master-admin, Author at Investing For Tomorrow

The Overgate Hospice Annual Charity Ball is one of the most prestigious events on the Overgate calendar and one of their biggest fund-raisers. As such Investing For Tomorrow were proud to be sponsors for the evening.

In 1981 Overgate Hospice was established for the people of Calderdale providing specialist care. It costs approximately £8,500 a day to run Overgate and £3.3 million a year. Sadly, only 18% of this is funded by the Calderdale Clinical Commissioning Group, with the rest coming from traditional fundraising activities by the general public.

Thanks to the incredible kindness of the guests, the event raised an astounding £70,000! This remarkable achievement will go directly towards funding a much-needed overnight relatives’ room as part of Overgate’s Big Build Appeal. The relatives’ room will offer a comforting space where loved ones can stay close to their family members during the most difficult times.

The 2024 Autumn Budget will be delivered by Chancellor Rachel Reeves on Wednesday, October 30th.

The budget speech is usually around an hour long and begins at around 12:30 UK time. The 2024 Autumn Budget is expected to include significant tax changes and measures to raise revenue for the government.

After the speech, the Treasury will publish a report with more details on the announced measures and their costs. The Office for Budget Responsibility (OBR) will also produce an independent assessment of the UK economy.

We will also publish our own guide of what the budget will mean for you and your money (including any changes to pensions, capital gains and inheritance tax) which you will be able to download from our ‘SmartMoney’ archive here.

This move could potentially free up more disposable income, allowing you to enjoy your retirement with fewer financial burdens. Additionally, the emotional comfort of owning your home outright and eliminating mortgage debt can provide significant peace of mind, making this option worth considering.

Fraught with potential pitfalls

However, paying off your mortgage early using your pension lump sum is fraught with potential pitfalls that require much greater evaluation. While the immediate financial relief is tempting, there are complex tax implications and long-term financial consequences to consider. For instance, withdrawing more than the tax-free portion of your pension can result in hefty tax liabilities, which might negate the benefits of reduced mortgage payments.

Moreover, depleting your pension fund early could compromise your retirement income, potentially affecting your quality of life in the future. Given these nuances, assessing your unique circumstances and seeking professional financial advice is essential to determine the best course of action.

Here are some key points to ponder as you navigate this significant financial decision.

Tax implications

You can access most workplace and personal pensions from age 55 (or 57 from April 2028) and use the money as you wish. However, while you can withdraw the first 25% as a tax-free lump sum (capped at £268,275 for most people), any additional withdrawals will be taxed at your marginal Income Tax rate.

If your 25% tax-free lump sum doesn’t cover your outstanding mortgage, making a taxable withdrawal to pay it off in full probably won’t make financial sense as it would trigger a range of additional tax considerations. It’s imperative to weigh the tax implications carefully before making any decisions.

Interest rates and mortgage payments

When interest rates are low, you’re probably better off leaving your money in your pension. This is because the potential growth rate in your pension is likely to be higher than your mortgage interest rate. There are some instances where paying off your mortgage might be the better option, so make sure you seek advice on what’s right for you.

When interest rates are high, it isn’t quite as straightforward. It may still be the case that your pension fund has the potential to grow at a greater rate and benefit you more in the long run than paying off your mortgage early would. It’s also worth remembering that most lenders only let you overpay your mortgage by 10% yearly.

Early redemption repayment charges

If you go over this amount while in a fixed rate deal, you might have to pay an early repayment charge (ERC) of between 1% and 5% of the outstanding balance. Before making any overpayments, make sure you check when your deal is due to end. Planning ahead can help you avoid these potential penalties.

Impact on retirement income

Taking money out of your pension to pay off your mortgage could have longer-term repercussions. A smaller pension pot will generate less income in retirement, which means you might be unable to afford the lifestyle you were hoping for or, worse, run out of money. This could far outweigh the short-term benefit of having lower monthly outgoings for a few extra years.

