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This year the FTSE 100 index turns 40. Over the last four decades, it’s become a way to measure the health of the UK stock market. During that time there have been highs that investors no doubt celebrated, and lows that serve as a reminder that there’s some truth in the saying: it’s time in the market, not timing the market.

In 1984, Margaret Thatcher was serving as prime minister and, similar to today, interest rates were increasing in a bid to reduce inflation – the base interest rate exceeded 12.8% in July 1984. The country was also grappling with miners’ strikes and high levels of unemployment. Yet, it was also a time of technological advancement and scientific discoveries.

Against this backdrop, the FTSE 100 index launched.

The FTSE 100 is made up of the biggest 100 companies that are listed on the London Stock Exchange. The market capitalisation of each company is reviewed every quarter, and the index is adjusted accordingly. 

More than 20 companies that were listed when the FTSE 100 launched are still on it today, including NatWest, Unilever, and Shell.

While you might think 100 companies were selected for being a round number, it was chosen because it was the maximum number of stock symbols that could be displayed on a single page of the electronic information terminals at the time. The technology’s improved, but the 100 figure has stuck.

As an investor, you might hold individual stocks in some of the companies included in the FTSE 100. You might also be invested in FTSE 100 firms through a fund, which would pool your money with that of other investors to invest in a range of companies.

The FTSE 100 has experienced volatility in the last 40 years

One of the first substantial falls the FTSE 100 recorded was in 1987 during the “Black Monday crash”.

The global stock market crash was unexpected and severe. Some analysts have suggested it was due to significantly overvalued stocks, rising interest rates, or persistent trade and budget deficits in the US.

On 19 October 1987, the FTSE 100 fell by 10.8% and then a further 12.2% the following day. While it took several years, the index recovered and was reaching new highs in the 1990s.

More recently, the FTSE 100 experienced a fall following the 2008 financial crisis, the Brexit referendum, and the Covid-19 pandemic. There have been many smaller dips and corrections too. 

Yet, historically, the FTSE 100 has recovered from downturns.

The FTSE 100 hit 8,000 points in February 2023

On the first day, the FTSE 100 launched at 1,000 points. Over four decades, the overall trend has been an upward one, despite periods of volatility.

Indeed, on 16 February 2023, the index hit an all-time high when it exceeded 8,000 points even though the UK economy was expected to fall into a recession at the time. According to the Guardian, the boost was partly attributed to energy firms making significant gains in light of the war in Ukraine.

Over 40 years, the annualised rate of returns from the FTSE 100 is just above 8%. That’s far above the average rate of inflation of around 3% over the same period.

So, if investors had been spooked during the 1987 crash and withdrew their money from the stock market, they could have missed out on future gains. The ups and downs of the FTSE 100 highlight why a long-term view is often important when you’re investing.

Short-term volatility is part of investing and is impossible to consistently predict. So, rather than trying to time the market, holding assets over a long time frame makes sense for many investors.

Get in touch to talk about your investments

The FTSE 100 has become a useful tool for investors over the last 40 years and it’s often used to provide a snapshot of the investing market. However, there are other opportunities to weigh up too.

We could help you build an investment portfolio that suits you and aligns with your risk profile. Please get in touch 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.

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. Past performance is not a reliable indicator of future performance.

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. 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. 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.

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.

According to MoneySavingExpert, 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.

Not reviewing whether to use your ISA allowance 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 thanks to 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. 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 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.

Past performance is not a reliable indicator of future performance.

The start of the new year is the perfect time to reflect on what has happened over the past 12 months. Although the news often focuses on disheartening events, there are plenty of heartwarming stories out there that can restore your faith in humanity.

From science breakthroughs to exciting projects, here are seven stories you might have missed.

1. Researchers discovered a new treatment for Alzheimer’s

Scientists found that two 20-minute electrical stimulation sessions per day can improve the memory and cognitive performance of elderly people suffering from Alzheimer’s disease.

The technology stimulates neural networks in the brain, which improved patients’ brain plasticity and led to the participants of the study having increased speech and recollection skills.

The incredible treatment – known as “transcranial direct current stimulation” (tDCS) – is currently being tested in several different areas of medicine. Researchers are also investigating how it could help treat conditions such as depression and paralysis.

