Will disputes are on the rise. Here are 7 pragmatic steps you could take to minimise conflicts

A will is an important way of outlining what you’d like to happen to your assets when you pass away. Yet, figures suggest will disputes are on the rise. If you’re worried about potential conflicts when you pass away, read on to discover some useful steps you might want to take.

According to a report in the Guardian, thousands of families have been embroiled in disputes dubbed “ruinously expensive” by solicitors. As well as the potential legal costs, court cases can be emotionally draining and place pressure on your loved ones.

In 2021/22, 195 disputes went to court, up from 145 in 2017. While the figure is low, it’s thought to be just the tip of the iceberg as many cases are settled out of court. Indeed, the report suggests that as many as 10,000 families in England and Wales are disputing wills every year.

A dispute could mean your assets aren’t passed on in a way that aligns with your wishes, or even that someone who you wanted to benefit from your estate is overlooked. If it’s a situation you’re worried about, here are seven steps you could take to reduce the risk of your will being overturned.

1.  Speak to loved ones about your wishes

Speaking to your family about your wishes can be difficult. Nonetheless, it could be an important conversation and mean there are no surprises when your will is read, which could reduce the chance of a dispute arising.

If someone in your life discovers they will inherit less than expected or are not a beneficiary in your will after your passing, they may be more likely to react negatively – especially if they’re also grieving your loss. Discussing it during your lifetime could give them time to come to terms with the decision, as well as allow you to explain your reasons. 

2.  Write a letter of wishes

Similarly, you can write a letter of wishes that could be read alongside your will. This provides an opportunity to explain why you’ve made certain decisions, which could be useful for beneficiaries, the executor of your estate, and, if a dispute arises, the court.

You should take care that the letter of wishes doesn’t contradict what’s written in your will – you may want to ask a solicitor to review it to minimise mistakes.

3.  Include a no-contest clause in your will

You could choose to add a no-contest clause to your will. It doesn’t mean that someone can’t raise a dispute, but it can act as a deterrent. Essentially, the clause means that if someone did challenge your will and lose their dispute, they would forfeit any inheritance they may have been entitled to.

So, if you’re worried that a beneficiary could challenge your will to try and receive a larger proportion of your assets, adding a no-contest clause might be useful.

4.  Hire a solicitor to write your will

You can write your will yourself without any professional legal support. Yet, a solicitor could provide essential guidance and check the language of your will.

For example, if you’ve used vague or contradictory phrases, there could be a greater opportunity for disputes to arise. It could be particularly important if your estate or plans are complex. Choosing to hire a solicitor may help you feel more confident that your wishes will be carried out.

5.  Ask a medical practitioner to witness your will

For your will to be valid, it must be made or acknowledged in the presence of two witnesses. To act as a witness, a person must:

· Be aged over 18 (16 in Scotland)

· Have the mental capacity to understand what they are signing

· Not be related to the person making the will or have a personal interest in the will.

However, if you’re worried that your will could be contested on medical grounds, you might want to ask a medical practitioner, such as your GP, to witness it. This could prevent later accusations that you weren’t of sound mind when writing your will. 

6.  Regularly review your will

One of the reasons why a dispute may occur is that your beneficiaries don’t believe your will reflects your circumstances when you pass away. So, a regular review might be useful.

Going over your will every five years or following major life events could ensure it remains up-to-date. For example, you might want to make changes after you welcome a new grandchild into the family, remarry, or your wealth changes significantly.

7.  Store your will in a safe place

Finally, make sure your will is stored in a safe place and your executor knows where it is. If you’ve rewritten your will, be sure to destroy previous ones to avoid potential confusion.

Understanding your estate could help you make decisions about your will

If you’re deciding how to distribute your assets or need to update your will, understanding your estate could be an important step. Calculating the value of various assets and how they might change during your lifetime could alter how you want to pass them on. Please contact us to talk about your will and wider estate plan.

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The Financial Conduct Authority does not regulate estate planning.

3 useful options you may want to consider when passing on assets to your loved ones

There’s more than one way to pass on wealth to your family. Which option is right for you could depend on a range of factors, from whether your loved ones could benefit from support now to the implications of Inheritance Tax (IHT).

Read on to find out what you might want to consider when passing on assets using three different methods.

1. Gifting during your lifetime

Providing gifts to loved ones during your lifetime is becoming an increasingly popular option. With younger generations often facing financial challenges, a gift now could provide greater security than if they received an inheritance later in life.

