Will new changes to final salary pensions affect you?
The pension Lifetime Allowance (LTA) was abolished on 6 April 2024. If you are thinking, “this change doesn’t affect me, my pension isn’t worth £1mn”, you could be mistaken. Even if your pension is not over the £1,073,100 threshold, this change may still affect you.
What are the new rules?
The Lump Sum Allowance (LSA) and the Lump Sum and Death Benefit Allowance (LSDBA) have replaced the LTA. These new rules came in due to the publicity surrounding issues with doctor’s pensions. But it has also affected many high earners and people with long service.
If you have already taken benefits from a final salary pension (regardless of the size) or with fixed/individual protection, the LTA change could have knock-on effects for you.
When taking benefits from a Defined Benefit (DB) pension, tax-free cash was normally taken. However, with the new rules, it means the amount of tax-free cash could now be assumed to have been much higher than you actually received, thus costing you a lot of tax.
If you have given away part of your pension in a divorce settlement, the LTA change may affect you too.
Transactional Relief may be available, so act now and speak to a financial adviser. Otherwise, you risk missing out.
You can apply for something called ‘Fixed Protection 2016’, which may help you keep the old, outgoing standard LTA figure of £1.25mn. There are application conditions, but our advisers can help you check if this works for you and your pension.
These are not the only changes from the LTA change. Depending on how you receive your regular monthly pension payments, your most recent April 2024 payment may have already cost you a lot more than you think.
If you already have an active financial adviser, they should have told you about these changes occurring.
If you think you could be affected, act now.
Please call us on 01480 869466 for a free initial, no obligation chat.
Financial Planning for a Divorce
Divorce can be emotionally and financially draining, but a trusted financial adviser can provide expert advice on the long-term financial implications of separating.
Typically, divorcing couples only consult financial advisers after agreeing to a settlement. 40% of all people who divorce think the process ends up being financially unfair, yet only 7% seek financial advice (Legal and General).
By consulting a financial adviser early, they can help you to make crucial decisions.
A 50/50 split of assets sounds fair on paper, but this is not always the case. It’s likely that a couple’s future potential earnings and pension savings will differ post-separation, due to differences in careers, responsibilities and obligations.
Despite being such a large financial asset, pensions aren’t always valued correctly in divorce proceedings; a financial adviser can ensure they are.
Dividing cash savings is typically more straightforward than pensions. They often involve a simple transfer from one account to another, but ISAs often need different considerations.
Dividing investments can sometimes invoke tax liabilities e.g. Capital Gains Tax (CGT), so tax-efficient planning can help avoid charges.
Reviewing your financial objectives and lifestyle is a necessary step after divorce too.
It’s still possible to have a review with an adviser after a divorce or separation if you haven’t yet reached a legally binding agreement. You’d be surprised how many don’t realise this.
A cash-flow planning session – which assesses your assets, income and expenditure over time – can help establish realistic aspirations and investment decisions following a lump sum payment, or plans for any future funds.
Divorce is never easy. Involving a financial adviser early can help ease the process and find the best possible solution.
If you would like to speak with one of our experts, message us or call us on 01480 869466 for a free initial, no obligation chat.
Future fees may apply. Registered and regulated by the FCA No. 526604.
What’s in the 2024 Spring Budget?
Against the backdrop of changing economic conditions and a forthcoming General Election, Chancellor Jeremy Hunt announced a series of measures in the 2024 Spring Budget. Here’s a rundown of some of the key announcements.
INFLATION DOWN, GROWTH SLIGHTLY UP
The Office for Budget Responsibility (OBR) has forecast that UK GDP will grow by 0.8% this year and 1.9% next year.
Inflation has receded, and markets are expecting a decline in interest rates accordingly.
However, output has stagnated, and there are reports that higher and rising levels of inactivity offset the impact and size of the UK workforce.
PENSIONS, SAVINGS & INVESTMENTS
Individuals will soon be able to access a new Great British ISA (GB ISA), that Hunt explains would “encourage more people to invest in UK assets”. This will give people an additional £5,000 to save alongside the existing £20,000 ISA allowance, but some in the industry are concerned this may add another layer of complexity to ISAs for consumers.
