July 2024 - Investing For Tomorrow

Gaining control through Trusts

A person known as the ‘settlor’ places assets into a Trust, which may include money, property or other types of assets like life insurance policies and investment portfolios. This may be done during their lifetime (a Lifetime Trust) or can be triggered by death through a valid Will (a Will Trust). By placing the assets into this structure, the original owner may relinquish some of their rights and delegate responsibility to a trustee during their lifetime.

However, they can gain a lot more control in other ways. A settlor can project their wishes years into the future. Provided a Trust is set up correctly, you can determine who gets what and when with a good deal of precision. Trustees can be professionals (who work for a Trust company) or any other competent person prepared to take on these responsibilities.

Very wide-ranging powers and tasks

Trustees can have very wide-ranging powers and tasks, including settling tax bills and hiring investment management and legal professionals. If the Trust is discretionary, meaning they have discretion regarding the distribution of assets, they might also have to make certain decisions about how to use the Trust income and/or capital.

For these reasons, many prefer to have their Trust administered by professionals, paying them annual fees from the Trust’s assets. However, others looking to structure family wealth may appoint a mixture of professional and family friend trustees to create a balance of objectivity and personal knowledge of the beneficiaries’ situations and needs.

Emotional aspects of Trust management

Combining professional expertise with personal familiarity can ensure that both the technical and emotional aspects of Trust management are adequately addressed. Professional trustees bring technical know-how and impartiality, while family friends may offer deeper insight into the beneficiaries’ circumstances.

By thoughtfully selecting trustees, you can achieve effective and empathetic management of your Trust, ensuring that your wishes are fulfilled as intended. A blend of professional and personal trustees can provide a balanced approach, safeguarding the beneficiaries’ financial and personal interests.

Types of Trusts

Various types of Trust are available, and the settlor needs to decide which type is best suited for the circumstances.

A quick summary of the principal types of Trust is as follows:

Bare/Absolute Trusts – Where the settlor transfers the legal ownership of assets to the trustee for the benefit of the beneficiary absolutely.

Interest in Possession Trusts – The beneficiary (or sometimes known as ‘life tenant’) holds a right to the Trust fund’s income or the right to use Trust assets. The remainderman’s (the person who receives the property after the death of the life tenant) entitlement relates to the underlying capital.

Discretionary Trusts – This arrangement gives trustees flexibility and control over how best to use the Trust assets for the benefit of the beneficiaries. This flexibility helps in situations where children or grandchildren may not yet be born at the time the Trust is set up, as they would therefore automatically be included as a beneficiary.

Note that these are just a few examples; many other types of Trust can be used under different circumstances.

Tax planning and Trusts

It’ll be of no surprise that one of the main reasons for using Trusts is for tax planning and mitigation. For example, when an individual dies, their estate (i.e., net assets) is subject to Inheritance Tax (IHT), meaning the beneficiaries may lose up to 40% of their net inheritance.
If assets are put into trust during a settlor’s lifetime and they survive seven years, they are not part of the estate on death and may escape IHT at that time subject to the 14-year rule not being invoked. Trusts are used in certain IHT planning arrangements for the settlor’s benefit, such as Gift and Loan plans, Discounted Gift Trusts and Flexible Reversionary Trusts.

Trusts in Wills

Trusts are frequently created in Wills, particularly where the beneficiaries are minor children who need someone to look after them financially. Any asset left to a minor under a Will is effectively held in trust for the minor by the executors until the minor reaches majority unless the Will allows payment to be made to a parent.

Trusts can be explicitly created in Wills to ensure that a beneficiary does not benefit until some other age is attained or a condition is fulfilled. There are many other reasons for setting up Trusts, notable examples being to provide a pension, provide for families, assist a charity, give property to those who legally cannot hold it, and gain protection from creditors and business protection.

THIS ARTICLE DOES NOT CONSTITUTE TAX, LEGAL OR FINANCIAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. TAX TREATMENT DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF EACH CLIENT AND MAY BE SUBJECT TO CHANGE IN THE FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE.

