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5 handy tips that could help couples create an effective financial plan

Managing your finances effectively as a couple could provide you with peace of mind and mean you’re more likely to reach your goals. Yet, it can be difficult as you could have very different financial priorities to your partner. Read on to discover five handy tips that could help you build a financial plan that suits both of you. 

1. Set shared goals you can work towards

Having shared goals you’re working towards as a couple can help ensure you’re both on the same page and understand why you’re making certain financial decisions.

For example, if you both want to retire early, you might decide to increase pension contributions. Without a reason, potentially reducing your disposable income now could be difficult to stick to. 

However, with a long-term view of how cutting back now could mean you have more freedom in the future, you may find you’re in a better position to be successful.

2. Understand your partner’s attitude to money 

One of the biggest challenges of managing finances with a partner is that you could have very different views about money.

Perhaps you’re a saver who feels more comfortable when you add to your emergency fund, while your partner is more likely to splurge on a treat. Or, when it comes to investing, one of you is more risk averse than the other. 

Understanding your partner’s approach to managing assets and their long-term financial outlook could help you strike a balance that means you both feel confident about your finances. 

3. Make your financial plan part of your conversations 

Finances play a crucial role in day-to-day life and your long-term security, from managing household bills to preparing for retirement. Yet, it’s a topic many couples avoid talking about and, for some, when they do, it can cause conflict.

According to a survey from Aviva, a quarter of couples argue about money at least once a week, and 5% said they bickered about finances every day. 

Making money part of your conversations could improve communication as you have more opportunities to address small disagreements before they possibly become larger issues. 

4. Be clear about how you’ll manage assets together and individually  

You don’t need to inform your partner of every purchase you make or share all your assets to create an effective financial plan as a couple. However, understanding and talking about how you’ll share assets and financial responsibility is often important.

Worryingly, a survey from Starling Bank found that almost a quarter of married couples and 30% of people in a committed relationship said they keep financial secrets from their partner.

Some secrets may be harmless, such as having a nest egg in case of emergency, but others could potentially negatively affect your financial security. For example, a fifth of those with a financial secret said they are hiding debt from their partner, and 16% are concealing loss of money, such as through gambling or poor investments. 

Being open about money and setting out how you’ll manage assets together or individually could ensure you're both on the same page and avoid potential conflicts related to financial secrets. 

What’s important is that you find a way to manage assets in a way that suits you and your partner. 

5. Arrange a meeting with a financial planner 

Working with a financial planner could benefit you and your partner in many ways, from identifying potential tax breaks to setting out a plan to save for retirement. Yet, one perk you might overlook is how it could help you better manage your finances together.

Ongoing financial reviews as a couple mean that time is regularly set aside to talk about money, your goals, and financial concerns. It may mean you’re more likely to stick to your plan and provide an opportunity to update it if your circumstances change. 

A financial planner may also act as a useful third party who might help you unify different objectives. By working together with a financial planner, you may create a plan that gives both of you confidence about your financial future.  

If you’d like to create a financial plan with your partner, please get in touch to discuss how we could help you and arrange a meeting. 

Please note: This blog is for information purposes and does not constitute financial advice, which should be based on your individual circumstances The information is aimed at retail clients only.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Any advice or considerations are personal to each individual’s circumstances.

Past performance is not a reliable indicator of future performance. 

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.  

Government borrowing halves and opens room for tax cuts in March’s Budget

Chancellor Jeremy Hunt could have more options ahead of March’s Budget as government borrowing halved at the end of 2023. With a general election looming, Hunt may take the opportunity to ease the tax burden. Read on to discover some of the personal finance changes that could be announced. 

Figures from the Office for National Statistics (ONS) show that government borrowing halved in December 2023. The lower deficit of £7.8 billion– the lowest month since 2019 – means the chancellor has more scope to implement tax cuts, increase public spending, or pay down debt. 

The annual Budget sets out the government’s proposals for changes to taxation. So, the announcements could affect your finances and long-term plan. Here are three changes the chancellor is reportedly contemplating. 

1. Cutting Income Tax

There’s speculation that changes to Income Tax could reduce the tax burden on households. It would follow National Insurance rates being cut for employed and self-employed workers in the Autumn Statement. 

