Founder and Financial Adviser, Mark Reidford APFS, looks forward to 2025 in his year end blog: Insights and Lessons from a Challenging Year.

Five years ago, we were only months from a global pandemic which caused huge global economic disruption. Since then, we have had Russia invade Ukraine, a rapid increase in inflation and interest rates, Middle East tensions, and disappointment over the pace of interest rate cuts.

Over the past year alone, there have been major political elections in the UK, US and France. Mixed economic data globally, questions about when massive investment into AI will result in positive financial returns; the worry list goes on and on. History suggests there will always be something for markets to worry about. It’s often called ‘noise’ and it’s important not to let it overwhelm you.

When I think about ‘noise’, my mind drifts specifically to Chancellor Reeves’ inaugural budget. We have never seen speculation, rumour, and misinformation before a Budget like we did in 2024. As is the case with market volatility, the counsel to our clients to ‘do nothing’ remains one of Innes Reid’s most important, yet undervalued, contributions.

Having dealt with all of the above it has been a good year to be invested. Each one of the major share indices around the world has delivered a positive total return over the past 12 months, factoring in share price performance and dividends.

As proven time and time again, sticking to the plan, holding your nerve and remaining invested in the markets reaps rewards. Patience is vital with investing and what has happened over the past one and five years perfectly illustrates the point.

Now we turn to 2025

We remain conscious that across global markets, risks remain high with multiple volatile geopolitical situations. In addition, we have Trump v2.0’s radical policy agenda which has fuelled some financial market uncertainty, but market commentators believe the central macroeconomic outlook remains favourable – for now, and there is no expectation of a material slowdown in 2025 which should help deliver positive equity returns, while credit markets should provide attractive income opportunities.

It would be fair to say, we are less bullish about markets than we were 12 months ago, although we are cautiously optimistic for 2025. The global economy continues to be solid with inflation falling, interest rates coming down and no sign of unemployment rising significantly in the major economies.

Ultimately, growth, stable inflation and lower interest rates should support markets and deliver positive outcomes.

Wishing you a Happy New Year

On behalf of all of the Innes Reid team, we would like to thank all our valued clients for your continued support. We wish you a prosperous and enjoyable end to 2024 and a Happy New Year.

Call our team: 01244 347 583 | Send an email: info@innesreid.co.uk | Send a message

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

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Spending some time going through your finances and thinking about what you want to achieve next year could help you step into 2025 feeling confident about your future. So, here are 10 jobs you could complete before the end of the year.

1. Check the interest rate your savings are earning

You’ve no doubt heard a lot about interest rates rising over the last year. If you’ve got money in a savings account, it could mean your savings have a chance to work harder and deliver more interest.

After more than a decade of historically low interest rates, your savings could now earn more than 5% and even a small difference can add up over the long term. If you haven’t reviewed the interest rate your savings are earning now and the alternatives available, it could be a worthwhile task.

Usually, the highest interest rates are available if you lock your money away for a defined period. So, setting out what the money is for and when you might need to access it could help you find the right account for you.

2. Review your investments

Investment markets have experienced volatility in 2024 – how have your investments fared?

A quick review of your investments could help you see if you’re on track. Remember, don’t just focus on the performance over the last 12 months. Instead, look at your returns over a longer time frame and the overall trend.

As well as checking if you’re on track, you might also want to ensure your investments continue to align with your needs. If you’re financial circumstances or goals have changed, you may want to update your investments to reflect that.

3. Use your gifting allowance

If your estate could be liable for Inheritance Tax (IHT) when you pass away, gifting assets during your lifetime may be a useful way to reduce a potential bill.

However, not all gifts are considered immediately outside of your estate for IHT purposes. So, making use of those that are could be useful. One such option is known as the “annual exemption”, which allows you to gift up to £3,000 to an individual or split between several people each tax year – that could make a welcomed Christmas present for a loved one!

The small gift allowance also allows you to make as many gifts as you’d like up to £250 to each person each tax year, as long as you have not used another allowance on the same person.

The Autumn Budget announced changes to IHT. visit our blog pages for the latest update.

4. Track down “lost” pensions

Do you know where all your retirement savings are? It could be easier than you think to “lose” a pension.

Indeed, according to a report in FT Adviser, 29% of Brits have no idea how many pensions they have. If you’ve moved home or switched jobs since you last reviewed your pension, a quick check could uncover some missing savings.

Start by going through your current pensions and employment history to identify gaps. If you discover a gap, you can use the government’s pension tracing service to find the contact details you need for the pension scheme.

5. Complete some pension admin

While you’re checking you’ve not lost touch with any retirement savings, a quick check-in on your current pensions could be useful too. You may want to review if your:

• Personal details are correct
• Target retirement date is right
• Pension is invested in a way that suits your goals.

In addition, if you’re a higher- or additional-rate taxpayer, you may want to check if you could claim additional pension tax relief through a self-assessment tax return.

Getting your pensions in order could make it easier to understand if you’re on track for retirement and reduce the risk of losing them in the future.

6. Assess your financial protection

According to the Association of British Insurers, a record £7.34 billion was paid out through financial protection in 2023. While you hope you don’t need to make a financial protection claim, it could provide an invaluable safety net when you need it most.

Take some time to assess the protection you already have in place – does it still meet your needs? If your financial commitments have increased or your circumstances are different, you might find you want to increase the cover.

7. Name a Lasting Power of Attorney

A Lasting Power of Attorney (LPA) gives someone you trust the power to make decisions on your behalf if you’re unable to. While it can be difficult to think about, an LPA could reduce stress and ensure your affairs are in order if you’re affected by an illness or accident.

If you already have an LPA in place, you might want to consider your wishes and if any changes could affect the decisions you’d like an attorney to make.

8. Inspect your Will

Over time, your wishes and circumstances can change. So, reading your Will now and again to ensure it’s still accurate is important. You might find that an update is necessary after you welcome a new grandchild or the value of your assets has grown.

According to Will Aid, more than half of UK adults don’t have a will in place. If you’re among them, you may want to make writing a Will a priority. A Will is one of the main ways to state how you’d like your assets to be distributed when you pass away. Without a Will, your estate would be distributed according to intestacy rules, which could be very different from your wishes.

9. Fill in your pension expression of wish form

Usually, your pension isn’t covered by your Will. Yet, it could be one of the largest assets you have, so it’s important to make sure you let your pension provider know who you’d like to receive it if you pass away.

You can do this by completing an expression of wish form, which you can typically do online. If you have more than one pension, you’ll need to fill in the form for each one.

10. Arrange your next financial review

If you don’t already know when your next financial review will be or you want to speak to us, you can get in touch to arrange a meeting. We provide a free, no obligation initial meeting to enable to you to speak to a financial adviser about your personal circumstances. Its a opportunity to ask ask any questions about your finances and understand if financial advice is right for you.

Call our team to arrange a free one hour consultation with an adviser 01244 347583 or email info@innesreid.co.uk

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 Lasting Powers of Attorney or will writing.

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 performance.

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

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.

The post 10 financial tasks to complete before 2025 appeared first on Innes Reid.

Here are five reassuring ways a financial plan could help you next time you encounter one of life’s scares.

1. A financial plan could help you build financial resilience to overcome obstacles

Even the best-laid plans can be knocked off course by events outside of your control. Dealing with obstacles like long-term illness or losing your job can be scary, especially if low financial resilience means you’re also facing additional pressure.

For example, if you’re diagnosed with a serious illness, you may want to focus on your recovery, spending time with your loved ones, or adapting to a new lifestyle. But if your income has stopped and you don’t have a plan in place, you could find you’re more worried about how to meet bills or support your family.

So, as part of your financial plan, we’ll work with you to assess your financial resilience and the steps you might take to improve it.

Depending on your circumstances, that could include building an emergency fund, taking out appropriate financial protection, and assessing how you might use your other assets to provide a regular income if necessary.

A financial plan can’t remove unexpected obstacles, but it could provide you with a way to overcome them and mean they’re less scary to face.

2. A financial plan could help you prepare for the future

Effective financial planning often involves considering the future. In some cases, you might need to consider what you want your life to look like in several decades.

It can be exciting to set out your life goals, but, at the same time, it may be frightening too. There might be many different factors you need to weigh up and, for some goals, the steps you need to take to achieve them can seem impossible.

Take retirement planning, for example. The figure you want to save into your pension to secure the retirement you want may seem dauntingly high. Even as you near the milestone, you might still have retirement worries. Indeed, according to a report in IFA Magazine, almost half of pension savers are worried they won’t have enough to last their lifetime.

A financial plan could help you prepare for the future and break down large goals so you can see how to reach them.