THE FINANCIAL CONDUCT AUTHORITY DOESN’T REGULATE TRUST PLANNING AND MOST FORMS OF INHERITANCE TAX (IHT) PLANNING. SOME IHT PLANNING SOLUTIONS PUT YOUR MONEY AT RISK, AND YOU MAY GET BACK LESS THAN YOU INVESTED. IHT THRESHOLDS DEPEND ON INDIVIDUAL CIRCUMSTANCES AND THE LAW. TAX AND IHT RULES MAY CHANGE IN THE FUTURE.

THE VALUE OF YOUR INVESTMENTS CAN GO DOWN AS WELL AS UP, AND YOU COULD GET BACK LESS THAN YOU INVESTED.

Financial insecurity among British retirees

The figures also showed that 11% of British retirees have no savings at all. Almost one in five retirees across the UK will be on the poverty line as they do not have sufficient money in their pension pots, reflecting a concerning trend of financial insecurity among the older population.
One in seven retirees said that worrying about funding their retirement was the largest strain on their mental health. This highlights the urgent need for effective financial strategies and support systems to ensure a dignified and secure retirement.

Unlocking the value of property

Equity release is an alternative way to help some pensioners access capital to fund their retirement if appropriate. Equity release allows homeowners to unlock the value of their property without selling their home or taking on additional monthly repayments.

Equity release allows homeowners to access the equity built up in their property, providing a tax-free lump sum to supplement regular income whilst still retaining ownership and the right to live in their home for life or until they move into long-term care. This can be particularly advantageous for retired or with limited income, offering financial flexibility and stability without the burden of servicing higher mortgage repayments.

There are two equity release options

The two main types of equity release are the lifetime mortgage and home reversion. Each offers unique benefits tailored to different needs.

Lifetime Mortgage

With a lifetime mortgage, you take out a mortgage secured against your property, provided it’s your main residence while retaining ownership. This product allows you to continue living in your home as usual. One notable feature is the ability to ring-fence some of the property’s value as an inheritance for your family. This ensures that a portion of the home’s value is preserved for your loved ones.

You can decide whether to make regular repayments or allow the interest to roll up. The loan amount, along with any accumulated interest, is repaid through the sale of the property when the last borrower either dies or moves into long-term care. This option provides a way to access funds without selling your home immediately.

A lifetime mortgage can significantly enhance financial stability during retirement by providing a tax-free lump sum or regular payments. This can be especially advantageous for individuals with limited income or savings, offering additional funds without the necessity of monthly repayments. The flexibility of choosing between making repayments or letting the interest accumulate can be tailored to individual financial circumstances.
Moreover, modern equity release products now come with increased flexibility and protections, ensuring retirees can select the best option for their needs. These features make lifetime mortgages a viable solution for many looking to supplement their retirement income while remaining in their homes.

Home Reversion Scheme

Home reversion involves selling part or all of your home to a home reversion provider in return for a lump sum or regular payments. You retain the right to live in the property until your death, but you must agree to maintain and insure it. This option also allows you to ring-fence a percentage of your home for later use, which could be earmarked for inheritance purposes.

The percentage of the property retained remains constant, irrespective of fluctuations in property values, unless further cash releases are taken. Upon the last borrower’s death or move into long-term care, the property is sold, and the proceeds are divided according to the ownership proportions agreed upon at the outset.

Home reversion plans allow you to remain in your familiar surroundings while accessing a portion of your home’s value. This can offer financial security without affecting your current living arrangements. However, it is essential to maintain and insure the property as per the agreement with the home reversion provider.

When the time comes to sell the property, the sale proceeds are shared based on the predetermined ownership percentages. This structure ensures that you benefit from your home’s value while still planning for future needs or inheritance.

Investigate a multitude of options

However, it’s vital to investigate a multitude of options that could help ease financial obligations, as remortgaging may not always be the right option. The right equity release mortgage product, particularly those that offer the greatest flexibility through limited prepayment penalties, may be an appropriate option versus a more traditional mortgage when you want to unlock the value in your home.