2. Golden mole tracked down for the first time in 100 years

Scientists last recorded a sighting of De Winton’s golden mole in South Africa in 1936. After years of searching, a group of relentless environmentalists and their adorable sniffer dog, Jessie, found tracks and DNA proving that the tiny creatures are still out there.

The discovery marks the 12th species crossed off Re:Wild’s “Top Most Wanted Lost Species List”. The Guinness World Record-setting quest aims to find and protect the world’s most endangered species and has led to them rediscovering species such as Attenborough’s Long-beaked Echidna and Pernambuco Holly, as well as the rare golden mole.

3. Painting stolen 30 years ago returned to Scottish museum

In 1989, thieves stole over a dozen paintings and artefacts from Haggs Castle Museum of Childhood. When an investigation failed to find the missing artworks, the local community assumed they would never be seen again – until one of the paintings resurfaced at an auction in Yorkshire.

Children Wading by Robert Gemmell Hutchison was caught thanks to the hard work of the Art Loss Register, a non-profit databasing company that compiles details on over 700,000 missing artworks and antiquities.

The painting’s owners had no idea their prized possession was stolen and chose to hand it over for free so that everyone could enjoy the beautiful artwork. Although the Museum of Childhood closed down many years ago, you can see Children Wading in the Glasgow Museums Resource Centre.

4. The Wildlife Trust found two sites to redevelop ancient rainforests in the UK

British rainforests used to cover most of our land, but thanks to industrialisation and deforestation, they now take up less than 1% of our country. The Wildlife Trust and Aviva partnered to invest £38 million to transform two carefully selected sites back into thriving rainforests.

The two locations – Creg y Cowin on the Isle Of Man and Bryn Ifan in North Wales – will be restored to their former glory, benefitting both the environment and the local communities. Not only will the new rainforests help us combat global warming, but they will also restore habitats for some of the UK’s most endangered species.

5. Women band together to keep Newcastle safe

Shocked by the murders of Sarah Everard and Sabina Nessa, charity worker Beth Dunn started the Women’s Street Watch Newcastle (WSWN) with her girlfriend to ensure women can enjoy a night out without worrying about getting home safely.

Now they’ve amassed an army of over 50 pink-jacket-wearing volunteers to protect the women of Newcastle and raised £10,000 for a van that provides a safe space to call a taxi or charge phones so people can contact their loved ones.

The brilliant organisation has already inspired a similar scheme in Middlesborough, and the WSWN are helping other cities across the UK – including Edinburgh and Manchester – set up similar programmes to help women across the country.

6. Endangered rhino species protected from poachers

For the first time since 1977, no great one-horned rhinoceroses were poached in the world’s largest reserve.

The Kaziranga National Park in India is home to two-thirds of the endangered species’ population, with over 2,200 rhinos as well as a variety of other amazing animals. The local authorities arrested 58 poachers last year, stopping the beautiful creatures from being killed for their horns.

Thanks to new protections being put in place for the one-horned rhinos, their numbers have risen from only 200 in 2000 to over 3,700 in 2023.

7. Rise in the number of children reading

The 2023 What Kids Are Reading Report discovered that children in the UK and Ireland read 24% more in the 2021/22 academic year than they did the previous year, devouring over 27 million books.

The researchers found that social media communities such as BookTok encouraged children to read popular books like Jeff Kinney’s Diary of a Wimpy Kid series and Heartstopper, Alice Oseman’s series of graphic novels.

This fantastic upsurge in young readers gives us hope for the new generation, as regularly reading doesn’t just help children academically. It also develops empathy, helps people gain a deeper understanding of the world, and can be a brilliant way for you to build stronger relationships with your loved ones if you read as a family.

Taking out a mortgage can be an exciting time if you’re moving home. However, it can also be daunting, as you may be significantly increasing your borrowing. Life insurance could provide you with peace of mind that, if you passed away, your family would still be financially secure and able to remain in their home.

Life insurance pays out a lump sum if the policyholder passes away

Life insurance is a type of financial protection that would pay out a lump sum to your beneficiaries if you passed away during the term.

It could help your family to pay off the mortgage, so they’re able to remain in their home even if your income is used to make the repayments. They could also use it to cover other costs, from taking time off work to grieve to school fees for your children.

