One of the reasons why pensions are an excellent way to save for retirement is the tax relief you benefit from. Yet, figures suggest that pension savers could be missing out on millions of pounds that could boost their pension fund.

What is pension tax relief?

To encourage workers to save for retirement, the government offer tax relief on pension contributions. Some of the money that you would have paid in tax relief on your earnings goes into your pension rather than to the government. It’s paid at the highest rate of Income Tax you pay. In England, this means you’d receive:

• 20% pension tax relief if you’re a basic rate taxpayer
• 40% pension tax relief if you’re a higher rate taxpayer
• 45% pension tax relief if you’re an additional rate taxpayer

So, if you want to add £100 to your pension, you’d need to deposit just £80 if you’re a basic rate taxpayer. For higher and additional rate taxpayers, it’d be £60 and £55 respectively. It’s an incentive that can help you reach retirement goals.

All personal pensions and some workplace pensions apply tax relief at source. This means your pension scheme sends a request to HM Revenue and Customs (HMRC) on your behalf, which then pays an additional 20% tax relief into your pension. However, if you qualify for higher tax relief, you must complete a self-assessment tax return to receive the additional sum leading to millions going unclaimed. 

Up to £830 million in unclaimed pension tax relief

A Freedom of Information request to HMRC highlighted the scale of the problem.

In 2017/18, HMRC received 259,000 claims from higher rate taxpayers and 54,000 from additional rate taxpayers. This is far below the 4.2 million higher rate taxpayers and 380,000 additional rate taxpayers that are estimated to be paying into a pension operating on a relief at source basis. As a result, it’s estimated that up to £830 million in tax relief has been missed.

It’s important to note that the figures don’t include pension savers that have claimed the tax relief over the phone or online. But it’s likely a significant portion of the estimated sum is being missed because savers aren’t claiming all they’re entitled to.

How to claim tax relief if you’re a higher or additional rate taxpayer

If you have a workplace pension that means you pay pension contributions via a net pay arrangement (before tax has been taken), you don’t have to do anything. Your full tax relief will be added automatically.

However, if your pension receives tax relief at source, you need to either fill in a self-assessment tax return or, if you don’t fill in a tax return, contact HMRC. The additional 20% or 25% to your pension could make all the difference when you’re reviewing if your pension dreams are within reach.

How much tax relief can you claim?

Tax relief helps your pension grow but there are limits on how much you claim. You should keep these in mind, as exceeding them can lead to an unexpected tax bill and may mean a pension isn’t the most efficient way to save for retirement.

• The Annual Allowance: As the name suggests, this allowance dictates how much you can pay into a pension in a tax year and still receive tax relief. For most savers, this is either their annual income or £40,000, whichever is lower. However, if you earn more than £150,000 you may be affected by the Tapered Annual Allowance. This can reduce the amount you can tax efficiently pay into a pension to a minimum of £10,000. Unused allowance can be carried forward for up to three years.
• The Lifetime Allowance: The current Lifetime Allowance is £1.055 million. This is the overall limit you can accrue in pensions during your life whilst still benefitting from tax relief.

Managing these allowances in line with your contributions can be difficult, especially when you consider how values may change due to investment performance. Retirement planning can help you understand how pension wealth will change over time and whether you’re at risk of exceeding the allowances.

Please get in touch if you have questions about your pension. We’re here to help you get the most out of your savings, including claiming all tax relief you’re entitled to, to reach retirement goals.

Please note: A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by 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.

This afternoon, Rishi Sunak has delivered the first Budget of the new Conservative government. With a large majority behind him, the theme of the Chancellor’s speech was to deliver the promises made in the party’s election manifesto or, as Sunak himself repeatedly said, to ‘get things done’.

Of course, the coronavirus outbreak has significantly changed the Chancellor’s plans. Opening his speech, Sunak said: “We will rise to this challenge – this virus is the key challenge facing our country today.”

With a package of measures designed to support the economy through the spread of coronavirus, plus a pledge to deliver manifesto promises, who were the winners and losers in the 2020 Budget?