By using cashflow modelling, we can demonstrate how long your money will last in retirement and the impact that paying off your mortgage early would have on this. Withdrawing money from your pension could be especially detrimental during a stock market downturn.

Market fluctuations

If you sell investments that have fallen in value, you could deplete your pension pot more quickly than you anticipated. By leaving the money invested, your pension will have the opportunity to recover from dips in stock market performance and hopefully go on to produce a healthy and sustainable retirement income over the long term.

Exploring other options

If you do want to pay off your mortgage, there are other ways to fund this other than via your pension. Individual Savings Accounts (ISAs), for example, let you withdraw as much money as you wish tax-efficiently. ISAs also form part of your estate for Inheritance Tax purposes, whereas pensions typically do not.

Depleting ISAs before pensions could make sense if you want to leave a tax-efficient financial legacy for your loved ones. In a stock market downturn, however, withdrawing money from cash ISAs and savings accounts could be a better option, as you’ll leave your investments untouched and give them the chance to recover in value.

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.

The urgency of addressing climate change cannot be overstated, but it is not our only challenge. We must also confront the rapid loss of biodiversity, which threatens the natural balance of ecosystems, and the pervasive problem of plastic pollution that chokes our waterways and oceans.

Integrating sustainable practices into our daily lives

Sustainability is not merely a ‘nice to do’ but an indispensable necessity. Integrating sustainable practices into our daily lives and investment decisions is crucial for creating a liveable future. By prioritising sustainability, we help preserve the environment and foster a society that values long-term wellbeing over short-term gains.

This shift in mindset is essential for addressing the complex and interconnected issues we face. Investing in sustainable solutions and companies that adhere to ethical practices can drive positive change, ensuring that our economic activities support the planet rather than deplete it.

Putting sustainability at the heart of your decisions

Our everyday choices are guided by our values and beliefs, whether consciously or not. For example, we’re likely to think twice about buying clothes from a fast-fashion retailer that has been found to exploit its workforce. We rarely know the full story behind the products we buy, but when unethical and unsustainable practices come to light—and they increasingly do—our moral compass kicks in.

Understanding responsible investing

Many terms are used, but responsible investing – or you may know it as sustainable or ESG (Environmental, Social and Governance) investing – is about taking this ‘full story’ into account. It’s essentially asking a wider range of questions about how wisely a company is managed and whether it is acting in harmony with the kind of world we want to live in. This may seem like common sense, but it wasn’t long ago that ESG factors tended to be overlooked compared to financial information, such as a company’s profits and cash flows.

The evolving landscape of ESG factors

But fund managers, regulators and investors are now aware that these factors are just as important in assessing a company’s likely future health. Our investment choices can drive change, influencing how businesses operate and their impact on the world. Aligning personal values with investments can lead to more ethical and sustainable outcomes, benefiting society and the environment.

Aligning your personal values with your investments

Your pension is not just a pot of money you and your employer add to over time. Through our retirement savings, we’re all likely to be shareholders in (and lenders to) companies worldwide. We can choose what types of funds we invest in, and as shareholders, we can influence how companies are managed through the providers and fund managers who look after our pension savings.

The concept of stewardship

This is often referred to as ‘stewardship’ and can be practised by any fund, whether it has a sustainability label or not. Some funds go a step further and explicitly target positive environmental and social impacts alongside financial returns. These investments aim not only to generate profits but also to benefit society and the environment.

Questions to consider when reviewing your investments

Most pension savers are invested in a scheme default fund – the fund that is automatically selected for you if you don’t make an active choice yourself. Increasingly, default funds consider ESG factors, but they may do this differently. For example, they may exclude certain types of companies from investment – such as those involved in tobacco production, controversial weapons or thermal coal extraction.

Evaluating your pension fund

They may also increase or decrease the weighting (the percentage invested) in companies based on a specific factor, such as carbon emissions or ESG scores. A small amount of research – simply logging into your pension account and looking at the factsheets for the funds you’re invested in – will help you understand whether they align with your values and preferences.