A British Savings Bond will be made available through National Savings and Investments (NSI), to help people “save for the long-term”, according to the Chancellor. It offers a guaranteed rate, fixed for three years, but the actual rate itself has yet to be announced.
The Chancellor once again mentioned that the ‘pension pot for life model’ is still being explored. This was first mentioned in the Autumn Statement in November 2023, and – at the time – we at Beacon wondered if the practicalities of such a scheme would be viable for consumers.
A major theme in the Chancellor’s statement was ensuring adequate investment in UK assets and businesses. To this end, new powers will be given to the Pensions Regulator and Financial Conduct Authority to judge performance on their returns, not just costs. Defined Contribution (DC) and local government pension funds will need to publicly disclose their level of UK and international equity investments.
The Government’s remaining shares in Natwest will be sold later this year, subject to market conditions.
TAXATION
National Insurance has been cut for the second Budget in a row, by 2p for workers – from 10% to 8%, following the previous cut in last year’s Autumn Statement,
Stamp Duty multiple dwelling relief has been abolished. This applies to people who are buying more than one dwelling, including those owning holiday lets.
Higher-rate Capital Gains Tax (CGT) on property will be reduced from 28% to 24%. The Chancellor remarked this would bring in more money, as more transactions would be covered. The lower rate of CGT remains in place.
For parents receiving Child Tax Credit, if either parent begins paying over £50,000, they have to start paying back 1% on each £100 they earn over £50,000. From April 2024, this threshold will increase to £60,000. The amount at which the tax credit is withdrawn entirely has been increased from £60,000 to £80,000. A reformed household model is set to be introduced in 2026.
The non-dom tax break for foreign residents within the UK will be abolished, to be replaced by a new scheme. New arrivals will not pay tax on foreign income and gains in their first four years within the UK.
Fuel duty will stay frozen for a further 12 months.
Alcohol duty will remain frozen until February 2025.
BUSINESSES
The VAT threshold for small businesses was increased from £85,000 to £90,000.
Full Expensing will soon apply to leased assets, as well as owned, as part of draft legislation the Chancellor announced. Last Autumn, the tax break had been applied to businesses investing in ‘plant and machinery’. This is something we at Beacon hoped would be included, in our pre-Budget article.
Small Businesses will continue to receive support from the post-pandemic Recovery Loan Scheme, which will receive a further £200mn.
FURTHER INTEREST IN CAMBRIDGE
For clients based near our base in Huntingdonshire, you may be interested to learn that a further £10mn will support transport and health infrastructure in Cambridge. The city continues to receive interest from the Government, which wants to see it as the world’s leading scientific powerhouse.
This summary was written on 6th March 2024. We will continue to monitor developments, but if you have any questions or concerns about your situation following the announcements, you can reach us on 01480 869 466 or email info@beaconwealth.co.uk.
What should be in this year’s Spring Budget?
With a General Election on the horizon, all eyes are focussed on what the forthcoming Spring Budget will contain. Tony Larkins, Managing Director of Beacon Wealth Management, reveals what he believes the Budget should consider at the Spring Budget announcement in March 2024.
The Spring Budget is always a guessing game on what it will contain, and who the winners and losers will be. With the economic climate as it is – the UK dipping into a technical recession at the end of 2023 (Office for National Statistics) – there are some key areas the Government should consider, to boost economic activity and support people’s personal finances.
A stamp duty holiday, to increase house sales and boost spending
Having another stamp duty holiday for 12 months would help stimulate housing sales and encourage people to add to the economy by spending money on decoration and renovation.
The UK housing market has slowed significantly – November 2023 saw a 22% fall in completed housing transactions compared to the previous year (ONS).
The UK is a nation of people who love their homes, and love home ownership. Making it easier for people to move would increase spending on decorations, renovations, extensions, and the VAT receipts from this spending would contribute positively to the economy.
Boost business spending and productivity with more tax allowances
Increasing tax allowances for business capital expenditure will encourage companies to spend more and improve productivity.