Being able to support your loved ones when they need it most is a key benefit of gifting during your lifetime. It could mean your family can get on the property ladder, pursue further education, or simply manage their budget more effectively.

Many young people rely on family to reach milestones. Research from the Institute for Fiscal Studies found that around half of first-time buyers in their 20s received some financial help. Not only did this allow them to buy a home, but it could improve their finances over the long term, especially if they were able to access a lower mortgage interest rate as a result.

In addition, gifting during your lifetime could be useful if your estate may be liable for IHT.

Gifts that were given more than seven years before you passed away are not usually included in your estate for IHT purposes. Some gifts, including up to £3,000 in the 2024/25 tax year, are considered immediately outside of your estate when calculating IHT.

As a result, you could gift assets to reduce the overall value of your estate to mitigate or reduce an IHT bill.

In 2024/25, the nil-rate band is £325,000 – if the entire value of your estate is below this threshold, no IHT will be due. If your estate exceeds this threshold there are often other allowances and steps you may take to reduce the bill. Please contact us if your estate could be liable for IHT.

Whether you want to gift a lump sum or lend regular financial support, there are some key areas you may want to consider before you put your hand in your pocket, including:

· How could taking wealth out of your estate now affect your long-term financial security?

· As you’ll be gifting assets during your lifetime, will it affect the inheritances you leave behind for loved ones?

Financial planning could help you assess the implications of gifting to help you understand if it’s the right option for you.

2. Passing on assets in a will

Leaving assets to your loved ones when you pass away is the traditional way to pass on wealth, and it’s an option that’s still right for many people.

It might be attractive because you want to leave a legacy to your beneficiaries. It could provide a wealth boost to your family later in their life and might be used to support a range of aspirations, like retiring early or sending your grandchildren to private school.

A legacy could also be a good option if you’re worried that gifting during your lifetime could affect your financial security in your later years.

If you want to leave assets to your loved ones when you pass away, it’s important to write a will – it’s a way to state how you’d like your assets to be distributed. If you die without a will, your assets will be passed on according to intestacy rules, which may not align with your wishes.

However, there are drawbacks you might need to consider when leaving assets in a will.

Among them is whether the financial boost will come too late in the lives of your family. If they’re struggling financially now, could receiving some or all their inheritance before you pass away be more beneficial?

Again, it might also be useful to consider if your estate could be liable for IHT when you’re writing a will. If you’re proactive, there are often steps you can take to reduce an eventual bill.

3. Using a trust to hold assets

A trust is a legal arrangement to pass on assets where a trustee manages assets on behalf of the beneficiary according to the trust deed, which allows you, as the “settlor”, to set how the assets in the trust should be used and when.

There are many reasons why you might choose to use a trust, including to:

· Retain greater control over assets you pass on

· Pass on assets to young children or vulnerable adults

· Allow you to pass on assets but still benefit from them during your lifetime

· Preserve wealth for future generations

· Mitigate an IHT bill.

One of the key benefits of a trust is that you can state how the assets are used. So, if you have a clear idea about how you’d like your loved ones to use the wealth you give them, it’s an option you may want to consider. For example, you could create a trust on behalf of your grandchild and state that it’s to be used for education purposes during their childhood, and they can then access the assets once they reach a certain age.

There are several different types of trusts and, once they’re set up, they can be difficult or impossible to reverse. As a result, you might want to seek legal advice when creating a trust to discuss your objectives and whether it’s the right option for you.

Contact us to set up your estate plan

You don’t have to just select one of the options covered in this article. You might choose to pass on some of your wealth now, but leave the rest of it through a will. Or you might decide to gift assets to some loved ones but use a trust for others, such as young children.

A complete estate plan might encompass more than how you’ll pass on assets to loved ones. You might also want to consider what steps you could take to improve your security if you needed care later in life, how to mitigate a potential IHT bill, set out your funeral wishes, and more.

Please contact us to talk about how to prepare for your later years and discuss how we could help you put an estate plan that reflects your wishes in place.

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The Financial Conduct Authority does not regulate estate planning or Inheritance Tax planning.

Investment market update: April 2024

Interest rates and inflation continued to affect markets around the world in April 2024. Read on to find out what else may have affected investment markets and your portfolio in April.