Investing your money in a more purposeful way for societal good

It’s about asking questions: What is my pension fund doing to include sustainability considerations? Are the underlying investments in my portfolio aligned with my values? If they’re not, is my fund manager voting and engaging to nudge misaligned companies in the right direction? Or are there more suitable funds for me?

Making a difference for the benefit of people and the planet

We’re all looking for ways to help make a difference for the benefit of people and the planet. While taking the more obvious actions such as recycling and taking public transport is important, ensuring that our pensions are invested sustainably and aligned with our personal values could also positively influence our world. Navigating different responsible investment approaches and funds isn’t easy, so obtaining professional financial advice is important to discuss which investments are right for you.

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.

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.

Commonly aged between 45 and 54, the sandwich generation often provides financial assistance and physical care for their parents while also looking after their children. Increasingly, this includes young adults still living at home and needing financial support to kickstart their futures. These additional responsibilities can be costly and reduce your ability to take on paid work, making saving time harder.

A unique financial landscape

If you’re part of the sandwich generation, your financial planning might look different from older generations, who, at your age, likely had fewer expenses and more to save for retirement. However, you’re not alone. It’s estimated that two-thirds of people in the UK will care for a loved one at some point, and half will provide care before they turn age 50[2].

Here are some considerations to help you become financially resilient when you’re taking care of yourself and others too.

Joint financial planning

We all have unique situations – no one-size-fits-all approach to financial planning exists. Whatever your financial situation, being transparent with your spouse, partner, family or support unit can help. Talking about your plans – and backup plans – could help you and your loved ones make the future you want a reality.

If you manage finances collectively, ensure your planning considers all the current and future circumstances that could impact your family’s income. This might include speaking with working adult children or extended family living at home to help them understand how they fit into your family’s wider financial goals.

Think long-term

Thinking ahead can help you plan how to support your loved ones best when they need it most. Try writing a list of things you might want to save for or need to prepare for, like parents going into care, university fees or housing costs for your children, and goals for your future.
While some people in the sandwich generation might have to consider working for longer or retiring later, it’s essential to think about the lifestyle you want when you stop working. Ask yourself what actions your 80-year-old self would be grateful for you taking now.

Motivation for the future

A clear, long-term vision can motivate you to take positive and responsible steps for the future. Financial wellbeing research has shown that those with a more concrete vision of their future had less debt and better emergency and long-term savings. Utilising tools to help you picture what your life could look like and tips to help you get there can be beneficial.

Review your budget

With many things to save for, prioritising is key. You could set mini targets to reach by certain points in time for different needs – these should be realistic regarding your budget. Consider your income and how much you can afford to save each month.

It might help to create different ‘pots’ for specific purposes or people, ranging from your own retirement, to funding further education, care, housing deposits, weddings and more. You should also consider building an emergency fund for unexpected scenarios, like losing your job or a boiler breakdown. But it’s also important to factor in money for things you enjoy.

Professional financial advice

Obtaining professional financial advice could help you understand how to balance your competing financial priorities. An adviser can provide tailored recommendations to help you achieve your financial goals while managing responsibilities.

Entitlement awareness

Don’t miss out on any discounts or benefits. For example, households with children might be eligible for Child Benefit or free childcare hours, depending on your circumstances. If you’re providing care for any relatives or loved ones, government help such as Carer’s Allowance and Carer’s Credit might be available.

You’re entitled to one week of unpaid carer’s leave in the workplace every 12 months, subject to conditions[3]. In this scenario, you should check your employment contract in case your work offers any additional benefits or leave. Some employers also offer discounts and deals through voucher schemes, which might mean spending less on groceries or luxury items.

National Insurance credits

If your parents can still carry out babysitting duties, you might be able to pass over National Insurance credits to them to help boost their State Pension. Understanding the benefits available can help you maximise financial support for your family.

Smart debt management

Debt isn’t to be taken lightly, but it’s not always bad. Taking on a mortgage, for example, can give your family the stability of a place to grow and spend time together. However, be careful with what kind of debt you’re taking on. If you’re struggling with debt or loan repayments, many sources of help are available.