If you are unsure about your financial future try the Wealth Calculator for an instant, personal calculation straight to your inbox. It will give you a much clearer understanding of where you are heading. Try the Wealth Calculator here 

3. A financial plan could provide answers to questions that keep you up at night

It’s not just the memories of a horror film that might keep you up at night, wondering “what if?” could be just as harmful to your wellbeing.

Dealing with uncertainty can be terrifying. If you’re kept up at night by wondering what would happen in different scenarios, a financial plan could offer some reassurance.

A financial plan doesn’t just consider how your finances will change if everything goes according to plan. It also looks at how factors outside of your control could affect your wealth and lifestyle. As a result, it could help you answer the questions you’re worried about.

You might want to understand:

• If your partner and children would be financially secure if you passed away
• Whether you could afford the cost of care if you needed support later in life
• How your finances would be affected if you’re no longer able to work due to an illness
• If your retirement would still be secure if investments underperformed or the pace of inflation increased.

Often “what if” scenarios are scary because of the unknown. It’s impossible to know what’s around the corner, but we could help you understand the potential impact and then take steps to keep your long-term plans on track.

4. A financial plan could help you tackle conversations you’re dreading

There might be times when you need to have a difficult conversation with your loved ones about your finances or long-term plans. For some, the nerves around talking about certain subjects could lead to anxiety or putting them off altogether.

Indeed, according to a Canada Life survey, 5.1 million UK adults who received an inheritance in the last five years did not discuss the value of it with the benefactor beforehand.

It’s easy to see why some benefactors choose not to discuss inheritances. Talking about passing away may be difficult or they might not feel comfortable divulging the value of their estate. However, doing so could help beneficiaries better manage an inheritance when they receive it.

Other difficult conversations could include how you’d like someone to handle your affairs if they become your Power of Attorney or your preferences for a funeral.

Setting out your goals and taking steps to improve your financial wellbeing could mean you feel more confident tackling difficult conversations around money and your life.

In some cases, you might decide to have your financial planner be part of the conversation too. Having a third party who understands the financial aspect could help you all get on the same page.

5. You’ll have someone to turn to for support

By working with a financial planner, you don’t have to tackle life’s scares alone – you’ll have someone to turn to who understands your goals, worries, and financial circumstances. Knowing that a professional has reviewed your financial plan and is there to answer questions could make the intimidating far less daunting.

If you’d like to arrange a meeting to talk about your aspirations and worries, 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.

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 performance.

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

The post 5 reassuring ways a financial plan could help you deal with life’s scares appeared first on Innes Reid.

Other notable announcements were an increase in the threshold before child benefit begins to be clawed back, the scrapping of the non-doms remittance basis rules, the introduction of a new ‘UK ISA’ to encourage investment in UK equities, and a reduction in the higher rate of CGT on residential property.

There were no significant announcements on pensions, with the abolition of the lifetime allowance having already been confirmed.

Read on for the Spring Budget 2024 – what it means for you.

National Insurance

Following fast in the footsteps of a cuts to NI announced in the Autumn Statement the Chancellor has announced a further 2% cut to the main rate of NI.

Employees

The main rate (Class 1) will be cut by 2%. The new rate of 8% will apply to earnings between the primary earnings threshold and the upper earnings limit, giving a maximum saving of £754 pa (£37,700 x 2%). Employees will continue to pay 2% on earnings above the upper earnings limit.

This measure will start from 6 April 2024.

There are no changes to the actual thresholds, and these will remain at 2023/24 levels.

Self-employed

As previously announced, there are changes to the way the self-employed will pay NI from April.

Class 2 NI will be abolished for those with annual profits exceeding £6,725. The current weekly rate is £3.45. Individuals will still get access to contributory benefits, including the State Pension.

Those with earnings below £6,725 must pay voluntary Class 2 contributions if they wish to retain access to the State Pension and other benefits, although there could be further changes to this next year. The rate for those who wish to do so will be frozen at £3.45 per week.

Self-employed also pay Class 4 NI contributions on profits between the lower and upper profits limit (up to £37,700). From April, this will be cut by a further 2% on top of the 1% reduction announced in the Autumn Statement. The main rate will therefore drop from 9% to 6% representing annual savings of up to £1,131. The rate applicable to profits above the upper profits limit will remain at 2%.

There will be no change to the actual limits and thresholds for Class 2 or Class 4 next year.

Employer

There were no changes to employer rates of NI which will remain at 13.8%.

Pensions

The Spring Budget committed to supporting pensioner incomes by maintaining the State Pension “triple lock”.

There were no new changes announced affecting pensions. This will be welcome news as the industry is still getting to grips with the abolition of the Lifetime Allowance (LTA). The LTA is to be replaced by two new allowances from April 2024.

The Lump Sum Allowance (LSA) will cap the amount of tax-free cash which can be taken and is set at £268,275 for those without protection.

The Lump Sum and Death Benefit Allowance (LSDBA) places a cap on tax free lump sums paid during the member’s lifetime and on death before age 75.It has been set at £1,073,100 for those without protection and is reduced by any LSA used.

ISA changes

ISA subscription limits remain fixed at £20,000 for adult ISAs and £9,000 for Junior ISAs.

UK ISA consultation

A new ‘UK ISA’ is to be introduced to support UK investment. This will give savers an additional annual subscription allowance of £5,000 on top the existing £20,000 limit.

Previously announced ISA changes

The ‘one ISA of each type per tax year’ restriction will be removed from April 2024. This simplification will mean investors will be able to subscribe to multiple cash or stocks and shares ISAs in a year without fear of invalidating their subscriptions leading to a loss of tax-free status on their savings.

From April 2024 it will also be possible to do partial transfers of ISA funds. Currently there are separate rules for the transfer of current and previous years subscriptions. While it is possible to do a partial transfer of previous years subscriptions, transfers of current years subscriptions must be for the whole amount including the attributable investment growth. This will be relaxed from April allowing partial transfers to apply to all ISA subscriptions whenever they were made.

The age at which an adult ISA can be opened will fixed at 18 across all ISA types from April. This will mean it will no longer be possible to open an adult Cash ISA at age 16, removing the ability for 16 and 17 year olds to pay £29,000 into ISAs by combining contributions into both a Cash ISA and Junior ISA.

Income tax

Despite speculation of a cut to income tax in the lead up to the budget there were no changes announced to rates or allowances.

The personal allowance and basic rate bands for income tax will remain at £12,570 and £37,700 respectively. The threshold for additional rate tax will remain at £125,140.

With regards to dividends, the dividend allowance will be halved from £1,000 to £500 for 2024/25. The dividend tax rates for basic rate, higher rate and additional rate taxpayers will remain at 8.75%, 33.75% and 39.35%.

Reforming child benefits

Child benefit is currently based on the highest earner in a household and is withdrawn at the rate of £1 for every £100 earnings they have over £50,000. This is achieved via a tax charge and means that families will not enjoy any child benefit if the high earner has income over £60,000.

From April 2024, the threshold at which child benefit is withdrawn will increase from £50,000 to £60,000, and the rate of withdrawal will be £1 for every £200 of income. Child benefit will therefore be extinguished once the highest earner’s income exceeds £80,000.

There are plans to make the system fairer by administering the benefit on a household basis, rather than on the highest earner. The government aims to introduce this by April 2026 following consultation.

Capital gains and residential property

The Chancellor has announced a cut to the rate of CGT payable on the disposal of residential property benefiting multiple homeowners and those with buy to let properties. The higher residential property CGT rate is to be cut from 28% to 24% from 6 April 2024. Gains falling within basic rate will continue to be taxed at 18%. An individual’s main residence will still be exempt from CGT as Principle Private Residence Relief will continue to apply.

The CGT rates for all other disposals of non-residential property remain at 10% and 20% and as previously announced the annual CGT annual exempt amount will fall from £6,000 to £3,000.

Furnished holiday lets

Furnished holiday lets will be taxed in the same way as buy to let properties from 6 April 2025. This will mean that income from furnished holiday lets will cease to be relevant UK earnings for pension purposes.

Changes to the taxation of non-UK domiciles

It was announced that from the 6 April 2025 the remittance basis of taxation for non-UK domiciled individuals will be abolished. This is to be replaced with a new Foreign Income and Gains (FIG) regime which is determined by UK residency rather than domicile.

Individuals who become UK resident having been non-resident for more than 10 years will not pay UK tax on their overseas income and gains for the first four tax years of UK residence and will be free to bring these funds to the UK free of any additional tax. They will continue to pay tax on their UK income and gains in the normal way.

There is also to be a consultation on changes to inheritance tax for non-UK doms. Currently someone who is non-UK domicile is only subject to UK IHT on assets situated in the UK. However, they become subject IHT on their worldwide assets if they become UK domicile or deemed domicile.

