More than half of homeowners don’t have enough life insurance to protect them

Taking out a new mortgage is often a trigger for considering how you or your family would cope if you faced a financial shock. Yet, a report from Which? suggests that more than half of homeowners don’t have enough life insurance to protect them.

If you took out life insurance, it would pay a lump sum to your beneficiaries if you passed away during the term. It could provide essential financial support to your loved ones if they’re dependent on your income should the worst happen. The lump sum may allow your family to pay off outstanding mortgage debt or cover other living expenses which would mean they’re more financially secure.

Life insurance can be difficult to think about. However, it’s often an important step in creating long-term security for the people who matter to you most and offer peace of mind too.

The average household with dependents faces an almost £90,000 life insurance shortfall

Worryingly, the Which? data indicates that many households don’t have enough life insurance cover, and it could leave their families facing a shortfall if they pass away.

On average, households with dependents had an £89,800 shortfall. For homeowners with children, the gap was even larger at £194,200.

As a mortgage is often the largest expense your family will pay, a life insurance gap could potentially mean they lose their home or face financial stress if your income was lost.

As a result, taking some time to understand the provisions you already have in place, and whether it would provide enough to offer your family financial security could be vital.

Comparing your life insurance to your mortgage balance

Reviewing your outstanding mortgage balance may be a good place to start when you want to understand if your life insurance cover is enough. If you passed away now, would it provide your family with a means to clear the mortgage?

If providing a means to pay off outstanding mortgage debt is the main reason you want life insurance, cover with a decreasing term could be useful.

With decreasing term life insurance, the lump sum that would be paid out decreases over time to reflect the falling value of your mortgage as you make repayments. The key benefit with this option is that the monthly premiums you need to pay to maintain the cover are likely to be lower than if you opted for life insurance that didn’t decrease.

You should consider how quickly the value of the potential lump sum would fall. For instance, if it falls significantly faster than the amount you owe on your mortgage, it could create an unexpected shortfall.

Decreasing term life insurance often isn’t suitable if you have an interest-only mortgage, as your mortgage balance would stay the same throughout the term. As the payout falls it might not be enough to cover the outstanding debt.

While a mortgage is often a key trigger for considering your financial resilience and how life insurance can act as a safety net, there are other expenses you might want to factor in as well.

Considering your family’s needs could help you choose cover that’s right for you

To provide your family with long-term financial security, you may want to review areas beyond your mortgage too.

Depending on your family’s needs and other income sources, you might want to include day-to-day living costs so that a life insurance payout could replace your income. This option could help your family maintain their lifestyle while they’re dealing with grief and provide children with stability, such as by covering education fees to ensure they could remain at their current school.

Remember, your circumstances and lifestyle can change, so regularly reviewing your life insurance and considering if it still aligns with your needs could be a valuable step.

Contact us to talk about taking out appropriate financial protection

Contact us to talk about what level of life insurance would protect your family and other forms of financial protection that could offer you peace of mind too. We’ll help you understand how the right cover for you could pay off your mortgage and cover other living expenses should the worst happen.

Please note:

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

Note that life insurance 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.

How to use life insurance to cover a future Inheritance Tax bill for your family

The amount the government collects through Inheritance Tax (IHT) is on the rise, and freezes to allowances mean it’s expected to increase further. If your family could face a bill when you pass away, life insurance could provide a valuable way to cover the expense.

According to MoneyAge, the amount collected through IHT hit a record £7.5 billion in 2023/24.

An IHT bill could not only mean passing on less wealth to your loved ones, but it may be stressful too. The portion of your estate that exceeds thresholds could be liable for IHT at a standard rate of 40%, and your family might need to consider which assets to sell to cover the expense. 

Understanding whether IHT may be due on your estate could help you make provisions that will ease the burden for your family.

If the value of your estate exceeds £325,000, it could be liable for Inheritance Tax

IHT is paid if the value of your estate exceeds thresholds when you pass away.