A recent Equity Release Council (ERC) study found that a fifth of people do not expect to retire mortgage-free. This further illustrates future retirees’ financial challenges and the potential benefits of innovative financial products like equity release.

Source data:

[1] Senior Capital surveyed 2,070 respondents – 05.06.24

THIS ARTICLE DOES NOT CONSTITUTE TAX OR LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. TAX TREATMENT DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF EACH CLIENT AND MAY BE SUBJECT TO CHANGE IN THE FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE.

A growing trend among retirees

Although most retirees will be in their 50s, 60s, and 70s or more and less likely to have dependent children, research shows that nearly 40%[1] of those surveyed support grown-up children, a spouse or partner, a parent, an elderly relative, or a friend. It is fair to say that many people have been struggling with rising costs over the last few years, and it’s perhaps not surprising that most of that support has gone towards day-to-day living costs.

Following this, helping with house buying, wedding costs, education, or university fees are common reasons for offering financial assistance. Advancing an inheritance and covering care or medical costs were other major motivations for providing support, too.

Finances and setting realistic boundaries

Thankfully, helping their children is something many retirees are happy about, with almost half (47%) saying it’s very important or essential to be able to do that throughout their lives. If helping your children and other loved ones throughout your lifetime is important to you, there are some things to consider carefully. Your money has to last as long as you do to support yourself throughout your retirement, however long that might be. If the money you’re giving to loved ones was an unexpected outgoing, do you know the impact that might have on your financial goals?

Balancing the desire to help with the need to maintain your financial stability is crucial. Having a clear understanding of your finances and setting realistic boundaries for how much you can afford to give will ensure your and your family’s needs are met. Additionally, transparent communication with your loved ones about your financial limits can prevent misunderstandings and ensure everyone is on the same page.

Making your money work harder

We can help you devise plans to make your money work harder and recommend the best ways to use tax allowances to minimise the amount of tax you may incur. This could be achieved through estate planning, which aims to reduce or, where possible, avoid Inheritance Tax (IHT). Another approach includes reviewing your pension and other savings to ensure they are being utilised in the most tax-efficient manner.

We’ll also consider your individual needs and circumstances to prepare a recommendation that helps you plan for a financially secure future. This personalised strategy ensures that your financial goals are met effectively.

Planning for your legacy

Around three-quarters (76%) of those surveyed expect to leave an inheritance of some kind to their children. They want the next generation – and sometimes a wider family – to benefit from financial support after they’ve gone and during their lifetime. This necessitates having a plan to ensure you have sufficient funds left.

Ensuring you have an up-to-date Will that reflects your wishes is crucial. It’s equally important to consider any pension you may leave behind and whether you have a beneficiary who will receive some or all of your pension after you die.

Pension management and beneficiaries

Pensions aren’t normally covered by a Will, so you’ll need to complete a ‘Nomination of Beneficiary’ form with your pension provider – or providers if you have more than one pension – to guarantee any pension savings go to the individuals you intend them for. This process can usually be done online for convenience.

Regularly reviewing your beneficiaries and ensuring all address details are current is vital, especially if circumstances change, such as having more children or getting divorced. This ensures that your wishes are accurately executed.

Tax implications and efficient transfers

Those who inherit your pension savings typically pay income tax, so what they withdraw and when they do it can significantly impact the actual amount they receive. We provide guidance on passing your money and pension savings on in the most tax-efficient way, including managing any IHT liabilities.

Our expert advice aims to minimise tax implications and maximise the benefit for your loved ones. By navigating these complexities, we help preserve your financial legacy effectively.

Source data:

[1] Data from the Great Retirement report by the Wisdom Council, in association with M&G – 17/05/24

Unmet financial expectations

One in ten retirees (11%) did not anticipate how much money they would need in retirement and found life after work more difficult than expected. They wished they had planned properly. More than a third (36%) of retirees said they had experienced unexpected health challenges; however, 27% mentioned that although they weren’t living the retirement they’d planned, they were still very happy.

