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Month: January 2025

Often dubbed the ‘Bank of Family,’ it is anticipated to be pivotal in 42% of UK property purchases for those under 55 in the coming year[1]. This translates to an impressive 335,000 housing transactions in 2024 alone, marking the highest level of family-supported purchases since tracking began in 2016.

Supporting the next generation

The financial help extended by family members is predicted to rise significantly, with gifts from parents and grandparents expected to reach £11.3 billion by 2026. To fund these generous contributions, many are opting to downsize their homes, release equity, or re-mortgage their properties. Specifically, 19% of those providing financial support are doing so through these avenues, with 9% utilising equity release in the first half of this year alone.

Despite the good intentions behind these financial gifts, there is an alarming trend of not seeking professional advice. 74% of parents and grandparents who made a financial gift did not obtain professional advice before proceeding, which could have long-term financial implications.

Value of professional advice

Property wealth remains one of the most significant assets for families across the UK, making it a natural resource for financial support. However, individuals making substantial financial gifts should seek professional advice to ensure they are making informed decisions. While products such as lifetime mortgages automatically include specialist advice, this is only sometimes the case for other financial gifts, which can lead to unanticipated financial strain.

As equity release becomes more mainstream, more people may consider it a viable option for supporting their loved ones. The ‘Bank of Family’ is set to have a busier year than ever, and with this comes the need for prudence and careful planning. The ‘Bank of Family’ is becoming a significant player in the UK housing market, supporting an ever-growing number of property transactions.

Source data:
[1] Bank of Family methodology research was compiled using primary survey data as well as existing data sources relating to the housing market. Survey work carried out by YouGov – the total sample size 2,017 adults aged 55+ with children or grandchildren aged 16+ – survey undertaken between 26th June and 2nd July 2024.

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.

What is Inheritance Tax (IHT)?

IHT is a tax levied on the transfer of wealth, typically paid by the estate of a deceased individual, but it can also apply during a person’s lifetime. Your estate includes all property, possessions, money, and other assets. If the value of your estate exceeds the nil-rate band at the time of death, the excess is subject to IHT, generally at 40%. IHT is usually not applicable if everything is left to a spouse or registered civil partner. For the 2024/25 tax year, the IHT nil-rate band is set at £325,000.

Maximising IHT allowances

Married couples and registered civil partners have the option to transfer any unused portion of their IHT nil-rate band to the surviving partner, effectively doubling the threshold to £650,000. In addition, the ‘residence nil-rate band’ introduced in 2017 can increase an individual’s IHT allowance if their main residence is passed on to direct descendants. This can potentially raise the overall IHT allowance to £500,000 per individual or £1 million per couple.

Strategic planning to reduce IHT

The residence nil-rate band gradually diminishes by £1 for every £2 that the estate exceeds £2 million, becoming unavailable for estates valued over £2.35 million. An up-to-date Will is crucial to effectively manage IHT liabilities, as older Wills may contain trusts that impact the nil-rate bands. Some individuals may postpone wealth transfer until death, but gifting during their lifetime can be more tax-efficient.

Tax-efficient gifting and transfers

Tax-efficient gifts (tax year 2024/25) currently include annual exemptions of £3,000, wedding or registered civil partnership gifts up to £5,000 for a child, £2,500 for a grandchild, or £1,000 for others, and gifts from regular income. Small gifts of up to £250 per person annually are also exempt, provided no other allowances are used for that individual. Gifts not covered by exemptions are either ‘potentially exempt transfers,’ which require surviving seven years to be tax-free, or ‘chargeable lifetime transfers,’ which may incur immediate IHT.

Utilising pensions for IHT efficiency

Pensions can also facilitate tax-efficient wealth transfer. Should you pass away before age 75, benefits left in a money purchase pension can generally be transferred tax-free. If death occurs post-75, these benefits are taxed at the beneficiary’s marginal Income Tax rate. It may be prudent to draw retirement income from other sources, preserving pension funds for inheritance purposes.

Additional strategies for reducing IHT

Other IHT reduction methods include establishing trusts, exploring specialist investment vehicles, and considering whole-of-life insurance policies written into an appropriate trust. However, the intricacies of these options highlight the importance of seeking professional financial advice early on. Early planning significantly enhances the ability to leave a legacy that meets your family’s specific needs.

Source data:
[1] https://www.gov.uk/government/statistics/inheritance-tax-statistics-table-121-analysis-of-receipts
[2] https://www.gov.uk/government/statistics/hmrc-tax-and-nics-receipts-for-the-uk/hmrc-tax-receipts-and-national-insurance-contributions-for-the-uk-new-annual-bulletin#inheritance-tax

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.

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

THE TAX TREATMENT IS DEPENDENT ON
INDIVIDUAL CIRCUMSTANCES AND MAY BE SUBJECT TO CHANGE IN FUTURE.

THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE TAX AND TRUST ADVICE AND WILL WRITING.

The gender pension gap is not merely a consequence of individual choices but a complex issue influenced by societal norms and work patterns. Women are more likely to engage in part-time work or take career breaks to manage caregiving responsibilities, directly affecting their earnings and, consequently, their pension savings. Despite similar participation rates in pension schemes, the amount saved by women lags significantly behind that of men.