While Income Tax rates haven’t increased in recent years, the thresholds have been frozen until April 2028. While your tax bill might not rise immediately, frozen thresholds could mean you pay more in the medium term or that you’re pushed into a higher tax bracket, even if your income hasn’t increased in real terms.

Indeed, the Office for Budget Responsibility (OBR) estimates that freezing the threshold for paying the higher- and additional rate of Income Tax will raise £42.9 billion by 2027/28.

Hunt has a few options if he wants to decrease the Income Tax burden before the general election. He could opt to increase the thresholds in line with inflation or reduce the tax rate.

2. Abolishing Inheritance Tax

Ahead of Hunt delivering the Autumn Statement in November 2023, it was reported he was mulling over abolishing Inheritance Tax (IHT).

IHT is a type of tax on the estate of someone who has passed away if the value of their estate exceeds certain thresholds. 

While only around 4% of estates are liable for IHT, it’s often referred to as “Britain’s most-hated tax” in the media.

The ONS data shows that between 2022 and 2023, IHT tax receipts were £7.1 billion. While that may seem like a large number, it represents just 0.28% of GDP. As a result, abolishing IHT could be viewed as a way to deliver a pre-election day boost with a relatively small reduction in the total tax collected. 

Alternatively, the chancellor could increase the thresholds for paying IHT or lower the tax rate. 

The thresholds for paying IHT have remained the same since 2020, and are currently frozen until April 2028. As they’re not rising in line with inflation, more estates are becoming liable for IHT as the value of assets, particularly property, may have increased. 

For the 2023/24 tax year:

  • The nil-rate band is £325,000. If the entire value of your estate is below this threshold, no IHT is due.
  • The residence nil-rate band is £175,000. Your estate may be able to use this allowance if you leave certain properties, including your main home, to direct descendants. 

The standard rate of IHT on the proportion of the estate that exceeds the thresholds is 40%. So, another option Hunt may consider is reducing the rate.

3. Increasing the ISA annual allowance

Again, there was speculation ahead of the Autumn Statement that the ISA annual allowance would increase. This didn’t materialise, but Hunt did announce key changes to simplify ISAs and make it easier for consumers to transfer their money.

ISAs offer a tax-efficient way to save or invest. In the 2023/24 tax year, you can add up to £20,000 to your ISA. The annual allowance has remained at this level since 2017 rather than rising at the same pace as inflation. 

Money saved or invested outside of an ISA could be liable for tax. As a result, raising the allowance may provide some people with a lower tax bill overall. 

The latest government figures show 11.8 million adults used their ISA to save or invest in the 2021/22 tax year. So, increasing the ISA allowance could be a savvy option before the public goes to the polls. 

We can help ensure your financial plan continues to reflect policies 

Keeping track of government policies and understanding what they mean for your financial plan can be difficult. As financial planners, we can help you keep your long-term plan up-to-date and explain when announcements might affect you.

If you have any questions about what the upcoming Budget may mean for you, please get in touch. 

Please note: This article is for general information only and does not constitute advice, which should be based on your individual circumstances. The information is aimed at retail clients only.

The Financial Conduct Authority (FCA) does not regulate Inheritance tax planning or trust advice.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change. The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

The favourable tax treatment of ISAs may be subject to changes in legislation in the future.

The pension Annual Allowance increased in 2023/24. Have you reviewed your contributions?

The pension Annual Allowance increased significantly in the 2023/24 tax year. If you haven’t already reviewed whether the changes could mean you can tax-efficiently add more to your pension, doing so before the current tax year ends on 5 April 2024 might be beneficial. 

The Annual Allowance is up to £60,000 in 2023/24

The Annual Allowance is the amount you can add to your pension each tax year while retaining tax relief. However, you can only claim tax relief on up to 100% of your relevant annual earnings. 

For the 2023/24 tax year, your Annual Allowance could be up to £60,000, this compares to a maximum allowance of £40,000 in 2022/23. So, if you haven’t assessed your pension contributions for the current tax year, you might want to contribute a lump sum to your pension before 5 April 2024.

Two circumstances might mean your Annual Allowance is lower than £60,000.