Economic pressures affecting retirees

Money, or lack thereof, is a significant driver of overall retirement satisfaction for the over 55s. Inflation and the cost-of-living crisis are hurting retirees, with one in five (21%) saying they hadn’t factored rising costs into their plans. Additionally, preparing for unexpected costs has caught retirees off guard, with 13% receiving bills they weren’t expecting.

Savings and retirement planning

One in ten retirees (12%) cited a relative lack of savings, saying they didn’t have enough money to live the retirement they had planned. Similarly, some people over 55 (11%) did not anticipate how much money was needed to fund retirement. This insight clearly shows that people’s retirement experiences vary widely. Later life varies for each individual, but generally, people go through four key financial stages: beginning retirement savings, assessing their progress, utilising their savings, and planning their legacy.

Navigating retirement challenges

While a lack of retirement funds and the impact of rising costs are clearly issues facing the current generation of retirees, unexpected health issues often trump both, leading to the dreams of many being shattered due to these unforeseen circumstances. Planning your retirement and ensuring it is flexible enough to navigate the many challenges you will face is vital to feeling in control and enjoying your later years.

Source data:

[1] Research conducted by Opinium among 663 over 55s who said they were retired, with fieldwork conducted between 19th – 22nd March 2024.

Key pension questions to consider

How many different pension plans do you have? Do you have the details for each plan? Do you know how much is saved in each one? How well are they performing? What are the charges and levels of risk for each plan? How much income will you need in retirement to live life the way you want? Are your pension funds and other assets enough to provide that income?

Reviewing your pension plans

If you are unsure of the answers to some of these questions, this could be an ideal time to review your pension and retirement plans and make any changes to provide the future you want. Recent changes in pension legislation may offer a beneficial opportunity.

You may already know that there have been two key changes to pension rules recently. This has created opportunities to increase pension savings for some people and take stock of what they already have.

Removal of the Lifetime Allowance tax charge

Firstly, the Lifetime Allowance (LTA) tax charge has been removed as of 6 April 2023. Previously, anyone withdrawing benefits from their pension fund above the LTA of £1,073,100 (or the applicable fixed, enhanced, individual or primary protection amount) was subject to a tax charge. This charge could be either 55% or 25%, depending on whether they were taking a lump sum or income.

The Spring Budget in March 2023 reduced this charge to 0%. More recently, the Autumn Statement 2023 confirmed that the LTA would be removed entirely from 6 April 2024, which has now taken effect.

Opportunities for pension contributions

As a result, you can now theoretically add to your pension (with set limits applying to tax relief) without worrying about a penal tax charge if you breach the old LTA. So, if you have had to stop paying money into your pension fund to avoid this tax, now would be a good time to discuss with us whether it would be prudent to add more.

Increased annual contribution limits

Secondly, the maximum annual contribution has been increased from £40,000 to £60,000 subject to relevant earnings or those who have triggered the MPAA. It’s worth noting that this legislation could change again.

These changes could benefit you if you want to pay more into your pension and have a pension fund above or near the previous LTA figure or a higher fixed protection amount. Additionally, if you stopped contributing to your pension and applied for fixed protection in 2012, 2014 or 2016, now would be a good time to discuss this with us.

A tax-efficient way to invest

At a glance, these changes seem to make pensions an even more tax-efficient way to invest – but pensions are complex, and these rules are not straightforward. There’s no guarantee that the LTA will not be reinstated, which could create issues. It is also possible that another protection scheme may be introduced if the LTA is reinstated.

Changing your pension contributions might also affect how you draw your salary. This means it’s desirable to get the right professional advice and consider your financial arrangements as a whole before making any decisions.

What are your options?

If any of these questions apply to you, you may want to consider obtaining professional advice about your options. Do you have one or more old pension funds that might be treated differently under the new rules? Are you aiming to retire within the next couple of years, or would you like to retire earlier than you planned? Have you already made withdrawals from your pension but then returned to work?

Do you want to reduce the Inheritance Tax burden on your heirs? Might you inherit a pension soon? If any of these apply to you and you think you might be able to benefit from the recent changes, get in touch with us.