Factors contributing to the gender gap

Despite similar pension scheme participation rates, women save less than men throughout their careers. This discrepancy is stark, with a 16% gap in their 30s widening to 43% by the age of 55, the research highlights[1].

Historical perceptions painted women as less likely to engage with pensions, but recent findings contradict this, showing women value pensions highly when considering job offers[2]. However, many women take lower-paid, part-time roles to balance work with caregiving responsibilities. In fact, about one million women under 50 are outside the workforce due to such commitments[3].

Impact of caregiving responsibilities

Care responsibilities, often shouldered by women, significantly affect their retirement savings. Statistics from the Office for National Statistics reveal that older female workers are twice as likely to have caregiving duties, which detracts from their ability to save for retirement[4].
While two-fifths of workers enhance their pension savings through employer matching, fewer women than men take advantage of this opportunity. Affordability is a common barrier, with half of the women citing it as a reason compared to 39% of men.

Addressing the savings disparity

Auto-enrolment has boosted savings among women, yet the interruptions caused by parenthood and caregiving continue to affect their pay, career advancement, and, ultimately, their pension savings. Decisions to reduce work hours for family care have long-term financial implications.
While men and women save similarly for pensions early in their careers, the gap widens significantly with time, culminating in women having roughly £60 for every £100 saved by men at retirement. Compounding this, women typically live longer, necessitating more substantial savings for a more extended retirement period.

Empowering women in financial planning

Dispelling the myth that women are less interested in pensions is crucial, as many are now more empowered and proactive in managing their long-term finances. Starting to save early is vital for overcoming gender-specific barriers. Establishing a retirement fund as soon as possible allows small contributions to grow over time. Regularly reviewing pension savings is also essential, ensuring alignment with retirement goals.

Consider increasing pension contributions when receiving a pay rise, especially if employer matching is available. This can significantly amplify retirement savings. Planning for retirement involves more than just financial considerations; it requires envisioning how you wish to spend your time post-retirement. Whether enjoying leisure activities or travelling, understanding these desires helps estimate retirement costs more accurately.

Collaborative planning for couples

If you are part of a couple, joint planning is beneficial. Contributing to each other’s pensions and maximising State Pension entitlements ensures both of you can enjoy a comfortable retirement. Managing pensions can seem complex, but we can provide guidance. We can help demystify pension schemes and build confidence in handling your retirement savings.

Source data:
[1] Royal London’s research is based on nearly two million workplace employees, with a 41% female and 59% male split—data at the end of H1 2024.
[2] The research was conducted between 31 July and 5 August 2024, and 3,693 UK workers had workplace pensions.
[3] https://www.bbc.co.uk/news/business-52660591
[4] https://www.ons.gov.uk/peoplepopulationandcommunity/birthsdeathsandmarriages/ageing/articles/ living longer howourpopulationischangingand whyitmatters/2019-03-15

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

NHS Continuing Health Care (CHC) might cover some or all expenses, but securing this funding can be complex and challenging, especially during stressful times. Despite it seeming evident that certain conditions, such as dementia, require medical care, they are often classified as social care, which typically falls outside NHS funding.

Navigating NHS funding challenges

If NHS funding isn’t an option, you can explore alternatives, often involving personal financial contributions. The rules for providing long-term care are complex, and different rules apply in England and Northern Ireland, Scotland and Wales.

In England you’ll currently undergo a means test. If your assets exceed £23,250, you’ll need to cover the full cost of your care. With assets between the £14,250 and £23,250 tariff limit, the local authority may contribute, but you’ll still be responsible for a portion of the costs. Your income is still considered if your assets are below £14,250, but capital is excluded from means testing, and the local authority pays for your care.

In Scotland, the upper limit is over £35,000, and you’ll need to pay the full cost of your care. The local authority funds some of the care between the £21,500 and £35,000 tariff limit, and you pay the rest. The lower limit is less than £21,500, capital is excluded from the means test, and the local authority pays for your care. However, your income is still taken into account.

In Wales, the single limit is £50,000 and over. Above this figure, you pay the full cost of your care.

Capital amounts between the upper and lower limits tariff for England and Northern Ireland, and Scotland are assessed as providing £1 of additional income for every £250 of capital above the lower limit. The tariff income is then added to your other income for the income means test.

Understanding asset implications

A common misconception is that selling your home is mandatory to fund care costs. This isn’t necessarily true; if you or close family members live in your home, it’s generally safeguarded from being counted in your financial assessment.

However, an empty property, such as moving into a care home, might be considered part of your assets, potentially necessitating its sale to cover costs. Gifting assets to avoid care expenses can also be problematic. Local authorities might view this as a ‘deliberate deprivation of assets,’ which can complicate financial assessments significantly, especially if done during a time when care costs are foreseeable.

Planning for an uncertain future

The unpredictability of needing long-term care makes it essential to start planning early. While it’s impossible to predict the exact costs or duration of care, cash flow modelling can provide insight into how prepared you are for such expenses. Government policies may change, but assuming ‘no change’ and preparing accordingly is prudent. Exploring different solutions now can alleviate future burdens.

Exploring financial options

Long-term care planning is one of the most challenging areas to address, with many in denial about their potential needs. However, taking proactive steps can ensure you or your loved ones receive the care required without financial hardship. From insurance products to savings strategies, numerous options can be tailored to your circumstances to provide peace of mind.

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.