  1. If you’ve already taken an income from your pension, you may be affected by the Money Purchase Annual Allowance (MPAA), which is £10,000 in 2023/24. In 2022/23, it was just £4,000. 
  2. The Annual Allowance of high earners may be tapered. If your adjusted annual income, which includes pension contributions, is more than £260,000 your Annual Allowance will fall by £1 for every £2 it exceeds this threshold. The Annual Allowance can be reduced by a maximum of £50,000 in 2023/24. So, if your adjusted income is £360,000 or more, your Annual Allowance would be £10,000. Again, this has increased from £4,000 when compared to 2022/23.

So, even if you’re not entitled to the full Annual Allowance, the amount you could tax-efficiently add to your pension may have increased this tax year.  

As a result, there might be an opportunity to save more tax-efficiently for your retirement. 

You can carry forward your unused Annual Allowance for up to three tax years. Hence, it may be useful to review your past pension contributions too – you have until 5 April 2024 to use your Annual Allowance from the 2020/21 tax year. 

4 financially-savvy reasons you might want to boost your pension contributions 

1. Pension contributions benefit from tax relief 

Pensions are often tax-efficient because your contributions may benefit from tax relief. As a result, some of the money you would have paid in tax is added to your pension. 

Tax relief is given at the highest rate of Income Tax you pay. So, if you boosted your pension by £100, you’d receive an extra £25 if you’re a basic-rate taxpayer. Tax relief can be even more valuable if you’re a higher- or additional-rate taxpayer. 

In most cases, your pension provider will claim tax relief at the basic-rate on your behalf. If you’re a higher- or additional-rate taxpayer, you’ll usually need to complete a self-assessment tax form to claim the full amount you’re entitled to.

2. Your employer may match increased pension contributions 

If you’re employed, your employer will usually have to contribute to your pension on your behalf. The minimum employer contribution level is 3% of your pensionable earnings.

However, some employers will increase how much they contribute if you do. If your employer offers this as a perk, even a small increase in how much you’re adding to your pension each month could potentially give you more flexibility in retirement. 

3. Returns on investments held in a pension aren’t liable for Capital Gains Tax

Returns from investments that aren’t held in a tax-efficient wrapper, like a pension, may be liable for Capital Gains Tax (CGT) if they exceed the annual exemption, which is £6,000 in 2023/24 and falling to £3,000 in 2024/25. 

If you’re investing for your retirement, doing so through a pension could make financial sense from a tax perspective.

You should keep in mind that once you start taking an income from your pension, withdrawals may be liable for Income Tax.

4. Long-term investments may benefit from the effects of compounding 

As you typically can’t withdraw money from a pension until you reach 55, rising to 57 in 2028, your investments may benefit from the effects of compounding.

The returns your pension investments earn will go on to be invested themselves and, hopefully, deliver further returns. Over a long time frame, this can help your savings start to grow at a faster pace.

As you could be saving into your pension for decades, compounding could lead to the value of regular contributions and one-off lump sums growing significantly. 

Contact us to talk about your pension and retirement plans 

If you’d like to understand if you’re on track for retirement or if increasing pension contributions is right for you, please get in touch. We’ll work with you to create a bespoke retirement plan that aligns with your long-term goals and current financial situation. Please contact us to arrange a meeting. 

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

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results. 

Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.

The levels and bases of taxation, and reliefs from taxation, are subject to change and their value depends on the individual circumstances of the investor.

4 excellent reasons you may want to boost your ISA now

If you haven’t used your ISA allowance for the 2023/24 tax year, it could be wise to review your options over the next few weeks before the 2024/25 tax year starts. Read on to discover some of the reasons why an ISA could make sense for you. 

Government statistics show that ISAs are a popular way to save and invest. Indeed, the latest data shows 11.8 million adult ISAs benefited from a deposit during the 2021/22 tax year (slightly down from 12.2 million in 2020/21). Collectively, ISA holders added around £66.9 billion to their accounts throughout the year. 

The media often dubs February and March “ISA season” as savers and investors are encouraged to deposit money into their ISAs before a new tax year starts on 6 April. Some ISA providers might also offer more attractive terms during this time, such as a higher interest rate, to entice potential customers. 

In the 2023/24 tax year, you can add up to £20,000 to an ISA. If you haven’t already used this allowance, here are four excellent reasons you might want to do so. 