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

THE VALUE OF YOUR INVESTMENTS (AND ANY INCOME FROM THEM) CAN GO DOWN AS WELL AS UP, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.

YOUR PENSION INCOME COULD ALSO BE AFFECTED BY THE INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS.

Gaps in pre-retirement knowledge

The research also shows there is a wide knowledge gap among those in the key pre-retirement age group[2]. Over a fifth (22%) of over 55s who are not yet retired do not know their state pension age, and just three in ten (29%) of this age group know how much the state pension is worth. Additionally, the research found that the understanding of the state pension system is poor across all ages, with participants struggling to explain basic aspects of how the system works.

The study revealed that knowledge gaps have led to several misconceptions, the most prominent being that each person’s National Insurance contributions are kept in a personal pot to be accessed when they reach state pension age when, in reality, it is funded on a pay-as-you-go system by current taxpayers[3]. This was a strongly held belief that impacted people’s views about the fairness of the system.

Recent pension increases and future concerns

The state pension remains a hot topic. Under the triple lock, while the increase in pensioners payments in April is a welcome boost for millions, concerns about its sustainability for future generations have been raised.

It’s worrying that many UK adults lack knowledge about specific state pension details, such as the value of their entitlements and when they qualify for payment. However, the state pension is a significant part of most people’s retirement income, and it’s clear that greater prominence and more accessible information are needed so people feel confident and can plan for their financial future.

What is the state pension?

The state pension is an amount paid to you every four weeks by the government once you reach state pension age. However, not everyone can get the full state pension, which might not be enough to live on alone. Therefore, it’s important to know what yours might be when you can claim it and how it will stack up with your other retirement savings.

What is the current state pension amount?

The current full state pension amount is £221.20 a week for the 2024/2025 tax year, totalling £11,502.40 for the year, an increase of 8.5% from the previous tax year. Remember that the amount you’ll get depends on your National Insurance record and how many qualifying years you have. You’ll usually need at least ten qualifying years on your National Insurance record to get any state pension.
You’ll need 35 qualifying years to get the new full state pension if you don’t have a National Insurance record before 6 April 2016. In some circumstances, it’s possible to top up your National Insurance record, and your state pension forecast will highlight when this is an option.

What is pension credit eligibility?

If you’ve reached state pension age and you’re on a low income, it’s worth checking if you’re eligible for pension credit. This tax year (2024/25), pension credit usually tops up your weekly income to £218.15 if you’re single or your joint weekly income to £332.95 if you have a partner. Arming yourself with accurate information about your state pension is essential for effective retirement planning. Understanding how your National Insurance contributions affect your entitlement can help you make informed decisions about topping up your record or exploring additional retirement savings options.

Government resources such as the state pension forecast are invaluable tools that can provide a clearer picture of what you might receive. Engaging with these resources early and regularly can prevent unwelcome surprises. Given the state pension’s central role in retirement income for many, it is critical to ensure you have all the relevant details. This proactive approach not only aids in better financial management but also offers peace of mind as you approach retirement age.

When can I receive the state pension?

UK adults can currently receive the state pension from age 66, but this is set to rise to 67 by 2028 and again to 68 between 2037 and 2039. You can use the Government’s calculator to check when you’ll reach state pension age.

If you don’t want to take your state pension immediately, you can also choose to defer it. This means you could get larger payments when you do start claiming it, which might suit you depending on your circumstances.

How do I claim my state pension?

You won’t get your new state pension automatically – you must claim it. You should get a letter no later than two months before you reach state pension age outlining what you need to do. If you have not received an invitation letter but are within three months of reaching your state pension age, you can still make a claim, and the quickest way to do this is online.

When will the state pension be paid?

After you’ve made a claim, you will receive a letter about your payments. These are usually paid every four weeks into an account of your choice, and you are paid in arrears. The payment day depends on your National Insurance number, although you might be paid earlier if your normal payment day falls on a bank holiday.

Will the state pension be enough?