Winners

Borrowers

Even before the Budget began, the Bank of England had already announced measures to support the economy, including an emergency reduction in the Base rate from 0.75% to 0.25%.

The outgoing Governor of the Bank of England, Mark Carney, said: “The Bank of England’s role is to help UK businesses and households manage through an economic shock that could prove large and sharp, but should be temporary.”

If you have a tracker mortgage – where your interest rate is directly linked to the Base rate – you should immediately see a reduction in your repayments.

If your mortgage is linked to your lender’s Standard Variable Rate (SVR) then you may have to wait and see if you benefit. There is hope, as after the Base rate was last cut in 2016, eight of the UK’s top 10 lenders reduced their SVR by the same amount soon after.

Small businesses

With experts predicting that the coronavirus outbreak is likely to have a negative effect on the economy, the Chancellor announced a £12 billion package of support to respond to the economic impact of the virus.

Much of this support was aimed at small businesses, particularly those in the retail, leisure and hospitality sectors who are likely to be most significantly impacted by the public having to stay at home and self-isolate.

For businesses with fewer than 250 employees, the cost of any Statutory Sick Pay caused by the coronavirus (up to a limit of 14 days per individual) will be refunded to the company, in full, by the government.

The Chancellor also announced that:

• Business rates for the next financial year for retail, leisure and hospitality firms with a rateable value of less than £51,000 would be abolished
• £2.2 billion of funding for local authorities in England would be provided, to enable grants of £3,000 to be made to around 700,000 business currently eligible for Small Business Rate Relief
• A new Coronavirus Business Interruption Loan Scheme will see banks offer loans of up to £1.2m to support SMEs, with the government providing a guarantee of 80% on each loan.

In addition to emergency measures to tackle the coronavirus outbreak, there was other good news for small businesses.

The government also accounted that it is delivering on its commitment to increase the Employment Allowance to £4,000. This means that businesses will be able to employ four full-time employees on the National Living Wage without paying any employer National Insurance contributions (NICs).

The Chancellor also confirmed that the Corporation Tax rate would remain at 19%, the lowest level in the G20.

Those paying National insurance contributions

Delivering on a manifesto commitment, the Chancellor announced that the threshold for paying National Insurance contributions would rise, from £8,632 to £9,500.

This equates to a tax cut for around 31 million people, saving a typical employee more than £100 a year.

Low earners

The Chancellor confirmed that, by 2024 (and economic conditions permitting), the National Living Wage should reach two-thirds of median earnings, equivalent to over £10.50 an hour.

Many people affected by the Tapered Annual Allowance

In recent months, the issue of the pensions Tapered Annual Allowance has made the headlines. Large numbers of NHS staff were refusing to work additional shifts because of the taper, which left many facing large tax bills.

Having promised an urgent review into the taper, the Chancellor announced that the thresholds at which the Tapered Annual Allowance came into effect would rise by £90,000.

Now, if your threshold income is above £200,000, then you need to check if your ‘adjusted income’ (essentially all income that you are taxed on including dividends, savings interest and rental income, before tax plus the value of your own and any employer pension contributions) is over £240,000.

If it is above £240,000, the annual allowance will reduce by £1 for every £2 that your ‘adjusted income’ exceeds £240,000.

According to the Chancellor, this will take 98% of NHS consultants and 96% of GPs out of the taper.

People saving for children

In the Budget statement, the government said: “By saving towards their future, families can give children a significant financial asset when they reach adulthood – helping them into further education, training, or work.”

To support this, the annual subscription limit for the Junior ISA (JISA) and Child Trust Fund (CTF) will more than double in the 2020/21 tax year, from £4,368 to £9,000.

The adult ISA subscription limit will remain at £20,000.

Anyone driving on the A303

For more than five years there have been plans to improve the long stretch of A-road that passes the UNESCO World Heritage site at Stonehenge. After years of delay, drivers heading to or from the South West received some good news with the Chancellor announcing that the government will build a new, high-quality dual carriageway and a two-mile tunnel in the South West to speed up journeys on the A303, and to remove traffic from the iconic setting of Stonehenge.

