Topic: Financial News

TIME TO TAKE A DIFFERENT VIEW AND ORGANISE YOUR FINANCIAL AFFAIRS?

Tax planning should enable you to arrange your affairs in ways that postpone or legally avoid taxes. No one likes to pay tax on their hard-earned money, so by employing effective tax planning strategies you could have more money to save and invest or more money to spend, Or both. Your choice.

It’s important to organise your financial and tax affairs to make the most of every tax-free allowance available to ensure you’re not paying more tax than you need to. Keeping up with the latest changes to your tax and pension allowances can be difficult, so we’ve provided a summary to help you manage your tax affairs more effectively. The UK tax year starts on 6 April each year and ends on 5 April the following year.

HOW MUCH IS THE INCOME TAX PERSONAL ALLOWANCE IN 2021/22?
The Income Tax personal allowance is £12,570. This is a slight increase from the previous year; in 2020/21 the personal allowance was £12,500. The Income Tax personal allowance has been frozen until 2026, meaning that there will be no more increases until the tax year 2026/27.

WHAT ARE THE INCOME TAX BANDS FOR 2021/22?
The upper limit for the basic rate tax band in England, Wales and Northern Ireland is £50,270. Again, this is a slight increase, from £50,000 the previous year. The basic rate of Income Tax remains at 20%. The higher rate tax band applies to income above the basic rate band but not over £150,000pa and the additional rate tax band applies to income over £150,000. Income above the basic rate tax band but below £150,000 is taxed at 40%, and income exceeding £150,000 is taxed at 45%. In Scotland, the bands and tax rates applying to non-savings, non-dividend income (e.g. applying to earned and pension income) are slightly different. The personal allowance is the same, and income of between £12,571 and £14,667 is taxed at 19% (starter rate). Income between £14,668 and £25,296 is taxed at 20% (basic rate). Income between £25,297 and £43,662 is taxed at 21% (intermediate rate). Income between £43,663 and £150,000 is taxed at 41% (higher rate) and income over £150,000 is taxed at 46% (top rate).

HOW MUCH IS THE PENSION ANNUAL ALLOWANCE IN 2021/22?
This is £40,000, the limit on how much you can contribute to your pension while claiming tax relief, providing those contributions are worth
up to 100% of your annual earnings (£3,600 p.a. if more).

NOT EVERYONE IS ENTITLED TO THE FULL ANNUAL ALLOWANCE:
„ If you earn less than £40,000 a year, you are only entitled to claim tax relief on your pension contributions up to a maximum of 100% of your earnings (£3,600 if more).
If you adjusted income is more than £240,000, you’ll likely be affected by the ‘tapered’ annual allowance, which reduces by £1 for every £2
you earn above this threshold.
If you have accessed your pension, you may have triggered the Money Purchase Annual Allowance, which is £4,000. You are also allowed to ‘carry forward’ unused pension allowance from up to three previous years (not if you are subject to the Money Purchase Annual Allowance). In the three most recent tax years, the total annual allowance was
also £40,000.

HOW MUCH IS THE PENSION LIFETIME ALLOWANCE (LTA) IN 2021/22?
The pension Lifetime Allowance (LTA) is £1,073,100. This is the limit on how much you can accrue within your pension savings in your lifetime before you incur an additional tax charge.
The pension LTA has been frozen until 2026, meaning that there will be nomore increases until the 2026/27 tax year.

HOW MUCH IS THE STATE PENSION IN 2021/22?
For those reaching State Pension age after 5 April 2016, the State Pension is £179.60 a week. That’s an increase of £4.40 a week from 2020/21, or £228.80 more across the whole year.
For those with only a post 5 April 2016 National Insurance record, to claim the full State Pension, you must have 35 qualifying years on your National
Insurance contributions record. If you have fewer than ten qualifying years, you won’t be entitled to any State Pension. Transitional rules apply to those who also have a pre 6 April 2016 National Insurance record. You may be able to make voluntary National Insurance contributions to record more qualifying years of National Insurance contributions.

HOW MUCH IS THE INDIVIDUAL SAVINGS ACCOUNT (ISA) ALLOWANCE IN 2021/22?
The personal Individual Savings Account (ISA) allowance is £20,000, which is the same as the previous tax year.
This means that you can save or invest up to £20,000 in one ISA, or two or more ISAs of different types, and any growth on your savings or investments is free from Income Tax and Capital Gains Tax and any withdrawals are free from tax.