Expectations of interest rate cuts were good news for gold. Investors who feared falling interest rates would lead to lower returns on cash and government bonds purchased more gold. It led to the asset hitting a record high on 8 April at $2,535 (£3,171) an ounce.

Yet, while many experts are predicting that interest rates will fall, Kristalina Georgieva, the managing director of the International Monetary Fund, warned that central banks must resist pressure to cut them too soon. 

UK

The UK ended 2023 in a technical recession – defined as two consecutive quarters of economic contraction. The latest figures suggest the UK is already out of the recession. According to the Office for National Statistics, GDP grew slightly by 0.1% in February 2024, following 0.3% growth in January.

UK inflation data was also positive. Inflation in the 12 months to March 2024 was 3.2%. While there’s still some way to go before reaching the Bank of England’s (BoE) 2% target, it’s the lowest figure recorded since September 2021.

Clare Lombardelli, the newly appointed BoE deputy governor, tempered the news by adding that inflation is likely to be “bumpy” as pricing behaviour isn’t smooth. However, she added that the overall experience for people should be lower and more predictable inflation.

On the back of good news and with a general election looming this year, chancellor Jeremy Hunt told the Financial Times that he’d like to cut taxes in the autumn fiscal statement “if we can”.

While inflation overall is falling, business group British Chamber of Commerce has warned that new Brexit fees and checks could lead to higher food prices in the UK. Importers of animal products from the EU will face an additional charge from 30 April 2024 and new checks will be applied from October.

Data from S&P Global’s Purchasing Managers’ Index (PMI) also indicates that growth will continue. The service sector continued to expand in March and the construction industry returned to growth thanks to increased work in infrastructure projects.

Official data shows average wages, excluding bonuses, increased by around 6% between December 2023 and February 2024. Once inflation is factored in, average wages increased by 2.1% in real terms.

Yet, other information suggests many households will continue to financially struggle. A BoE report suggests it expects the number of households and small businesses to default on debt to rise this summer.

A report from consultancy firm KPMG also found that half of consumers are cutting back on non-essential spending. In fact, just 3% of consumers said they had been able to spend more in the first quarter of 2024. Eating out is the most likely expense to be cut from budgets, which could negatively affect the hospitality sector.

In April, the FTSE 100 proved why investors need to be prepared to weather market volatility.

On 12 April, the index of the 100 largest companies on the London Stock Exchange closed at the highest level for over a year. News that the UK is likely to have exited a recession led to the index rising by 0.9%.

However, just days later, on 16 April, the index tumbled by 1.35% and almost every stock on the index was in the red, with mining companies and banks suffering the largest falls. The downturn was linked to a market adjustment after the US Federal Reserve said it may not cut interest rates as soon as it hoped.

Then there was another turn as the FTSE 100 hit a record high of 8,068 points on 23 April due to expectations that the BoE will start cutting interest rates this year and fears about escalating tensions in the Middle East eased.

The ups and downs serve as useful reminders to focus on the long-term performance of investments rather than short-term market movements.

Europe

Inflation across the eurozone fell by more than expected to 2.4% in the 12 months to March 2024. Despite optimism that interest rates would be cut, the European Central Bank opted to hold rates. Yet, the bank did signal that, if inflation continues to fall, it could cut them in the summer.

PMI data indicates that the eurozone economy returned to growth for the first time since May 2023. The positive figures were driven by stronger than expected output from the service sector, with Spain and Italy providing the strongest boost. However, the two largest economies in the bloc, Germany and France, contracted.

Some EU countries, including Italy and France, could be put under an infringement order procedure for operating budgets with deficits that breach the EU’s rules. Usually, governments have to keep budget deficits below 3% of GDP. The cap was set aside during the Covid-19 pandemic but could be implemented again, which might place pressure on public spending plans.

Similar to the UK, European indexes suffered on 16 April when the Federal Reserve indicated it wouldn’t cut interest rates soon. France’s CAC index fell 1.8% and Spain’s IBEX was down 1.2%.

US

The US private sector added 40,000 more jobs than expected in March 2024, with businesses hiring an additional 184,000 employees. Job growth is one of the measures the Federal Reserve will consider when deciding whether to cut interest rates, so the data led to speculation that rates would fall soon.

Yet, when the rate of inflation was released, it dampened the optimism. In the 12 months to March 2024, inflation was 3.5%, an increase when compared to the 3.2% recorded a month earlier.