There’s a significant gap between what you receive from the state pension and what you may need or want in retirement. The state pension alone falls short of even a minimum standard of living in retirement, according to the Pensions and Lifetime Savings Association (PLSA).

Because it only starts in your late 60s, it won’t help to support you if you want to retire earlier. It should, therefore, only form part of your overall retirement plan, and so it’s important to fully understand how much you might need to save in your personal or workplace pension plan to be able to afford the retirement you want.

Source data:

[1] Boxclever conducted research among 6,350 UK adults for Standard Life. Fieldwork was conducted 26th July – 9th August 2023. Data was weighted post-fieldwork to ensure the data remained nationally representative on key demographics.
[2] Phoenix Group research, January 2024. Survey conducted by Opinium among 2,000 UK adults.
[3] Phoenix Insights (2023) An intergenerational contract: Policy Recommendations for the future of the State Pension

THIS ARTICLE DOES NOT CONSTITUTE TAX OR LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH.

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

THE VALUE OF YOUR INVESTMENTS (AND ANY INCOME FROM THEM) CAN GO DOWN AS WELL AS UP, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.

YOUR PENSION INCOME COULD ALSO BE AFFECTED BY THE INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS.

A way to get assets in order

Making a Will often prompts a financial review. It typically identifies gaps in people’s financial planning—often inadequate life assurance or disability income benefit cover. If they’re in an occupational pension scheme, they may need to update their nomination of beneficiaries form.
Without a Will, Intestacy laws determine who inherits your estate and in what order. If you don’t have a valid Will, then effective state legislation steps in and provides a series of rules which you may not wish to apply to your assets and your family. It’s also relatively inexpensive compared to the problems you can create for your family without making a Will.

Specifying sentimental gifts in your Will

We dedicate much of our lives to working hard to provide for ourselves and our loved ones. As we accumulate assets and cherished possessions over time, it becomes crucial to ensure that they are distributed according to our wishes when we are no longer around. Importantly, the gifts mentioned in a Will do not need to be limited to property or cash.

They can also include sentimental items with significant emotional value but less material worth. These could be family heirlooms, personal mementoes, or any treasured possessions that we wish to pass down to future generations. By specifying these sentimental gifts in our Will, you ensure that these meaningful items are handed down to those who will appreciate them most.

Leave money to a good cause

While family and friends are likely to be the first considerations when writing a Will, many people also take the opportunity to give a helping hand to causes close to their hearts. For many charities, gifts in Wills account for a significant amount of their income.

Without these legacies, much of their work would not be possible. Leaving money to charity could also cut your Inheritance Tax bill. Some charities will even help you write a Will if you leave them a donation. By leaving 10% of the value of your estate to a charity, you could reduce Inheritance Tax payable on some of your assets from 40% to 36%.

You choose the legal guardians

A Will allows you to appoint one or more legal guardians for children aged under 18. Your chosen guardians will take over the role of bringing up the children on your behalf. This ensures you remain in control and entrust this significant responsibility to people you deeply trust.

In addition, having a Will grants you the peace of mind that comes with knowing your children’s future is secured. By choosing guardians, you ensure they are cared for by individuals who share your values and vision for their upbringing.

You choose the executors

Choosing your own executor, the individual responsible for implementing the terms of your Will, can ensure that your estate is distributed by someone you trust. You can appoint people you know and rely on to be your executors and manage your estate. Alternatively, you can appoint professionals to serve as your executors.

An executor plays a crucial role in managing your affairs posthumously, ensuring that your wishes are carried out accurately and efficiently. This includes settling debts, distributing assets, and handling other legal matters related to your estate.

You ensure partners are looked after

There’s a common misconception that the rules provide for a ‘common-law’ husband or wife. If you’re unmarried or in a registered civil partnership and don’t have a Will, your partner won’t inherit anything under the laws of intestacy. A Will ensures that couples who live together but aren’t married or in a registered civil partnership can leave their assets to each other.

Taking out a life insurance policy can further ensure that your family is financially secure. Life insurance can serve as a safety net, providing financial support to your loved ones in the event of your passing.