For drivers in the area, there is finally light at the end of the (two-mile) tunnel.

Readers

To support learning, the government will introduce legislation on 1 December 2020 to remove VAT on e-publications such as magazines and e-books.

Women

Now that the UK has left the EU, the Chancellor says that the country can reduce the cost of essential sanitary products for women in the UK.

This means that, from 1 January 2021, the ‘tampon tax’ will be abolished through the application of a zero rate of VAT on women’s sanitary products.

Drivers and drinkers

While there were no tax cuts for drivers and drinkers, the Chancellor announced that he was freezing:

• Spirits duty
• Duty on beer
• Duty on cider and wine
• Fuel duty

Losers

Savers

With the Base rate falling to 0.25%, it’s reasonable that long-suffering savers will see yet more falls in interest rates.

Moneyfacts reported that, after the Bank of England last reduced the Base rate in 2016, the average savings rate for an easy access bank account fell by 0.14% in the ensuing three months.

Savers will also see no increase in the amount they can contribute to an ISA in the 2020/21 tax year, and so the limit of £20,000 remains.

Non-UK nationals buying UK property

As widely predicted, a 2% Stamp Duty Land Tax surcharge on non-UK residents buying a residential property in England and Northern Ireland will come into force in 2021.

The aim of this measure is to help to control house price inflation and to support UK residents who want to get onto and move up the housing ladder.

The Chancellor says that the money raised from the surcharge will be used to help address rough sleeping, with the government having committed to ending rough sleeping in this parliament.

Business owners and entrepreneurs

Entrepreneurs’ relief offers a reduced 10% rate of Capital Gains Tax on qualifying disposals.

With immediate effect, the lifetime limit on gains that are eligible for Entrepreneurs’ Relief will reduce from £10 million to £1 million. The Chancellor says that 80% of small business owners will be unaffected, but larger businesses or those realising significant gains on disposals will pay more tax.

High earners making pension contributions

While the threshold earnings level for the Tapered Annual Allowance coming into effect have been raised by £90,000, those on the very highest incomes will see a significant reduction in the amount they can contribute to a pension and retain tax relief.

The minimum level to which the annual allowance can taper down will reduce from £10,000 to £4,000 from April 2020. This reduction will only affect individuals with total income (including pension accrual) over £300,000.

However, the lifetime allowance, the maximum amount someone can accrue in a registered pension scheme in a tax-efficient manner over their lifetime, will increase in line with CPI for 2020-21, rising to £1,073,100.

Manufacturers using plastic

The Chancellor announced that the government will introduce a new Plastic Packaging Tax from April 2022 to incentivise the use of recycled plastic in packaging.

The Budget set the rate at £200 per tonne of plastic packaging that contains less than 30% recycled plastic, and will apply to the production and importation of plastic packaging.

Potholes

Potholes are likely to face a difficult year, with the Chancellor announcing a Potholes Fund of £500 million for each of the next five years.

He expects 50 million potholes to be filled in during that time.

After delays and the appointment of Rishi Sunak as Chancellor just weeks ago following the resignation of Sajid Javid, the Budget was finally delivered this afternoon.

It’s the first to be given since the UK left the EU on 31^st January 2020, with the country now in a transition period, and comes amid the coronavirus outbreak. Both featured in Sunak’s address, with coronavirus being named as the key challenge facing the country today, noting that there is likely to be a temporary economic disruption, and playing a role in several of the announcements.

The economy and public finances

The headline figures from the Office of Budget Responsibility haven’t taken the impact of coronavirus into account. With this in mind, GDP is forecast to increase by 1.1% in 2020 and 1.8% in 2021. Wages are expected to continue growing in real terms throughout the current government too.

Coronavirus response

Sunak opened the Budget with how the government will respond to the growing coronavirus threat.