The proposed new rules, intended to apply from 6 April 2025, would apply IHT on their worldwide assets once someone has been resident in the UK for more than 10 years. Also, where someone ceases to be UK resident they will remain subject to IHT for 10 years after leaving the UK.

There are also proposals which may remove the IHT effectiveness of excluded property trusts taken out after 6 April 2025.

Inheritance tax

There were no changes to inheritance tax announced in today’s budget. The nil rate band will remain frozen at £325,000 and £175,000 for the residence nil rate band.

A consultation on a new IHT regime for non-doms has been launched with the proposed rules anticipated to take effect from 6 April 2025.

Corporation tax

There were no further changes to the rates and thresholds. The main rate will remain at 25% and the rate for small companies with profits below £50,000 continues at 19%. There’s tapering relief for businesses with profits between £50,000 and £250,000 so that they also pay less than the main rate.

Spring Budget 2024 – What It Means For You – Get in touch

If you have any questions about how the Spring Budget will affect you and your finances, please get in touch. Call 01244 347583 to speak to a member of our team.

All information is from the Spring Budget documents

The content of this Spring Budget summary is intended for general information purposes only. The content should not be relied upon in its entirety and shall not be deemed to be or constitute advice.

While we believe this interpretation to be correct, it cannot be guaranteed and we cannot accept any responsibility for any action taken or refrained from being taken as a result of the information contained within this summary. Please obtain professional advice before entering into or altering any new arrangement.

Source: abrdn plc, UK Gov: Spring Budget documents

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1st April – National Living Wage and Minimum Wage Rise Take Effect

The hourly rate for people aged 21 and over will go up by 9.8% in April, from £10.42 to £11.44.

Those aged 18 to 20 will also see pay rise to £8.60 per hour – up £1.11. The minimum hourly wage for apprentices will increase too.

5th April – End of the 2023/24 tax year

You have until midnight to use as much of you tax-efficient allowances as possible. If you’re planning to utilise your entire annual ISA allowance, the full £20,000 will need to have been paid into your accounts by this date.

Anyone wanting to pay extra into their pension should also try and do this before 5th April. Most people can contribute up to £60,000 to their pension pot each tax year and benefit from tax relief. However, those with an annual income – including salary, and income from savings and investments – of more than £260,000, or those who earn less than £60,000 a year, have a lower pension allowance.

Read our latest blog for must-know tips on how to maximise your tax allowances before 5th April.

6th March – Spring Budget

Every year we have at least one big Budget statement delivered by the chancellor. It outlines how well the economy is performing, the financial forecasts for the year ahead as well as any proposed changes to the tax system.

Rishi Sunak recently announced that the general election is likely to be in the second half of the year, this could be the last budget before a general election.

Keep an eye out for our updated insights following the Spring Budget and how it could affect you.

6th April – New 2024/25 Tax Year 

You can start making use of your tax allowances straight away. Remember, the longer you invest for the more time you are giving your investments to grow.

You can learn more about the power of compounding here. 

6th April – State Pension Rises

The 2024-25 tax year begins on 6 April, and this is a date when increases to various state benefits will kick in.

6th April – Tax Changes

There are a few tax changes that will occur at the start of the new tax year.

• The dividend tax-free allowance will be halved from £1,000 to £500. The tax rates on dividend income remain unchanged.
• The threshold for paying capital gains tax will also be halved, from £6,000 to £3,000.
• Class 2 National Insurance contributions (NICs) for the self-employed are set to be abolished, while the rate of class 4 NICs will drop from 9% to 8% in April. Both these reforms aim to save around two million self-employed workers an average of £350 a year.
• ISA savers will be given some more flexibility from 6 April, thanks to ISA reforms announced in the Autumn Statement. They will be able to pay into multiple ISAs of the same type in a tax year – and will be able to transfer slices of ISA money paid in during the current tax year too.
• The minimum age to open a cash ISA will rise to 18, closing the loophole that allows 16 and 17-year-olds to have a junior ISA and a cash ISA allowance in the same tax year.
• In years gone by the tax-free personal allowance often increased each April, but in 2024 it will again be frozen at £12,570. It’s due to be held at this level until April 2028. Income tax thresholds will also remain at their current levels.

15th April – 15 Hours Free Childcare for Two-Year-Olds

The government’s policy of 15 free hours childcare available for working parents of two-year-olds will kick in this month.

It is part of a wider reform to provide 30 hours free childcare to all under 5s for eligible working parents – rather than just three and four-year-olds, as it is currently. The Treasury said in this year’s spring Budget that this would “help with the cost of living, support education for the youngest children, and remove one of the biggest barriers to parents working”.

The policy is being phased in gradually, with the full reform (30 free hours from nine months to the start of school) in place from September 2025.

July – New Banknotes Featuring King Charles

New banknotes featuring King Charles III’s portrait will enter circulation by mid-2024. he King’s portrait will appear on all four polymer banknotes (£5, £10, £20 and £50).

September – 15 Hours Free Childcare from 9 Months Old

This is the second stage of the government’s roll-out of free childcare from the age of nine months. In September, the 15 free hours childcare scheme will be extended to working parents with babies aged nine months and over.

5th October - Deadline to Register for Self-Assessment

If you are new to self-assessment, this is the deadline to register with HMRC. This applies if you are self-employed or a sole trader, a trustee or a partner in a partnership business.

31st October – Deadline for Postal Self-Assessment

Postal self-assessment tax returns must be returned by midnight.

November – Autumn Statement

Effectively a mini-Budget, the Autumn Statement is another big statement from the chancellor. It is usually delivered in November.

30th December - Online Tax Return

Submit your online tax return by this date if you want HMRC to automatically collect tax you owe from your wages and pension.

Getting in Touch

Staying abreast of these key dates in the financial calendar for 2024 will help you to make informed decisions and navigate your personal finances with confidence. Whether it’s tax planning, investment strategy, or staying updated on policy changes, being proactive is the key to financial success in the year ahead.

If you have any questions and would like to speak to an Independent Adviser we provide a free, no obligation initial meeting. It’s a great opportunity for you to have a personal conversation and to understand if financial planning is right for you.

We provide face to face or video call meetings to fit to your lifestyle.

Call 01244 347 583 or email info@innesreid.co.uk to speak to our team today.

Your essential guide to 2024 financial dates – PLEASE NOTE: This article is not personal advice. The content should not be relied upon in its entirety and shall not be deemed to be or constitute advice.

While we believe this interpretation to be correct, it cannot be guaranteed and we cannot accept any responsibility for any action taken or refrained from being taken as a result of the information contained within this summary. Please obtain professional advice before entering into or altering any new arrangement.

Source: Money Week

The post Your Essential Guide to 2024 Financial Dates appeared first on Innes Reid.

At the end of the 2023/24 tax year many important allowances will reset. In our latest article we highlight which allowances could be an opportunity to make your money go further and reduce the tax you pay.

We’re always on hand to help, if you are unsure which allowances are the right fit for your personal financial plan please get in touch.

Read on for must-know tips on how to maximise your tax allowances before 5th April.

National Insurance

From 6 January 2024, the main rate of Class 1 National Insurance (NIC) was cut to 10%, so workers will get more in their first pay packets of the new year.

An employee earning £50,000 will pay £3,743.00 in National Insurance after the change, saving £748.60.

Pension opportunity: This unexpected windfall could make a difference to your retirement planning if you redirect it to your pension.

ISA Allowance

You can contribute up to £20,000 in your ISA in tax year 2023/24. Any savings added to your ISA from 6th April will go into your new 2024/25 tax allowance, as the shortfall cannot be carried over.

The savings in an Individual Savings Account (ISA) are protected from UK income tax or capital gains tax, so they are very tax efficient. There is no need to declare these savings on your self-assessment tax return.

JISA allowance

A Junior ISA (JISA) offers many of the same tax benefits as a standard ISA, and it’s a useful way to set aside wealth for a child or grandchild. The money is held on their behalf until they can access it – typically when they are 18.

In the 2023/24 tax year, you can contribute £9,000 to a JISA for each child.

Tax relief on your Workplace pension

When you pay into your pension, some of the money that would have gone to the government as tax goes towards your pension instead.

Most Workplace pension schemes operate under the Net Pay arrangement, meaning everybody gets 20% tax relief. If you are a higher-rate taxpayer, you have to make a Self-Assessment claim for the additional 20% relief on your pension contributions.

Marriage Allowance

Eligible married couples and those in civil partnerships can transfer up to £1,260 of personal allowance to their partner under the Marriage Allowance. This applies if one of you earns less than the personal allowance, so is not liable to tax, and the other partner is a basic tax payer.

You can also backdate your claim to include any tax year since 5 April 2019 that you were eligible for Marriage Allowance.

You can apply for Marriage Allowance on the HMRC website.