In 2024/25, the nil-rate band is £325,000 – if the value of all your assets is below this threshold, no IHT will be due. In addition, many estates can use the residence nil-rate band, which is £175,000 in 2024/25 if your main home is passed on to direct descendants.

So, you can often pass on up to £500,000 before you need to consider IHT. If you’re planning with your spouse or civil partner, you can also pass on unused allowances to them.

Importantly, the nil-rate band and residence nil-rate band are frozen until 2028, which is predicted to lead to more estates becoming liable for IHT.

Indeed, the Institute for Fiscal Studies estimates that by 2032/33, 1 in 8 people will have IHT due either on their death or that of their partner. As a result, IHT revenues are predicted to double over the next decade. 

Life insurance can provide a useful way to pay Inheritance Tax

Life insurance won’t reduce how much IHT your estate is liable for. However, it could provide a straightforward way for your loved ones to pay the bill.

When you take out whole of life insurance, you’ll need to pay regular premiums to maintain the cover. When you pass away, a lump sum will be paid to your beneficiaries, which they can then use to pay IHT. It could mean your family doesn’t need to break up your estate or sell assets to settle the bill.

The cost of the premiums will depend on a variety of factors, including your age, health, and lifestyle. In addition, the level of cover you require will also affect the cost.

You can select the level of cover that suits your needs, so understanding the size of a potential IHT bill is important.

A good place to start is by assessing the value of your estate now. Your estate covers all your assets, from property and investments to material items.

You’ll then want to consider how the value of each asset could change during your lifetime. For example, the value of your property will likely rise.

If you’re not using savings and investments to supplement your retirement income, they could also increase in value over the long term. On the other hand, there may be assets you’ll deplete during your lifetime, such as your pension.

As a result, the potential size of an IHT bill could be difficult to calculate. A financial planner could help you get to grips with how the value of your estate might change in different scenarios so you can choose the right level of life insurance for you.  

You may want to place life insurance in a trust if it’s for Inheritance Tax purposes

If you’re considering using life insurance to provide your family with a way to pay a potential IHT bill, it’s sensible to place the life insurance in trust.

Using a trust means it sits outside of your estate and won’t be included when calculating how much IHT is due. If you didn’t take this step, the lump sum that the life insurance pays out might be included in your estate, which would lead to a larger IHT bill.

You can set up a trust yourself but they can be complex and there are several different types. Seeking the services of a legal professional could minimise the chance of mistakes occurring and ensure the trust you set up suits your purposes.

Get in touch to talk about your estate plan

Life insurance could provide your loved ones with a simple way to pay an IHT bill, but there may be other steps you can take as well. As part of an estate plan a financial planner would review your circumstances and goals to understand how you could pass on assets effectively, including steps that may reduce an IHT bill.

Please contact us to arrange a meeting to talk about your estate.

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.

Note that life insurance 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.

Investment market update: June 2024

2024 is a historic election year – elections will take place in 50 countries. More than 2 billion voters will head to the polls in countries including the UK, US, France, and South Africa throughout the year. Political uncertainty can affect investment markets and there was evidence of this in June.

During market volatility, remember that markets have, historically, recovered in the longer term. And, for most investors, sticking to their long-term investment strategy makes financial sense.

Read on to find out what affected investment markets around the world in June 2024.

UK

Despite hopes that the UK economy had turned a corner when it exited a recession in the first quarter of 2024, GDP figures were disappointing in April. Official figures show the economy flatlined when compared to a month earlier.

Yet, the Bank of England (BoE) remains optimistic. The central bank raised its second-quarter growth forecast to 0.5% after it revised upwards its May 2024 prediction of 0.2%.

There was further good news for the BoE too – UK inflation fell to its official target of 2% in the 12 months to May 2024 for the first time since 2021. The news led to speculation that the bank would cut its base interest rate, but the Monetary Policy Committee opted to hold it at 5.25%.

The positive inflation data sets the stage for a rate cut later this year, with the BoE saying it will keep interest rates “under review”.

