You have until 5 April 2023 to make the most of your ISA allowance for the current tax year. If you want to boost your savings or investments, adding more to your ISA could make sense.

For the 2022/23 tax year, you can add up to £20,000 to adult ISAs. The allowance is for each individual. So, if you’re planning with a partner, you should consider making use of both of your allowances.

ISAs are a popular way to save and invest. According to government statistics, around 12 million adult ISAs were subscribed to during the 2020/21 tax year. In total, the cash value of ISAs stood at around £687 billion.

If you’ve yet to make use of your ISA allowance for the 2022/23 tax year, here are four reasons you should review your deposits.

1. You could access a higher rate of interest with a Cash ISA

If you’re building up your savings, using a Cash ISA could mean you benefit from a higher interest rate when compared to regular savings accounts.

As interest rates increased throughout 2022, it’s a good time to review if your Cash ISA is still competitive. There may be an alternative provider that offers a higher rate.

You could also choose an ISA with a fixed term in return for a better rate. However, you may not be able to withdraw your savings during the term, so it’s important to consider what you’re saving for.

If you don’t have a Personal Savings Allowance (PSA) because you’re an additional-rate taxpayer or you’ve exceeded your PSA for the current tax year, a Cash ISA can also be beneficial for tax purposes. Interest earned on cash held in an ISA isn’t liable for Income Tax.

2. ISAs offer a tax-efficient way to invest

For investors, Stocks and Shares ISAs can be tax-efficient. You don’t need to pay Capital Gains Tax on investment returns when investing through an ISA. As a result, it can reduce your tax liability and help your money go further.

As with any investment, you should invest through an ISA with a long-term time frame and understand what level of risk is appropriate for you.

3. If you save with a Lifetime ISA, you could benefit from a 25% bonus

A Lifetime ISA (LISA) isn’t the right option for everyone, but it can be valuable in some circumstances, including if you’re saving to buy your first home.

You must be aged between 18 and 40 to open a LISA and you can contribute until you are 50. You can deposit £4,000 in the 2022/23 tax year and receive a 25% government bonus. In effect, it means you could benefit from £1,000 of “free money” each year.

However, you will face a 25% charge if you make a withdrawal or transfer the money to another type of ISA before you’re 60 for a purpose other than buying your first home. This means you could lose the bonus plus some of your original savings. So, you should think carefully about what you’re saving for and the alternatives before you use a LISA.

You can choose a Cash LISA to earn interest on your deposits or a Stocks and Shares LISA if you want to invest.

4. If you don’t use your ISA allowance, you will lose it

Finally, you cannot carry any unused ISA allowance into a new tax year. If you don’t use it before the 5 April 2023 deadline, you’ll lose it. So, reviewing your saving or investing plans now with this in mind can help you get the most out of your ISA allowance.

Should you use your ISA allowance to save or invest?

While a Cash ISA can seem like the “safer” option, as your money isn’t exposed to investment risk, inflation can erode the value of your savings over time. As a result, you should consider if saving or investing is right for your goals.

A report in FTAdviser suggests that UK savers storing money in Cash ISAs are experiencing wealth erosion at the fastest pace in more than four decades. This is due to high levels of inflation, which interest rates aren’t matching. The report estimates that when compared to inflation, savers are facing a gap of £26.7 billion.

In contrast, investing could help the value of your savings keep up with inflation. However, returns cannot be guaranteed and investing isn’t always the right option.

It’s important to set out your goals and how far away they are to understand if saving or investing could be right for you.

Contact us to talk about how to use your ISA allowance

If you want to talk to a financial planner about how to get the most out of your ISA allowance, please contact us.

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.

Are you worried about Inheritance Tax (IHT) or how you’ll pass on your wealth to loved ones? For some people, pensions can provide a way to tax-efficiently leave wealth to family. Here’s what you need to know.

While IHT currently affects around 1 in 20 estates, it’s a concern for many families. As key IHT thresholds are frozen, it’s something that more people will need to consider as they plan how to pass on their assets.

For the 2023/24 tax year, the nil-rate band is £325,000. If the value of your estate is below this threshold, no IHT will be due. It has been at this level since 2009/10 and is frozen until 2027/28.

In addition, if you leave property to your children or grandchildren, the residence nil-rate band could increase how much you can pass on before IHT is due by up to £175,000 in the 2023/24 tax year. This allowance is also frozen until 2027/28.

So, you may be able to pass on up to £500,000 before you need to consider IHT. You can also pass on unused allowances to your spouse or civil partner.