Child Benefit

Child Benefit is clawed back by a tax charge if the highest earning individual in the household has income of more than £50,000. It is cancelled altogether once their income exceeds £60,000. A pension contribution will reduce income and reverse the tax charge, wiping it out altogether once income falls below £50,000.

Inheritance Tax bill

Inheritance Tax (IHT) is paid by the people who inherit your estate after your death. The rate is 40% for estates worth more than £325,000.

One way of avoiding your family paying IHT on your estate is to give it away when you are still alive. However, the giver must survive for 7 years after the gift, depending on circumstances.

You can also give away £3,000 worth of gifts each tax year without them being added to the value of your estate. This is known as your ‘annual exemption’.

In addition, you can give as many gifts of up to £250 per person as you want during the tax year as long as you have not used another exemption on the same person.

Charitable Donation

Making a charitable donation can bring about numerous benefits. Not only the emotional satisfaction, but also ensuring your money goes towards creating positive social change rather than, somewhat unfavourably, towards HMRC.

Charitable donations are generally tax free. Those made through Gift Aid entitle the charity to an extra 25p for every £1 you give. This doesn’t cost you extra, Gift Aid assumes that the money has been already been taxed at the standard rate.

Capital Gains Tax Annual Exemption

The ‘Capital Gains Tax’ (CGT) Annual Exempt amount is the amount of gains that you are allowed to make before paying tax on those profits. You may pay CGT on any profits you make when selling or disposing of certain assets such as stocks and shares outside an ISA, or a property that isn’t your main home.

The Annual Exempt amount is £6,000 for individuals for the 2023/2024 tax year.
If you are looking to supplement your income tax efficiently, you could withdraw funds from an investment portfolio and keep the gains within your annual exemption.

Even if cash isn’t needed, you could take profits within the £6,000 CGT allowance and re-invest the proceeds, possibly via an ISA. This means there will be less tax to pay when you eventually need to access these funds to meet spending plans.

Fortunately, by using your full Annual Exempt amount, you may be able to reduce the CGT that you pay. Additionally, you and your spouse or civil partner each have your own Annual Exempt amount and you can transfer assets between you without incurring CGT.

By considering how you use both Annual Exempt amounts and potentially spreading the disposal of assets across multiple tax years, you might be able to mitigate a large CGT bill.

This could be especially important as the CGT Annual Exempt Amount is set to halve to £3,000 on 6 April 2024.

Personal Pension Tax Relief

Tax relief is one of the main advantages to using a pension to save for your retirement. The government will add basic rate (currently 20%) tax relief when you contribute into a personal pension up to £60,000, the current annual allowance.

For instance, to contribute £10,000, you put £8,000 into your pension and the government adds £2,000. You qualify for basic rate tax relief if you’re a UK tax payer under 75.

If you are a higher rate or additional taxpayer, you could get extra tax relief on top of the basic rate amount. Higher rate taxpayers (paying 40% tax) can claim up to a further 20% through their tax return. Additional taxpayers (paying 45% tax) can claim up to a further 25% through their tax return.

The ‘Carry Forward’ rule can also let you take advantage of any unused allowance from the three previous tax years.

Personal Allowance

Pension contributions reduce an individual’s taxable income. In turn, this can have a positive effect on the personal allowance for higher earners, resulting in a lower tax bill. An individual pension contribution that reduces income to below £100,000 will restore your full tax-free personal allowance. The effective rate of tax relief on the contribution could be as much as 60%.

Business Owners

If you’re a director of a business, taking significant profits as employer pension contributions could be an efficient way of paying yourself and cutting your overall tax bill.

The tax and NI savings can go into the director’s pension fund and the company can also benefit from corporation tax relief.

Bonus Sacrifice

Another option is to ‘exchange’ a bonus for an additional employer pension contribution before the tax year end. The employer and employee National Insurance savings made could be used to boost pension funding. This would give more in the pension pot for every £1 lost from take-home pay.

Family Wealth

You can also pay up to £3,600 into the Personal Pension Plan of a non-tax payer such as a non-working spouse or a child under the age of 18.

As with your own pension, you would be entitled to pension tax relief on any contributions made. This means you would only need to contribute £2,880 of your own money to reach the £3,600 annual limit, as the government would add the extra £720.

Special Investments & Tax Incentives

Business owners have long benefited from Inheritance Tax (IHT) savings and now private investors can too with ‘Business Property Relief’ (BPR). This is one of several tax incentives available to support investment into small UK companies.

Unlike gifts and Trust arrangements which usually only achieve IHT savings after 7 years, a BPR investment is effective after just 2 years.

Investments that qualify for BPR can be passed on free from inheritance tax upon the death of the investor, provided the shares have been owned for at least two years at that time.

For those with investment experience and appetite for risk, Venture Capital Trust (VCT) and Enterprise Initiative Schemes (EIS) can also bring significant tax benefits.

Tax Allowances – What’s right for you?

These tips are here to give you practical insights into maximising just some of the tax allowances available. There are many more tax allowances that could be beneficial to your own personal financial plans.

To find out more about reducing the tax you pay speak to a member of our team about a free, no obligation meeting with an adviser.

Contact us: 01244 347583, email: info@innesreid.co.uk or enter your details in the form below and a member of our team will respond promptly.

How To Maximise Tax Allowances Before 5th April: This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

All contents are based on our understanding of HMRC legislation, which is subject to change. The value of your investments can go down as well as up and you may not get back the full amount you invested.

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In the world of investments, 2023 has proved to be a year of challenges, much like 2022. After nearly two years of central banks fighting inflation, I believe the outlook for 2024 very much depends on the balance between global economic growth and the stickiness of inflation.

Despite rising interest rates, the global economy has remained resilient, though indicators now suggest the global economy is entering a period of lower growth. Tight monetary policy, increasingly stretched consumers, and idiosyncratic growth shocks are all contributors to slower global growth.

We do anticipate volatility in risk assets as 2024 begins due to the ongoing global economic slowdown. More volatility may lie ahead, but markets have calmed from the high levels of distress seen in recent years. Higher interest rates will cause difficulties for companies and consumers, but economies go in cycles and we are due a recovery.

Questions remain over the path of inflation, however, in our view, the disinflation process will continue and growth will slow further in the first six months of 2024 (though this to some degree is already priced in to the markets) before starting to improve in the second half of the year. As inflation softens, we anticipate interest rate cuts and this will set the stage for a recovery, putting the global economy on a path to stronger growth accompanied by real wage growth in the second half of 2024.

Clearly, we must be conscious of geopolitical risks as recent events in the Middle East have raised risks of regional escalation that may impact oil and natural gas markets which would be inflationary. Other political risks range from the ongoing Russia-Ukraine war and US-China tensions over Taiwan.

We also have numerous elections, some with populists on the ticket with erratic agendas. That said our own general election will be characterised by two main parties whose manifestos are relatively centrist and although a lot of clients raise the election as a risk to portfolio values, my view is it provides a benign backdrop for the UK equity market.

In summary, while a recession is still possible in 2024, we believe that if it happens it will be a small ‘r’ recession. Consumers are still spending money and most people have a job. What happens to inflation remains pivotal, although it looks likely we are through the worst.

What next? Time will tell, but I, for one, am much more optimistic about 2024, touch wood…

As always, if you have any questions about your own personal finances do not hesitate to get in contact with your adviser. Alternatively, if you are new to financial planning and would like a free, no obligation consultation simply get in touch using the form below or call 01244 347 583 to speak to our team.

The content of this 2024 financial outlook is intended for general information purposes only. The content should not be relied upon in its entirety and shall not be deemed to be or constitute advice. If you’re unsure what’s right for your circumstances, ask for financial advice.

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It’s been a challenging year with inflation dominating headlines. While inflation has fallen, it’s still higher than the Bank of England’s 2% target at 4.6% in the 12 months to October 2023.

Better than expected public finances allowed Hunt to help individuals with an increase in the State Pension, via the Triple Lock, by 8.5%. a cut to national insurance contributions and an uprating of all working age benefits in full, by inflation (6.7%).

Key takeaways

• State Pension triple-lock guarantee of 8.5%
• 2% cut to Class 1 National Insurance
• Self-employed NI cuts
• ISAs become more flexible
• A lifetime pension consultation – ‘pension for life’
• Technical changes to pension rules

The State Pension “triple lock” will remain in place

Mr. Hunt confirmed during the Autumn Statement that the State Pension “triple lock” will be honoured. The announcement will benefit around 12 million people.

Under the “triple lock”, the State Pension increases each year by the higher of:

• Inflation, as measured by the Consumer Prices Index (CPI) in September (of the previous year)
• The average increase in wages across the UK from May to July (of the previous year), or
• 2.5%.