Investment markets did benefit when fears that Iran’s attack on Israel would lead to an escalation in the Middle East didn’t materialise. On 15 April, the Dow Jones saw a rise of 0.9%, while the S&P 500 increased by 0.7%, and tech-focused index Nasdaq was up 0.6%.

Asia

China beat its GDP forecast when it posted growth of 5.3% for January to March 2024 when compared to a year earlier. However, China’s National Bureau of Statistics recognised that growth could be hampered. The organisation said the external environment was becoming more “complex, severe, and uncertain”.

Indeed, the country faced several headwinds in April.

First, credit rating agency Fitch has cut the outlook of China’s debt from “stable” to “negative”, as it said the country was facing uncertain economic prospects.

Then, US treasury secretary Janet Yellen voiced concerns that China’s excess manufacturing capital could cause global fallout. She said China was too big to rely on exports for rapid growth and excess capacity was putting pressure on other economies.

While Yellen didn’t make any announcements about trade tariffs on Chinese goods, she said she would not rule out taking more action to protect the US economy from Chinese imports.

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

5 practical tips that could help you set realistic financial goals

Setting goals is part of creating an effective financial plan. They can motivate you, keep you on the right track, and help you define what “success” is for you. As your plan might cover decades, it can be difficult to know if your goals are realistic. Read on to discover five practical tips that could help make your financial objectives achievable.

1.  Take steps to build a strong financial foundation

One of the challenges of meeting financial goals is that the unexpected can happen and derail even the best-laid plans.

You might set out to add an extra £200 each month to your pension so that you can retire early. But an emergency repair to your home or an illness preventing you from working for several months means you need to halt contributions.

Having appropriate financial foundations in place could mean you’re in a better position when you face challenges.

For example, building up an emergency fund could improve your financial resilience if you face an unexpected bill, such as repairs to your car or home. How much you might want to have in an emergency fund will depend on your needs, but a general rule is between three and six months of essential expenses.

Despite the security it could offer, many people in the UK don’t have an emergency fund. According to a report from the Financial Conduct Authority, almost a third (30%) of UK adults, the equivalent of 15.9 million people, do not have a savings account. 

Similarly, taking out appropriate financial protection could keep your long-term plans on track if you had an illness or accident that prevented you from working. Depending on the type you choose, financial protection may pay out a regular income or lump sum under certain circumstances.

Having a strong financial foundation could help you minimise risk to your long-term goals, and mean they’re more realistic.

2.  Start with a review of your current finances

Before you start setting goals, a complete review of your current finances could be valuable.

Setting out your income, assets, and expenditure might play an important role in understanding how you could use your wealth to reach your goals, and whether they’re realistic. It could highlight where you could manage your wealth more efficiently or where you’d be happy to make adjustments if it meant you’re more likely to secure the future you want.

3.  Make your goals specific and measurable

A vague goal might seem like it gives you more flexibility, but it could mean the steps you need to take are unclear.  

Rather than stating, “I want to build a nest egg for my child”, you could change it to, “I want to build up a £20,000 nest egg for when my child is 18”. By making it more specific, you could set out a clear plan to make it achievable.

In this scenario, you might consider:

·       How much you should contribute to the nest egg each month

·       Whether you should save or invest

·       The best vehicle for building the nest egg, such as a Junior ISA

·       How interest rates or investment returns could help you reach your goal.

A clear goal could make it simpler to understand if you’re on track when you review your target and decide if adjustments should be made to your plan. It might also help you identify if you’re being unrealistic. For example, if the monthly contributions to your child’s nest egg don’t fit into your day-to-day budget, you may choose to revise your expectations.

4.  Ensure your assumptions are backed by evidence

Often, factors outside of your control will play a role in reaching your financial aspirations. For instance, you might assume a certain interest rate or investment return when making a plan. It’s important that the assumptions you make are realistic, or it could mean you unexpectedly fall short of your goals.

Of course, interest rates or returns cannot be guaranteed, but you can base your expectations on facts.

Let’s say you’re investing and calculate you’ll need to achieve returns of 8% each year to reach your goal – historical data might show that these returns are improbable, or that you’d have to take more risk than is appropriate for you.

Instead, you might find that returns of 5% are more likely. So, you could adjust your goal to make it more realistic or make changes to your plan, such as increasing how much you invest each month.

5.  Work with a financial planner

A financial planner could bring together your current finances and long-term goals to help you understand if you’re being realistic and what steps could support your aspirations. A tailored financial plan may help you turn goals into a reality and give you confidence about the future.