The full-expensing policy for businesses announced in April 2023 is only due to last until 2026. Ending it then would have little or no long-run effect on the economy (Institute for Fiscal Studies). The Government should follow through on its desire to make this policy permanent.
The current policy also biases towards purchases of plant and machinery, at the expense of other assets – extending this policy to other types of investment would be welcome.
The CBI has also called for extending business capital allowances to hired or leased assets, not just owned ones. This would give more money back to small businesses, many of whom find it more effective to rent assets than to buy them outright.
Increase R&D spending to promote innovative, sustainable growth
The 2023 Spring budget announced £3.5billion in funding towards making the UK a science and technology superpower (GOV.UK), as part of its wider aim to invest £20bn in R&D in 2024/25 (GOV.UK). The Government also lowered the threshold for how businesses qualified as R&D intensive from 40% to 30% of total expenditure. This ensured another 5,000 SMEs qualified for R&D tax relief.
Continuing this trend in funding would help businesses innovate, grow sustainably and contribute to growth in the UK economy.
Support an ageing workforce with business National Insurance relief
People who work past state retirement age no longer have to pay Class 1 or Class 2 National Insurance (NICs), but employers, however, still have to pay their contributions.
Removing this requirement for employers would bring parity between employee and employer, encourage businesses to take on older workers and, subsequently, this would increase the number of people working past state retirement age and contributing to the economy.
Inheritance Tax: Remove or Reform
Inheritance Tax has always been seen as unpopular – a move on this would be no doubt resonate with voters ahead of a General Election.
Inheritance Tax should either be abolished, or at least changed so that the main residence is not subject to the tax, regardless of value, and remove assets inherited. With house prices increasing the way they are, Inheritance Tax could be payable on a 1-bedroom flat in London, but not a 4-bedroom house somewhere else in the UK! And why should inherited assets cause you to pay tax when the assets have already been taken into account for the deceased.
The Government has said that any movement on Inheritance Tax is just speculation. But abolition or reform by removing a primary residence from the tax calculation could be a popular policy for our nation of homeowners.
At Beacon Wealth Management, we help people and businesses in Cambridgeshire and the East Midlands manage their finances and plan for their financial futures. We always keep an eye on the latest developments in UK policy to help our clients navigate the ever-changing economic landscape.
For a free, informal chat with one of their experts, you can contact us on 01480 869466 or info@beaconwealth.co.uk, or visit their website at www.beaconwm.co.uk.
Preparing for a Longer Retirement
I’ve mentioned in previous articles that we no longer refer to ‘threescore and ten’ (70 years old) as an average lifespan. The UK has over 11m people aged 65+, and over 500,000 aged 90+.
The average life expectancy for a baby girl today is 91 years; 2/3 of boys will reach 95, whilst 1 in 5 one-year olds are expected to reach 100 (Aegon).
Put another way, The Queen was known for sending Birthday Messages to those celebrating their 100th birthday.
In 1961, only 479 such messages were sent. In 2021, this had risen to 13,924!
Traditionally, we may have divided our lives into three parts:
Education | Work | Retirement
But as we spend longer amounts of time in retirement, perhaps we should divide our life into two parts instead:
Being Active | Being Less Active
Advances in medicine and technology such as AI mean that ailments currently considered life-threatening or disabling are expected to see cures that could extend our life expectancy considerably. With longer lives to live, we’ll need to save more money for our retirement, and perhaps even delay when to gift our assets and estates.
This is why making plans for both your retirement and estate is important. You’ll need to make sure your finances are prepared for both ‘Active’ and ‘Less Active’ phases of your life.
In 2023, the investment markets were difficult – it looked as though it was going to be a terrible year until a very strong recovery in November and December.
This recovery meant our average investor ended up with just under 7% growth. That said, this brought little comfort against the panic experienced over the last two years.
How and where you invest, and understanding the risks, forms part of how you plan for your future. It’s important to review how you invest for your different phases of life.
To speak with one of our expert Financial Planners, please call us on 01480 869466 for a free initial, no obligation chat.