Wage growth of 8.5% means someone on the full new State Pension will receive more than £900 a year extra in 2024/25.

Similarly, Pension Credit will also rise by 8.5% in April 2024.

National Insurance cut for employees and self-employed workers

The biggest headlines have been reserved for changes to National Insurance:

• The main rate of Class 1 employee NICs will be cut to 10% from 6 January 2024. This will provide 27 million working people with a prompt increase in net pay
• For the self-employed, the first of two cuts will see the main rate of Class 4 self-employed NICs reduce to 8% from 6 April 2024. This will benefit around 2 million individuals.
• The self-employed Class 2 NICs charges to access contributory benefits will be cut from 6 April 2024.

Individual Savings Account (ISA)

The current government has stated its intention to simplify ISA rules which have become increasingly complicated over the years as new ISA variants have been introduced. The main announcement was that ISA (£20,000), Junior ISA (£9,000), Lifetime ISA (£4,000 excluding Government bonus) and Child Trust Fund (£9,000) limits will remain at their current levels for 2024/25

Welcome changes announced were:

• The one ISA of each type rule will be abolished – a saver will now be allowed to subscribe to multiple ISAs of the same type every year from April 2024.
• The full transfer of current year subscriptions rule will also be abolished – a saver can partially transfer current year subscriptions in-year between providers from April 2024.
• Adult ISAs will be harmonised so that they are available to age 18 and over. This currently applies to Stocks and Shares ISA but Cash ISAs will go from 16 years old to 18 from April 2024.
• Changes are planned to expand the range of investments that can be held in ISAs

Pensions

Pension Lifetime Allowance confirmed

The previously reported abolition of the pension Lifetime Allowance will take effect from 6 April 2024. The legislation to achieve the abolition is quite complex and the Autumn Statement clarified some technical anomalies.  We plan to study the small print in detail to understand the impact on our clients.

Pension for Life Plans

Most of us have fragmented working careers with several separate pension arrangements and Innes Reid have long specialised in helping clients simplify and consolidate their pensions in a single pension pot. To move this process forward, the Chancellor has announced plans for a new ‘Pension for Life’ pension. Under the proposals, pension savers would have the legal right to choose the scheme their employer pays pension contributions to. This move could help workers with fragmented careers to manage their retirement savings and multiple pensions.

If you have any questions about how the Autumn Statement will affect you and your finances, please get in touch.

Please note: Autumn Statement 2023 – What You Need To Know: All information is from the Autumn Statement 2023 document and the government’s Autumn Statement news bulletin.

The content of this Autumn Statement summary is intended for general information purposes only. The content should not be relied upon in its entirety and shall not be deemed to be or constitute advice. If you’re unsure what’s right for your circumstances, ask for financial advice.

Pension, ISA and tax rules can change, and benefits depend on individual circumstances.

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#1 Don’t overlook the opportunity to trim your tax bill

Whenever you pay into a pension, you’ll get a top up from the government in the form of tax relief – cutting down your tax bill one payment at a time.

If you are a UK resident under 75, you can usually pay in as much as you earn, up to £60,000 a year and get basic-rate tax relief (20%). Even children and other non-taxpayers can contribute up to £3,600 (you pay £2,880, the government adds £720 in tax relief).

If you pay higher-rate tax (40%) you can claim up to an additional 20% in tax relief through your tax return or local tax office. If you pay additional-rate tax (45%), you can claim back up to an extra 25%. You must pay enough tax at the relevant rate to claim back the full amount. Different income tax rates and bands apply for Scottish taxpayers.

Come January, when most tax bills need paying, you might be grateful for the extra money you can claim back because of the contributions you make now.

#2 Don’t get caught in the snare of not saving enough

We all have dreams about what our retirement might look like, yet the majority of us don’t know how much to save for the income we might need or want when we finally retire. In fact, research suggests that 77% of savers don’t know how much they’ll need in retirement.

Once you have decided how much income you might need or want in retirement, it’s a good idea to check if your pension is on track. Our wealth calculator can help you to understand your current position and if you may need to make some changes.

Try our wealth calculator here >> 

#3 Don’t allow investment decisions to hinder your pension contributions

Making a pension contribution and securing your allowances and tax relief each tax year doesn’t mean you need to rush into making investment decisions. Sometimes our clients make a pension contribution, secure up to 45% (or 47% for Scottish tax payers) tax relief before the deadline and decide where they want to invest later.

Please remember that although there is the potential for growth, investments can go down as well as up in value, so you could get back less than you put in.

#4 Don’t leave your pension contribution to the last minute

Many people leave their pension contributions until the last few weeks in the tax year. But it could actually pay to make a contribution earlier.

• Investing earlier gives you a better chance of reaching your goals sooner.
• The longer your money is invested, the more time it has to grow.

Finding money to set aside into your pension isn’t always easy – especially if you have other financial commitments, but it can be done. You could try these saving habits:

• Pay in more when a regular outgoing has come to an end

If you pay for something on finance, or you’ve finished paying off a debt, or mortgage, you could think about redirecting the regular cost into your pension. Even the smallest of increases can make a huge difference – especially over the long term.

• Use a pay rise or bonus as an opportunity to save

It can be difficult to prioritise saving a percentage of your income each month, but you could use a pay rise or bonus as an excuse to save. Some employers even offer a bonus sacrifice. This works in a similar way to salary sacrifice. You can choose to give up some or all of your bonus and pay it into your pension. You’ll benefit by not having to pay National Insurance or income tax on the amount you give up.

#5 Don’t forget to use unused pension allowances

This can be particularly relevant if you’ve inherited large sums of money or if you’re a high earner. A pension rule lets you take advantage of any unused allowance from the previous three tax years – it’s called the carry forward rule. Let’s say the annual allowance was £40,000 for the three previous tax years, it means you could invest up to an extra £120,000 in your pension. Effectively, you’d pay in up to £96,000, with the government adding £24,000 basic rate tax relief to the pension. If you’d paid additional-rate tax on all of it you’d also be entitled to £30,000 further tax relief outside of the pension.

On 6 April 2023, the annual allowance for contributions to pensions increased from £40,000 to £60,000. This means that you can save up to £20,000 more in your pension including tax relief.

To use carry forward, there are two requirements:

1.You had a pension in each year you wish to carry forward from, whether or not you made a contribution (State Pension doesn’t count).

2. You have earnings of at least the total amount you are contributing this tax year. Alternatively, your employer could contribute to your pension.

Talk to an expert

If you have any questions regarding your plans for retirement speak to an adviser about your circumstances. We provide a free initial consultation and there is no obligation to work with us.

Call 01244 347 583 to speak to our team or complete the form below and we’ll come straight back to you.

Remember, this article is not personal advice. You can’t normally access money in a pension until at least age 55 (57 from 2028). Pension and tax rules can change, and benefits depend on your circumstances. If you’re not sure what’s right for you, please seek advice.

5 Pension Mistakes to Haunt Your Retirement Plans Source HL

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With the above in mind, I ask myself the question; With cash savings rates so high, why do I remain invested?

For me, the answer is easy. I take a medium-to-long term investment view, I retain sufficient accessible cash to act as a contingency fund, and I look beyond the short term volatility.

Reasons to stay invested

1. Doing nothing will cost you
Inflation’s eroding powers act as a reminder of why it’s important to invest or save with a decent return in mind

2. Money Illusion?
The real return on cash is as unattractive as it has been for decades, which means your purchasing power is at risk of erosion

3. Time in the market and not timing the market
Staying invested in markets rather than trying to time entry and exit points is likely to pay off in the long-term

4. Remain committed to your medium to long term plan
Investing with a medium to long term outlook is the best way to reduce the impact of stock market fluctuations and to grow your investments over time.

Doing nothing will cost you

Whether metaphorical or not, keeping your cash “under the mattress” will see the value of your savings fall in real terms due to inflation. This concept is nothing new, but never in modern times has it been as much of an issue as it is today.

UK inflation rose to 7.9% in the 12 months to June 2023. That’s the sixth highest point since the 30-year high peak of 11.1% reached in October 2022. In practice, this means that what £10,000 would have bought you a year ago will require £10,790 today. In other words, that’s a loss in purchasing power of £790.

Another way to look at it is that, at today’s inflation rate, it would take around eight years for your cash savings to halve (assuming no returns on cash). This compares to 34 years with inflation at 2%, which is the average rate that prevailed for most of the last three decades.

Number of years it takes for your £10,000 cash savings to halve at different levels of inflation.

Conclusion: Inflation’s eroding powers act as a reminder of why it’s important to invest or save with a decent return in mind.

Money illusion?

Investors should be wary of falling prey to what the American economist Irving Fisher called “the money illusion”. The theory states that the average person tends to view their wealth and income in nominal terms instead of real terms, which is ultimately what we should really care about.