As inflation pressures started to ease, figures from the Insolvency Service suggest fewer businesses are failing. The number of firms that became insolvent fell by 4% in May when compared to a month earlier. Even so, the number is 3% higher when compared to the same period in 2023.

Readings from the S&P Global Purchasing Managers’ Index (PMI), which measures business conditions, are also positive. In May:

· UK factories returned to growth with the most rapid expansion of output in two years. The boost was mainly supported by domestic demand, as new export orders fell.

· The service sector lost momentum but still posted growth. The slower pace is partly due to new orders easing when compared to the 11-month high recorded in April.

Uncertainty as UK political leaders campaigned ahead of the 4 July 2024 general election was partly linked to the FTSE 100 index, which includes the largest 100 companies listed on the London Stock Exchange, falling by 0.4% on 4 June.

Amid political turmoil in France, London regained its crown as Europe’s biggest stock market, which Paris has held for the last two years. According to Bloomberg, as of 17 June, stocks in the UK were collectively worth $3.18 trillion (£2.52 trillion) compared to France’s $3.13 trillion (£2.48 trillion) valuation. 

Europe

At the start of the month, the European Central Bank (ECB) slashed its three key interest rates by 25 basis points in the first cut since the start of the Covid-19 pandemic.

Yet, figures released by Eurostat just two weeks later showed inflation was 2.6% in the year to May 2024 across the eurozone, up from 2.4% in April. The news prompted some commentators to speculate the cut to interest rates had been made too soon.

PMI data was positive in the eurozone as business activity grew at the fastest rate this year. Of the top four economies in the bloc, only France contracted slightly, while Germany, Spain, and Italy posted growth.

President of France Emmanuel Macron called a snap election, which is set to be held between 30 June and 7 July. The election has added to the political uncertainty affecting markets.

Indeed, on 10 June, France’s CAC index, which is comprised of 40 of the most prominent listed companies in the country, was down 2%. The effects were felt in other stock markets too, with Germany’s DAX falling 0.9% and Italy’s FTSE MIB losing 0.95%.

In response to the snap election, credit ratings agency Moody’s issued France with a credit warning, stating there was an increased risk to “fiscal consolidation”. Citigroup also downgraded its rating for European stocks to neutral from overweight due to “heightened political risks”.

US

The New York Stock Exchange got off to a rocky start in June. On 3 June, a technical issue led to large fluctuations in the listed prices of certain stocks. Warren Buffett’s Berkshire Hathaway was affected by the glitch, which suggested shares had fallen in value by 99%. Fortunately, the issue was resolved within an hour.

The rate of inflation fell to 3.3% in May 2024 but remains above the Federal Reserve’s target of 2%.

The drop in inflation led to a boost for Wall Street. On 12 June, both the S&P 500 index, which includes 500 of the largest companies listed in stock exchanges in the US, and tech-focused index Nasdaq opened at all-time highs.

Figures from the US Bureau of Labor Statistics indicated that businesses are feeling confident about their future. 272,000 jobs were added in May, far higher than the 185,000 Wall Street has forecast. Yet, unemployment also increased slightly to 4%.

Tesla shareholders voted in favour of CEO Elon Musk’s huge $56 billion (£44 billion) pay package – the largest corporate pay package in US history by a substantial margin. The results of the annual general meeting led to Tesla shares rising by around 6.6%, which helped recover some of the 28% losses they’ve suffered so far this year.

Asia

Moody’s raised China’s growth forecast to 4.5%, up from 4%. While growth of 4.5% would be great news in many developed countries, it would mark a slowdown for China, which saw its GDP rise by 5.2% in 2023. 

However, signs of a trade war starting between China and the EU loomed and could dampen growth expectations.

The EU notified China that it intended to impose tariffs of up to 38% on imports of Chinese electric vehicles. The move would trigger duties of more than €2 billion (£1.69 billion) a year. The announcement followed an investigation into alleged unfair state subsidies and similar tariff increases from the US earlier this year.

