Posts By: DG Financial

UNDERSTANDING THE WARNING SIGNS TO KEEP YOUR MONEY SAFE

Being online more means criminals have a greater opportunity to approach unsuspecting victims with their scams. Online scams can have a devastating financial and emotional impact on victims.

Pension scammers are bombarding the public with scam calls, texts and emails and it can be easy to fall victim to such a scam. Anyone thinking about making an investment should always do their research first, visit the Financial Conduct Authority’s (FCA) website and double check every detail before handing over any money or personal details.

HOW AND WHERE FRAUD CAN OCCUR

One of the best defences is to understand how and where fraud can occur. People should be wary of unexpected contact that comes out of the blue, such as cold calls, letters or emails, and they should be sceptical of unusually high or unrealistic returns. If an o#er looks too good to be true, it probably is. People should also be wary if they come under pressure to quickly withdraw money from a pension or complete a transfer. The best option for people considering transferring a pension or withdrawing money as they retire is to speak to a qualified professional financial adviser.

UNSOLICITED EMAILS, TEXTS, TELEPHONE CALLS

14% (7.6 million) of adults in a recent survey say they have received unsolicited emails, texts or telephone calls from people encouraging them to transfer or release money from their pension. Nearly half (47%, or 25 million) say pension scams are hard to spot, but only a third (32%) say they know how to report a scam. Currently, 27% (14 million) adults are worried that they may unwittingly fall prey to a pension scam, because scams are sophisticated these days.

HOW TO MINIMISE THE RISK OF PENSION SCAMS

Pension scams can be hard to spot. Scammers can be articulate and financially knowledgeable, with credible websites, testimonials and materials that are hard to distinguish from the real thing. So what should you do if you have concerns and receive an unsolicited contact?

• Hang up if you have concerns straight away. If you receive a cold call, the safest thing to do is to hang up, as chances are it’s a scam.
• Make sure you’re aware of the warning signs. This includes unsolicited approaches by phone, text, email or even at your door.
• Can you call the firm back? If you’re forced to make a quick decision this is a sign of a potential scam. Contact details on their website may only be mobile numbers, which is another red flag.
• Understand the salesperson. Check whether the caller, or their firm, are licensed to sell. Check the FCA register of regulated companies, or the FCA warning list.
• Make sure you ask questions. Most scammers don’t want you to investigate their ‘offers’ so be sure to do your own research and look into the company, including their financial statements.
• And remember, if it sounds too good to be true – it probably is. Fraudsters like to offer low-risk investments with a high return

SPOT THE WARNING SIGNS AND KEEP YOUR PENSION SAFE – If you receive unsolicited cold calls, texts and emails from an individual or firm about your pension they are unlikely to be legitimate. It doesn’t matter how financially savvy you are, pension scams can be hard to spot so it pays to obtain professional financial advice from an FCA registered firm. To find out more, please contact us

THE POTENTIAL IMPACT TO YOUR EXPECTED RETIREMENT INCOME OVER TIME

When you’re planning your retirement income, there are multiple factors to consider: how much you can expect from the State Pension, the value of the pensions you have accumulated in your working life, your projected outgoings and your potential later life expenses.

One more factor not to overlook is how much of your retirement income you could lose in taxes. The amount you pay to HM Revenue & Customs (HMRC) may be more than you expect, leaving you with less to cover your regular expenditure.

New data highlights that retired households lose nearly 14% of their income a year to direct taxes. Income tax and council tax take 13.9% off the average retired household’s pre-tax income of £31,674. Retirees are also impacted by around £4,078 a year in direct taxes.

TAXES PAYABLE IN RETIREMENT

Once you retire, you’ll no longer need to pay certain taxes, such as National Insurance. But other taxes are still applicable, including Income Tax. You’ll pay Income Tax on any taxable income you receive above your personal allowance (currently £12,570, tax year 2021/22).

Taxable income includes your State Pension (currently up to £9,339 if State Pension age is after 5 April 2016), income withdrawn from your workplace or personal pensions, and income from other sources, such as part-time work or rental income from buy-to-let properties. There are also other taxes you might not have factored into your budget, such as Council Tax.