Self-care is crucial

Currently, around 8% of the UK population is providing informal care[4]. If you’re one of them, remember to think about your own future, too. People in mid-life who have caring responsibilities are more likely to reduce the amount of paid work they do so that they can provide care. This is also more common among women than men.

Reducing your paid work might, in turn, reduce the amount you have in any workplace pension. It could also lessen your National Insurance contributions which influence your State Pension. Obtaining professional advice before reducing your paid work could help you see the bigger picture and still save for your future while supporting your loved ones.

Looking after loved ones can be challenging but rewarding. Encourage your family to come together to be a source of support and motivation for each other. Remember to take care of yourself while caring for others. Taking steps to strengthen your family’s financial wellbeing can also help build resilience in your own mental wellbeing.

Source data:
[1] More than one in four sandwich carers report symptoms of mental ill-health. Data source, Office for National Statistics, January 2019, accessed May 2024.
[2] Will I Care: The Likelihood of Being a Carer in Adult Life. Data source, Carers UK, November 2019.
[3] Unpaid carer’s leave. Data source, GOV.UK, accessed May 2024.
[4] Family resource survey: financial year 2022 to 2023. Data source, GOV.UK, updated March 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.

Young employees, mainly those aged 18-34, drive the increasing need for workplace health support. Research indicates that 78% of young workers find health cover crucial, and 64% consider it their most significant benefit, starkly contrasting with the 46% of those over 55 who feel the same[1].
Moreover, 71% of younger workers would hesitate to switch jobs if health coverage wasn’t provided, highlighting its importance in career decisions. Additionally, 66% of this demographic believe that having health benefits would reduce sick days by enabling quicker access to healthcare professionals, thus promoting a healthier, more resilient workforce.

Impact on employee wellbeing and productivity

Including comprehensive health benefits can significantly enhance employee wellbeing and overall productivity. By facilitating easier access to medical care, employees are less likely to experience prolonged periods of illness, allowing them to maintain consistent work attendance and performance.

This support is particularly crucial for younger employees who place high value on health benefits and are more likely to consider these benefits when evaluating job opportunities. Consequently, employers who invest in comprehensive health cover demonstrate their commitment to employee welfare and position themselves as attractive employers in the talent market.

Expectations and employer response

Employers are beginning to notice this shift in expectations. Three out of ten firms report that job candidates’ expectations for health cover are rising. When health cover is provided, employers observe a 37% increase in satisfaction and a 33% boost in productivity. The data clearly highlights the significant impact health benefits have on both employee morale and overall business efficiency.

Mental health a growing concern

Mental health has emerged as a crucial element of workplace wellbeing, particularly for younger workers. Research shows that 76% of younger employees believe that health insurance improves their productivity, and 71% have taken time off for mental health reasons, compared to just 32% of older workers. Alarmingly, 71% of younger UK workers reported experiencing anxiety in the previous year, compared to 32% of those over 55.

Addressing the mental health challenge

As a result, 33% of employers now see rising mental health days as a major challenge. Younger workers no longer view health benefits as a bonus; instead, they expect them as a standard part of their employment package. This shift in perception underscores the urgent need for comprehensive health benefits in the workplace.

The need for accessible health cover

The UK continues to grapple with a workforce sickness epidemic and long NHS waiting times. In this context, providing affordable and accessible health cover at work has never been more important. Employers who wish to attract and retain top talent, maintain a healthy workforce and enhance business productivity must recognise the importance of offering health cover.

Source data:
[1] Opinium research on behalf of Simplyhealth throughout May and June 2024. The first surveyed 500 HR decision makers across UK businesses, while the second surveyed 2,000 employees with a minimum of 100 respondents across business services, construction, manufacturing, professional education, hospitality and leisure, transport, retail, food and drink, and healthcare. 2.81 million not working due to long-term sickness in the UK in July 2024, according to ONS figures.

