Monthly Archives: August 2024

RETIREMENT MATTERS

Making the right decisions today could boost your retirement pot and make the future a whole lot better.

When considering retirement planning, pension savings are a crucial component of your financial strategy and essential for a comfortable retirement. Securing the right professional advice is critical, as decisions made at this stage will significantly impact you and your family.

Saving in a pension is one of the most tax- efficient ways to invest for your future. However, to many people, it’s understandable that pension rules seem like a minefield – and the most recent changes in pension legislation have made this already complex topic even more challenging. So what do the latest changes mean?

KEY PENSION QUESTIONS TO CONSIDER

How many different pension plans do you have? Do you have the details for each plan? Do you know how much is saved in each one? How well are they performing? What are the charges and levels of risk for each plan? How much income will you need in retirement to live life the way you want? Are your pension funds and other assets enough to provide that income?

REVIEWING YOUR PENSION PLANS

If you are unsure of the answers to some of these questions, this could be an ideal time to review your pension and retirement plans and make any changes to provide the future you want.

Recent changes in pension legislation may offer a beneficial opportunity.

You may already know that there have been two key changes to pension rules recently. This has created opportunities to increase pension savings for some people and take stock of what they already have.

REMOVAL OF THE LIFETIME ALLOWANCE TAX CHARGE

Firstly, the Lifetime Allowance (LTA) tax charge has been removed as of 6 April 2023.

Previously, anyone withdrawing benefits from their pension fund above the LTA of £1,073,100 (or the applicable fixed, enhanced, individual or primary protection amount) was subject to a tax charge. This charge could be either 55% or 25%, depending on whether they were taking a lump sum or income.

The Spring Budget in March 2023 reduced this charge to 0%. More recently, the Autumn Statement 2023 conirmed that the LTA would be removed entirely from 6 April 2024, which has now taken effect.

OPPORTUNITIES FOR PENSION CONTRIBUTIONS

As a result, you can now theoretically add to your pension (with set limits applying to tax relief) without worrying about a penal tax charge if you breach the old LTA. So, if you have had to stop paying money into your pension fund to avoid this tax, now would be a good time to discuss with us whether it would be prudent to add more.

INCREASED ANNUAL CONTRIBUTION LIMITS

Secondly, the maximum annual contribution has been increased from £40,000 to £60,000 subject to relevant earnings or those who have triggered the MPAA. It’s worth noting that this legislation could change again.

These changes could benefit you if you want to pay more into your pension and have a pension fund above or near the previous LTA figure or a higher fixed protection amount.

Additionally, if you stopped contributing to your pension and applied for ixed protection in 2012, 2014 or 2016, now would be a good time to discuss this with us.

A TAX-EFFICIENT WAY TO INVEST

At a glance, these changes seem to make pensions an even more tax-efficient way to invest – but pensions are complex, and these rules are not straightforward. There’s no guarantee that the LTA will not be reinstated, which could create issues. It is also possible that another protection scheme may be introduced if the LTA is reinstated.

Changing your pension contributions might also affect how you draw your salary. This means it’s desirable to get the right professional advice and consider your financial arrangements as a whole before making any decisions.

WHAT ARE YOUR OPTIONS?

If any of these questions apply to you, you may want to consider obtaining professional advice about your options. Do you have one or more old pension funds that might be treated differently under the new rules? Are you aiming to retire within the next couple of years, or would you like to retire earlier than you planned? Have you already made withdrawals from your pension but then returned to work?

Do you want to reduce the Inheritance Tax burden on your heirs? Might you inherit a pension soon? If any of these apply to you and you think you might be able to benefit from the recent changes, get in touch with us.

 TIME TO SECURE YOUR FINANCIAL FUTURE? 

Investing in a well-structured pension is a smart way to secure your financial future. With the potential for tax-free growth, it’s a powerful investment tool. Let us assist you in tailoring your pension plan to match your needs perfectly. Please contact us for more details or to discuss your specific pension requirements.

THIS ARTICLE DOES NOT CONSTITUTE TAX, LEGAL OR FINANCIAL 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 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.

TRUSTS – Being prepared for whatever lies ahead

Building wealth often takes years of hard work, but without proper planning, it can quickly diminish within your lifetime and may not endure for future generations. We aim to collaborate with you to create a well-thought-out plan, ensuring you are prepared for whatever lies ahead.

Importance of Trust and wealth planning

Preserving wealth can be challenging. Threats include unprepared beneficiaries, asset mismanagement, family dynamics, taxation, and legal disputes. However, with sound wealth planning, these challenges can be mitigated and sometimes eliminated altogether.

Benefits of proper wealth planning
Tax-efficient wealth structuring: Optimise your wealth to minimise tax liabilities.
Risk reduction: Protect your wealth from potential risks.
Liquidity provision: Ensure access to funds when needed.
Confidentiality maintenance: Keep your financial matters private.
Minimised family conflict: Mitigate disputes among family members.
Business succession planning: Facilitate smooth business transitions.
Philanthropic enablement: Support your charitable interests effectively.

Save taxes and manage your financial affairs

When planning how you’d like to pass on the assets and capital in your estate, you can use some important financial tools. Trusts are very effective when undertaking planning, helping you save taxes and manage your financial affairs well.