Purchasing power can change if the price of goods increases/decreases, or if inflation increases/decreases. A higher real income means a higher purchasing power since real income refers to the income adjusted for inflation.

Nominal interest rates in the UK are very attractive but, as shown in the graph below, the differential between nominal interest rates and the rate of inflation in the UK (i.e. the real return on cash) has fallen to its lowest level in years.

Real UK interest rates, 1987-2023

Source: Bloomberg, 13 June 2023

Conclusion: The real return on cash is as unattractive as it has been for decades, which means your purchasing power is at risk of erosion.

Time in the market and not timing the market

During periods of pronounced downward volatility it becomes very tempting to exit the market in an attempt to ‘reduce risk’. This can often be the worst time to do so, for several reasons.

One being that future returns are often more attractive once markets have fallen. A second reason is that this decision relies on re-entering the market at the right time. Research has shown that the average investor typically waits too long to do so.

The best days for markets tend to follow the worst days. As such, even if you think you can avoid the worst, you are probably likely to miss out on the best too.

The chart below shows that staying invested in global equities over the past thirty years, could have delivered a potential return more than four times greater than that of an investor who missed the best 25 days during the same period.

The Reward of Staying Invested

Source: Quilter Investors as at 30th June 2023. Total return in pounds sterling over a period 30th June 1993 2023. Based on an initial investment of £10,000 into the MSCI All Country World Index

Another example is an investor in the S&P 500 who shifted to cash after the first 25% decline during the Global Financial Crisis. They would find their portfolio still underwater today. This compares with breaking even in mid-2013, 4.8 years later, if they had remained invested in the stock market.

Conclusion: Time in the market is usually more successful than trying to time the market. Keeping your money invested means you can benefit from any upsides or bounces. Missing just a few good days can significantly reduce how much your investment grows.

Remain committed to your medium to long term plan

The chart below shows that over the medium to long term, there is an upward trend of returns from equities and bonds, despite short term volatility caused by major events. In fact, an investment into global equities could have grown by more than 1020% over the past 30 years.

Past performance should not be used as a guide for future returns, but one of the biggest mistakes in investing is to think that ‘it is different this time.’ Investors may look at global financial markets now and feel concern about the volatility seen in recent years. There certainly are risks but our own view is that the best antidote to this is diversification.

Conclusion: Don’t let short-term blips distract you from your medium to long term plan. Investing over the longer term (five years or more) are more likely to be successful.

Speak to an expert about your investments

As always, if you have any questions about your own personal finances do not hesitate to get in contact with your adviser. Alternatively, if you are new to financial planning and would like a free, no obligation consultation simply get in touch using the form below or call 01244 347 583 to speak to our team.

Why invest in markets when cash rates are so high? – This article is not personal advice. The value of your investments 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.

Source: Quilter Investors, Bloomberg, Investco

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In fact, Inheritance tax (IHT) receipts have been climbing since 2009. More recently, the 2021/22 financial year saw a record breaking 14% rise. This was the biggest rise since the 2015/16 financial year.

To illustrate this climb, take a look at the graph below:

Why are inheritance tax receipts rising?

The current tax free allowance or Nil Rate Band (NRB) is frozen at £325,000 until the 2027/2028 tax year. The relatively new Residence Nil Rate Band (RNRB) of £175,000 could make a difference but it is also frozen and eligibility could be affected by the value of your estate or the terms of your Will.  In certain circumstances it may not be available. While IHT is historically associated with the wealthiest in society, this is no longer accurate. Years of frozen thresholds plus house prices skyrocketing in recent years, and soaring inflation means more people are paying inheritance tax. In fact, over 30% more people are being caught out with IHT.

Some refer to this as a ‘stealth’ tax because more people will fall into it without realising it due to the threshold freeze over the years.

It’s time to make IHT planning a priority

A recent study revealed more than half of UK adults with investments did not know how much money they could leave their family before being hit with an inheritance tax bill despite 79% saying they plan to pass their wealth on to loved ones when they die. Figures show around one in every 25 estates pay the tax.

Under current rules, If the entire value of all your assets exceeds the NRB, which is £325,000 for the 2023/24 tax year, and you have no entitlement to the all or part of the £175,000 RNRB, you may be liable for IHT.

Speak to your adviser about Inheritance Tax

We know it isn’t easy to discuss what will happen to your wealth after you pass. By actively engaging with your wealth now and putting an effective plan into place can reduce your potential tax bill and give you the long-term security and peace of mind to enjoy later life.

Inheritance tax planning can include setting up a trust, making full use of gift allowances, creating a will and leaving a legacy to a chosen charity.

If you have questions about your own assets and whether you will be hit by inheritance tax remove the uncertainty and speak to your adviser today. Alternatively, if you are new to financial planning and would like a review or your current circumstances contact our team using the form below to arrange a free consultation.

Facing The Inheritance Tax Challenge: This article is not personal advice. The value of your investments 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. Remember tax charges and their benefits can change and will depend on your individual circumstances.

Source FT Adviser, HM Revenue and Customs

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We all know that markets go up and down, and that’s why we believe it’s important to remain principled when it comes to investing and simply remain loyal to your personal financial plan which factors in these periods.

We are excited about what is ahead. And to show you why, we have collated the most frequently asked questions that our clients have in recent months posed and we will  offer our insights in the simplest, most unfiltered possible way.

Q1. Why do you think there’s likely to be a recession in the UK? How bad, and what are the risks?

Recessions are often thought of as events, and we label them as such. The Lehman Brothers default of 2008 or the Tech Boom bust of the early 2000s. In truth, they’re not usually specific events with specific dates but rather processes. These processes involve a messy interaction between businesses, consumers and governments that leads to the economy slowing down, so much so that it eventually contracts.

While each recession is labelled differently, the process often follows a very similar pattern. Primarily, interest rates tend to rise sharply – if mortgage costs go up, households think twice about their next purchases. Additionally, prices (particularly necessities like food and energy) tend to rise sharply, squeezing incomes. This leads people to tighten their belts as they focus on the things they need (to heat their homes and feed their families) over the things they don’t (a new car or a holiday abroad). And finally, company profits tend to fall as spending comes down. If people buy less stuff, companies earn less money. And when profits fall, companies tighten their belts, potentially laying off workers as a result.

As things stand, these patterns are present today. We have seen the sharpest rises in interest rates in a generation. And we have also seen the sharpest rise in prices in a generation (even if they might be easing now). The impact is clear, consumers are slowly reining in their spending. Housing is slowing down and global manufacturing is contracting. Consequently profits, as measured by earnings per share, are down from the highs, with possibly more to come. These factors leave us positioned cautiously.

It isn’t all doom, though. Just like recessions, recoveries aren’t events with specific dates. They are processes with very similar patterns to the past. So while those patterns are currently pointing to a recession, this won’t be forever. Eventually, our view is that interest rates and inflation will come down. And when they do, this will set in motion the subsequent economic recovery that will eventually take place.

Q2. In a world of higher interest rates, is investing still worth it? Surely cash is now more attractive?

There is no denying interest rates on bank accounts are more attractive than they have been in a long time. But inflation is far worse than it’s been in a long time too…

So while it was grim getting paid 0% on savings following the banking crisis, it helped that inflation was around 2%. On this basis, your cash was worth about 2% less by the end of every year. Now, although you might get 3% or 4% on a savings account, inflation is at 9%! You get some interest, which is nice – but even after that, your cash is worth ~5% less by the end of the year!

Until savings rates are above inflation, cash is a negative return strategy – guaranteed.

We all know investing isn’t a guaranteed return, it is one which, over time, can help to beat inflation. In fact, investing in stocks and shares is a way to get inflation working for you rather than against you. Those price increases which make our shopping more expensive are being made by the very companies you invest in! Company earnings tend to beat inflation over time as the management teams increase prices and cut costs. That’s better than the bank manager is doing on your savings account!

Q3. Are we facing a banking crisis similar to 2008?

We think not.

The global financial crisis was many years and mistakes in the making. Risky lending practices that were facilitated by decades of deregulation ultimately led to an extreme housing bubble and its eventual bursting. This led to the collapse of a number of major financial institutions. Unfortunately, almost everyone was impacted since most people have some financial tie to housing… as Edward Leamer said, “housing is the business cycle”.

What is happening at the moment is different.

In the US, some non-systemically important banks have mismanaged their assets and liabilities risk. Rising rates meant that the bonds they held as collateral against deposits could not be sold for enough when people tried to redeem their deposits.

In Europe, for years Credit Suisse had been struggling with reputational issues as a result of being pretty near the centre of the majority of banking scandals over the past few years. On top of this, the bank was having serious profitability issues. This is what accelerated the speed and scale of deposit flight that we witnessed. Currently, no other systemically important European or US banks are finding themselves in this kind of hot water.

The 2008 crisis was economy-wide. What’s going on right now with banks is not economy-wide.

Q4. Why has the significant fall in oil and gas prices not yet fed through to much lower inflation levels?

Inflation is defined in different ways. For some, it’s just a number, defined as the growth in prices – an objective measure without debate. For others, inflation is something that is felt – we remember how much the weekly shop costs us compared to last time. Particularly when everything is going up.

For example we find it easy to remember that petrol prices had at one point doubled from the lows of the Covid recession to the highs of 2022. Every time we go to the pumps, we remember that feeling of filling up at or above £2 per litre. At the same time, food prices were going up, housing costs were going up… every cost was going up. Rising petrol was just another squeeze on incomes.

On the flipside, we don’t feel that much happier now that petrol prices are down by a quarter from their 2022 highs; or that they are below the level they were when Russia invaded Ukraine. What’s even harder to believe is that, as they stand right now, petrol prices aren’t that different to what they were 10 years ago. Prices have gone from around £1.35/litre to £1.45/litre in that time – that’s around 0.7% rise per year.

So it turns out the fall in oil prices has led to falls in the cost of filling up. However, while it might be in the numbers, until other prices fall more widely, we are unlikely to feel it.

Going forward, we believe the overall inflation basket is close to peaking and will start to fall soon. The last inflation numbers in the UK shows inflation falling substantially from its peak, though not as much as had been forecasted. It will be a slow and a bumpy process, but eventually, we will start to see and feel inflation coming down to more normal levels.

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

It’s important to remember; the value of your investments 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.

Source – 7IM

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Chancellor Jeremy Hunt delivered his first spring Budget. From news of the lifetime allowance being abolished and the annual pension allowance rising, to new childcare cost measures for working parents, Hunt laid out his plan to tackle sky-high inflation, reduce debt and ‘get the economy growing’.

It was a game changing Budget for pensions. Chancellor Jeremy Hunt’s decision to effectively abolish the lifetime allowance and boost annual allowances from 6 April 2023 brings a breath of fresh air to those whose retirement planning has been stifled by years of tax cuts and freezes.

The constant tinkering and reductions in both allowances have acted as a real disincentive for higher earners to save into a pension over the years. The biggest unintended consequence of the rules saw senior NHS professionals choosing to retire early in recent years because of the tax charges they were triggering.

The changes bring significant headroom back into the retirement plans of people who might have taken a step back from pensions for fear of breaching these allowances. However, they also simplify things for everyone.

Key Retirement Planning takeaways

• The lifetime allowance, previously set at just over £1.0731m, will be abolished from April 2024.
• The lifetime allowance charge will cease to apply from 6 April 2023.
• The pensions annual tax-free allowance will increase from £40,000 to £60,000 from 6th April 2023.
• The Money Purchase Annual Allowance (MPAA) will increase from £4,000 to £10,000 from 6th April 2023.
• The adjusted income level required for the tapered annual allowance to apply to an individual increases from £240,000 to £260,000, and the minimum amount they can be tapered to will also increase to £10,000, from 6th April 2023.
• The upper limit on tax free cash (also known as pension commencement lump sum – PCLS) will be capped at 25% of the current lifetime allowance except where protections apply. From 6th April 2023 it will normally be limited to £268,275.

Highlights from the Spring Budget 2023 and what it means for you

• Hunt also announced that 30 hours of free weekly childcare is being extended to cover children below three. It will eventually cover all children from the age of nine months but only apply to households where both parents are working.
• Introduction of ‘Returnerships’ – a new offer targeted at the over-50s, which brings together existing skills programmes, supported by £63 million of additional funding.
• The government will also increase the number of 50+ Universal Credit claimants who receive mid-life MOTs from 8,000 to 40,000 a year.
• Corporation tax will increase from 19% to 25% from April onwards.
• Fuel duty will be frozen, with the 5p cut to be maintained for the next 12 months.
• Personal tax thresholds and ISA allowances remain unchanged.

Retirement planning opportunities

These extensive changes will reinforce the number one status of pensions as the best vehicle to save for your retirement and will also open up many new retirement planning opportunities.

“One intriguing question for those previously affected by the Lifetime Allowance will be whether or not to resume pension contributions to catch up for lost time?”

As ever, we will be poring over the details to determine how these changes affect our clients.

Get in touch

For all our clients, if you have any questions about the Spring Budget 2023 and what it means for you and how it may affect your own personal finances please do not hesitate to get in touch with your adviser.

If you are new to financial planning and have any questions about how the spring Budget will affect your plans for retirement, get in touch today to arrange a free initial consultation. There is no obligation to work with us after your first meeting. It’s a great way to gauge if financial planning is right for you.

Call 01244 347 583 to speak to our team or complete the form below and we’ll come straight back to you.  

The content of this spring Budget article is intended for general information only and does not constitute advice. Investments can fall as well as rise in value, so you could get back less than you invest. If you’re unsure what’s right for your circumstances, ask for financial advice.

All information is from the spring Budget document and the government’s spring Budget bulletin.

While we believe this interpretation to be correct, it cannot be guaranteed and we cannot accept any responsibility for any action taken as result of the information contained within this article.

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The guide, distributed by The Times, aims to identify and celebrate the UK’s best financial advice firms, entirely based on client feedback.

Speaking about the announcement Mark Reidford APFS, Chartered Financial Adviser and Founder of Innes Reid Investments commented…

“It’s a huge honour to be recognised, but we’re even more proud to be Chester’s only Top Rated, Chartered firm to be awarded for the fifth consecutive year. We strive for a service that goes above and beyond whilst being truly personal to help our clients achieve their goals. it’s a great feeling for our passion to be recognised.”

A bit about VouchedFor

VouchedFor is the number one, client driven, verified place to find reviews for financial advisers online, it’s the TripAdvisor for financial advisers. We are delighted to be a VouchedFor Top Rated Firm 2023.

What Innes Reid clients have to say…

“Having valued and benefitted from Mark’s expertise and advice for over a quarter of a century now I trust his expertise implicitly.” Client based in Cheshire

“Genuinely holistic advice provided to me and my wife taking into account our entire family/financial circumstances. Interested in what we wanted to achieve and very proactive.” Client based in Shropshire

“He has been a great support and has always provided me with sound impartial financial advice.” Client based in Cheshire

A team effort made Innes Reid a VouchedFor Top Rated Firm 2023

Recognising the whole team at Innes Reid, Mark Reidford concluded.

“It’s the hard work, genuine care and dedication of every single team member that earns our place in the Top Rated Guide 2023.”

“We look forward to continuing to exceed our client’s expectations and bring awareness to the power of planning to actually achieve your plans for the future.  Whether its retirement planning, or investing for a rainy day. We’re helping shape families lives, getting them to where they want to be, it’s a great feeling to be a part of that”.

Get in touch

If you are looking for financial advice from an award winning, independent adviser, get in touch with Innes Reid, a VouchedFor Top Rated Firm 2023

We provide a free, no obligation initial consultation. It is an opportunity for you to discuss your individual circumstances and see if independent financial advice is for you.

Call 01244 347 583 or complete the form below and we will call you straight back. 

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You may think only an accountant deals with tax, in fact, a financial adviser can delve into your finances and advise you on how to make the most of your tax allowances through careful financial planning. Leave the tax efficient strategies and hassle to an expert so you can enjoy a financial advantage.

Tip 1 – Use your ISA allowances

ISAs are one of the most tax-efficient ways to save. According to government statistics, around 12 million adult ISAs were subscribed to during the 2020/21 tax year. The cash value of ISAs stood at around £687 billion.

You can invest up to £20,000 into ISAs this tax year 2022-23. You have until 5^th April 2023 to make the most of your ISA allowance for the current tax year.

You cannot carry any unused ISA allowance into a new tax year. So, if you don’t use it before the 5^th April 2023 deadline, you’ll lose it.

You may want to review your saving or investment plan now to help you get the most out of your ISA allowance. Speak to an adviser to find out more about how we can help.

Tip 2 – Use your pension annual allowance

Investing in a pension is also one of the 5 ways to save tax before the 5th April.

If you are a UK resident under age 75 you can contribute as much as you earn to pensions this tax year and receive tax relief.

The pension annual allowance in tax year 2022/23 is £40,000. The annual allowance can be lower for higher earners and some people who have drawn money from their pension.

Saving into a pension can also help you to avoid a potential 60% tax bill. If your total income is £100,000 or more, your tax-free personal allowance (£12,570) is reduced by £1 for every £2 over the threshold.

Be aware, the personal allowance disappears entirely if you’re earning £125,140 or more.