In retaliation, China opened an anti-dumping investigation into imported pork and its by-products from the EU. China is the EU’s largest overseas market for pork, which was worth $1.8 billion (£1.42 billion) in 2023.

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.

Investment market update: May 2024

On the back of data showing some countries have exited recessions at the end of the first quarter of 2024 and inflation falling, several market indexes reached record highs in May. Read on to find out what else may have affected the markets and your investment portfolio. 

UK

Dominating headlines towards the end of May was prime minister Rishi Sunak calling a general election. Sunak made the seemingly snap decision following positive inflation news despite polls suggesting the Conservative government is trailing the Labour Party.

The general election will take place on Thursday 4 July. The uncertainty over the next few weeks could lead to markets being bumpy as they react to the latest information and assumptions. Remember, ups and downs are a part of investing and it’s important to focus on your long-term goals during periods of volatility. 

The latest figures from the Office for National Statistics (ONS) show the UK is nearing the Bank of England’s (BoE) 2% inflation target. In the 12 months to April 2024, inflation was 2.3%. 

Sunak said the data was proof the Conservative’s plan was working and “brighter days are ahead”. In response, the Labour Party accused the government of celebrating a “tone-deaf victory lap”.

The BoE voted to hold its base interest rate at 5.25%. Borrowers keen for rates to start falling could receive some good news this year though. BoE governor Andrew Bailey said a cut will likely come in the coming quarters if inflation continues to fall, and he hinted the Bank could make cuts faster than the market expects. 

Data on the economy was positive too. After the UK fell into a technical recession – defined as two consecutive quarters of negative growth – at the end of 2023, ONS figures confirm the UK economy grew in the first quarter of 2024. GDP increased by 0.4% in March 2024, following growth of 0.3% and 0.2% in January and February respectively. 

Yet, the Organisation for Economic Co-operation and Development warned the UK would have the weakest growth across G7 countries in 2025. The organisation predicts GDP will rise by just 1% next year. 

The latest readings from the S&P Global’s Purchasing Managers’ Index (PMI) support the ONS GDP data. PMI data provides an indicator of business conditions, such as output and new orders.

In April 2024, the service sector posted its fastest business activity growth in almost a year. The sector makes up around three-quarters of the UK economy, so strong growth will have helped pull the UK out of the recession quickly.

There was good news in the construction sector as well, with the PMI information showing growth reached a 14-month high. However, the data indicates the manufacturing sector contracted in April. One of the challenges facing manufacturing firms was purchasing costs rising for four consecutive months. 

May was an excellent month for the FTSE 100 – an index of the 100 largest companies on the London Stock Exchange. It reached record highs several times throughout the month as markets reacted to speculation that interest rates would fall. 

On 15 May, the index jumped by around 0.5% to reach 8,474 points. The top riser was credit data firm Experian after it reported growth at the top end of their expectations for the last financial year, which led to shares rising by more than 8%. 

Europe

The wider continent fared similarly to the UK. 

Eurostat confirmed that the eurozone is out of a recession. The economy shrank by 0.1% in the last two quarters of 2023 but posted growth of 0.3% in the first quarter of 2024. Major economies, including Germany, France, Spain, and Italy, grew in the first three months of the year. 

However, the European Commission warned external factors could place economic growth at risk. These risks include ongoing Ukraine-Russia and Israel-Gaza conflicts. 

In the eurozone, inflation was stable at 2.4% in the year to April 2024. While the European Central Bank has also yet to cut interest rates, it’s expected that it may do so as early as June if inflation falls. 

European markets were also influenced by expectations that an interest rate cut could be imminent. Sliding oil prices led to modest gains on 8 May when France’s CAC was up 0.6% and Germany’s DAX increased by 0.1%. 

US

Figures from the US show inflation fell to 3.4% in the year to April 2024. It led to Wall Street reaching a record high on 15 May as both the S&P 500 and the tech-focused Nasdaq index rose.