Taking out a mortgage is a large financial commitment, and life insurance could ease your concerns about how your family would cope financially if something were to happen to you.

You can choose term life insurance, which would run for a defined period, such as the length of your mortgage, or whole of life insurance.

To maintain your cover, you’ll usually need to pay regular premiums. The cost of the premiums will depend on several factors, including the level of cover you want, your age, and your health.

Almost half of adults aged between 18 and 40 don’t have life insurance

Despite the peace of mind it could offer, figures suggest the number of people taking out life insurance is falling.

According to a report in IFA Magazine, following three years of consecutive growth spurred on by the pandemic, the estimated size of the life insurance sector fell by 8.5% – that represents a decrease of around £6 billion.

Similarly, according to FTAdviser, many families could be leaving themselves vulnerable to a financial shock. 48% of adults aged between 18 and 40 don’t have life insurance. The survey also found that the rising cost of living is the main reason people have cancelled their life insurance.

While it can be tempting to cancel financial protection if your budget is squeezed, you could end up facing even greater financial challenges if the unexpected does happen.

How to calculate how much life insurance you could benefit from

You can choose the level of cover when you take out life insurance, so you can tailor it to suit your needs.

Calculating your family’s current income and reviewing where it comes from is a good place to start – how would this change if you passed away? You might also want to consider how their lifestyle may differ too. For example, if your partner would need to reduce their working hours to care for children, it could affect their income.

Consider what you’d like the potential life insurance payout to be used for. Would having a lump sum to pay off the mortgage be enough? Or would you want it to provide a replacement income for several years, for instance, until your children reach adulthood?

Reviewing life insurance can be a difficult task. However, this step could give your family financial security when they’re grieving and support their long-term wellbeing.

Income protection and critical illness cover could be valuable too

Life insurance can act as an invaluable safety net for your loved ones if you pass away. Other forms of financial protection could also be useful if you face an unexpected financial shock. For example:

• Income protection could provide you with a regular income if you’re too ill to work. It would usually pay a proportion of your regular salary and could help you keep up with your financial commitments, including your mortgage, if your income stops. Income protection will typically pay you an income until you return to work, retire, or the term ends.
• Critical illness cover would pay out a lump sum if you’re diagnosed with a covered illness. You can use the lump sum however you’d like. You might choose to pay off your mortgage, use it for day-to-day living costs, or adapt your home if you need to. How comprehensive critical illness cover is varies between providers, so you should ensure you understand what conditions are covered.

As with life insurance, you can choose the level of cover when taking out income protection or critical illness cover. So, considering your expenses, both now and in the future, may be useful.

Contact us to talk about how to create financial security when taking out a mortgage

If you’d like help searching for financial protection that could put your mind at ease after taking out a mortgage, 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.

Note that financial protection plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse. Cover is subject to terms and conditions and may have exclusions.

For some investors, Venture Capital Trusts (VCTs) could present a way to tax-efficiently invest and support innovative businesses that may have high-growth potential. However, VCTs aren’t the right option for everyone. Read on to learn the basics you need to know if you’re thinking about using VCTs to invest.

The government introduced VCTs in 1995. They aim to provide a way to inject capital into small and emerging businesses.

According to the latest figures from HMRC, in 2021/22, VCTs issued shares to the value of £1,122 million – 68% higher than in 2020/21. Indeed, VCTs have grown in popularity in recent years and the amount of funds raised has more than doubled since 2009/10.

Venture Capital Trusts could provide you with a way to invest in start-up businesses

Start-ups and small, innovative businesses often have limited access to funding. VCTs are designed to provide a way for investors to support these businesses that may have the potential to grow quickly.

VCTs might also provide businesses with other support, such as guidance about how to optimise growth.

A VCT is a listed company that pools money from investors and uses it to invest in VCT-qualifying companies. So, rather than investing in one start-up business, your money is spread across several, which may help diversify your investment.

Some VCTs may specialise in specific sectors or industries to utilise their expertise more effectively.

In the 2023 Autumn Statement, chancellor Jeremy Hunt confirmed the government will legislate to extend VCTs to 2035.

You could receive up to 30% Income Tax relief by investing in Venture Capital Trusts

VCTs are high-risk investment opportunities. To encourage investors to take the risk of investing in small businesses, the government offers tax relief.

