate to contact us if you require further information or guidance. We’re here to support you in your financial planning journey. Contact us today to secure your family’s financial future.

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 TAX TREATMENT IS DEPENDENT ON INDIVIDUAL CIRCUMSTANCES AND MAY BE SUBJECT TO CHANGE IN FUTURE.

ESTATE PLANNING IS NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.

STRIVING TO USE IMPACT TO BOOST INVESTMENT RETURNS

ESG (Environmental, Social and Governance) investing, a socially responsible investing approach, seeks to harmonise financial returns with a company’s environmental impact, stakeholder relationships and global footprint. Our planet faces numerous challenges, from climate change to a rapidly growing and ageing population.

Understanding and incorporating ESG risks and opportunities into your investment strategy improves decision- making and enables you to seek more beneficial investment outcomes. By examining and synthesising ESG data, we can help you to make more informed and sustainable investment choices.

PREPARING FOR FUTURE CLIMATE CHANGE

Responsible investing is aligning investments with personal values, investing in what is deemed right, and steering clear of industries or practices that contradict those values. Such issues were highlighted at COP28 last year during the 28th annual United Nations (UN) climate meeting, where governments discussed limiting and preparing for future climate change.

The summit was held in the United Arab Emirates (UAE) from 30 November until 12 December 2023 and reviewed the Paris Agreement progress – the landmark climate treaty concluded in 2015 – charting a course of action to reduce emissions and protect lives dramatically.

APPROACH TO THREE CRITICAL FACTORS

ESG investing is a method of investing that prioritises companies that stand out in their approach to three critical factors. The environmental aspect considers a company’s energy use, sustainability policies, carbon emissions and efforts towards resource conservation.

The social component of ESG investing highlights a company’s relationships with its employees and the communities it serves. It examines factors like employee welfare, workplace safety and the company’s contribution to the community. Governance, the third pillar of ESG, scrutinises a company’s leadership, executive pay, audits, internal controls, independence, shareholder rights and transparency.

COMMENDABLE RECYCLING POLICY

However, ESG categorisations can be open to interpretation, complicating matters for investors with specific ethical requirements. For instance, you could unknowingly invest in a sugary drinks manufacturer with a commendable recycling policy, earning it high ‘E’ scores. But are sugary drinks beneficial for society? Responsible investing can be subjective, with different issues holding varying levels of importance for different individuals.

The growing popularity of ESG investing has also attracted opportunists who falsely represent themselves as ESG businesses or funds. This practice, known as ‘greenwashing’, is a pitfall that responsible investors need to sidestep.

GUARD AGAINST GREENWASHING

How can ESG investors guard against greenwashing? The key lies in selecting companies with products or services that genuinely address global challenges. This is where ‘impact investing’ comes into the picture. Impact investing involves choosing companies that aim to impact the planet and its inhabitants positively. It encourages positive inclusion, naturally excluding exposure to undesirable sectors.

It’s about investing where there is potential for a positive contribution. By seeking out companies actively working to make a difference, you can be more confident that your investments contribute positively, rather than supporting companies that merely slap on an ESG label without genuinely striving to improve the world.

READY TO LEARN MORE ABOUT ESG AND IMPACT INVESTING?
Feel confident in your investments with the right professional financial advice. Please get in touch with us if you want to learn more about ESG and impact investing or need help navigating this investment landscape. We’re here to guide you in making informed, responsible investment decisions.

THIS ARTICLE DOES NOT CONSTITUTE ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH.

THE VALUE OF YOUR INVESTMENTS CAN GO DOWN AS WELL AS UP, AND YOU MAY GET BACK LESS THAN YOU INVESTED.

THE TAX TREATMENT IS DEPENDENT ON INDIVIDUAL CIRCUMSTANCES AND MAY BE SUBJECT TO CHANGE IN FUTURE.

WHAT ACTIONS TO REVIEW BEFORE THE 2023/24 YEAR-END?

Have you recently evaluated your personal tax situation? Is your tax structure optimised for efficiency? As we approach the end of the tax year on 5 April 2024, it presents an ideal opportunity to assess and leverage the various allowances and reliefs available to enhance your tax profile. Allocating time for this review can provide valuable insight into potential opportunities for you and your family.

The vast scope and complexity of the UK tax system may seem daunting. However, navigating it with careful planning can lead to significant financial benefits. Understanding your tax affairs is key to maximising your wealth and ensuring your financial future.

TAKE ADVANTAGE OF POTENTIAL RELIEFS OR ALLOWANCES
However, the tax landscape has witnessed considerable changes, making the situation more challenging for taxpayers and investors alike. As we near the end of the 2023/24 tax year, every taxpayer should understand the importance of this date and consider their tax position.

Furthermore, 5 April 2024 marks the end of your personal earnings year. Knowing your yearly income will help you understand your tax band and ensure you take advantage of potential reliefs or allowances. The current tax year officially ends on 5 April 2024. The following day, 6 April 2024, ushers in the 2024/25 tax year.