A Will should be updated

A Will should be reviewed at least every three years and whenever there’s a significant life event, such as the birth of a child or when children become adults. Keeping your Will up to date ensures that it reflects your current wishes and circumstances.

Amending a Will is straightforward – you can rewrite parts of it with something called a codicil. This allows you to make minor adjustments without drafting a completely new document.

Peace of mind

Making a Will can relieve a considerable burden on your mind. Completing a properly-arranged Will provides peace of mind, knowing that your assets will be distributed according to your wishes. Writing a Will places you in the driver’s seat for many important decisions, impacting not just your life but also those of your family and friends.

Once written, many people feel great relief, especially when they can cross it off their ‘to-do’ list. However, remember to update it as needed to ensure it remains relevant.

Maximising your exemptions

The good news is that with careful planning, there are different ways to reduce CGT, ensuring more of your money goes towards your future. However, CGT can be highly complex and without expert financial advice, there’s a risk you could end up paying it unnecessarily. Here are some ways to potentially reduce a CGT liability.

Use your CGT exemption

Everyone has an annual CGT exemption, which enables you to make tax-free gains of up to £3,000 in the 2024/25 tax year. This can’t be carried forward into the next tax year. Despite the reduced allowance, making full use of it each year could reduce the risk of incurring a significant CGT liability in the future.

Make use of losses

You might be able to minimise your CGT liability by using losses to reduce your gain. Gains and losses realised in the same tax year must be offset against each other, which can reduce the amount of gain that is subject to tax. Unused losses from previous years can be brought forward, provided they are reported to HM Revenue & Customs within four years from the end of the tax year in which the asset was disposed of.

Transfer assets to your spouse or registered civil partner

Transfers between spouses and registered civil partners are exempt from CGT, which means assets can be transferred from one partner to the other to use each person’s annual CGT exemption. This effectively doubles the CGT exemption for married couples and civil partners. The transfer must be a genuine, outright gift.

Invest in an ISA / Bed and ISA

Gains (and losses) made on investments held within an ISA are exempt from CGT, so it makes sense to use your ISA allowance each year, particularly for higher and additional rate taxpayers. In the 2024/25 tax year, you can invest up to £20,000 in an ISA. For married couples and civil partners, the ISA allowance effectively doubles to £40,000.

Considerations and professional advice

There is also an option called ‘Bed and ISA’, which involves selling investments to realise a capital gain and then immediately buying back the same investments inside an ISA. This enables all future gains on the investment to be CGT-free. Bear in mind that you may pay stamp duty and other costs when repurchasing investments in an ISA, and there is a risk that time out of the market, however small, will detrimentally impact your investments. It’s important to obtain professional financial advice before taking such action.

Contribute to a pension

Making a pension contribution from relevant earnings could help you save on CGT because it effectively increases the upper limit of your Income Tax band. If, for example, you made a gross pension contribution of £10,000, the point at which higher rate tax becomes payable would rise from £50,270 to £60,270 (2024/25 tax year). If your capital gain plus other taxable income fell within this extended basic rate income tax band, CGT would be payable at 10% instead of 20%, provided the gain wasn’t from residential property.

Give shares to charity

If you give land, property or qualifying shares to a charity, Income Tax relief and CGT relief are available. This strategy not only benefits the charity but also provides you with significant tax advantages. By giving assets directly to a charity, you can avoid CGT on any increase in value and claim Income Tax relief based on the market value of the assets donated.

Claim Gift Hold-Over Relief

Gift Hold-Over Relief could be available if you give away certain business assets or sell them for less than they are worth to help the buyer. If you’re eligible, you won’t pay CGT when you give away the assets, but the person you give them to might be liable for CGT when they sell them. You must meet several eligibility conditions, so if you’re unsure, speak to a professional adviser. This relief allows you to defer the CGT liability until the recipient disposes of the asset, effectively transferring the tax burden to them. This can be particularly useful when you want to support a family member or business partner.