DIFFERENT SOURCES OF INCOME

If you have different sources of income, you may end up with several tax codes, which tell your employer or pension provider how much tax to deduct. Don’t assume these are correct – HMRC does make mistakes. You should receive coding notices with details of your tax codes before the start of the tax year. It’s a good idea to check these are right and if you think there’s a mistake, or if you’re not sure, contact HMRC.

The first time you take a lump sum (apart from the tax-free lump sum) from a defined contribution pension scheme, it’s likely you’ll be charged too much tax. This is because most initial lump sum payments are taxed using an emergency tax code. This means you’re taxed as if you made the same lump sum withdrawal every month of the tax year. You can claim back overpaid tax.

TAX ON YOUR SAVINGS

The way your savings are taxed doesn’t change when you retire or reach State Pension age. Banks and building societies now pay savings interest without any tax taken off but, depending on your situation, you may still have to pay tax on some of your savings income.

An effective tax plan is a crucial part of planning for retirement and can help you make the most of your financial resources. It’s always important to consider the amount of after-tax income you’ll earn. Remember: ‘It’s not what you earn, it’s what you keep.’

INCREASING YOUR RETIREMENT INCOME

Before you retire, there are various ways to boost your retirement income in the future. You may be able to increase the State Pension you’re entitled to claim by filling any gaps in your National Insurance contributions record.

If you haven’t taken advantage of them, you may have tax-efficient savings options, such as Individual Savings Accounts (ISAs). Within an ISA you pay no UK tax on income or capital gains. Paying less tax could mean higher returns for you (and less work if you need to complete a tax return).

And you can also plan the most tax-efficient way to access your pension from age 55 (57 from 2028 unless your plan has a protected pension age). Taking money from your pension plan is a big decision, and when and how you do it can have significant impact on how long your savings will last. So, when the time comes, it’s important you feel confident you understand your options and how your decisions might affect the tax you pay and how long your money will last.

LIFE BEYOND WORK – Defining your retirement goals and what you think you’ll require in terms of income can help shape your plan and how much you will need. To discuss your requirements, please contact us – we look forward to hearing from you.

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

THE TAX IMPLICATIONS OF PENSION WITHDRAWALS WILL BE BASED ON YOUR INDIVIDUAL CIRCUMSTANCES, TAX LEGISLATION AND REGULATION WHICH ARE SUBJECT TO CHANGE IN THE FUTURE. YOU SHOULD SEEK ADVICE TO UNDERSTAND YOUR OPTIONS AT RETIREMENT.

ARE YOU CLAIMING ALL OF THE GENEROUS TAX RELIEF YOU’RE ENTITLED TO?

The unique combination of tax breaks and flexible access available to pensions make them a compelling choice when saving for retirement. One of the key benefits of saving into a pension rather than another type of savings or investment vehicle is the generous tax relief you’re entitled to receive.

Making the most of pension saving involves maximising tax relief and allowances which could substantially boost your retirement savings.

WHAT IS THE PENSION ANNUAL ALLOWANCE?

All UK taxpayers are entitled to claim tax relief on contributions they make to their pension. Tax relief is on pension contributions of up to 100% of relevant UK earnings (£3,600 p.a. if more). But there is a cap on how much you can contribute while claiming tax relief, which is called your annual allowance.

The current pension annual allowance in the tax year 2021/22 is £40,000, but in some cases, yours could be lower. If your taxable income is less than £40,000, your personal tax relievable contributions are limited to 100% of earnings (£3,600 p.a. if more). If your total taxable income (adjusted income) exceeds £240,000, your annual allowance may be tapered.

WHAT IS THE TAPERED ANNUAL ALLOWANCE?

The tapering rules are complex but, put simply, for every £2 of adjusted income you receive above £240,000, your annual allowance reduces by £1. The minimum annual allowance is £4,000, for those with an income above £312,000.

WHAT HAPPENS IF YOU DON’T USE ALL OF YOUR PENSION ANNUAL ALLOWANCE?
If you don’t use all of your pension annual allowance, you could be missing out on tax relief that you are able to claim.

Of course, you may not be able to afford to contribute the maximum in every tax year. So, it’s helpful to know that you can carry forward unused annual allowance to use in the future.

WHAT IS PENSION CARRY FORWARD?

Pension carry forward allows you to use unused annual allowance from up to three previous years as long as you had a pension plan in those years.