In 2023/24, you could invest up to £200,000 in VCTs and receive Income Tax relief of 30%. This means you could claim up to £60,000 of tax relief. You must hold the investment for at least five years to keep the relief.

You can only claim relief against the amount of Income Tax you pay, and you cannot carry forward unused Income Tax relief to future tax years.

In addition, any dividends paid by the VCT are not subject to Income Tax and gains are free from Capital Gains Tax (CGT).

If you purchase VCTs in the secondary market, there is no tax relief on purchase.

According to the HMRC figures, in 2020/21, VCT investors claimed Income Tax relief on £640 million of investment – a 10% increase on the previous year. The number of VCT investors who claimed Income Tax relief also increased by 9% to almost 19,500.

Venture Capital Trusts could be useful if you’re a high-risk investor

VCTs may be a useful option to consider if you’re a high-risk investor who has already used other tax-efficient allowances, such as the ISA annual subscription or pension Annual Allowance.

As well as the opportunity to benefit from tax relief, VCTs might be attractive because they:

• Provide a way to invest in potentially high-growth businesses
• Could help you diversify your wider investment portfolio
• Allow you to support British innovations by investing in start-up businesses.

Venture Capital Trusts are considered high-risk investments and aren’t right for many investors

While the tax incentives of VCTs may be attractive, they’re not right for many investors.

VCTs are a high-risk investment. Start-up companies are more likely to fail than established firms. As a result, if you invest through VCTs, there is a higher chance that you could lose your money and you may not get back the full amount you invested.

You also need to be prepared to invest for the long term. To retain VCT tax relief, you must hold the shares for a minimum of five years. So, it’s important to consider your long-term plans.

In addition, as the VCT market is smaller than that of traditional investments, it could be more difficult to sell shares. It may take more time, or you may have to accept a lower price than the value of the VCT. 

Contact us to talk about tax-efficient ways to invest

VCTs are just one option if you want to invest tax-efficiently. It’s important you understand your options and what level of investment risk is appropriate for your circumstances. Whether you’re keen to invest in VCTs or would like to explore alternatives, we could help.

Please contact us to talk about your investment strategy and how to minimise your tax liability.

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

Venture Capital Trusts (VCT) are higher-risk investments. They are typically suitable for UK-resident taxpayers who are able to tolerate increased levels of risk and are looking to invest for five years or more. Historical or current yields should not be considered a reliable indicator of future returns as they cannot be guaranteed.

Share values and income generated by the investments could go down as well as up, and you may get back less than you originally invested. These investments are highly illiquid, which means investors could find it difficult to, or be unable to, realise their shares at a value that’s close to the value of the underlying assets.

Tax levels and reliefs could change and the availability of tax reliefs will depend on individual circumstances.

When creating a financial plan, you often start with your goals. After all, setting out your aspirations first lets you create a plan that’s tailored to you. Yet, understanding your numbers is just as crucial for successful financial planning and they could help you understand the effect of your decisions.

So, which numbers are the key ones you should know? 

Which numbers you may want to track will depend on your goals

To keep your financial plan on track, monitoring key numbers can help you assess your progress and identify potential gaps. Read on to discover which numbers could be important in two different scenarios.

Ensuring your family’s financial security

If you have a family, a key priority might be to ensure their long-term financial security. You might want to set money aside to pay for milestones, like helping children go to university. You may also be worried about what would happen if you faced a financial shock.

So, questions like those below could help you highlight the key numbers that will allow you to create a financial plan that reflects your circumstances.

• What are your household’s day-to-day expenses?
• What is the value of your family’s large financial commitments, such as a mortgage?
• What is the value of planned one-off costs?
• How much do you have saved in an emergency fund?
• What percentage of your income is protected?

The answers to these questions may highlight things like a gap in your financial safety net that could mean your family is vulnerable to a shock. Or that you may benefit from putting money aside to pay for one-off costs, like supporting your child’s homeownership goals. 

Planning for your retirement

When you’re planning for retirement, there are several key numbers you might need to consider. For example, the answers to these questions could be important:

• How many years or months until you hope to retire?
• What percentage of your income are you contributing to your pension?
• How much income do you need in retirement, and how much will it need to increase to maintain your spending power?
• How long will you spend in retirement?

With these numbers you may be able to start creating a plan that provides you with financial stability and peace of mind throughout retirement. Again, the results could help you identify potential gaps or indicate where you may need to compromise.

Key numbers could help you forecast how your wealth will change

Cashflow modelling could help you see how your wealth and assets may change over the long term.

To start, you input key information, such as your income, the value of your assets, or how much you are contributing to your pension each month. You can then see how your wealth might change over the years. 

This is where knowing your numbers is important. Cashflow modelling is only as good as the data you input. So, taking time to understand the value of your assets and financial needs could be essential.

Once you’ve added the figures, you can use cashflow modelling to see the outcome of different scenarios. For instance, how would:

• Your retirement income change if you increase your pension contributions?
• Different investment returns affect your long-term wealth?
• Gifting a lump sum to a loved one affect your long-term financial security?

So, it can be used as a way to understand how the decisions you make now could affect long-term plans.

The results of cashflow modelling cannot be guaranteed as the outcomes will be based on some assumptions, such as investment returns. However, it can provide a useful way to visualise how your financial decisions could affect your long-term wealth.

Regular reviews to update your numbers could be valuable. It also presents an opportunity to ensure your financial plan continues to reflect your goals. Over time, your aspirations might change, and, as a result, you may want to adjust your financial plan or the data used in your cashflow model.

Contact us to talk about your key numbers and how they could help you reach your goals

We can work with you to create a tailored financial plan that reflects your aspirations. Taking a bespoke approach could mean you feel more confident about your current finances and how they’ll change in the medium and long term.

With regular financial reviews to track key numbers, you can focus on what’s most important to you. 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.

The Financial Conduct Authority does not regulate cashflow planning.

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.

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 the interest rates at the time you take your benefits.

Traditionally, people passed on wealth to their loved ones once they passed away through a will. However, you might be considering gifting assets during your lifetime to create a living legacy. Read on to discover the pros and cons you may want to consider before deciding which option is right for you.

The benefits of passing on assets during your lifetime

A living legacy may allow you to help your loved ones when they need it most

One of the key drawbacks of a traditional inheritance is that they’re often received later in life when loved ones may be more financially secure. In contrast, a living legacy could provide you with a way to pass on assets at a time when they’ll benefit more.

Soaring house prices mean getting on the property ladder has become a challenge for many families. As a result, parents and grandparents are increasingly passing on wealth to act as a deposit.

According to the Institute for Fiscal Studies, around half of first-time buyers in their 20s receive financial help to buy their home. On average, they receive a gift of £25,000.

The research found that not only does this wealth transfer support home ownership goals but long-term wealth accumulation too. As those receiving financial help typically put down a larger deposit, the interest they pay on their mortgage could be thousands of pounds lower.

Helping loved ones step onto the property ladder isn’t the only reason you might want to gift assets now. Perhaps you want to fund university or private school, or pay off debt so their day-to-day finances improve.

Passing on assets during your lifetime could give you greater control over how they’re used

If you have a clear idea about how you’d like your beneficiaries to use the assets you’re passing on to them, doing so during your lifetime could provide you with greater control. For instance, if you want to ensure your grandchild goes to a private school, you could pay the fees directly.

It may be worth speaking to your family about their goals and the obstacles they face in reaching them. This could help you provide support in a way that suits both them and you.

Gifting might offer a way to reduce a potential Inheritance Tax bill

If the value of your estate exceeds Inheritance Tax (IHT) thresholds when you pass away, it could result in a large bill and less money going to your beneficiaries.

In 2023/24, the nil-rate band is £325,000 – if the value of your estate is below this threshold, no IHT is due. In addition, if you’re passing on some properties, including your main home, to direct descendants, you may be able to use the residence nil-rate band, which is £175,000 in 2023/24.

You can pass on unused allowances to your spouse or civil partner. So, as a couple, you could pass on up to £1 million before IHT is due.

If your estate could be liable for IHT, there may be steps you could take to reduce a potential bill, including passing on assets during your lifetime. However, not all assets are considered immediately outside of your estate for IHT purposes, and the rules can be complex. If you’re thinking about creating a living legacy to mitigate an IHT bill, we can help.

The drawbacks of a living legacy

Passing on wealth now could affect your long-term financial security

One of the key challenges of passing on wealth during your lifetime is understanding the long-term effect it could have on your financial security – would taking a lump sum out of your estate now potentially mean you need to make compromises later in life?