1. A Cash ISA could be a tax-efficient way to save 

One of the reasons Cash ISAs make up an important part of many financial plans is that they’re tax-efficient – the interest paid on savings held in a Cash ISA is not liable for Income Tax. 

Many savers have welcomed rising interest rates over the last year, in respect of savings accounts. Yet, it could also mean you face an unexpected tax bill. 

According to the Telegraph, 2.7 million savers will pay tax on their savings in 2023/24 as a result of frozen thresholds and higher interest rates. The findings suggest that almost 1 million additional savers could face a tax bill on their savings when compared to just a year earlier. 

Around 1.4 million basic-rate taxpayers are expected to pay tax on their savings this year, a figure that has quadrupled in the last four years. 

According to MoneySavingExpert, if the interest your savings earn exceeds the Personal Savings Allowance (PSA), you might be liable for tax on the portion above the threshold. Your annual PSA depends on the rate of Income Tax you pay:

  • Basic-rate taxpayers: £1,000
  • Higher-rate taxpayers: £500
  • Additional-rate taxpayers: £0

As additional-rate taxpayers don’t benefit from a PSA, an ISA could be a useful way to manage your tax bill. 

Even if you’re not an additional-rate taxpayer, the amount you can hold in your savings account before you could face a tax bill might be lower than you expect.

If your savings account had an interest rate of 5.22%, assuming the account balance was constant, you might need to pay tax if your savings exceed:

  • £19,158 if you are a basic-rate taxpayer
  • £17,242 if you are a higher-rate taxpayer.

So, placing your savings into a Cash ISA could reduce your potential tax liability. 

2. A Stocks and Shares ISA could help you invest efficiently 

Similarly, Stocks and Shares ISAs could also be tax-efficient if you want to invest. The returns your investments deliver when they’re held in a Stocks and Shares ISA are free from Capital Gains Tax (CGT).

Investments held outside of a Stocks and Shares ISA could be liable for CGT if they exceed the Annual Exempt Amount, which is £6,000 in the 2023/24 tax year for individuals. You should note the Annual Exempt Amount will halve to £3,000 for the 2024/25 tax year. 

The rate of CGT you pay depends on which tax band the gains fall into when added to your other income. In 2023/24:

  • Higher- or additional-rate taxpayers have a CGT rate of 20% (28% for residential property)
  • Basic-rate taxpayers may benefit from a lower CGT rate of 10% (18% for residential property) if the gains fall within the basic-rate Income Tax band.

According to the Financial Times, the latest HMRC figures show that a record £16.7 billion was collected through CGT in 2021/22. As the Annual Exempt Amount has fallen since then and will be cut again in 2024/25, it’s likely the amount collected through CGT will rise further. 

As a result, if you’re investing, doing so through a Stocks and Shares ISA could be efficient from a tax perspective. 

3. You’ll lose your ISA allowance if you don’t use it before the start of a new tax year  

An ISA could reduce your potential tax liability whether you want to save or invest. So, why should you review your ISA over the coming weeks? Simply, the allowance will reset when a new tax year starts.

If you don’t use the current tax year’s allowance before 6 April 2024, you’ll lose it, which could mean you overlook an opportunity to reduce your tax bill.

4. You could receive a government bonus with a Lifetime ISA

For some people, a Lifetime ISA (LISA) could prove a valuable way to save or invest as this differs to the usual ISA structure, as it benefits from a government bonus. 

You must be aged between 18 and 39 to open a LISA, although you can continue to contribute to a LISA until you’re 50. You can deposit a maximum of £4,000 each tax year into a LISA, and can choose between a Cash LISA and a Stocks and Shares LISA. 

Where a LISA is different to traditional ISAs is that deposits benefit from a 25% government bonus. So, if you deposit the annual maximum of £4,000 into a LISA, you’d receive £1,000 as a bonus. 

However, if you take money out of a LISA before you’re 60 for a purpose other than buying your first home, you’ll be charged 25% of the amount withdrawn. This means you’d lose the bonus and a portion of your own deposit, equivalent to a loss of just over 6%. 

Get in touch to talk about your ISA and long-term plans

If you have any questions about how to use the ISA annual allowance to support your financial plan, we’re here to help. Please contact us to arrange a meeting. 