Data could suggest that US business confidence is falling after fewer jobs were added to the US economy than expected in April. Businesses added around 175,000 jobs compared to the 243,000 economists had predicted. Unemployment also increased slightly from 3.8% to 3.9%, which had a knock-on effect on the power of the dollar. 

The Dow Jones index, which contains 30 major US companies, hit a milestone this month. The index reached 40,000 points for the first time on 16 May. The biggest riser was retailer Walmart, which was up 6%. 

Entertainment giant Disney also hit a landmark in May – its streaming platform Disney+ turned a profit for the first time since it launched four years ago. Despite the news, Disney’s shares dropped by more than 5% in pre-market trading on 7 May as results have still fallen short of expectations. 

Asia

On 9 May, encouraging trade data from China, which showed both exports and imports have returned to growth, boosted markets around the world. 

However, China could face headwinds. After speculation over the last few months that the US would introduce trade tariffs, US president Joe Biden announced new tariffs would come into force on 1 August 2024.

There will be a 100% tariff on Chinese-made electric vehicles. Tariffs will also increase for other items, including lithium batteries, critical minerals, solar cells, and semiconductors.

The US said the tariff would help stop subsidised Chinese goods in the US market from stifling the growth of the American green technology sector. China responded by saying the move undermined fair trade and it’s US consumers who would bear the brunt of the additional costs.

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.

Uncertainty drives record numbers to take out income protection. Here’s what you need to know

Figures from the Association of British Insurers (ABI) suggest a record number of families are taking out income protection to create a safety net. Read on to find out how income protection works and whether it could be valuable for you.

Income protection would pay out a regular income if you were unable to work due to an accident or illness. As a result, it could provide you with a way to keep up with your financial commitments if your income unexpectedly stops. Income protection will normally continue to pay an income until you’re able to return to work, retire, or the term ends.

Usually, the sum provided through income protection is a proportion of your regular salary, such as 60%. You’ll need to pay a monthly premium to maintain the cover, the cost of which will depend on a range of factors, such as your age and lifestyle. While you might not want to increase your expenses, income protection could be cheaper than you think, and it may substantially improve your financial resilience. 

Economic uncertainty could be driving more people to consider their financial resilience 

According to the ABI statistics, a record 247,000 people took out income protection in 2023. The figure is almost four times higher than it was just 10 years ago. Critical illness insurance, which would pay out a lump sum if you were diagnosed with a covered illness, saw a similar rise between 2013 and 2023.

Yvonne Braun, director of policy, long-term savings, health and protection at the ABI, said: “Financial resilience – the ability to withstand a financial shock – is a hugely important issue. It’s encouraging to see that so many people recognise that income protection and critical illness insurance are an important part of financial planning and play a crucial role in providing a financial safety net.”

There are many reasons why you might consider how to improve your financial safety net.

A change in your circumstances can often be a trigger. For example, if you’ve purchased a property or have welcomed children, you may reevaluate your finances and take steps to improve your ability to weather a financial shock.

Wider economic circumstances are also likely to have played a role in the rising number of households choosing to take out income protection.

Over the last few years, the Covid-19 pandemic and subsequent period of high inflation may have led to more families facing unexpected changes to their budget. Indeed, a BBC report suggests 7 million adults felt “heavily burdened” by their finances at the start of 2024.

With many families having to absorb higher essential costs, from energy bills to grocery shopping, it’s perhaps not surprising that more are looking for ways to ensure they can overcome losing their income. 

Income protection could safeguard your short- and long-term finances

If taking time off work might place pressure on your finances, it may be worth considering if income protection could be right for you.

It’s not just your income you may want to weigh up either. For example, your partner may be the main income earner in your household while you are responsible for the majority of childcare. In this scenario, you might want to consider how your household’s expenses would change if you were ill – your childcare bill could rise significantly or your partner might be forced to take time off work while you recover. 