As the tax year end approaches, we’ve provided some planning tips to consider:

MARRIAGE ALLOWANCE

This allowance provides a unique opportunity for couples where one partner is a basic rate taxpayer and the other partner’s income falls below the personal allowance threshold. With the Marriage Allowance, you can transfer up to £1,260, which equates to 10% of the personal allowance, from the lower-income partner to the higher-income partner.

This transfer can significantly reduce the tax liability for the basic rate taxpayer, potentially saving up to £252 in the current year. It’s important to note that this allowance is specifically designed for married couples or registered civil partners. By efficiently utilising this allowance, couples can optimise their combined tax liabilities and make the most of their financial situation.

EMPLOYEE TAX RELIEFS

In the course of your employment, there are several tax reliefs you may be eligible to claim. These provisions are designed to offer financial respite for certain expenses related to your job. One such relief is for professional subscriptions. If you must maintain membership in a professional body as part of your job, you can claim tax relief on these fees.

Another provision is the ‘working from home’ allowance. This relief is aimed at employees who incur additional costs due to working from home. It’s designed to alleviate some financial pressure from maintaining a home office. You may also be entitled to claim relief for business miles travelled in your personal vehicle. If you use your own car for work-related travel, this relief can offer significant savings.

TRADING AND PROPERTY ALLOWANCES

These allowances are aimed at individuals who earn small amounts of income from activities like selling items on eBay or Amazon or renting out spaces on Airbnb. Each of these allowances offers up to £1,000 of tax-free income.

Furthermore, if you rent out a portion of your home, you may be eligible for the Rent-a-Room relief. This relief allows you to receive up to £7,500 tax-free from letting out a room in your home.

INDIVIDUAL SAVINGS ACCOUNT (ISA) ALLOWANCE

You receive an ISA allowance of £20,000 in the current tax year. Contributions can be allocated to a Cash ISA, Stocks & Shares ISA, Lifetime ISA or Innovative Finance ISA. ISAs are a ‘tax efficient wrapper’ which can make a big difference to your money over time. You can combine your ISA allowances for married couples, enabling you to put up to £40,000 in ISAs between you.

Investors who have yet to use up their full ISA allowance should discuss with us the potential to sell shares yielding dividends outside their ISA and buying them back within this tax-exempt wrapper. However, care should be taken as this could trigger a Capital Gains Tax charge.

JUNIOR ISA (JISA) ALLOWANCE

In the same vein as the ISA suggestions, children are entitled to a Junior ISA (JISA) allowance of £9,000 per annum. Consider funding a JISA to give your children a nest egg when they turn 18.

THE LIFETIME ISA

A Lifetime ISA (LISA) applies to individuals aged 18 to 40 who are either planning to purchase their first home or preparing for retirement. With the ability to invest up to £4,000 annually, the government bolsters your efforts with a 25% bonus, up to a maximum of £1,000 per year. This money can be used to buy a new property (subject to certain restrictions) or accessed when you turn 60 to supplement your retirement income.

PENSION CONTRIBUTIONS

Pension contributions should be a key consideration at the end of each tax year. Contributions to pension schemes can be made on behalf of your minor and adult children and your grandchildren. There are several advantages to doing so. For example, the pension scheme can reclaim basic rate tax from HM Revenue & Customs (HMRC). You’ll receive additional tax relief if you’re subject to a higher tax rate exceeding 20%. You’re establishing a pension fund for your retirement or to pass on to future generations.

In the current tax year of 2023/24, contribution limits have been augmented. The annual pension contribution limit is now the lesser of your relevant earnings or an annual allowance of £60,000 gross, corresponding to a net payment of £48,000.

All UK residents under the age of 75 can contribute up to £3,600 gross (£2,880 net) per year, irrespective of income level. However, suppose your adjusted income (typically your total taxable income plus employer pension contributions) exceeds £260,000. In that case, the annual allowance is progressively reduced by £1 for every £2 of income over this threshold, down to a minimum of £10,000 gross (£8,000 net) for those with an adjusted income above £360,000.

For individuals aged over 75, no tax relief is provided on contributions made. If you can make additional contributions, you can use any unused allowances carried forward from the previous three years. Reviewing your pension status and that of your family members is crucial for effective financial planning.

‘CARRY FORWARD’ RULES

The ‘Carry Forward’ rules allow you to carry forward unused allowances from the previous three tax years if eligible. As we reach this tax year end, you’ll lose any unused allowance for the 2020/21 tax year if it remains untapped. Considering these rules when planning your pension contributions would be best.

CAPITAL GAINS TAX ALLOWANCE

In light of the changing landscape for Capital Gains Tax (CGT), it’s essential to understand how you can optimise your financial strategy. Before 6 April 2024, you have an opportunity to solidify your capital gains and make the most of the annual CGT exemption, which is capped at £6,000. However, please note that this benefit is not extended to individuals who are taxed on a remittance basis with income and capital gains exceeding £2,000.

One effective method to crystallise capital gains involves strategically selling and repurchasing stocks and shares. This approach enables you to maximise the annual CGT exemption. It offers an opportunity to elevate the base cost for future sales, potentially reducing your tax liability in the long run.