As inflation means the value of your estate could be rising, IHT may be something you should think about even if your estate isn’t currently exceeding the threshold. The standard rate of IHT is 40%, so it could significantly reduce the wealth you leave behind. However, there are steps you can take to reduce a potential IHT bill, including making your pension part of your estate plan.

Crucially, money that remains in your pension isn’t considered part of your estate when calculating IHT.

The topic has recently been in the news after the Institute for Fiscal Studies called for the government to end the “overly generous” tax treatment of pensions at death. The organisation believes that pensions should be included in IHT calculations so that the tax is spread evenly across all forms of wealth.

Here’s what you need to know about pensions and tax.

What tax will your pension be liable for when you pass away?

While a pension is usually considered outside of your estate for IHT purposes, that doesn’t automatically mean there will be no tax due. How much tax your beneficiary could pay will depend on:

• The age you pass away
• Their other income
• How they access the savings.

Usually, if you pass away before you’re 75, your loved one will not need to pay tax whether they choose to take a lump sum, purchase an annuity, or flexibly access the savings. However, there are exceptions. For example, if the value of your pension exceeds the Lifetime Allowance, which is £1,073,100 for the 2023/24 tax year, a lump sum withdrawal would be liable for a 55% charge, while purchasing an annuity or taking a flexible income would lead to a 25% penalty.

If you pass away after the age of 75, the beneficiary will usually have to pay Income Tax on withdrawals. So, it’s important that you consider other income they have, from a salary to interest from savings, and the rate of Income Tax they pay.

Your beneficiary should also consider how their decisions could reduce their tax liability. Spreading out withdrawals across several tax years can make sense to avoid moving into a higher Income Tax band, for instance.

3 practical things you should do if you want to pass on your pension to loved ones

1. Only withdraw money you need from your pension

Your retirement savings are only considered outside of your estate for IHT purposes if they remain in your pension. So, if you want to pass your pension on to loved ones, you should manage your withdrawals.

Think about only withdrawing the income you need from your pension flexibly and leaving the remainder where it is. As well as making sense for IHT purposes in some cases, this approach means your savings could continue to be invested tax-efficiently and potentially grow further throughout your retirement.

2. Talk to the potential beneficiary

If you leave your pension to your loved one, how much tax they’ll be liable for could depend on their income from other sources and how they plan to access the money. As a result, it’s worth having a conversation with the potential beneficiary about how they’d use the asset. It could help them get more out of the legacy you leave behind.

3. Complete an expression of wishes

As your pension isn’t normally covered by your will, you must complete an expression of wishes to state who you’d like to receive your pension savings.

An expression of wishes isn’t legally binding, but it’s still an important document. When you pass away, the pension scheme trustees or administrator will use it to decide what should happen to your remaining pension.

If you have more than one pension, make sure you complete an expression of wishes for each one.

Contact us to talk about your pension and Inheritance Tax

While the government hasn’t responded to the calls for change around pensions and IHT, it’s important to remember that legislation can change. Working with a financial planner can help ensure that your plan continues to reflect current rules.

If you’d like to discuss what you can do to reduce a potential IHT bill or your options when accessing your pension, please contact us.

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

The Financial Conduct Authority does not regulate tax planning.

This article is for information 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.

When you think about retirement planning, what challenges come to mind? While ensuring you have enough saved and that you don’t run out of money are common concerns, there is one you may have overlooked: changing from a saving to a spending mindset.

To secure your retirement, putting money away has likely become a habit that you’ve embraced for decades. Perhaps you contributed to a pension, made sure your mortgage was paid off, or invested with a long-term plan. These positive habits could have helped you towards greater flexibility and more security later in life.

However, once you retire, it’s not just your routine that changes – your relationship with money may do too.

Rather than building up assets, you’ll often start to deplete them. You may take an income from your pension and use other assets as well. While a happy retirement is what you’ve made sacrifices for in the past, it can be more difficult than you think to start spending the nest egg you’ve created.

Not switching your mindset could mean that despite efforts during your working life to build the retirement you want, it falls short of expectations, even if you have the finances to reach your goals.

So, how can financial planning help you change your mindset when you retire?

Financial planning can help you understand what lifestyle you want

When you think of financial planning, it’s probably the money side of things that come to mind first, like managing investments or highlighting potential tax allowances. This is an important part of financial planning, but it’s not the whole picture.

Effective financial planning starts with understanding what you want to achieve. For those at retirement, focusing on what you want your lifestyle to look like once you give up work is an essential part of the process. Do you envision yourself travelling the world, retiring by the coast, or spending time on hobbies?

Setting out what makes you happy can mean you feel more comfortable depleting your assets. Yet, a report from Aegon finds that just 1 in 5 people are very aware of the day-to-day experiences that give them joy and purpose. As you get ready for retirement, it can be a useful exercise to think about what you’re looking forward to.

It’s only once you set out your goals that the financial planning process starts to look at how your assets and actions can help you reach them.

A long-term financial plan can give you the confidence to deplete your assets

One of the reasons why retirees are often reluctant to deplete assets is that they worry they’ll run out of money. It’s a sensible concern – the decisions you make at the start of retirement could affect your finances for the rest of your life.

Yet, spending too little during your retirement could mean you miss out on experiences.

A survey from abrdn found that almost half of retirees worry that they’ll run out of money during their lifetime. Despite this, only 1 in 5 people are seeking professional financial advice. A financial plan that’s been tailored to you can give you confidence that you’re financially secure.

A financial plan can help you understand what income is sustainable by considering a range of factors, from longevity to inflation. It can also allow you to voice concerns, such as how you’d cope if investment performance didn’t meet expectations or you needed care later in life, and create a safety net if necessary.

A financial plan will consider the assets you want to leave for loved ones

As well as your own financial security, you may be worried about that of your loved ones. Perhaps you worry that depleting assets now will mean you don’t leave an inheritance to your children or grandchildren.

An LV= survey found that 88% of people hope to leave money to their family in their will. A financial plan can also ease your mind here. A financial planner can help you understand how the value of your assets could change during your retirement and how to effectively pass on wealth to the next generation.

Contact us to talk about your retirement goals

If you are nearing retirement or have already retired, please get in touch. We can work with you to create a financial plan that suits your goals and gives you the confidence to use the assets you’ve built up during your working life.

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 value of your investments (and any income from them) can go down as well as up, which would have an impact on the level of pension benefits available.

Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances. Levels, bases of and reliefs from taxation may change in subsequent Finance Acts. 

When you’re deciding how to pass on assets and who you want them to go to, understanding their value, and how this might change, is crucial.

Last month, you read about why estate planning should be part of your overall financial and life plan. Now, read on to discover why getting to grips with what your estate covers is important.

Essentially, your estate is everything you own when you pass away. This could be material items or assets like your investments or savings. As a result, when you first think about what you’d like to pass on to loved ones, it can be easy to miss some things out.

Going through your estate now can inform what you want to happen to certain assets when you pass away and ensure you’ve taken appropriate steps so that your wishes will be carried out.

Understanding the value of your entire estate and individual assets could also mean you’re aware if you’ll need to consider things like Inheritance Tax (IHT) when creating a long-term plan.

So, where should you start when assessing your estate?

Bringing your assets together to calculate the value of your estate

A good place to start is by listing your assets along with their value, starting with the most valuable. Among your largest assets could be:

• Property
• Pensions
• Investments
• Savings

You should also consider personal possessions, such as jewellery, a car, or artwork. In some cases, getting a professional valuation can be useful.

You will then need to consider liabilities, which you should deduct from the total value of your assets. Liabilities may include a mortgage, loan, or other forms of debt.

Don’t forget that some gifts may be considered part of your estate for IHT purposes for up to seven years. If you’ve given significant gifts to loved ones, such as a lump sum for a property deposit or shares, in the last seven years, you should include them too.

Some gifts are considered outside of your estate immediately when calculating IHT. If IHT is something you need to consider, making use of these could reduce a potential tax bill.

IHT exempt gifts include the annual exemption, which is £3,000 for the 2023/24 tax year, up to £250 to each person, and gifts made from your income. Please contact us if you’d like to discuss how gifting could reduce an IHT bill.

This process of valuing your estate now can be useful, but you also need to think about how it’ll change over time. 

Why you should forecast how your estate will change during your lifetime

During your lifetime, the value of your estate will change. This could be due to decisions you make or outside factors.

Your pension, for instance, is likely to fall in value as you use it to create an income in retirement. In contrast, the value of your home could rise as property prices are expected to climb over the long term.

To ensure your estate plan continues to reflect the value of your assets, considering potential changes is important. Making estate planning part of your overall financial plan means you could consider how values may change. For example, what returns do you expect your investment portfolio to deliver each year, and how would this affect your estate in 10 or 20 years?

When you consider how your estate may change, it could alter your plans. The value of assets increasing could mean you decide to make additional gifts during your lifetime. Or perhaps one asset rising in value means that your children wouldn’t receive an equal share of your estate unless you updated your will.  

Frequent reviews of your estate plan are important. It means you have an opportunity to ensure it still reflects your wishes and changing circumstances.

We can help you understand how your long-term plans and the decisions you make could affect the value of your estate over the short, medium, and long term to create an effective plan that suits you.