Income protection could complement your wider financial safety net

While you may already have measures in place to provide a short-term income if you are unable to work, income protection could still be useful.

You may have an emergency fund you can draw on, but how long would it last, and what would happen if you were unable to work for longer than expected? Similarly, your employer might provide enhanced sick pay, but this is often for a defined period, such as six months. 

Assessing your financial resilience could help you see how income protection might complement your wider financial plan. 

A financial shock could affect your long-term finances too

When you experience a financial shock, your focus is likely to be on the immediate impact it has on your budget. Yet, it could have long-term implications too.

If you’re unable to work you might stop paying into your pension, or cut back how much you’re adding to a savings account. Depending on your circumstances, income protection could allow you to stick to your wider financial plan. It may help you to maintain non-essential outgoings that might be crucial for your long-term goals.   

Get in touch to discuss your financial resilience

Taking steps to improve your financial resilience could help you feel more confident about your future and mean you’re in a better position to overcome unexpected shocks. Please contact us to talk about your financial plan and whether income protection or other measures could be right for you. 

Please note:

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

Note that income 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.

3 fantastic benefits of leaving a charitable legacy in your will

According to a report from the Charities Aid Foundation (CAF), in 2023, three-quarters of people in the UK supported a charity in some way. 

Whether you donate money, fundraise, or volunteer your time, you might want to consider how to extend your actions to create a charitable legacy in your will – and there could be tax benefits to doing so. 

The CAF report noted that despite the rising cost of living placing pressure on many families, the UK public donated an estimated £13.9 billion to charity last year – up by £1.2 billion when compared to 2022. It’s thought that at least half of people in the whole country donate to charity.

There are plenty of excellent reasons why you might support national or local charities, and if it’s important to you now, updating your will to leave a charitable legacy could be attractive too. 

Here are three fantastic reasons you might want to create a charitable legacy. 

1. Support a cause that’s important to you

Leaving a gift to a charity in your will could be a great way to support a good cause that’s important to you. 

The CAF report found 32% of people choose a charity to donate to based on their personal experiences. So, if you’ve benefited from the services of a charity during your lifetime or witnessed the positive impact they have on communities, you might want to return the goodwill by leaving them a portion of your estate. 

Similarly, 28% said family and friends influence which charity they support, so it could be a way to honour loved ones.

Charities often rely on donations, including those you might leave in your will. Charity Guide Dogs for the Blind Association states that almost 2 in 3 of its guide dogs are funded through gifts from wills, and without legacy bequests, it wouldn’t be able to offer vital support to as many people. 

2. Charitable bequests could lower the value of your estate to reduce an Inheritance Tax bill

If your estate could be liable for Inheritance Tax (IHT) when you pass away, a charitable legacy could be a useful way to reduce the potential bill.

In 2024/25, the IHT nil-rate band is £325,000 – if the total value of your estate is below this threshold, no IHT will be due. Many estates can also make use of the residence nil-rate band if you leave your main home to your children or grandchildren. In 2024/25, the residence nil-rate band is £175,000. 

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

While £1 million may seem high, once you start factoring in all your assets, particularly property, you might be closer to the threshold than you initially think. 

There are often steps you can take to reduce a potential IHT bill, including leaving gifts to charity.

The value of the charitable donation is typically removed from the value of your estate before IHT is calculated. As a result, a charitable gift could be used to bring the value below IHT thresholds so your family don’t face a tax bill, while also supporting a good cause. 

3. Leaving at least 10% of your estate to charity could reduce the Inheritance Tax rate

Another option if you want to use giving to reduce an IHT bill is to leave at least 10% of your net estate, after exemptions and reliefs, to charity. This would reduce the IHT rate from 40% to 36%.

Depending on your estate, this rate reduction could mean you leave more to loved ones while creating a charitable legacy.

You can update your will to leave a charitable legacy 

A common way to leave a charitable legacy is to make a charity a beneficiary of your will. 