However, knowing the timing and the party involved in the repurchase is crucial. To derive the maximum benefit from this strategy, the repurchase should ideally occur after a gap of more than 30 days. Alternatively, the buyback can be executed by your spouse, registered civil partner or through an Individual Savings Account (ISA).

DIVIDEND ALLOWANCE

For those with invested assets, the dividend allowance can offer substantial benefits. You can receive up to £1,000 per year tax-free, with dividend tax rates applied to amounts over £1,000. The dividend allowance will be reduced to £500 per annum in the 2024/25 tax year.

GIFTING FOR ESTATE PLANNING

Certain gifts can be exempt from Inheritance Tax, immediately leaving your estate upon gifting. These are commonly referred to as exempt gifts and include gifts presented to your spouse or registered civil partner. In addition, contributions to charities or political parties are exempt as well as gifts valued up to £250, provided each gift is given to a different recipient and is the only tax- exempt gift they’ve received from you within that tax year. This often encompasses birthday and Christmas gifts derived from your regular income.

Also exempt are wedding gifts from a parent to their child up to £5,000, from grandparent to grandchild up to £2,500, or up to £1,000 to anyone else. Additionally, you’re allocated an annual exemption each tax year, allowing you to gift cash or property up to the value of £3,000. This can be given to a single individual or divided among several recipients. If the previous year’s exemption wasn’t utilised, it can be carried forward to the current tax year, effectively doubling the exemption to £6,000. Understanding these exemptions can help in efficient tax planning and potentially reduce your Inheritance Tax liability.

OTHER AVAILABLE ALLOWANCES

Your Personal Savings Allowance (PSA) refers to the amount of savings interest income/growth you can earn tax-free. Current levels are set at £1,000 for basic rate taxpayers and £500 for higher rate taxpayers. Additional rate taxpayers, however, are not entitled to this allowance.

DON’T LEAVE IT TO CHANCE. ARE YOUR FINANCES ARRANGED AS TAX-EFFICIENTLY AS POSSIBLE?
Time is running out if you want to ensure your personal affairs, family and business affairs and plans for the long term are arranged tax-efficiently. For further information on tax year-end planning opportunities, please get in touch with us. We’re here to help you make the most of your money.

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.

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

THE VALUE OF YOUR INVESTMENTS (AND ANY INCOME FROM THEM) CAN GO DOWN ASWELL 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.

‘I WANT TO TAKE CHARGE OF MY RETIREMENT SAVINGS‘

A Self-Invested Personal Pension (SIPP) is more than just a pension. It’s a gateway to financial freedom that can offer you an unparalleled level of control. With a SIPP, you are at the helm of your investment decisions, determining how your money is invested and your pension pot grows. Whether you make regular contributions or occasional lump-sum deposits, even a modest start can significantly impact your retirement nest egg.

SIPPs come with the bonus of tax benefits, matching those other pensions offer. For instance, a contribution of £8,000 to your SIPP attracts a £2,000 top-up from the government. If you’re a higher rate taxpayer, you can gain even more through tax relief.

TAX SITUATION

The government substantially enhances up to 45% (or 47% for Scottish rate taxpayers) as tax relief on any contributions you make. This means your money can grow more efficiently and provide a larger nest egg for your retirement. However, remember that your specific tax situation will depend on your circumstances and may be subject to pension and tax law changes.

Investing in a SIPP means securing your funds until you reach a certain age – currently 55, but set to increase to 57 from 2028 onwards. This is an essential factor to consider before opting for a SIPP. In most cases, you can contribute up to £60,000 a year of your earnings tax-free (less any employer contributions). There’s no ‘right’ age to start saving for a pension, but starting early allows your money more time to grow.

INVESTMENT OPTIONS

SIPPs are normally accessible to anyone under the age of 75. Even without an income, you can contribute up to £2,880 each tax year and still qualify for tax relief. For parents, a Junior SIPP offers a way to start investing in your child’s future. Remember, though, access to these funds will only be available to your children once they reach the minimum age – again, 55 now, rising to 57 in 2028.

SIPP schemes offer a broad selection of investments you can manage independently or with our expert guidance. They provide a more comprehensive range of investment options, including company shares (UK and overseas), collective investments like Open- Ended Investment Companies (OEICs), unit trusts, investment trusts, property and land. However, residential property is excluded.

ACCELERATING GROWTH

Remember, as with any investment product, the value of your pension may fluctuate. You might not get back the amount you originally invested. Additionally, choosing how to reinvest dividends could also accelerate the growth of your SIPP pension pot, outpacing some employer-based pensions that don’t offer the same control and flexibility.

While your employer may contribute to your SIPP, there’s no legal obligation for them to do so. This pension scheme allows you to make informed decisions about your savings and where to invest them, standing out from standard employer’s pension schemes.

HOW CAN OUR TAILORED RETIREMENT PLANNING SERVICE HELP YOU?
Each SIPP scheme has its own set of rules and investment opportunities. Don’t hesitate to contact us if you want to learn more about how a SIPP could fit into your retirement plans. We’re here to help you navigate the complexities of pension investment and make informed decisions that align with your financial goals.

THIS ARTICLE DOES NOT CONSTITUTE TAX OR LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH.

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