Chattels that escape CGT

Gains on possessions such as antiques and collectables, called ‘chattels’, may be tax-free. For example, items with a predictable life of 50 years or fewer, known as ‘wasting assets’, are CGT-free, provided they were not eligible for business capital allowances. Wasting assets include antique clocks, vintage cars, pleasure boats and caravans. For non-wasting chattels, like paintings and jewellery, the CGT position depends on the sale proceeds, with those £6,000 or under usually being exempt. This exemption can provide a valuable opportunity to capitalise on the appreciation of these items without incurring a tax liability.

Missed opportunities for early savings

Despite the clear uncertainty about their futures, the research highlights that younger women are missing out on making a significant early difference. While 19% of men start paying into their pension by age 22, just 14% of women do so, signalling a clear opportunity for more young women to start saving for a pension from an early age.

Of those who opted out of being automatically enrolled into their employer’s pension scheme, 29% said it was because they couldn’t afford to keep up regular pension contributions, and 14% said they would prefer to spend the money now. In fact, women are saving less than men towards an employer pension at nearly every point in their lives.

The growing pension gap

Acting early is key, given that the pension gap also grows with age. The difference between the pension values of men and women is 10% at the age of 25 and 50% by age 50. The research shows a significant gap between women’s expectations and the actions taken to meet those expectations.

Alarmingly, 10% have opted out of their workplace pension, meaning they are missing out on compound interest gains and, crucially, the ‘free money’ that comes with employer pension contributions.

Consequences of opting out

Opting out of your employer’s pension scheme is tantamount to taking a pay cut. When these women reach the end of their working lives, they may face a much harder retirement than those who have consistently contributed. This situation is compounded further by often having to take enforced career breaks.

The good news for anyone in their twenties is that time is on their side. Fortunately for younger women, there are steps that can robustly improve retirement outcomes if taken during their careers in their 20s. They can maximise compound gains by starting early and maximising available employer contributions.

Bridging the retirement expectations gap

It’s alarming to witness the contrast between retirement expectations and the reality that many women in their 20s will face, but it is not surprising. The cost of living crisis has made prioritising their pensions more difficult than ever. The challenge lies in the necessity of paying into a pension regularly from the start of one’s career, which is essential given the boost provided by a workplace pension.

The gender pension gap

Addressing the gender pension gap, which can expand to £100k, is crucial. By raising awareness of the importance of a pension and the impact of compounding over time on your pension pot, there’s hope that more young women can take control of their future savings today.

However, the struggle to balance immediate financial needs with long-term planning is very real. Many young women are compelled to make tough decisions about allocating their limited resources, often foregoing pension contributions to meet daily expenses.

Maximising early contributions

The reality is that early contributions to a pension scheme can significantly impact your financial future. The benefits of compound interest mean that the earlier you start saving, the more your money can grow over time. This is particularly important for women, who historically tend to live longer than men and, therefore, require more substantial retirement savings.

Despite these advantages, many young women remain reluctant to commit to regular pension contributions. The fear of inadequate disposable income now often overshadows the potential security in the future. Education and awareness are pivotal in altering this mindset.

Leveraging workplace pensions

Utilising workplace pensions effectively can substantially increase retirement savings. Employers frequently match contributions, essentially providing ‘free money’ towards your pension. Opting out of such schemes could be likened to a voluntary pay cut, forfeiting employer contributions and tax reliefs.

Offering comprehensive education on the subject is essential to motivating more young women to invest in their pensions. Understanding how pensions operate, the advantages of early investment, and the long-term effects of compounding interest can empower young women to make more informed decisions about their financial futures.

Source data:

[1] The research was conducted online by YouGov on 5,072 nationally representative respondents in the UK between 21/03/2023 – 05/04/2023. A further survey of 1,352 ethnic minorities in the UK took place between 21/03/2023 – 06/04/2023.

THIS ARTICLE DOES NOT CONSTITUTE TAX OR LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH.

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

THE VALUE OF YOUR INVESTMENTS (AND ANY INCOME FROM THEM) CAN GO DOWN AS WELL AS UP, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.

YOUR PENSION INCOME COULD ALSO BE AFFECTED BY THE INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS.