Category: Savings & Investments

New Inheritance Tax Rules on Pensions: What You Need to Know for 2027

Planning for retirement isn’t just about ensuring a steady income when you stop working – it’s also about making sure your wealth is preserved for your loved ones. A recent change announced in the UK Budget will have a significant impact on how pension savings are taxed after death. From 6 April 2027, any unused pension funds and death benefits left in your pension pot will be subject to Inheritance Tax (IHT).

At Fogwill & Jones, we believe that understanding and preparing for these changes is essential for protecting your wealth. We offer personalised retirement planning to help you navigate complex tax rules and maximise the value of your pension savings for yourself and your family.

What is Changing?

Under current rules, unused pension funds can be passed on to beneficiaries free from IHT. This has made pensions a tax-efficient way to transfer wealth. However, from April 2027, any remaining funds in your pension at the time of death will be included in your estate for IHT purposes.

If your total estate, including your pension, exceeds the inheritance tax (IHT) threshold, you may be subject to taxation. The standard threshold is £325,000 (or £650,000 for married couples or civil partners). On any amount above this threshold, a 40% tax rate applies. However, you can also benefit from the Residence Nil Rate Band (RNRB), which provides an additional £175,000 allowance on top of the £325,000.

Example:

David, 70, has a pension pot worth £600,000 and other assets worth £400,000. Today, his pension is exempt from IHT, and his estate of £1 million is largely protected. After April 2027, on the assumption that his asset worth £400,000 is his main residence, David would need to pay IHT on the remaining £600,000. This could result in an IHT bill of £200,000.

How Fogwill & Jones Can Help

At Fogwill & Jones, we specialise in helping individuals organise their retirement and estate plans to reduce unnecessary tax burdens. Here’s how we can assist:

Tailored Drawdown Strategies:

We can help you create a drawdown strategy that allows you to gradually withdraw from your pension in a tax-efficient manner, reducing the amount left unused and therefore subject to IHT.

Exploring Tax-Efficient Alternatives:

We can advise you on tax-efficient savings and investments, such as ISAs or family trusts, that fall outside the scope of IHT.

Estate Planning and Trusts:

We provide guidance on setting up trusts or using life insurance policies to cover potential IHT liabilities, ensuring your beneficiaries receive as much of your estate as possible.

Case Study: Securing Sarah’s Retirement and Legacy

Sarah, 65, recently retired with a pension pot of £800,000. She wanted to leave most of her pension to her children but was concerned about the new IHT rules.

With Fogwill & Jones’ guidance:

Sarah opted to withdraw funds gradually from her pension, investing part of it into a family trust. She also updated her will and took out a life insurance policy written in trust to cover any future IHT liabilities.

As a result, Sarah reduced her taxable estate and ensured that her children would receive more of her hard-earned savings.

Get Advice

The 2027 changes to pension tax rules make it more important than ever to have a clear retirement and estate plan. At Fogwill & Jones, we offer expert advice tailored to your unique financial situation, helping you minimise taxes and secure your family’s future.

To learn more about how we can help you navigate these changes, contact us today at 01142 588899 or visit our website.

Changes to Capital Gains Tax: Maximising Your Savings and Investments

The financial landscape is always evolving, and one of the key changes announced in the Autumn Budget affects Capital Gains Tax (CGT). From 30th October 2024, there will be an increase in the main rates of Capital Gains Tax. Ensuring your savings and investments are held in the right places is now more critical than ever.

At Fogwill & Jones, we work closely with clients to optimise their investment portfolios, helping to minimise tax liabilities and maximise returns. One of the simplest ways to achieve this is by utilising tax-efficient investment vehicles such as Individual Savings Accounts (ISAs), which are not subject to CGT.

What’s Changing?

CGT has increased from 10% to 18% at the lower rate, and 20% to 24% at the higher rate. This change came into force immediately, meaning anyone who had sold assets with gains on the morning of the Budget (30 October 2024), will fall into the new rates.

This change could affect anyone with investments in shares, property (excluding primary residences), or other assets outside of tax-advantaged accounts. For higher-value investments, even modest gains could now lead to a tax liability.

Example:

James, an investor, sells shares and makes a £10,000 gain in 2023. Under the rules for 2023-24, £6,000 is exempt, and he only pays CGT on £4,000 – which would be a bill of £800 if he is a higher-rate taxpayer. From April 2024, his exemption falls to £3,000, meaning he will be taxed on £7,000 of his gain instead. If James is a higher-rate taxpayer and the gain was realised after 30th October 2024. he could face a CGT bill of £1,680 (24% on gains above the threshold).

How Fogwill & Jones Can Help

With the reduction in the CGT allowance, it’s vital to review where your investments are held. Fogwill & Jones can help you:

Maximise Your ISA Allowance:

ISAs are a powerful tool for shielding your investments from CGT. You can invest up to £20,000 per year in an ISA, and all capital gains, dividends, and interest within the ISA are tax-free.

Strategic Asset Allocation:                                               

We can help you diversify your investments across various tax-efficient accounts, including pensions, which offer tax advantages while you save for retirement.

Plan Your Gains:                                                                           

Timing is key when it comes to realising gains. We assist clients in spreading gains over multiple tax years, ensuring they make full use of the annual exemption and avoid unnecessary tax liabilities.

Explore Trusts and Other Structures:

For those with larger estates or complex investment needs, we can advise on setting up trusts or other structures to protect your wealth from excessive taxation.

Case Study: Helping Emma Reduce Her Tax Bill

Emma, a long-term investor, holds a mix of shares and a rental property. With the CGT changes looming, she consulted Fogwill & Jones to review her investment strategy.

Our solution:

We helped Emma transfer part of her portfolio into ISAs, protecting future gains from CGT. We advised her to stagger the sale of some shares across multiple tax years to spread out the tax liability and also set up a trust for her rental property to manage the tax implications effectively.

As a result, Emma reduced her exposure to CGT and positioned her portfolio for long-term growth without unnecessary tax burdens.

Get Advice

The reduction in the CGT allowance highlights the importance of proactive financial planning. Whether you’re an experienced investor or just starting to build your portfolio, Fogwill & Jones can help you protect your gains and grow your wealth in a tax-efficient manner.

For personalised advice, contact us at 01142 588899. Let us help you make the most of your investments​.

Bank of England base rate increase – is it good news for savers?

December 2021 saw the first increase to the Bank of England base rate in over three years, when it rose from its historically low level of 0.1% to 0.25%. Any change to this rate is important as it can often influence what borrowers pay and how much savers earn.

Whilst undoubtedly an important development, it is fair to say that it was not surprising. Prices had been rising sharply in recent times, pushing the rate of inflation above 5%, and increasing interest rates to dampen demand somewhat is one tool at the Bank of England’s disposal.

Assuming inflation persists, it is likely that further increases to the base rate will be on the cards in the future. Predicting when these might occur is difficult, but I think it is a fairly safe assumption that there will be at least one more rate rise in 2022.

This is an important consideration for borrowers, particularly those accustomed to low interest rate products that can vary, which may add to a ‘squeeze’ on household spending for the foreseeable future. On the other hand, would it be right to assume that the higher interest rates will be passed on to savers, therefore starting to see an end to the years of very low returns on cash products? Not necessarily.

Whilst banks and building societies were quick to pass on the higher interest rates on their mortgage products (many of which are linked to the base rate), a significant number have not done the same with their range of savings accounts. Of course, it would be unfair to tar all banks or building societies with the same brush, but this does tend to be a theme whenever there are amendments to the Bank of England’s base rate.

The best ‘easy access’ savings account is currently 0.70%, and the returns offered on similar products is actually significantly less than this with the so-called ‘well known’ banks and building societies. If you can tie your funds up for three years or more the best rate at present is 1.85% (Source: Money Saving Expert January 2022).

There is no denying that these rates are somewhat better than those available last year, so in that sense any improvement is reason to be more cheerful. But this cheer is dampened somewhat when taken in the context of the rise in the cost of living we have all seen, evidenced in the inflation rate exceeding 5%. There is scope for inflation to rise still further this year, adding weight to the argument that more interest rate rises may be required in order to combat this.

So, is it good news for savers? In one sense, yes – rates are creeping up higher with some institutions now, albeit at a slow pace. However, whilst returns on cash savings remain significantly below inflation – which is likely for the foreseeable future – the ‘buying power’ of your money is likely to be impacted by investing in cash. The longer this persists for, the more it can be an issue in the future when you come to rely on the funds.

So for those who are looking to make a ‘real return’ on their hard-earned money, it would still be prudent to consider alternatives to traditional cash savings whilst the current low interest rate environment persists.
Savings accounts still have their uses, especially for money that you’ll need to get your hands on soon. But if you’re planning to put money aside for the medium to long term, it is still very much the case that it might be better to invest.

If you would like to discuss investment strategies or any other financial planning matter, please do not hesitate to contact us on 0114 2588899 or email info@fogwilljones.co.uk. Our Independent Financial Advisers are qualified to provide advice in the areas of retirement planning, tax planning, savings, inheritance tax, investments and protection.

Please remember that the value of investments may fall as well as rise in value.

Zopa closes all of its 60,000 retail accounts

Zopa closes all of its 60,000 retail accoun

Peer-to-peer lending (P2P)

P2P lenders, like Zopa, act as a financial middleman, allowing investors to put in cash to be lent out to individuals and businesses. P2P was designed to provide loans to areas where traditional banks had retreated whilst offering investors the opportunity for higher returns than traditional cash deposit accounts in an ultra-low interest rate environment.

The potential for higher returns than you might typically expect from traditional cash savings accounts has always come with a risk – P2P investing doesn’t come with the safety guarantees that mainstream bank and building society savings do.

This once niche investment sector expanded quickly – around £6 billion of P2P loans were made in 2019 and this in itself has led to problems within the sector, notably liquidity and defaults.

The P2P market and Covid-19

As a consequence of higher numbers of borrowers defaulting during the pandemic and more investors wanting to access their savings to use the cash, many P2P firms haven’t survived the liquidity crisis of the last couple of years; Around 15 per cent of Rate Setter’s (a British P2P company established in 2009) customers attempted to withdraw funds from its platform in just a few days in mid-March 2020, causing a long backlog in payouts and they went on to close all of their 45,000 investor accounts in April 2021.

The direction of travel seems to be for the P2P sector to seek funding from large institutional investors rather than individual retail investors. Experts have commented that P2P might soon be simply “institution to peer”.

Zopa

Zopa is a British financial services company which began as the world’s first peer-to-peer lending company in 2005.

In December 2021 they closed all of their 60,000 existing investor accounts. Investors will be able to access their money penalty-free by 31 January 2022 at the latest. Zopa have already begun the process of buying back the loans themselves in order to repay retail investors their capital. Once loans are sold, the money will be automatically placed into clients own holding accounts with Zopa. Investors can then either withdraw the cash or, if they are ISA customers, they can transfer to a new ISA provider. No interest will be applied by Zopa to money held in the holding account.

If you would like to discuss any of the issues raised in this article or any other financial planning matter, please do not hesitate to contact us on 0114 2588899 or email info@fogwilljones.co.uk.

Please remember that the value of investments, including those in a stocks and shares ISA may fall as well as rise in value.