HOW MUCH IS THE CAPITAL GAINS TAX ALLOWANCE IN 2021/22?
The Capital Gains Tax allowance is £12,300. This is the same as the previous year. It has been frozen until at least 2026.

HOW MUCH IS THE INHERITANCE TAX NIL – RATE BAND IN 2021/22?
The Inheritance Tax nil-rate band is £325,000.
This is the same as the previous year.
When leaving a property to a direct descendant on your death, there is an additional allowance called the ‘residence nil-rate band’, which is currently £175,000.
The residence nil-rate band was due to rise with inflation in April 2021, but both thresholds have been frozen until 2026. It still means, however, that married couples and registered civil partners can leave up to £1m on their deaths free of Inheritance Tax.

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 VALUE OF INVESTMENTS
AND INCOME FROM THEM MAY GO DOWN.
YOU MAY NOT GET BACK THE ORIGINAL
AMOUNT INVESTED.
PAST PERFORMANCE IS NOT A RELIABLE
INDICATOR OF FUTURE PERFORMANCE.
THE FINANCIAL CONDUCT
AUTHORITY DOES NOT REGULATE TAXATION
& TRUST ADVICE.

HOW TO STAY WITHIN THE LIMIT TO AVOID A TAX CHARGE

If you’ve been diligently saving into a pension throughout your working life, you should be entitled to feel confident about your retirement. But, unfortunately, the best savers sometimes find themselves inadvertently breaching their pension lifetime allowance (LTA) and being charged an additional tax that erodes their savings.

If you are a high-income earner or wealthy individual, you could be putting too much into your lifetime pension and risk exceeding the pension lifetime allowance. The following questions and answers are intended to help you avoid this tax charge.

Q: WHAT IS THE LIFETIME ALLOWANCE?

A: The LTA is a limit on the amount you can withdraw in pension benefits in your lifetime before you trigger an additional tax charge. By pension benefits, we mean money you receive from your pension in any form, whether that’s a lump sum, a flexible income, an annuity income or through any other method.

This allowance applies to your total pension savings, which may be in different pensions.

Q: HOW MUCH IS THE LIFETIME ALLOWANCE?

A: In the 2021/22 tax year, the LTA is £1,073,100. This allowance has now been frozen until April 2026.

Q: WHAT HAPPENS IF YOU EXCEED THE LIFETIME ALLOWANCE?
A: Once you have received your full LTA in pension benefits, you will be required to pay an additional tax charge on any further benefits you receive.

If you take your remaining benefits as a lump sum, you’ll pay a tax charge of 55%. If you take your remaining benefits as multiple withdrawals, you’ll pay a tax charge of 25% on each one.

Q: HOW IS THE USAGE OF YOUR LIFETIME ALLOWANCE MEASURED?
A: Each time you access your pension benefits (for example, by purchasing an annuity, receiving a lump sum or establishing a flexible income), this is recorded as a ‘benefit crystallisation event’. There is an additional benefit crystallisation event when you turn 75, and finally, upon your death.

Q: IS LIFETIME ALLOWANCE PROTECTION AVAILABLE?
A: You can only protect your pension from the LTA if your savings were worth more than £1 million on 5 April 2016. You may be able to protect your pension savings up to £1.25 million, or up to the value of your pension on that date, depending on the type of protection you have.

Q: IS IT POSSIBLE TO AVOID THE LIFETIME ALLOWANCE?
A: If you do not have LTA protection and you are approaching the limit, there are various actions you can consider. These include stopping your contributions (and, instead, investing your money into an alternative tax-efficient environment), changing your investment strategy or starting retirement earlier.

Q: WHEN SHOULD YOU SEEK PROFESSIONAL ADVICE?
A: The rules around the LTA are very complex and making the right decisions can feel difficult. Receiving professional financial advice will help to identify if you have a problem and offer different solutions to consider, based on a full review of your unique circumstances.

LET US HELP YOU MAKE THE MOST OF YOUR MONEY – AND YOUR FUTURE
Everyone deserves a great retirement. Your goals and ambitions are unique to you and we want to help you get there. To discuss your retirement plans, 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.

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.