Making gifts part of your financial plan can help you understand the short- and long-term impact. It can give you confidence when you’re passing on assets that your finances are secure too.

A living legacy could affect the assets you leave behind as an inheritance

While a living legacy can be useful, you might still want to leave an inheritance behind for loved ones. Gifting could mean the amount they’ll receive after you’ve passed away is lower. So, if leaving assets in a will is important to you, assessing how a living legacy will affect your estate during your lifetime could be useful.

It might also be beneficial to have a conversation with your loved ones – do they understand how gifts they receive now could affect their inheritance? It may affect the financial decisions they make.

Gifting assets during your lifetime may make your estate plan more complex

Estate planning can be complex, and gifting during your lifetime could add to this.

You might gift one child a deposit to get on the property ladder, but your other child already owns their home – will you still provide them with a lump sum now or would they receive more through your will?

An estate plan that’s tailored to you could help you manage different goals and set out the best way to provide support for each of your beneficiaries. It can also help you take the steps necessary to ensure your wishes are followed, such as writing a will. 

Arrange a meeting with us to talk about your living legacy

If you’d like to pass on wealth during your lifetime, it’s important you consider how it’ll affect your long-term finances and how to do it tax-efficiently. Making a living legacy part of your long-term financial plan could provide you with peace of mind while you support loved ones.

We could also help you assess other options, such as leaving an inheritance in a will or placing assets in a trust, to create an estate plan that suits you.

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.

The Financial Conduct Authority does not regulate estate planning, tax planning, trusts, or legal services.

Retirement can be an exciting milestone, but one that you might feel nervous about too. Setting out how to achieve the retirement lifestyle you want could help put your mind at ease. One of the first things you may have to consider is how you’ll retire – would a phased retirement suit you?

Over the next few months, you can read about key considerations if you’re nearing retirement, from contemplating the emotional side of stepping away from work to how to access your pension. Read on to discover if a gradual retirement transition could be for you.

A retirement transition period could help you create a work-life balance that suits you

Not too long ago, many retirees followed the same path – they’d give up work on a set date.

Now, you have far more choices, which could enable you to strike a balance that suits you. An increasing number of people are choosing a phased retirement.

Indeed, according to the Great British Retirement Survey 2023, almost half (47%) of people aged between 55 and 65 who have reduced their working hours say it’s due to them winding down. Cutting your working hours could help you create a work-life balance that suits your needs if you’re not ready to give up work completely.

Reducing your hours isn’t the only way to transition into retirement either. You could switch to a less demanding job, work on a freelance basis, or even start your own business.

As well as allowing you to blend work and life in a way that’s right for you, there are other benefits to transitioning into retirement, such as:

• Continuing to receive an income to help your retirement savings go further
• Benefiting from the structure work may provide
• Enjoying the social aspect of being part of a team.

If a phased retirement is an option you think could suit you, there are some key decisions you might need to make.

5 useful questions to consider if you’ll transition into retirement

1. What does your ideal work-life balance look like?

Transitioning into retirement gives you the option to create a work-life balance that matches your goals.

So, it’s worth spending some time setting out what your ideal circumstances would be – would you want to remain in your current role? Do you want the freedom to set your working hours?

2. Will you need to supplement your income?

As you transition into retirement, your income may fall. If you could supplement your income from other sources, such as accessing your pension or depleting savings, factoring this into your financial plan could be useful. It’s an important step in understanding how long your assets will last and how to create long-term financial security.

You might also want to consider how your day-to-day expenses may change too. You might find some areas fall if you reduce how much you’re working, such as the cost of commuting, while other outgoings could rise.

3. Will you continue paying into a pension?

A pension may provide a tax-efficient way to save for your retirement thanks to tax relief. In addition, your employer must contribute on your behalf if you’re between 22 and the State Pension Age, and earn more than £10,000 in 2023/24.

So, even though your income may fall, it might still be worthwhile contributing to your pension when you consider the long-term benefits.

You should note that if you start to take an income from your pension, your Annual Allowance may fall. This is the amount you can tax-efficiently add to your pension each tax year.