As part of your will, you could state that a charity should receive a set amount from your estate, a portion of the total assets, or what’s left after other gifts have been given. You can even choose to pass on certain assets to a charity, such as shares or material items. 

While you can write a will yourself, you may want to seek professional legal advice. A solicitor can minimise the chances of mistakes or disputes occurring by ensuring the wording of your will is correct and highlighting potential contradictions or issues.

Contact us to talk about creating a charitable legacy as part of your estate plan

If you want to leave a charitable legacy, we can help you make it part of your wider estate plan. Reviewing charitable giving alongside other aspects of your estate plan may lead to you identifying ways to make tax-efficient donations and ensure they align with wider goals. Please contact us to speak to one of our team and arrange a meeting.  

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 Financial Conduct Authority does not regulate estate or will writing.

Making your present part of your financial plan could enhance your life

As financial planners, we often talk about the importance of working towards long-term goals and security. As part of your financial plan, you might be putting money into a pension for retirement or building an emergency fund to safeguard your finances if you experience a shock.

Considering your long-term ambitions is often important for turning them into a reality. Yet, enjoying the present is just as essential. While it can be difficult to balance your lifestyle needs now with those of your future, it may help you get more out of life. 

Overlooking the present could mean you miss out on experiences 

Planning for the future is important, but you don’t know what’s around the corner. If you take today for granted or put off experiences until later in life you could end up missing out.

You might cut back now and pool all your money into a pension with the plan to travel extensively once you give up work. But if you suffered from ill health before you reached that point, you might not have the opportunity to visit bucket-list destinations or have experiences you’ve been looking forward to for years. 

The Great British Retirement Survey 2023 revealed that almost a fifth of people aged between 56 and 65 have faced a major life event that has changed their retirement plans. The most common reason was ill health. 

Similarly, a higher-paying job might offer the chance to save more for retirement. But if you’re family-oriented and want to strike a better work-life balance, a promotion that will lead to longer working hours or more responsibility might not be right for you when you weigh up the effect it could have on your family life. 

For many people, balancing short- and long-term financial needs is important for living a fulfilling life.

Doing things now and so giving yourself fond memories to look back on could improve your sense of wellbeing. This could be something small like enjoying a nice meal out with friends, or a grander expense, such as planning a trip to hike Machu Picchu in Peru if you love to travel.

Not only could embracing today in your financial plan make you happier now, but it could motivate you to stay on track when you’re working towards long-term goals. Perhaps a holiday that allows you to relax and focus on the things you love will mean you’re more inclined to top up your pension so you can retire and enjoy a slower pace of life sooner. 

An effective financial plan can help you balance the present and future 

It can be difficult to balance your short- and long-term needs. One of the key challenges is understanding how much you need for your future, as well as considering the effect unexpected events might have. That’s why working with a financial planner could prove invaluable. 

Cashflow forecasting is one tool we could use to help you assess how to strike the right balance. It offers a way to visualise how your wealth might change based on the decisions you make.

Let’s say you want to increase your disposable income, so you have the freedom to spend money on days out doing things you enjoy, such as going to the theatre, eating out, or visiting historical locations. To do this, you may need to reduce the amount you are allocating elsewhere, such as your monthly savings or investments. Cashflow forecasting could let you see the impact this decision would have on your future finances.

Armed with this information, you can start to understand how to balance your expenses now with your future goals. You might find your long-term finances would still provide the security you need even if you spent more now, so you feel comfortable adjusting your expenses. On the other hand, you may find a compromise if it could affect your long-term goals.

Having a clear financial plan could mean you’re able to enjoy the present more too.

Financial concerns can take the joy out of experiences you might otherwise have been looking forward to. So, knowing that you’ve taken steps to create long-term financial security may help you live in the moment and take in what life has to offer. 

Get in touch to talk about a financial plan that balances your short- and long-term needs

If you’d like to create a financial plan that balances your lifestyle needs now with long-term goals, please get in touch. We’ll work with you to understand what’s important to you and how you might use your assets to create financial security that lets you enjoy your life now and in the future. 