Raising money for the Angels Foundation
We’re delighted to say our team raised £1,100 for our Charity of the Year, The Angels Foundation, helping families across Huntingdonshire.
A huge thank you to our Social Committee for their fundraising efforts over 2023!
Preparing for Tax Year End: Maximise Your Savings
With taxation rates in the UK being so high, it’s important to take advantage of the many allowances you could be eligible for ahead of tax year end.
There are straightforward steps you can take to make sure you’re not overpaying more than you should be:
Personal Savings Allowance – the impact of higher interest
For investors, 2023 ended up being a good year, with real growth happening in November and December. With interest rates going up, those with a decent amount in the bank may now see a tax bill.
Through the Personal Savings Allowance, the first £1000 (or £500 if you’re a higher-rate taxpayer) of any income from interest is tax-free. That means any interest income over that threshold is subject to tax.
For example, if you are a basic tax rate payer with £20,000 in a savings account at a 5% interest rate, this gives you an annual interest income of £1000. Your entire Personal Savings Allowance has been used up. A higher interest rate may increase your income interest, but may also increase your tax bill.
Dividends: Reduction in allowances
The Dividends Allowance – the amount you can receive in dividends before paying tax – has reduced for this financial year, from £2000 to just £1000. It will reduce again to £500 in the 2024-25 tax year. This means that you could be paying more tax on your dividends.
However, dividend income from assets held in ISAs continue to remain tax-free.
Capital Gains Tax
The Capital Gains Tax Allowance (CGT) for 2023-24 is £6000, a significant reduction from £12,300 in the previous tax year. It is paid on the gain when you sell, for example, a second home, or a personal possession over £6000 that isn’t a car.
However, if you held funds in an ISA, you don’t pay Capital Gains Tax on the gains you make.
Furthermore, the amount of CGT you pay is linked to your income. Increasing pension contributions reduces your taxable income, which may change your tax band and the rate of Capital Gains Tax you are charged.
Rent a Room Relief
If you rent out a room in your home, you can earn up to £7,500 per year tax-free (halved if you share the income with a partner, for example).
This exemption is automatic – if you don’t earn above this threshold, you won’t need to do anything.
ISA Allowance
Using an Individual Savings Account (ISA), you can save funds and not need to pay tax on cash, interest, income or capital gains from investments, as well as offering flexible access to your savings.
You can save up to £20,000 per year within an ISA tax-free. However, if you don’t use up your ISA allowance by the end of each tax year, it is gone, and can’t be carried forward.
How pension contributions can provide tax relief
The examples above demonstrate some tax implications you may face. However, you can benefit from tax relief to help offset this via your pension. This kind of tax relief exists because the government wants to incentivise people to save for their retirement.
By paying into your pension, you can help reduce the amount of tax you pay, increase your savings for the future and ensure you don’t lose certain entitlements.
If you earn over £100,000, your tax-free Personal Allowance starts to taper, and reaches zero if your income exceeds £125,140. However, by paying more of your salary into a pension, your final amount of adjusted net income is reduced. If it is reduced to under £100,000, you maintain your Personal Allowance.
Increasing your pension contributions can also ensure you don’t lose out on certain entitlements. For example, if you earn over £50,000, the amount of Child Benefit entitlement you receive reduces in the form of a ‘tax charge’. By reducing your net income through pension contributions to under £50,000, this charge will be avoided.
The level of tax relief available varies depending on how your pension works, or the rate of income tax you pay. It’s very important to ensure your pension is set up correctly, and that you are aware of any restrictions in place. A Chartered financial planner can help you with this.
Conclusion
There are many more forms of tax to be mindful of in the UK, and if you ask me, it’s far more complicated than it needs to be.
If a tax is due, there are allowances and reliefs you can take advantage of to mitigate your final bill. I would also recommend reviewing if your funds should be shared with a spouse or partner, or remain in the individual’s name – a financial planner can support you with these decisions.
If you find yourself paying a tax, stop and think: could some or all of it be avoided?
If you would like to speak with one of our pension experts, message us or call us on 01480 869466 for a free initial, no obligation chat.