At the top of this list was the widening of Statutory Sick Pay (SSP). All those advised to self-isolate, including individuals that aren’t showing any symptoms will receive SSP from day one, rather than the standard day four. For self-employed and gig economy workers, access to benefits has also been made easier.  

Also coinciding with the Budget, was an announcement by the Bank of England this morning that the base rate has been cut from 0.75% to 0.25%. Again, this aimed to support both businesses and households amid the coronavirus outbreak.

Several measures aimed at providing support for business were also announced.

Business

Continuing with the temporary measures in light of the coronavirus, SSP for businesses with fewer than 250 employees will be met by the government in full for up to 14 days per employee. Small firms will also be able to access ‘business interruption’ loans of up to £1.2 million to protect companies from the impact. The UK’s smallest 700,000 businesses may also be able to access a £3,000 cash grant, paid by local authorities.

In addition, business rates will be abolished for firms in the retail, leisure and hospitality sectors with a rateable value below £51,000. This means almost half of all business properties in England will not pay business rates this year.

Business owners that benefit from Entrepreneurs’ Relief will be relieved to know that, despite calls to abolish it, the tax relief remains. But the lifetime limit on gains eligible for relief is being drastically cut from £10 million to £1 million. It’s expected that 80% of business owners will be unaffected but it could have a big impact on the remaining 20%.

There will be no changes to the UK’s Corporation Tax, which will remain at 19%.

Personal finance

No immediate changes were announced in the National Living Wage (NLW). But the government did announce a target for the NLW to reach two-thirds of median earnings by 2024. Based on current forecasts, this would lead to an NLW of over £10.50 an hour in 2024.

The National Insurances threshold will increase from £8,632 to £9,500. It will provide 31 million people with a tax cut, saving a typical employee £104.

It’s also good news for those building a nest egg for children. The Junior ISA annual subscription limit will more than double in the new tax year to £9,000. However, the adult ISA subscription will remain the same at £20,000.

Pensions

Following headlines focused on the impact of the tapered annual allowance on pensions, this has been addressed in the Budget. The tapered annual allowance, which reduces how much you can tax-efficiently save into a pension each year, has been increased by £90,000 each. The ‘threshold income’ will now be £200,000 and the ‘adjusted income’ £240,000.

This is good news for many high earners, but those that exceed these thresholds could find their annual allowance is cut even further. Previously, the annual allowance could be reduced to a minimum of £10,000, this has been cut to just £4,000.

The lifetime allowance for pensions has also increased in line with inflation, rising to £1,073,100 from £1,055,000.

Alcohol, tobacco and fuel

Duty rates on beer, spirits, wine and cider will be frozen, as will fuel duty. Business rate discount for pubs to rise from £1,000 to £5,000 too.

However, duty rates on all tobacco products will increase by an amount equal to inflation plus 2%.

Health and education

Compared to 2019/20. NHS England will receive a cash increase of £34 billion a year by 2024. The Immigration Health Surcharge that new arrivals to the UK pay to fund the NHS will also rise to £624, with a discount rate of £470 for children.

An additional commitment of £7.1 billion to fund schools in England by 2022/23 was also announced. This will increase the minimum per-pupil amount to £3,750 for primary schools and £5,000 for secondary schools in 2020/21. On average, schools will see an increase of over 4% in funding per pupil compared to the 2019/20 budget.

Housing

For non-UK residents, a Stamp Duty Land Tax (SDLT) surcharge will apply. It will add 2% to standard SDLT when purchasing residential property in England and Northern Ireland from 1 April 2021. It aims to control house price inflation.

Questions?

If you have any questions about the Budget and how it might affect you, please do not hesitate to get in touch.

The current tax year ends on 5 April 2020 and this date represents the final chance to use many of your annual thresholds and allowances.

And, as you don’t have the option of carrying forward many of these allowances, failing to use them means you lose them.

Keeping track of changing thresholds and effectively managing your allowances can be tricky.