In 2023/24, the Annual Allowance is usually £60,000. However, accessing your pension may trigger the Money Purchase Annual Allowance, which would reduce how much you can tax-efficiently contribute to your pension to £10,000.

4. Will you defer the State Pension?

The State Pension Age is 66 in 2023/24, but it is gradually rising. The government’s State Pension forecast could help you understand when you’ll be eligible for the State Pension, as well as how much you could receive.

If you’ll be transitioning into retirement after the State Pension Age, you may want to consider deferring claiming your State Pension.

For every nine weeks you delay taking it, your State Pension will increase by the equivalent of 1% – defer for a year, and the income you’d receive would rise by just under 5.8%.

As well as boosting your future income, deferring your State Pension could reduce your Income Tax liability now.

5. How will a phased retirement affect your long-term finances?

You might not be giving up work completely, but don’t put off thinking about your long-term plans. The decisions you make now could affect your financial security for the rest of your life.

As a result, creating a retirement plan could be valuable and provide peace of mind by helping you understand the long-lasting effect of decisions like:

• Accessing your pension while you phase into retirement
• Halting pension contributions sooner than you planned.

Contact us to discuss your retirement aspirations

Whether you want to give up work on a set date or ease into retirement, a tailored plan could help you reach goals and build the life you want. Please contact us to talk about your aspirations for retirement and how you might achieve them.

Next month, read our blog to find out what questions you may want to consider when setting out your retirement lifestyle.

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.

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. 

A “margin of safety” gives you a cushion to allow for losses or inaccurate assumptions in your financial plan. It could mean your goals remain on track, even if things don’t go exactly as you expect. Read on to find out why it could be a valuable part of your plan.

The margin of safety was popularised by the “father of investing”

British-born American economist and investor Benjamin Graham is often referred to as the “father of investing” after he wrote two founding texts about investing in the 1930s and 1940s. His approach to investment philosophy often focused on investor psychology, such as how emotional and cognitive factors affected the decisions investors made.

His theories earned him many disciples in the investing world, including famous investor Warren Buffett, who, according to Forbes, is the fifth richest man in the world with an estimated fortune of $106 billion (£83.9 billion).

The margin of safety is one of Graham’s key principles, so what does it mean?

In simple terms, it’s the difference between the intrinsic value of a stock and its market price. The idea is that you should only buy stock when it’s worth more than its price on the market. It aims to protect investors from downturns in the market and their poor decisions, which may be influenced by emotions or bias.

While Graham linked the principle to investing, it’s used in other industries too. For instance, engineers will often have a large margin of safety to account for potential mistakes.

Buffett once explained the idea by saying: “When you build a bridge, you insist it can carry 30,000 pounds, but you only drive 10,000-pound trucks across it. And that same principle works in investing.”

Through the margin of safety, Graham sought to take an investment approach that focused on assessing risks before looking at potential returns. So, rather than asking “How much could the price of the share increase by?” you seek to understand “Could the value of the share fall?” first.

The margin of safety allows for some investment losses

The key benefit of the margin of safety is that it allows for some losses to occur without having a huge negative effect on your portfolio.

It could also help offset some forms of bias. For instance, overconfident investors might lead to a stock price that is higher than the intrinsic value.

The margin of safety doesn’t guarantee a successful investment. Determining intrinsic value can be difficult and investment values can be volatile and unpredictable. Even Graham got it wrong at times. Indeed, his margin of safety principle came after he lost most of his money, like many other investors, during the stock market crash of 1929 and the subsequent Great Depression.

Remember, all investments carry some risk, and you should understand what level of risk is appropriate for you.

The margin of safety could be applied to other areas of financial planning too

The idea of creating a cushion to account for mistakes or provide you with a buffer in case the unexpected happens isn’t only useful when you’re investing.

Think about when you’re creating a household budget. You might round up certain repayments, like your utilities, in case your bill is higher than anticipated. Or you may ensure you have money that’s not allocated to anything specific to cover the unexpected.

A margin of safety could be useful when you’re making long-term plans too.

Let’s say you’re a woman retiring at age 60. The Office for National Statistics estimate that, on average, you’d spend 27 years in retirement. But if you divided your pension up into 27 segments to create an income, what would happen if you were one of the 1 in 4 women who live to be 94? You could face financial hardship in your later years.