Future fees may apply. Registered and regulated by the FCA No. 526604.
Choose, don’t Settle
Are you living the life you want, or have you settled for what you have?
This time of year, ‘New Year’s Resolutions’ are in full swing – people look at their lives and focus on the improvements they want to make. Sometimes, they can start instantly and work on them over time, like starting a hobby or stopping a habit. Sometimes, however, choices for the long-term require long-term planning.
Choosing the life you want is (normally) within your control; For example, many years ago, I decided I wanted to run my own business. Once I knew what I wanted, I planned accordingly to achieve my goal. Another goal of mine was to secure the funds I wanted to live on in retirement, and plans are in place for when that time eventually comes.
By asking the right questions and having discussions, you could discover that, what you thought you wanted is different from what you actually want to achieve.
If your goal is to achieve a certain level of income for retirement, or ensure income security for your family by passing on your estate, or plan for care fees, please speak to our experts.
If your goal is to finally start slowing after working hard for many years, speak to our experts.
With proper plans in place, there are countless ways to achieve your goals. If you don’t know what you want, or you don’t know what that end goal looks like, speak to our experts.
One of the great pleasures we have as Financial Planners, is that we can help individuals like yourself achieve things they didn’t know they could, and help them live a life they didn’t know was possible for them.
It was Jack London, who said, ‘the function of man is to live, not to exist. I shall not waste my days in trying to prolong them. I shall use my time’. So, let our experts help you make the most of your financial New Year’s Resolutions.
We can help you choose the life you want, so you don’t have to settle for the one you have.
To speak with one of our expert Financial Planners, please call us on 01480 869466 for a free initial, no obligation chat.
Retirement Age to Increase… Again
When I was born, the average life expectancy for a man was 70 years old. A child born today now has a 25% chance of reaching over 100 years old (ONS).
So with people now living longer, the State Pension Age would have to go up to facilitate this. Whilst we can probably all agree that 70 doesn’t seem that old these days, I imagine that a 70-year-old may not want to continue working as much as they did when they were in their 50’s or 60’s.
If you don’t want to retire at 70, you will need additional sources of wealth to enjoy a reasonable standard of living for longer.
Here are a few things to consider when planning your finances:
1) Pensions
A pension is the most tax-efficient method of saving, but it is not the only way of preparing for a retirement that could be the same number of years as your entire working life.
Currently, the standard pension contribution is just 8%, split between employee and employer. This figure has always been too low for most people looking to save.
2) Inheriting
By living longer, your beneficiaries may inherit from you much later. The inheritance could even skip a generation – your children may be in retirement themselves, so your wealth may pass straight to any grandchildren and/or great-grandchildren.
3) Care Funding
Living longer may require more investment in care over time – unfortunately, living longer may not necessarily mean a longer, better quality of life.
Settling these costs could then affect your grandchildren’s ability to inherit, if children themselves are at retirement age.
4) Financial planning
Personal financial plans may require adjustments as you age. Part-time working may increasingly become the norm for those working past retirement age. This may change the way you spend and the way you save. Living longer may also encourage more changes in career or career breaks.
If you need help formulating a plan, our Chartered and Certified advisers can assist you in planning your perfect retirement, no matter how far off into the future it may be.
Please call our experts on 01480 869466 for a free initial, no obligation chat.
Letters to Santa 2023
Are you looking forward to Christmas? Do you or a family member want to write a letter to Santa?
Our friends, the Elves of the North Pole, have left a postbox at our Kimbolton office for you to post your letters to Santa. All you need to do is:
- Download and print the ‘Letter to Santa’ template here >
- Write your letter – don’t forget to include your return address!
- Post it to Santa at the postbox location at: Beacon Wealth Management, The Old Chapel, Thrapston Road, Kimbolton, PE28 0HW
- The Elves will collect your letter and deliver it straight to Santa! You don’t need a stamp!
- You’ll then receive your reply from Santa in the post.
Hurry though, the postbox is only here until Friday 15th December 2023– the Elves will be busy helping Santa after that date!