Here’s your comprehensive guide to the top nine things you should consider doing now in order to get ‘end of tax year’ ready.

Download your guide here.

Welcome to our latest update on the investment market. We take a quick look at some of the key factors that influenced the stock market in January and could continue to do so over the coming months.

It’s the start of a new year, but when it comes to the markets, many of the persistent challenges we saw in 2019 are continuing to have an impact.

Globally, there continue to be concerns about weak growth. The United Nations has warned that the global economy is weak, stating tensions between the US and China dragged on economic growth last year, whilst the International Monetary Fund has also cut growth forecasts due to ‘increased ocial unrest’.

The latest PwC CEO survey also highlighted a gloomy outlook. It suggests business leaders are more anxious about the global economy and their own prospects.

The outbreak of the Coronavirus is also having an impact globally. Originating in China, the virus spread to several countries in January, creating economic uncertainty and worries for investors. Unfortunately, it doesn’t show signs of going away in February.

UK

The top news in the UK in January 2020 was that the UK will be leaving the EU and is now in the transition period. Whilst Brexit has been declared ‘done’ there are still a lot of uncertainties and complexities that need to be ironed out before the end of the year that could have a significant impact on businesses.

A glance at the headline figures for the UK doesn’t paint an overall positive picture. GDP shrank by 0.3% in November, leaving the three months up to it with growth of just 0.1% in total. It’s the weakest performance we’ve seen since 2012. Both the manufacturing and construction PMI shows the sectors contracted too:

• The manufacturing PMI was higher than estimated but still registered a contraction with 47.5, it’s the second weakest level in over seven years
• The construction sector saw output fall for the eighth consecutive month with a PMI of 44.4

There were suggestions that the Bank of England would cut interest rates again in a bid to boost the economy. Whilst the Monetary Policy Committee opted to maintain the current base rate of 0.75% in January, it doesn’t mean that a cut isn’t on the horizon. At Mark Carney’s final press conference as head of the Bank of England, growth forecasts were cut, with Brexit blamed.

Retail figures published in January didn’t add a positive spin on the economy either. Despite the festive period, UK retail sales slumped in December and were down 1% in the last quarter. With many retailers relying on the quarter to put them in the black, it’s not surprising some have issued profit warnings, including Joules and Superdry.

In other company news, regional airline Flybe was forced to start crisis talks with the government. More than 2,000 jobs were on the line and thousands of flights. Whilst a deal has been reached, the firm is far from safe in the future.

Europe

The negative outlook continues in Europe too. Eurozone growth slows to just 0.1%, could a recession be on the horizon?

Germany is often seen as the stalwart of the Eurozone, but German industry remains stuck in a recession, according to industry body BDI. The organisation expects Germany to grow by just 0.5% this year, signalling that the slowdown is expected to continue in the coming months.

US

Across the Atlantic, things are looking a little more positive. In fact, US manufacturing bucked the trend and posted a PMI of 52.4, signalling growth.

Whilst trade tensions with China continue to have an impact and tariffs remain, talks are now progressing. Phase one of the trade deal is now complete and has been hailed as a ‘momentous deal’ as China agrees to buy $200 billion worth of more goods from the US. Phase two of the trade talks are now underway.

There’s good news coming from well-known US companies too, particularly in the technology sector:

• Apple hit a record high after iPhone demands surpassed sales records with stocks leaping by as much as 2.8% towards the end of January
• Alphabet, the firm that owns Google hit the milestone $1 trillion valuation
• Tesla shares also surged thanks to a fourth-quarter report showing expectations were beat

Asia

China posted growth of just 6.1% in 2019, a near 30-year low. The slump has been linked to the country’s ongoing trade war and could suggest the country’s economy is slowing down after years of rapid growth. However, there are plans to prevent growth from slowing further in 2020 that could help. China’s central bank, the PBOC, plans to cut banks’ reserve ratio requirement and free up around 890 billion yuan of new funds for loans. The market responded to the news with strong trading.