Please contact us to arrange a meeting and talk about your financial and lifestyle objectives.

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

Note that financial protection plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.

Cover is subject to terms and conditions and may have exclusions. Definitions of illnesses vary from product provider and will be explained within the policy documentation.

6 in 10 Brits are unaware their pension is usually outside of their estate

Many people could be omitting a useful way to pass on assets when they die because they aren’t aware that pensions usually fall outside of their estate. It could also mean some have failed to name a beneficiary for their pension. Read on to find out what you need to know about pensions and why they could be a tax-efficient way to pass on wealth.

According to a survey carried out by PensionBee, 62% of people are unaware that their pension won’t usually form part of their estate when they die. As your pension may be one of your largest assets, the oversight could mean a significant proportion of your wealth isn’t passed on according to your wishes.

If your estate could be liable for Inheritance Tax (IHT) considering how to use your pension to leave wealth to your loved ones could be valuable.

Your will won’t usually cover your pension

Writing a will to set out who you’d like to receive your assets when you pass away is an important step when creating an estate plan. However, it’s important to note that pensions are not usually covered by your will.

Instead, an expression of wish is used to tell your pension provider who you’d like to receive your pension savings when you die. What you write will be a key influence when pension trustees are deciding who to release your pension savings to, but they may also consider other factors, such as whether you have any dependents.

You can name more than one beneficiary in an expression of wish and specify what proportion of your savings you’d like each person to receive.

If you have more than one pension, you’ll need to complete an expression of wish for each one.

You can often complete an expression of wish by logging into your online account and filling in a form in a matter of minutes. Just like with a will, it’s important to review your expression of wish regularly and following major life events to ensure it continues to reflect your estate plan.

Completing an expression of wish gives you a chance to state who you’d like to benefit from your pension and it could reduce how much IHT your estate pays.

Passing on wealth through a pension could reduce your estate’s Inheritance Tax bill

IHT is a tax paid on your estate when you pass away if its total value exceeds certain thresholds. As pensions typically sit outside of your estate, they may be a useful way to pass on wealth without increasing a potential IHT bill.

Yet, according to the PensionBee survey, 52% of people said they weren’t aware pensions are typically exempt from IHT. Around 6 in 10 over-55s said they hadn’t considered using their pension to reduce the size of their estate.

You may want to consider IHT as part of your estate plan if the value of your estate exceeds the nil-rate band. For the 2024/25 tax year, the nil-rate band is £325,000 and it’s frozen at this level until April 2028.

You may also be able to use the residence nil-rate band if you leave your main home to direct descendants. This allowance is £175,000 in 2024/25 and, again, is frozen until 2028.

You can pass on unused allowances to your spouse or civil partner. So, when you’re planning as a couple, you may be able to pass on up to £1 million before IHT is due.

If your estate exceeds these thresholds, the standard rate of IHT is 40% and it could substantially reduce the inheritance your loved ones receive.

There are often steps you can take to reduce a potential IHT bill, but you usually need to be proactive. One option might be to consider using your pension, because if you pass away:

·       Before the age of 75, the beneficiary who receives your pension won’t usually need to pay tax.

·       After the age of 75, your beneficiary may need to pay Income Tax. The tax rate will depend on their other taxable income and how they access the money. However, it could be much lower than the standard rate of IHT.

Tax rules around inherited pensions can be complex. Seeking professional advice could help you and your beneficiaries understand the tax bill they might face.

So, your pension could be a useful tool when you’re considering your estate plan. With the potential IHT benefits in mind, you might choose to:

·       Increase your pension contributions during your working life or continue to contribute after you’ve retired (up to age 75 and based on your earnings) to pass on more wealth tax-efficiently to your loved ones.

·       Deplete other assets to fund your retirement to reduce the value of your estate and preserve your pension to pass on to beneficiaries.

If you’re thinking about using your pension to effectively pass on wealth you might need to consider factors such as the Annual Allowance, which limits how much you can contribute tax-efficiently to your pension each tax year, or the effect it could have on your income now.

We could help you make it part of your overall plan, so you can understand the potential implications and what’s right for you.

Contact us to talk about your estate plan

An estate plan could help ensure your assets are passed on according to your wishes, provide you with security later in life, and potentially reduce an IHT bill. If you haven’t considered these important issues yet, please get in touch. We can work with you to create an estate plan that’s tailored to you.