A Trust is a legal arrangement designed to secure your assets for your beneficiaries. Think of it as a figurative security deposit box or treasure chest, where you can place your assets for protection and potentially shield them from certain taxes.

Trusts separate assets’ legal ownership from their beneficial ownership. The legal owner holds the title and is empowered to deal with and administer Trust assets, while the beneficial owner—as the name suggests—derives the benefit from them. This could be in terms of usage, income from those assets, or sale proceeds. However, tax savings are not the sole reason for establishing Trusts. For many, the primary goal is to safeguard funds for vulnerable beneficiaries, such as young children, individuals with disabilities, or those who struggle with managing money.

Why use Trusts?

Protection of vulnerable beneficiaries: Ensure financial security for those needing extra support.
Continued control over assets: Maintain influence over how and when your assets are distributed. For instance, through your Will, you can use a Trust to provide a home for a remarried spouse while ensuring that the property eventually passes to children from a previous marriage.
Efficient probate process: In England and Wales, probate can take approximately nine months to a year, causing delays in transferring your estate. Assets held in a Trust typically sit outside your estate, allowing executors to access them without delay. Trusts are versatile tools that help control your gifted assets while ensuring timely and secure transfers to your beneficiaries.

Gaining control through Trusts

A person known as the ‘settlor’ places assets into a Trust, which may include money, property, or other types of assets like life insurance policies and investment portfolios. This may be done during their lifetime (a lifetime trust) or can be triggered by death through a valid will (a Will trust). By placing the assets into this structure, the original owner may relinquish some of their rights and delegate responsibility to a trustee during their lifetime.

However, they can gain a lot more control in other ways. A settlor can project their wishes years into the future. Provided a Trust is set up correctly, you can determine who gets what and when with a good deal of precision. Trustees can be professionals (who work for a trust company) or any other competent person prepared to take on these responsibilities.

Very wide-ranging powers and tasks

Trustees can have wide-ranging powers and tasks, including settling tax bills and hiring investment management and legal professionals. If the trust is discretionary, meaning they have discretion regarding the distribution of assets, they might also have to make certain decisions about how to use the trust income and/or capital.

For these reasons, many prefer to have their trust administered by professionals, paying them annual fees from the Trust’s assets.

However, others looking to structure family wealth may appoint a mixture of professional and family friend trustees to create a balance of objectivity and personal knowledge of the beneficiaries’ situations and needs.

Emotional aspects of trust management

Combining professional expertise with personal familiarity can ensure that both the technical and emotional aspects of trust management are adequately addressed.

Professional trustees bring technical know-how and impartiality, while family friends may offer deeper insight into the beneficiaries’ circumstances.

By thoughtfully selecting Trustees, you can achieve effective and empathetic management of your trust, ensuring that your wishes are fulfilled as intended. A blend of professional and personal trustees can provide a balanced approach, safeguarding the beneficiaries’ financial and personal interests.

Types of Trusts

Various types of Trust are available, and the Settlor needs to decide which type is best suited for the circumstances.

A quick summary of the principal types of trust is as follows:

Bare/Absolute Trusts – Where the settlor transfers the legal ownership of assets to the trustee for the benefit of the beneficiary absolutely.
DiscretionaryTrusts–The beneficiary has no entitlement to income or capital from the assets held under trust. All distributions are entirely at the trustees’ absolute discretion.
Interest in Possession Trusts–The beneficiary holds a right to the trust fund’s income or the right to use trust assets.
Flexible Trusts–The beneficial interests of these trusts can be altered.
Note that these are just a few examples; many other types of trust can be used under different circumstances.

Tax planning and Trusts

It’ll be of no surprise that one of the main reasons for using Trusts is for tax planning and mitigation. For example, when an individual dies, their estate (i.e., net assets) is subject to Inheritance Tax (IHT), meaning the beneficiaries may lose up to 40% of their net inheritance.

If assets are put into trust during a settlor’s lifetime and they survive seven years, they are not part of the estate on death and may escape IHT at that time, subject to the 14-year rule. Trusts are used in certain IHT planning arrangements for the settlor’s benefit, such as Gi% and Loan Plans, Discounted Gi% Trusts, and Flexible Reversionary Trusts.

Trusts in Wills

Trusts are frequently created in Wills, particularly where the beneficiaries are minor children who need someone to look after them financially. Any asset left to a minor under a Will is effectively held in trust for the minor by the executors until the minor reaches majority unless the will allows payment to be made to a parent.

Trusts can be explicitly created in Wills to ensure that a beneficiary does not benefit until some other age is attained or a condition is fulfilled. There are many other reasons for setting up trusts, notable examples being to provide a pension, provide for families, assist a charity, give property to those who legally cannot hold it, and gain protection from creditors and business protection.

TIME TO CREATE A PERSONALISED PLAN THAT PROTECTS YOUR WEALTH AND LEGACY FOR FUTURE GENERATIONS?

We understand that the wealth you wish to protect encompasses more than traditional assets. Please contact us to discuss your requirements and create a personalised plan that protects your wealth and legacy for future generations.

THIS GUIDE 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 FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE ESTATE PLANNING, TAX ADVICE, WILL WRITING OR TRUSTS.

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.