Whether it’s the chance to pursue further education, embark on a completely new career path or even start your own business, redundancy can serve as a catalyst for meaningful change and growth. As you navigate this transition, your workplace pension is one of the most crucial aspects to consider. Understanding your pension options is key to making informed decisions that will impact your financial stability in the long term

What happens to your pension when you’re made redundant?

If you’ve been made redundant, the workplace pension you have been contributing to remains yours. You won’t lose it due to a change in your employment status. However, leaving a job or being made redundant doesn’t automatically grant access to your pension immediately.
The standard rules on how and when you can access your retirement savings still apply. This generally includes accessing your pension from age 55 (rising to 57 in 2028) and typically taking up to 25% of your pension pot as a tax-free lump sum.

The next steps depend on the type of pension plan you were paying into while employed. Two primary types of workplace pensions exist: defined contribution (DC) and defined benefit (DB) plans. If you’re unsure which type you have, you can ask your employer or check documents from your pension provider, such as your annual statement.

Defined Benefit (DB) pensions

If you hold a DB pension, typically found in the public sector, contributions will stop once you leave the job. The value of this pension pot is usually determined by the length of your employment and your salary.

Defined Contribution (DC) pensions

For those with a DC pension, the primary change is that your employer’s contributions will cease. Unlike a DB pension, you may be able to continue making personal contributions.

What can you do with your workplace pension?

Depending on your circumstances and the type of workplace pension you have, several options are available.

Continuing contributions

If you have a DC pension, you might be allowed to continue making contributions and benefit from any applicable government tax relief. The value of any tax relief will depend on your individual circumstances. Remember, you won’t receive further employer contributions after leaving your job.
All contributions, whether from personal, employer or third-party sources, count towards your annual allowance, which is £60,000 for the 2024/25 tax year.

Contributing your redundancy payment to your pension

You may be able to pay a portion of your redundancy payment into your workplace pension, typically applicable to DC pension schemes. This usually requires an agreement with your employer. Note that your redundancy payment might be subject to tax, with the first £30,000 usually being tax-free. Any portion paid into your pension will also count towards your annual allowance.

Transferring your pension

You might consider transferring your pension pot into another workplace or private pension, usually reserved for DC schemes. However, combining pension pots isn’t suitable for everyone, as you could lose features, protections or benefits. Always compare products before making a decision, as the value of your combined pension pot can fluctuate.

Withdrawing your money

Depending on your pension scheme’s rules, you can generally withdraw money from your pension pot if you’re aged 55 or over (rising to 57 in 2028). However, withdrawing from your pension requires several factors to be considered. If you stop working, this might affect your entitlement to the full State Pension if you haven’t accumulated enough qualifying years of National Insurance contributions. Also, taking a flexible income from a DC pension while continuing to work may reduce the amount you and your employer can contribute without facing tax charges due to the Money Purchase Annual Allowance (MPAA).

Leaving your pension as is

You can opt to leave your pension untouched until your retirement age, ensuring you keep your login details and personal information up-to-date. This helps you maintain track of your savings. Update your details by logging into your pension account or contacting your provider.

Take your next steps with confidence

The right option for you depends on various factors, including the type of workplace pension scheme you have. Pension schemes are legally required to provide specific information about your scheme. Understanding your options can give you a clearer idea of what will happen to your pension if you’re made redundant, allowing you to focus more on your future plans.

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.

This study also highlighted that six million individuals with multiple pension pots may be at greater risk, as half of the respondents believe scams are becoming increasingly difficult to identify.

The complexity of managing several pension accounts can leave individuals more susceptible to fraudulent schemes, as it becomes challenging to keep track of all the details.

Scammers take advantage of this confusion, making it harder for people to discern legitimate communications from deceitful ones. This growing difficulty in identifying scams calls for heightened awareness and stronger protective measures to safeguard pension savings.

Rising threat of pension scams

However, the awareness of reporting a scam is worryingly low, with only 32% of people knowing the proper channels. However, this figure improves significantly to 55% among those who consult financial advisers. This discrepancy underscores the importance of professional financial advice in mitigating the risk of scams.