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 cashflow planning.

Explained: When do you need to declare the interest earned on savings?

Rising interest rates have been fantastic news for savers. But it might have left you wondering if you need to pay tax on the interest you’ve earned, and how to pay it if you are liable. 

According to online bank Marcus, 71% of people were not aware that the interest on savings could be taxed. With HMRC predicting that an extra 1 million taxpayers would be liable for tax on savings interest in 2023, some might face an unexpected bill.

Read on to find out what you need to know about tax on savings.

If the interest your savings earn exceeds tax allowances, it could be liable for Income Tax

There are several allowances that you could use to reduce the amount of tax due on the interest your savings earn. 

Personal Allowance

The Personal Allowance is the total income you can receive before Income Tax is due. If your salary, pension or other income doesn’t use up your Personal Allowance, you can use it to earn interest tax-free. In 2024/25, the Personal Allowance is £12,570, so it might be worth reviewing your other income sources when assessing if you could pay tax on interest. 

Personal Savings Allowance

In addition, most people benefit from a Personal Savings Allowance (PSA). If the total interest your savings earn falls below this threshold, they are not liable for Income Tax.

Your PSA depends on the rate of Income Tax you pay. For 2024/25, the PSA is:

• £1,000 for basic-rate taxpayers

• £500 for higher-rate taxpayers

• £0 for additional-rate taxpayers. 

Rising interest rates mean you don’t have to have as much as you once did to exceed the PSA before the interest could become liable for tax.

Indeed, according to Money Saving Expert, as of May 2024, the top easy access account is paying interest of 5.01%. That means basic-rate taxpayers could save £19,960 before they exceed the PSA. For higher-rate taxpayers, this falls to £9,980.

Starting rate for savings

You may also get up to £5,000 of interest and not have to pay tax on it if your income from other sources is below £17,570 in 2024/25, this is known as the “starting rate for savings”. 

If your income is below the Personal Allowance, your starting rate for savings is £5,000. For every £1 of other income above the Personal Allowance you receive, the starting rate for savings reduces by £1. So, if your income is £17,570 or more, you will not benefit from this allowance. 

How to pay tax due on your interest from savings 

If you’ve discovered that your savings exceed these allowances, you will normally need to pay tax at your usual rate of Income Tax.

The good news is that you don’t usually need to do anything to pay tax on the interest earned from savings. If:

• You’re employed or receive a pension, HMRC will change your tax code, so the tax is automatically deducted

• You usually complete a self-assessment tax return, you can report any interest earned on savings when completing your return

• You’re not employed, do not receive a pension, or do not complete a self-assessment tax return, your bank or building society will inform HMRC how much interest you’ve received at the end of the tax year. HMRC will contact you if you need to pay tax.

However, if the total income from savings and investments is more than £10,000 in a single tax year, you will need to register for self-assessment. So, it’s important to be aware if the amount you receive could exceed this threshold. 

An ISA could be a useful way to make your savings tax-efficient 

If the interest your savings have earned could be liable for Income Tax, you may want to consider using an ISA.

In the 2024/25 tax year, you can add up to £20,000 to ISAs, and they provide a tax-efficient way to save and invest. The interest you earn from savings held in an ISA isn’t liable for Income Tax, so it could provide a valuable way to grow your wealth.

You could also opt for a Stocks and Shares ISA, where your money would be invested. Once again, investing through an ISA is tax-efficient, as your returns will not be liable for Capital Gains Tax. However, you should note that investment returns cannot be guaranteed. Before you invest you may want to consider your risk profile, investment time frame, and how investing could fit into your financial plan.

Contact us to discuss how to make your savings tax-efficient 

Depending on your circumstances, there might be other steps you can take to reduce your overall Income Tax bill. Please contact us to arrange a meeting to talk about how to make your finances more tax-efficient as part of a wider financial plan. 

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.