Please note: This blog is for general information only and does not constitute advice, which should be based on your individual circumstances. The information is aimed at retail clients only.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change. 

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

The favourable tax treatment of ISAs may be subject to changes in legislation in the future.The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested.

An investment in a Stocks & Shares ISA will not provide the same security of capital associated with a Cash ISA.

Past performance is not a reliable indicator of future performance. 

Investment market update: October 2023

As inflation remains stubborn, and interest rates may have to remain higher for longer, recessionary concerns have grown around the world.

Read on to discover some of the factors that may have affected your investment portfolio in October 2023. 

When reviewing short-term market movements, remember to focus on your long-term investment goals.

UK

After a slump in July, official data shows the UK economy grew by 0.2% in August with the Office for National Statistics (ONS) reporting that the service sector mostly drove this growth.

Despite this positive news, concerns remain that the UK is heading into recession. Official figures indicated that the unemployment rate rose to 4.2% between June and August, up from 4% in the March to May quarter.

In addition, UK business activity shrank for the third consecutive month in October. The S&P Global/Cips Flash UK composite purchasing managers’ output index marginally increased to 48.6 in October from 48.5 the previous month.

However, the reading remained below the 50 mark, indicating that a majority of businesses continued to report a contraction in their output.

Inflation remains stubborn, as the headline rate was unchanged at 6.7% in the year to September. Rising fuel costs offset the first monthly fall in food prices for two years to maintain pressure on households.

This means that interest rates may have to remain higher for longer, especially considering that Swati Dhingra, one of the Bank of England’s nine-strong Monetary Policy Committee, said that they felt most of the impact of 14 interest rate rises was yet to be felt.

While the FTSE All-Share Index rose by 1.9% in the third quarter of 2023, the market remains uncertain, and it had given up all of these gains by mid-October.

Europe

Fears of a recession also persist in the eurozone.

S&P Global said that eurozone business activity declined for the fifth consecutive month and, excluding the months affected by pandemic lockdowns, it was the heaviest fall for a decade.

Falling exports, a sharp drop in new business orders, and a surge in fuel prices all contributed to this decline.

In more positive news, annual inflation in the eurozone fell to 4.3% in the year to September – its lowest level since October 2021. This comes after the European Central Bank decided to increase interest rates to a record level in September, pegging its key rate at 4%.

This data masks sharp differences in inflation between nations. Spain and Italy both saw the inflation rate rise in September – to 3.2% and 5.7% respectively – while Croatia’s inflation rate of 7.3% was the eurozone’s highest. 

Contrast this with inflation in the Netherlands, which fell into the negative zone at -0.3%, meaning prices were lower than they were a year previously.

Overall, the MSCI Europe ex-UK index – an index covering 344 constituents in 14 developed markets across Europe – rose by 10% in the first nine months of 2023.

US

Over the last two decades, the US economy has grown at roughly double the pace of Europe and the UK. This looks set to continue in 2024.

The IMF has predicted that the US economy will power ahead in 2024, forecasting an expansion of 1.5% next year. This compares with IMF forecasts of 1.2% for the eurozone and 0.6% for the UK.

While this is partly due to soaring costs of energy in Europe after Russia’s invasion of Ukraine, more structural reasons – like the US’s booming technology sector – have also helped to maintain growth.

The percentage of US adults in their prime working years participating in the labour force is now at its highest level in 20 years and, interestingly, labour force participation by Americans with a disability has soared.

As in the UK, US inflation remained steady over the 12 months to September, at 3.7%.

Overall, the S&P 500 index rose by around 4% in the six months to 24 October, while the Dow fell by around 1% over the same period. 

Asia

Diversifying your portfolio means investing in a range of different funds, companies, and geographical locations. Gains in one particular sector or world market can help to offset losses elsewhere.

Q3 of 2023 illustrates this well.

In the three months to the end of September, leading indices in the US, Europe, and “emerging markets” all fell in value. So, if you’d invested in just the US or Europe, you’d likely have seen a slight reduction in the overall value of your portfolio.

During the same period, the Japan TOPIX index rose by 2.5%. In the first nine months of 2023, the TOPIX index rose by 25.7%.

Diversifying your assets across regions means you can benefit from strong growth in certain parts of the world, even if other markets are uncertain.

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

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

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