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The Financial Conduct Authority does not regulate estate planning or Inheritance Tax planning.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts. 

What you need to know about taking your pension tax-free lump sum in 2024/25

Taking a tax-free lump sum from your pension could be a fantastic way to kickstart your retirement plans. If it’s something you’re thinking about, it’s important to consider the long-term implications and understand how much you could withdraw from your pension before facing a tax bill, as the rules have changed in 2024/25.

Previously, you could take up to 25% of your pension as a tax-free lump sum. This could be through a single withdrawal or spread across several. However, following the removal of the pension Lifetime Allowance, there is now a cap.

The “Lump Sum Allowance” is £268,275 in 2024/25

In 2023, chancellor Jeremy Hunt announced the pension Lifetime Allowance (LTA) would be scrapped in the 2024/25 tax year. The LTA limited the amount of pension benefits you could build up during your lifetime without incurring an additional tax charge.

With workers now able to save more into their pension tax-efficiently during their careers, the government has frozen the limit on tax-free withdrawals from your pension.

In 2024/25, you can still usually take up to 25% of your pension tax-free – although now there is a cap on the total tax-free cash you can take. This is the new Lump Sum Allowance (LSA) of £268,275.

Your LSA may be higher if you benefit from one of the various types of LTA “protection”, such as “individual” or “fixed” protection.

Withdrawing a tax-free lump sum could harm your long-term finances

If you want to take a lump sum from your pension, the new rules aren’t the only area you might want to consider. You may also want to weigh up the effect it could have on your long-term finances.

There are plenty of reasons why you may want to take a lump sum from your pension, and some could improve your financial position in retirement. For example, you could use the lump sum to clear your mortgage or other debt, which may significantly reduce your outgoings in retirement and lead to a more comfortable and secure lifestyle.

Alternatively, you might plan to use the money to reach aspirations, like travelling the world once you stop working. 

It could be a great way to fund your early retirement plans. However, taking a lump sum from your pension could have a significant effect on your long-term financial security and income. Not only will you be reducing the size of your pension but, as your pension is usually invested, you may have a smaller pot left to invest, reducing your potential for further growth.

Understanding the potential implications of taking a lump sum at the start or during your retirement could help you make a decision that’s right for you.

You may find that after taking a lump sum from your pension you’ll still be financially secure and able to reach long-term goals. If this is the result, you might feel more confident taking a lump sum and more able to enjoy your retirement.

On the other hand, if you find taking a lump sum could harm your long-term finances, you may decide to halt your plans or make adjustments to improve your financial security throughout retirement.

As a financial planner, we can help you understand what the consequences of taking a lump sum could mean for you.

On average, over-55s spend a third of their tax-free lump sum within 6 months

A 2023 survey from Standard Life found that over-55s who have taken a tax-free lump sum, on average, spend or expect to spend a third of their withdrawal within six months.

While having some cash to fall back on in retirement could be useful, withdrawing a lump sum to hold the money outside of your pension might not be financially savvy.

The money held in your pension is usually invested, so it has the potential to deliver returns during your retirement. In addition, investments held in your pension are not liable for Capital Gains Tax, so it provides a tax-efficient way to invest. If you withdraw money from your pension to hold in cash, its value could fall in real terms and you might miss out on potential long-term growth.

Of course, investment returns cannot be guaranteed and they could experience volatility. As a result, it’s important to consider your risk profile and circumstances when deciding how to manage your pension.

Setting out how you plan to use your tax-free lump sum and making it part of your wider financial plan could help you assess if withdrawing it now or in the future is right for you. 

Contact us to talk about your pension withdrawals

When you’re accessing your pension, whether to take a lump sum or a regular income, you might worry about what’s right for you. Working with a financial planner could give you confidence in retirement. Please contact us to talk to one of our team about how to access your pension in a way that’s tax-efficient and aligns with your goals.

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts. 

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

Could you face an unexpected bill now the Capital Gains Tax allowance has halved?

The gains you can make before potentially paying Capital Gains Tax (CGT) have halved for the 2024/25 tax year. If you plan to dispose of assets, the change could affect you. Read on to find out when you could be liable for CGT and some steps you might take to manage a bill.