So, for example, if you’re a UK taxpayer with a salary of £100,000, and you have only used £20,000 of your pension annual allowance in each of the last three tax years, you have £20,000 of unused annual allowance from each year, totalling £60,000.

This year, the maximum you could potentially contribute towards your pension is £100,000 – £40,000 from this year’s annual allowance, plus the £60,000 from your previously unused annual allowance.

WHEN IS CARRY FORWARD USEFUL?

Usually, when you’re self-employed and your income changes drastically from year to year; you’ve received a windfall in this tax year that you’d like to pay into your pension; you have your own limited company and have additional profits to utilise; or you’ve become a high earner with a tapered annual allowance.

HOW DO YOU CLAIM PENSION CARRY FORWARD?
When planning to make large pension contributions, spreading them across tax years can mean higher rate relief is available on the full contribution. You can utilise pension carry forward by making additional contributions to your pension and you don’t need to notify HM Revenue & Customs to do this.

However, if you accidentally exceed the annual allowance (including any carry forward), you could be penalised. So, it’s important to check your past pension statements to see how much unused pension annual allowance you have and keep records to prove that you’re eligible to carry forward.

This is a complex calculation, so to be sure you’re following the rules exactly, it’s sensible to obtain professional financial advice.

PLAN FOR A SUCCESSFUL RETIREMENT
Saving into a pension is one of the most tax-efficient ways to save for your retirement. Not only do pensions enable you to grow your retirement savings largely free of tax, but they also provide tax relief on the contributions you make. To discuss your retirement plans or any concerns you may have, please contact us.

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

THE TAX IMPLICATIONS OF PENSION WITHDRAWALS WILL BE BASED ON YOUR INDIVIDUAL CIRCUMSTANCES, TAX LEGISLATION AND REGULATION WHICH ARE SUBJECT TO CHANGE IN THE FUTURE. YOU SHOULD SEEK ADVICE TO UNDERSTAND YOUR OPTIONS AT RETIREMENT.

START PLANNING YOUR LEGACY TO MITIGATE OR REDUCE INHERITANCE TAX

Inheritance Tax planning is a way of arranging your wealth with the various tax reliefs in mind so that your loved ones don’t pay more tax than they legally need to.

If you’ve worked hard throughout your lifetime to grow your wealth, you may hope it will help to safeguard the financial security of your loved ones after you’ve gone. But without careful planning in your lifetime, you could leave them with less than expected after the Inheritance Tax bill is paid.

Proper planning can help you pass on as much as possible to the people you choose by avoiding additional unnecessary tax charges. But there is a perception by some people that Inheritance Tax only affects the rich, which is untrue.

CURRENT AND FUTURE NEEDS OF YOUR LOVED ONES

When you’re getting on with life, it’s not easy to stop and think about what will happen to your estate (such as your property, possessions, investments and cash) when you’re no longer around. That’s why it’s important to make sure that any assets you’ve built up over your lifetime aren’t subject to Inheritance Tax unnecessarily after your death, and that your loved ones, and any organisations close to your heart, benefit from your estate as you intended.

By reviewing your wealth and obtaining professional financial advice, you will be able to consider the current and future needs of your loved ones and how you can benefit them whilst preserving your assets.

INHERITANCE TAX FACTS

Every individual has an Inheritance Tax ‘nil-rate band’ of £325,000 in the current 2021/22 tax year (the UK tax year starts on 6 April each year and ends on 5 April the following year). This means that you can pass on up to £325,000 worth of property, money and other assets with no Inheritance Tax to pay.

Above this threshold, Inheritance Tax is normally levied at 40%. So, as a simple example, if you were to pass on wealth of £425,000, the first £325,000 would be tax-free, and the remaining £100,000 would be taxed at 40%, creating a tax liability of £40,000 for your personal representatives to pay out of your estate, therefore leaving less for the recipients of your estate.

However, there are many tax reliefs and rules that can minimise the amount of Inheritance Tax due. You can leave your entire estate to a surviving spouse or registered civil partner with no Inheritance Tax due. But there are many other, lesser-known rules and reliefs that can also apply.

The current Inheritance Tax nil-rate bands will remain at existing levels until April 2026.