Read the blog next month to learn about how you can pass on assets to loved ones

Once you understand your estate, you can start thinking about who you’d like to benefit from it. There are several ways you can pass assets on, from gifting during your lifetime to leaving an inheritance in a will. Read next month’s estate planning blog to learn more about your options and key considerations.

If you have any questions about your estate plan or would like to arrange a meeting, please get in touch.

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

The Financial Conduct Authority does not regulate estate planning or tax planning.

ISAs have been around for more than two decades, but they’ve changed significantly since they were first introduced. This guide can help you understand why using an ISA to save or invest could be a valuable part of your financial plan.

Read the guide to find out:

• Why ISAs are a tax-efficient way to save and invest
• Discover the different types of ISA you can choose from
• What you should consider when deciding if you should save or invest through an ISA
• How Junior ISAs could help you build a nest egg for children or grandchildren
• How you could leave your ISA to loved ones when you pass away.

Download your copy of “The essential guide to ISAs” to understand why around 12 million adults contribute to their ISAs each year.

If you have any questions about the topics covered in the guide, please contact us. We can help you manage your savings and investments in a way that reflects your goals, including ISAs if they’re appropriate for you.

2022 ended with uncertainty and volatility that’s persisted for much of the year. Read on to find out what happened in December and how it affected investment markets.

Looking ahead, uncertainty is likely to be something investors will need to negotiate in 2023 too. As economies continue to struggle with high levels of inflation, Goldman Sachs CEO David Solomon warned that “bumpy times” were still ahead.

Keep in mind that volatility is part of investing and you should keep your long-term plan in mind when reviewing performance. You should also consider your risk profile and the investment opportunities that are appropriate for you.

UK

Inflation fell slightly in the 12 months to November 2022 to 10.7%. It’s led to hopes that inflation has peaked, but high levels are expected to persist in the first half of 2023. In response to inflation, the Bank of England (BoE) increased interest rates again, this time by 0.5% to 3.5%.

The soaring cost of living has led to strikes across the country, which has affected a range of services, from post to transport. Dubbed the “winter of discontent” by the media, figures from the Office for National Statistics (ONS) show that strike action is at its highest level for more than a decade. Around 417,000 working days were lost due to labour disputes in October.

One positive piece of data released in December was the GDP figure. It’s estimated that GDP grew by 0.5% in October after falling 0.6% in September.

However, experts have warned that the economy is still likely to fall into a recession. The Institute of Directors explained that the latest figure was most likely due to the extra bank holiday in September for the Queen’s state funeral, rather than the economy bouncing back.

Readings from S&P Global’s purchasing managers index (PMI) suggests that business output is falling. A reading below 50 indicates contraction.

• A “lethal cocktail” of Brexit, logistic challenges, high costs, and falling demand, means that the PMI for UK factories fell to its lowest level since April 2020, when the first wave of Covid-19 affected operations. The 46.5 reading suggests business is contracting.
• The reading for the service sector fell to 48.8 as cost of living challenges hit discretionary spending.
• The construction sector is still growing, although it is near the 50 mark, which indicates stagnation due to the rising cost of borrowing affecting the industry.

Businesses are also struggling to find the talent they need. According to an ONS survey, a third of UK businesses with 10 or more employees said they are experiencing a shortage of workers. This rises to 54% in the human health and social work sector.

While many businesses are suffering from falling demand, one bright spot was car sales. They increased for the fourth consecutive month. Industry leaders said a recovery for the sector was “within grasp” after November sales were 23.5% higher when compared to a year earlier.

US carmaker Ford also unveiled investment plans. It will invest an extra £125 million in its Merseyside factory to make electric vehicle parts. The move is part of the company’s zero-emission goals.

Europe

In a similar move to the BoE, the European Central Bank increased its base interest rate by 50 basis points due to inflation.

PMI data suggests that the eurozone is falling into a recession. Private sector output fell as demand for goods and services contracted. Job creation was also at its weakest level in almost two years as businesses are affected by uncertainty.

While manufacturing increased slightly when compared to the previous month. The PMI figures show it’s still in contraction as new orders fall.

This falling demand is affecting Germany, which is the largest economy in the eurozone. Exports declined by 0.6%. 

USA

Statistics from the US paint a mixed picture. Like other economies, the US is facing high inflation, rising interest rates, and uncertainty.

PMI data suggests industries are contracting. For instance, the reading for the service sector fell from 47.8 in October to 46.2 in November.

However, job data suggests that businesses are still optimistic. The job market was positive, with 260,000 new jobs added in November. The unemployment rate also remained at 3.7% – an almost 50-year low. The figures indicate that businesses feel confident enough to invest in their workforce.

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.