But one issue in China is the Coronavirus. As the origin of the virus, China has so far been hit the worst and there are growing concerns that it poses a threat to Chinese economic growth.

Read our blog for more investment updates.

If you have any concerns about your investment portfolio in light of recent events, please get in touch.

Please note: 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.

Not so long ago, the stereotype of old age focused on the negative. Perhaps facing illness or struggling to leave the house. Today, that’s not the reality for many people. It’s common to see people in their 80s and beyond fully enjoying their life.

So, what can you do to reach a ripe old age and still be healthy?

Of course, there’s no guarantee of what will happen, genetics and environment play a role. But that doesn’t mean there aren’t things you can do to boost your health as you get older. In fact, longevity expert Dr Shigeaki Hinohara (who reached the age of 105) attributed his long life to several practices and backed them up with numerous books on the topic.

Whilst you may have spotted longevity tips before that demanded you exercise every day or cut out a food group, Dr Hinohara’s approach is a little more laid-back. In a piece for the Japan Times he said: “We all remember how as children, when we were having fun, we forgot to eat or sleep. I believe that we can keep that attitude as adults too. It’s best not to tire the body with too many rules such as lunchtime and bedtime.”

Instead, his philosophy focused on maintained purpose and drive throughout life. Right until the end of his life, Dr Hinohara kept a diary filled with plans made years ahead, with room for fun amid his lectures and hospital work.

So, what can we do to live healthy, long lives? Luckily, much of it is common sense.

1. Keep active

It shouldn’t come as any surprise that exercise and being active is on the list. Keeping fit and in good shape is essential for health, no matter what age you are. You don’t have to commit to running a marathon or taking up a sport (unless you want to!) but whilst winding down is something to look forward to in retirement, make sure you’re still getting some gentle exercise. It can be as simple as playing outdoors with grandchildren through to joining a club to spur you on.

2. Eat a well-balanced diet

Along with keeping fit, what you put in your body is just as important. We don’t mean going on a fad diet, but getting a healthy balance should be a priority throughout your life. Of course, it’s fine to indulge once in a while but keep things in moderation to maintain health.

3. Don’t forget about keeping your brain active

As we enter retirement, we often start scaling back. For many of us, we’ll be using our brain less when we’re no longer spending time at work. But much like you need to exercise to maintain muscles, your brain is the same. Keeping up with hobbies and working out solutions to challenges in day-to-day life can help you maintain mental agility. Place a focus on learning new things later in life too, it can boost your mental health and be rewarding too.

4. Maintain a schedule

If there’s one key message to Dr Hinohara’s notes on how to live happily in old age, this is it. He attributes keeping busy as one of the reasons he lived so long and giving him purpose long past traditional retirement age. Into his 90s, he continued giving some 150 lectures a year to people from school-aged children to senior business executives. Whilst that might seem a little much for your retirement plans, maintaining a schedule should be on your agenda. Do what you enjoy, whether that’s meeting up with friends, indulging in hobbies or passing on your knowledge to the next generation. 

5. Make sure you get enough sleep

The good news is you probably don’t have to set your alarm to get up every day in your later years, but getting a good night’s sleep is still important. Sleep is essential for many health reasons, from helping us to maintain our weight through to improving memory. Sticking to a routine and getting around eight hours sleep a night can deliver a health boost.

6. Take control of your health

We all know that with old age come ailments that you’d rather be without. Taking charge of your health can help you feel in control. It’s a step that incorporates keeping active and eating a balanced diet, but you should go beyond that. You know your body best and when something worries you, speak to a health professional. For some, old age may mean needing more help with the day-to-day. It may not be something you want to think about but planning the type of care you’d prefer, and how you’ll pay for it, can provide you with peace of mind and ensure your wishes are carried out.

7. Have a positive mindset

Another one of Dr Hinohara’s main points is to focus on the positive. If you read interviews or books written by him, you’ll often notice that he refers to the sense of fun and intrigue we had as children; don’t let that slip away as you enter old age. Happiness really can be the best medicine!