You might also plan for the cost of living to rise by 2% a year throughout retirement and reflect this in the income you take – 2% is the Bank of England’s inflation target after all. However, as the last two years have demonstrated, inflation can rise significantly above that target.

So, while we make assumptions when creating a financial plan, a margin of safety might provide you with security even if things don’t go exactly as you expect.

Contact us to talk about your financial plan

If you’d like to discuss how we could work with you to create a financial plan that considers your long-term financial security, even when the unexpected happens, 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 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. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

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 the interest rates at the time you take your benefits.

It’s the season for giving. This Christmas, you might be thinking about how you could improve the security of your loved ones by gifting them money or assets. Read on to discover five potentially useful allowances that you might want to consider if your estate could be liable for Inheritance Tax (IHT).

Some gifts are considered immediately outside of your estate for IHT purposes, and are known as “potentially exempt transfers”. They may be included in your estate when calculating IHT for up to seven years after they are given.

So, if reducing IHT liability is one of the motivators for gifting assets, considering tax-efficient allowances could be valuable.

In 2023/24, the nil-rate band is £325,000. If the entire value of all your assets is below this threshold, no IHT is due on your estate when you pass away. In addition, many people can use the residence nil-rate band if they pass on their main property to direct descendants. For the 2023/24 tax year, the residence nil-rate band is £175,000.

As a result, an individual could leave up to £500,000 to loved ones before IHT is due. You can also pass on unused allowances to your spouse or civil partner.

The nil-rate band and residence nil-rate band are frozen until April 2028.

If the value of your estate exceeds these thresholds when you pass away and you’ve gifted assets within seven years, they may be included when calculating how much IHT is due.

Here are five allowances that could help you gift assets to your family tax-efficiently.

1. The annual exemption of £3,000

Each tax year, you have an “annual exemption”. This stands at £3,000 in 2023/24. You can use this allowance to pass on assets without the value being added to your estate for IHT purposes.

So, if the value of your estate exceeds IHT thresholds, using the annual exemption could reduce a potential bill and provide you with a way to tax-efficiently pass on wealth now.

If you do not use the annual exemption during the tax year, you can carry it forward for one tax year. You may want to make using the annual exemption each year part of your wider financial plan if a possible IHT bill is something you’re worried about.

2. Small gifts worth up to £250

You can also gift up to £250 to as many individuals as you like, as long as they have not already received the whole of your annual exemption in the current tax year. These small gifts will not be subject to IHT.

3. Wedding gifts of up to £5,000 for your child

If you’re celebrating a wedding, you might want to hand over a gift to the happy couple to help them set up a new home or enjoy their honeymoon. The good news is that you can gift £1,000 to newlyweds without the money potentially being added to your estate when calculating IHT.

The tax-efficient allowance rises to £2,500 if it’s your grandchild or great-grandchild getting married, or £5,000 for your child.

So, if you know a couple who will be exchanging vows soon, it could be a good opportunity to reduce your estate’s IHT liability.

4. Gifts that support someone’s living costs

Financial support  to help with a loved one’s living costs may also be given without worrying about IHT. For example, you might pay for:

• Your grandchild’s school fees
• Care home accommodation costs of an elderly relative
• Living expenses of an ex-spouse.

As the intended purpose of the gift is important for whether it’ll be considered outside of your estate when calculating IHT, it may be wise to keep records of the assets given and how they’ll be used.

5. Regular gifts made from your surplus income

Do you have enough money left from your income after your outgoings to make regular gifts? If the answer is “yes”, it could prove a tax-efficient way to pass on wealth. You may want to make regular deposits into your child’s savings account or support their finances by paying some of their bills.

However, you must:

• Be able to maintain your standard of living after the assets have been given
• Make regular gifts.

So, it’s important to understand how the gifts could affect your finances and be committed to regular gifting if you’re to do this. The rules can be complex, and you might want to seek financial advice to understand whether it’s the right option for you. Please contact us if you have any questions.

Again, keeping clear records may be useful.

Contact us to talk about how you could mitigate an Inheritance Tax bill

Using gifting allowances is just one way to reduce or mitigate a potential IHT bill. Depending on your circumstances, there may be other steps you could take. Please contact us to talk about your estate plan and how to pass on your wealth to loved ones.

Please note:

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

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.

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