CGT is a tax on the profit you make when you sell certain assets that have increased in value. CGT could be due when disposing of a range of assets, including:

·       Shares that aren’t held in a tax-efficient wrapper

·       Property that isn’t your main home

·       Personal possessions that are worth £6,000 or more, excluding your car. 

The amount of profit you can make during the year before CGT is due has fallen significantly over the last couple of years.

The Annual Exempt Amount has fallen to £3,000 in 2024/25

According to research from the University of Warwick, less than 3% of UK adults paid CGT in the decade to 2020. In fact, in any given year, just 0.5% of adults were liable for CGT. Yet, the total amount paid through CGT tripled between 2010 and 2020 to £65 billion.

The government has substantially reduced the amount of profit you can make before CGT is due, so the number of people paying the tax could soar over the coming years.

In 2022/23, the amount you could make before CGT was due, known as the “Annual Exempt Amount”, was £12,300. This was reduced to £6,000 in 2023/24, and from 6 April 2024, it is reduced further to just £3,000.

If your total profits during the tax year exceed the Annual Exempt Amount, your CGT bill will depend on which tax band(s) the taxable gains fall into when added to your other income. In 2024/25, if you’re a:

·       Higher- or additional-rate taxpayer, your CGT rate will be 20% (24% on gains from residential property)

·       Basic-rate taxpayer, you may benefit from a lower CGT rate of 10% (18% on gains on residential property) if the taxable amount falls within the basic-rate Income Tax band.

So, if you have assets to sell, considering how to mitigate a potential bill could be valuable.

6 practical ways you could reduce your Capital Gains Tax bill

1.  Time the sale of your assets

The Annual Exempt Amount cannot be carried forward to a new tax year if you don’t use it. Timing the disposal of your assets could help you make use of the allowance to minimise your bill. For instance, you might hold off selling an asset until a new tax year starts if you’ve already exceeded the Annual Exempt Amount in the current year.

2.  Pass assets to your spouse or civil partner

The Annual Exempt Amount is an individual allowance, and you can pass assets to your spouse or civil partner without tax implications. So, if you’ve used your Annual Exempt Amount, transferring an asset to your partner before you dispose of it to use their allowance might be an option you want to consider.

3. Use your ISA to invest tax-efficiently

An ISA is a tax-efficient wrapper for saving or investing. Returns and profits made on investments held in an ISA are not liable for CGT. So, if you want to invest, choosing an ISA may help you mitigate a tax bill.

If you already hold investments outside of an ISA, you could sell the investments and immediately buy them back within your ISA. This strategy of moving your investments to a tax-efficient account is known as “Bed and ISA”.

In the 2024/25 tax year, you can add up to £20,000 to ISAs.

4. Use a pension for long-term investments

Like ISAs, pensions offer a tax-efficient way to invest – investments held in a pension are not liable for CGT.

In the 2024/25 tax year, the pension Annual Allowance is £60,000 for most people. This is the maximum amount you can pay into your pension during the tax year while still benefiting from tax relief. However, you can only claim tax relief on up to 100% of your annual earnings.

If you’ve already taken an income from your pension or are a high earner, your Annual Allowance could be as low as £10,000. If you’re not sure what your Annual Allowance is, please contact us.

The Annual Allowance can be carried forward for up to three tax years. So, if you’ve used all your Annual Allowance in 2024/25, you may want to review your pension contribution in previous tax years.

Before you boost your pension, considering your investment goals and time frame might be essential. You cannot usually access the money in your pension until you’re 55, rising to 57 in 2028, so it isn’t the right option for everyone.

5. Manage your taxable income

As mentioned above, basic-rate taxpayers may benefit from a lower rate of CGT if the gains fall within the basic-rate tax band. As a result, managing your taxable income to stay below Income Tax thresholds once expected profits are included could slash a CGT bill.

6. Deduct losses from your gains

It is possible to deduct losses from the profits you make. You must report the losses to HMRC by including them on your tax return. When you report a loss, the amount is deducted from the gains you make in the same tax year.

If your total taxable gain is still above the tax-free allowance, you can deduct unused losses from previous tax years. If the losses reduce your gain to the tax-free allowance, you can carry forward the remaining losses to a future tax year.

Contact us to talk about your tax liability

Whether you’d like to understand how you could reduce a potential CGT bill or you want to review your financial plan with tax efficiency in mind, please contact us. We could help you identify ways to cut your tax bill in 2024/25 and beyond.

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested.

Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

The Financial Conduct Authority does not regulate tax planning.