HOW INHERITANCE TAX PLANNING WORKS

Inheritance Tax planning is a way of arranging your wealth with the various tax reliefs in mind so that your loved ones don’t pay more tax than they legally need to.

It works best when the process is started many years in advance. Certain transfers of capital may only become free from Inheritance Tax if you survive for seven years after they are made, so Inheritance Tax planning cannot be rushed.

Of course, Inheritance Tax is not the only consideration when it comes to arranging your finances – you also need to ensure that your wealth works for you in your lifetime. So, this planning must work in harmony with other areas of financial planning. It’s a precise and personal process.

THREE STEPS TO MITIGATE OR REDUCE INHERITANCE TAX

The rules and reliefs that are most beneficial to you depend on your personal and financial situation. The advice you receive will be different based on whether you’re single or married, if you have children or grandchildren, if you own your own business, or on many other factors.

That said, here are three tips that many people could benefit from.

1. THE RESIDENCE NIL-RATE BAND (RNRB)

As well as the Inheritance Tax nil-rate band mentioned earlier, there is an additional nil-rate band that applies when passing on a property that was your main residence in your lifetime. This is an additional Inheritance Tax-free allowance for ‘qualifying’ home owners with estates worth less than £2.35 million (where one residence nil-rate band is available) or £2.7 million (where two residence nil-rate bands are available), that can result in you being able to pass on up to £500,000 when you die before Inheritance Tax has to be paid using the nil-rate band and residence nil-rate band.

If you leave a property that has been your main residence at some point, to a direct descendant (which includes a child, adopted child, stepchild, foster child, grandchild or great-grandchild), you’ll qualify for the residence nil-rate band, which is currently £175,000. So, by using both nil-rate bands, the total tax-free portion of your estate will be £500,000.

If you are a surviving spouse who inherited the total estate of your deceased partner, you also inherit their nil-rate bands. So, in this scenario, you would be able to pass on up to £1,000,000 free of Inheritance Tax (including £350,000 of property using the RNRB capped at the property value if less) and a further £650,000 of your combined estate). This assumes the estate on both first and second deaths wasn’t over £2 million.

2. LIFETIME GIFTS

One way to minimise your Inheritance Tax bill is by gifting money or assets during your lifetime rather than waiting to pass on your wealth until after your death. However, in some situations, a gift can create an Inheritance Tax liability.

To be sure that yours doesn’t, follow these rules:

• Small gifts (up to £250) to different individuals are typically free from Inheritance Tax. This rule is intended to cover any birthday gifts, Christmas gifts, etc.
• Larger gifts are free from Inheritance Tax up to a total of £3,000 in each tax year. If you don’t use your total allowance in one tax year, you can carry it forward to the next year as long as you also use up the current year allowance.
• Wedding (or registered civil partnership) gifts are free from Inheritance Tax up to a certain value, which depends on your relationship to the recipient. If you are their parent, the limit is £5,000. If you are a grandparent or great- grandparent, the limit is £2,500. In any other case, the limit is £1,000.
• Regular gifts out of income – unlimited amounts as long as made regularly out of surplus income such that standard of living isn’t affected.

3. A DEED OF VARIATION

In some cases, you might have carefully arranged your wealth for Inheritance Tax purposes, but you then inherit money or other assets in someone’s Will that would result in your estate exceeding your available nil-rate bands.

Rather than accepting this inheritance (which you may not need and would likely leave to a loved one later), you could execute a Deed of Variation so that it is passed directly to that loved one immediately. It will not be counted as part of your estate.

WHAT WILL YOUR LEGACY LOOK LIKE?
To learn more about Inheritance Tax planning and find out which rules and reliefs could benefit you, we would be pleased to discuss your circumstances and make recommendations based on your needs.
If you would like to discuss your situation, please contact us for more information.

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS.

ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.

THE RULES AROUND INHERITANCE TAX ARE COMPLICATED, SO YOU SHOULD ALWAYS OBTAIN PROFESSIONAL ADVICE.

THE VALUE OF INVESTMENTS AND THE INCOME THEY PRODUCE CAN FALL AS WELL AS RISE. YOU MAY GET BACK LESS THAN YOU INVESTED.

THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE TAXATION & TRUST ADVICE, DEEDS OF VARIATION & WILL WRITING.