The research further uncovered a high prevalence of various consumer scams. A significant 42% of respondents reported phishing attempts, 36% encountered scams imitating reputable brands and 24% experienced refund scams.

Younger people at higher risk

Interestingly, younger individuals between the ages of 18 and 34 are more susceptible to scams than the general population. The study found that 13% of this age group had been targeted, in contrast to 7% of the wider public.

The evolving tactics of scammers make it increasingly challenging for consumers to avoid falling prey. With the growing number of people managing multiple pension pots, keeping track of their finances has become more difficult.

Protecting your pension

To safeguard against pension scams, hanging up on unsolicited cold calls is crucial. Recognising unexpected contact as a potential red flag can also help avoid hasty and ill-informed decisions. Additionally, verifying firms on the Financial Conduct Authority (FCA) registry provides an extra layer of security.

Remaining vigilant and informed is essential in this climate of sophisticated scams. Consumers must take proactive steps to protect their hard-earned savings.

Source data:
[1] LV= Wealth and Wellbeing Research Programme, quarterly survey of 4,000 UK adults 12/08/24.

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.

Key financial safeguards

The evolving dynamics of family life are causing a paradigm shift in financial engagement. For instance, it’s becoming increasingly common for individuals to prioritise career advancement or personal freedom over settling down early. While this shift allows for greater personal and professional development, it also means that key financial safeguards such as life insurance and pension plans are often not put in place until much later in life, if at all. This lack of early financial planning leaves many without a safety net, as the research shows.
The delay in securing financial products that were once considered essential is not just a personal risk but a societal one, potentially leading to a generation ill-prepared for future financial challenges.

Delays in key life milestones

An estimated 6.5 million UK adults (12%) postpone important financial decisions until they marry, have children or buy a home. However, societal changes mean these milestones are increasingly delayed. The research identified that official records show that the average age for having a first child is now 32, the highest it has ever been. Similarly, the average age for first-time homebuyers has risen to 34, the highest in decades.
People in the UK are also marrying later in life. Women now typically get married at 33 and men at 35, up from averages of 29 and 32 in the year 2000. This trend poses potential risks to financial resilience.

Financial resilience at risk

Delaying key life milestones often means postponing serious financial planning. Two out of five UK adults who have not started a family (21%) cite this as a reason for delaying crucial financial decisions. This includes taking out protection insurance (22%), starting a pension (23%) and contributing to savings (18%).

A significant portion of the population is delaying these decisions until marriage (11%) or homeownership (17%). Consequently, financial engagement among UK adults is declining, with 35.7 million adults not regularly checking their finances.

Impact on financial wellbeing

The lack of engagement has serious ramifications. Without protection insurance, millions of families are left without a safety net. Recent data indicates that half of all critical illness claims occur before age 50, highlighting the importance of early financial planning. Additionally, delaying pension contributions is setting millions of young people toward a retirement shortfall of more than £25,000 annually by the 2060s[2].
People are now waiting until midlife to focus on their finances, with the average UK adult only engaging with their financial planning at age 48. This delay increases the risk of missing significant insurance, savings and investment opportunities.

The risks of waiting

Delaying financial engagement until traditional life milestones like marriage and parenthood can lead to missed opportunities. Five million childless households currently lack essential financial products, and this delay in financial planning is already being felt across the UK.
The reluctance to save contributes to 30% of UK adults having no savings or investments or less than £1,000 set aside for emergencies[3]. By starting financial planning earlier, individuals can build a stronger financial foundation and be better equipped to handle life’s uncertainties.

Source data:
[1] Mustard research consisting of a nationally representative survey of 2,000 UK adults conducted in January 2024.
[2] Analysis conducted by Legal & General based on Opinium Research conducted amongst 2,000 online interviews of people aged 22-32 in August 2023. Income based on Legal & General annuities.
[3] https://www.fca.org.uk/publication/financial-lives/financial-lives-survey-2022-key-findings.pdf

Effective planning can significantly impact the financial wellbeing of your heirs, making it crucial to consider various strategies and tools available for safeguarding your estate.

One common question we receive from clients is whether to gift assets during their lifetime or wait until they have passed away. The answer is more complex and heavily depends on your personal and financial circumstances and objectives. Gifting can provide immediate support to family members and potentially reduce your estate’s size, lowering the IHT burden.

However, careful consideration must be given to the gifts’ timing, amount and recipients to ensure that they align with your long-term goals and comply with tax regulations. Understanding these nuances is essential in making informed decisions that will benefit you and your loved ones.

Understanding Inheritance Tax

When you pass away, IHT is potentially payable to HM Revenue & Customs (HMRC). The amount due depends on the estate’s value minus any debts and after all available thresholds have been used. These thresholds are the nil rate band (NRB) and the residence nil rate band (RNRB). At a high level, the NRB is £325,000, and the RNRB is £175,000, the latter of which is only available if you leave your home to a direct descendant. The standard rate of IHT due to HMRC on amounts over these thresholds is 40%. This reduces to 36% if at least 10% of your net estate is left to charity.

Why do we gift?

We gift for two common reasons: We want to help our family and loved ones now, when they need it, and whilst we can see them enjoy it, as opposed to when we have passed away. This is often called a ‘living inheritance’. Additionally, we may have a large estate and wish to reduce its value so that our beneficiaries pay less or no IHT when we pass away.

How much can you gift?

In short, you can gift away however much you want to whoever you like and whenever you like. If these gifts fall within the ‘annual gift allowances’ or are made from your regular surplus income, they automatically fall outside your estate for IHT tax purposes. Otherwise, you must survive seven years after making the gift before the gift is excluded from IHT tax calculations.

The impact of sequencing gifts

The sequencing of gifts can significantly impact the wealth you want to pass on. In addition to the seven-year rule, there is the less well-known 14-year rule. Giving a gift outright to an individual and/or Absolute/Bare Trust in excess of the annual allowances is known as making ‘Potentially Exempt Transfers’ or PETs.

Potentially Exempt Transfers and their uses

For example, a common reason for making a PET might be to help a child onto the property ladder. To ensure the gift is outside of your estate for IHT tax purposes, you need to survive seven years from when the gift is made. If the PET is more than the NRB (£325,000), there is gradual tapering on the excess once you have survived for over 3 years. The longer you survive after making the gift (between 3 and 7 years), the greater the tapering.

Chargeable Lifetime Transfers

Should you settle any money into a relevant property trust, such as a Discretionary Trust, these gifts are known as ‘Chargeable Lifetime Transfers’ or CLTs. An example of such a settlement might be grandparents wanting to pass money down to their grandchildren. A common reason for this may be that their children already have a large estate, so if they were to inherit any more, it would be unhelpful for their IHT position.

Complications in gift order

Complications may arise when an individual has passed away and has made both PETs and CLTs. This is because the order of these gifts can result in bringing 14 years’ worth of gifts into the IHT calculation. When considering which gifts are liable to IHT, the gifts are placed in the order they were made, starting with the oldest and moving towards the date of death.

HMRC rules on failed PETs

HMRC rules are such that any CLTs made in the seven years before any ‘failed PETs’ must also be brought into account. If an individual makes a PET and dies within 6 years and 11 months, the PET fails. From the ‘failed PET’ date, HMRC will look back a further seven years and include any CLTs in their calculation to determine the IHT due on the PET.

Annual Gifting Allowances

Under current legislation, everyone can gift away £3,000 per year. This is called your ‘annual exemption’. Any unused allowance can be carried forward to the following tax year; however, it cannot be carried over again. There is also a wedding allowance of varying amounts depending on the relation, which must be made before the wedding, and the wedding must happen: £5,000 to a child, £2,500 to a grandchild, £1,000 to a relative or friend. Wedding gifts can be combined in the same year with the annual exemption.

Small Gifts Allowance

You can also make gifts of up to £250 to as many different people as you like, as long as the person has received more than £250 from you that tax year.

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.