WHAT YOU NEED TO CONSIDER AT EVERY LIFE STAGE

When you’re starting out working in your 20s, you may not be thinking about retirement in 40 years’ time. The same goes for your 30s, 40s and even 50s. There is always something on the horizon you could be saving for besides your retirement.

No matter how old you are, it’s always a good time to review your pension savings and update your retirement plan.

Understanding your retirement goals during each decade is key to making sure you are able to enjoy and live the lifestyle you want, and which you’ve worked hard for, when you eventually decide to stop working

STARTING TO SAVE IN YOUR 20S

Though you’re decades away from retirement, your 20s are an important time for pension planning. That’s because the investments you make in these early years will benefit from the most growth potential.

When you start work, if applicable to your situation, you’ll be automatically enrolled into your employer’s workplace pension scheme and they will start to make contributions on your behalf.

You should definitely not opt out of this – even if you feel you could do with the money now.

STAYING ON TRACK IN YOUR 30S

By your 30s, you may have additional financial responsibilities, such as children and a mortgage. These can make it difficult to dedicate as much money and attention to your pension as you’d like.

One way to stay on track is to review your pension contributions at least once a year and make sure you’re increasing them as your income grows. Another consideration is to check your investment strategy. With decades remaining before you’ll access your pension, you might choose to take a higher- risk approach now, and then gradually move into lower-risk investments as retirement grows closer.

ACCUMULATING IN YOUR 40S

If your salary follows a typical trajectory, it is likely to start peaking when you’re in your 40s, making this decade a crucial time for pension accumulation. You should, by now, also have a good understanding of the income required to support your desired lifestyle, which will help you plan your retirement income.

Based on this, you’ll know if you need to adjust your pension contributions to save enough.

At this life stage, you might have changed employers several times, so it might be sensible to check that you have all of the details for any old pensions and, if not, look to track them down

MAXIMISING YOUR CONTRIBUTIONS IN YOUR 50S

If your pension contributions have fallen behind in any of the previous decades, it’s crucial to catch up now. As well as your salary sacrifice contributions, you might consider adding lump sums to your pension to help you reach your retirement goal.

If you plan to do this, make sure that you’ve checked what your annual allowance for this tax year is, and how much unused annual allowance you have from the last three years. This will determine how much extra you can contribute and receive tax relief on. For the tax year 2021/22 the annual allowance is £40,000. This includes both contributions paid by you and contributions paid by your employer.

Alternatively, if you’ve stayed on track with all your pension contributions and your savings are at a very healthy level, you might need to take steps to manage your Lifetime Allowance. Currently, the maximum you can accrue within your pensions in your lifetime is £1,073,100, so if you’re anywhere near that number you should seek professional financial advice.

PREPARING TO RETIRE IN YOUR 60S

In the decade before retirement, some people may choose to take a lower-risk investment strategy with their pension savings than
in previous years. While this may limit the potential growth of your investments, it can also reduce fluctuations in value, which can help you to plan your retirement income with more confidence.

You’ll also need to weigh up your options for accessing your pension. You might want to take a lump sum or several lump sums, or you might want to take a regular income. There are advantages and disadvantages to each approach, and decisions you make now will affect your income throughout your retirement.

ADVICE FOR ANY AGE – With so much going on in your life – from family and work to pursuing your passions – retirement planning may not be your priority. But it’s your pension and overall financial situation that will allow you to keep up your current lifestyle and enjoy your golden years. Speak to us today and make sure your plans are on track for the retirement you want.

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

THE TAX IMPLICATIONS OF PENSION WITHDRAWALS WILL BE BASED ON YOUR INDIVIDUAL CIRCUMSTANCES, TAX LEGISLATION AND REGULATION WHICH ARE SUBJECT TO CHANGE IN THE FUTURE. YOU SHOULD SEEK ADVICE TO UNDERSTAND YOUR OPTIONS AT RETIREMENT.

ACCESSING PENSION BENEFITS EARLY MAY IMPACT ON LEVELS OF RETIREMENT INCOME AND YOUR ENTITLEMENT TO CERTAIN MEANS-TESTED BENEFITS AND IS NOT SUITABLE FOR EVERYONE. YOU SHOULD SEEK ADVICE TO UNDERSTAND YOUR OPTIONS AT RETIREMENT.