By making the most of pension contributions you can reduce your taxable income, effectively reinstating some or all of your personal allowance if you bring it below £125,140.

Those with “adjusted income” of £240,000 or more could see their pension contribution allowance tapered. So making the most of other tax wrappers, like ISAs, can help when it comes to your savings.

Remember, money in a pension cannot normally be accessed until age 55 (57 from 2028).

It can be difficult to understand which option is for you. if you are just starting to save into a pension or nearing retirement and would like to discuss your options please get in touch. 

Tip 3 – Use Carry Forward

If you have unused annual pension allowance from the past three tax years, you might be able to use it this year. Carry Forward can effectively increase this year’s allowance. Any personal contributions are still capped by your earnings.

This year, the annual pension allowance is £40,000. If you haven’t added money into a workplace or personal pension over the last three years you could make up to a £160,000 contribution this tax year. You could even get up to a 45% tax relief boost from the government.

Exceeding the annual allowance could result in an unexpected tax bill. So, if you’re thinking about boosting your pension before the end of the tax year, you should review the contributions you’ve already made and your allowance.

Keep in mind that, even if you’ve started to take money out of your pension, you can still contribute. However, your annual allowance might be reduced to £4,000. This is called the Money Purchase Annual Allowance.

If you are not sure if adding to your pension is right for you, please contact us. We can advise you based on your personal financial circumstances and ensure you make an informed, confident decision about your pension savings.

Tip 4 – Pay into a pension for your partner

Investing into a pension for your non-earning partner.

Non-earners under 75 that are UK residents can make a pension contribution of up to £2,880 and the government will add up to £720 in basic rate tax relief.

From age 55 (57 in 2028), up to 25% of the value of the pension fund can normally be taken as tax-free cash, with the remaining balance being taxable.

However, if further withdrawals fall within the individual’s personal allowance each year, these will also be tax free.

Tip 5 – Transfer your assets

If your spouse pays less tax than you, or no tax at all, then you could be losing out on valuable allowances each year.

This includes:

• Personal allowance
• Personal savings allowance
• Dividend allowance
• Capital gains tax allowance

that aren’t being fully used.

You can transfer assets to a spouse free of capital gains tax. Keep in mind if they decide to sell it, they might have to pay capital gains tax on it. However, they’ll still be able to use their allowance of £12,300 if they haven’t already used it.

If your spouse isn’t earning an income and you are a basic rate taxpayer, they can transfer £1,260 of their personal allowance over to you, helping reduce your tax liability by up to £252 in the current tax year.

Talk to us about saving tax before the 5th April

If you would like to speak to an expert about tax planning and optimising your tax by making the most of your allowances, please get in touch. Our team can help you to achieve peace of mind for your financial plans.

Call our team today to arrange a free initial consultation. There is no obligation to work with us after your first meeting. It’s a great way to gauge if financial planning is right for you. Call 01244 347 583 to speak to our team or complete the form below and we’ll come straight back to you.  

Saving tax before the 5th April – This blog is for general information only and does not constitute personal advice. The information is aimed at retail clients only.

The value of your investments 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. Remember tax charges and their benefits can change and will depend on your individual circumstances.

Source: Hargreaves Lansdown, Gov.uk

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No. 1
31st January – Self-assessment tax deadline

People who have to file self-assessment tax returns must do so by 31st January. It’s also the deadline to pay any tax owed from that return.

Self-employed workers are also required to pay a payment on account – this is an advance payment towards your next tax bill, based on your previous tax liabilities. The first payment must be made by 31st January.

No. 2
31st January – Capital Gains Tax deadline

The deadline for filing Capital Gains Tax payments on any assets sold in 2021/2022. The Capital Gains Tax (CGT) allowance for the current tax year (2022/23) is £12,300. This means that when you sell investments, you can enjoy gains up to £12,300 before you pay CGT.

But following the chancellor’s announcement in the Autumn Statement, from 6 April 2023, the CGT allowance will be more than halved to £6,000, before it halves again in 2024/25 to just £3,000 a year. The current rates for CGT are 10% for basic-rate taxpayers and 20% if you pay the higher or additional rate (18% and 28% for residential-property sales).

No. 3
15th March – The Spring Budget

Every year we have at least one big Budget statement delivered by the chancellor, when they run through the financial forecasts for the year ahead as well as any proposed changes to the tax system. The Budget will be delivered on the 15th March.

No. 4
31st March – End of Help to Buy

The Help to Buy scheme involves property buyers gaining an equity loan to supplement their deposit when purchasing a new-build property. Buyers had to apply for that loan by 31st October, but have until 31st March 2023 to complete the purchase of the property.

No. 5
5th April – End of the tax year

The 2022-2023 tax year ends on 5th April, so if you’re planning to utilise your entire annual ISA allowance, the full £20,000 will need to have been paid into your accounts by this date.

Anyone wanting to pay extra into their pension should also try and do this before 5th April. Most people can contribute up to £40,000 to their pension pot each tax year and benefit from tax relief. However, those with an annual income – including salary, and income from savings and investments – of more than £200,000, or those who earn less than £40,000 a year, have a lower pension allowance.

No. 6
6th April – New tax year: pensions and benefits

The start of the next tax year is 6th April, and this is a date when increases to various state benefits and tax reliefs will kick in. For example, the state pension and pension credit will both rise by 10.1% while universal credit will increase by the same percentage.

No. 7
6th April – New tax year: tax changes

In his inaugural Autumn Budget, chancellor Jeremy Hunt made several tax changes, which will hit high earners and investors. He reduced the threshold at which the top 45p rate of income tax becomes payable from £150,000 to £125,140. This will take effect from 6th April, 2023. Hunt is also planning to eliminate the dividend tax-free allowance, which currently stands at £2,000 a year.

This will fall to £1,000 on 6th April, and then £500 for the 2024-2025 tax year. The tax rates on dividend income remain unchanged. Meanwhile, the threshold for paying capital gains tax will be more than halved from £12,300 to £6,000 for the 2023-2024 tax year. It will be cut again to £3,000 in the 2024-2025 tax year.

No. 8
5th October – Deadline to register for self-assessment

If you are new to self-assessment, this is the deadline to register with HMRC. This applies if you’ are self-employed or a sole trader, not self-employed, or registering a partner or partnership.

No. 9
31st October – Postal self-assessment deadline

Some taxpayers opt to file their self-assessment by post rather than online. If you choose to do this, you have an earlier deadline of 31st October.

No. 10
November – Autumn Statement

Effectively a mini-Budget, the Autumn Statement is another big statement from the chancellor. It is usually delivered in November. With the pressures from rises in inflation, tax, and household outgoings, the coming year could prove a rocky road for investors and borrowers alike.

Talk to us about your plans for the future

If you have any questions about how financial planning can benefit your ambitions for the future please get in touch. We provide a free, no obligation initial meeting, its also a great opportunity for you to understand if financial planning is right for you.

Call 01244 347 583 or email info@innesreid.co.uk to speak to our team today.

10 key dates you need to be aware of for your finances in 2023 – PLEASE NOTE: This article is not personal advice. The content should not be relied upon in its entirety and shall not be deemed to be or constitute advice.

While we believe this interpretation to be correct, it cannot be guaranteed and we cannot accept any responsibility for any action taken or refrained from being taken as a result of the information contained within this summary. Please obtain professional advice before entering into or altering any new arrangement.

Source: Money Week

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For those of you who have read my previous year-end messages you will know that I don’t like to look backwards as I think it is much more interesting and useful to look at what might happen rather than what already has!

I am going to have to break from the norm as I need to provide a degree of commentary on 2022 for no other reason than to set the scene for 2023.

2022 was quite a year for the global economy.

But there again so were 2020 and 2021; the COVID years!

Inflation was spiking almost everywhere and central banks had to admit that it would not be  “transitory” but one that would potentially worsen and linger. Central Banks started raising interest rates in an aggressive manner to stand any chance of subduing the perils of inflation. But that, heightened another risk; recession, and that was considered to be more of a danger than inflation.

Then the Russians invaded Ukraine bringing about awful social and humanitarian strife. It also turbo charged the economic issues at hand; supply chain shortages worsened, energy and food prices jumped and inflation surged.

It was around this time that central banks realised inflation was close to being embedded and changed their view to be that inflation was the greater risk, not recession. In essence a long period of high inflation would do more medium and long-term damage than recession.

“There is only really one blunt tool to tackle inflation and that is to put interest rates up, which is what has happened, on a record-breaking scale.”

As a result, there has been nowhere to hide for investors and in fact, 2022 was one of only three years in the past century where equities and bonds fell at the same time, the other two years being 1931 and 1969. Bonds are usually considered to be lower risk than equities therefore their decline in value has been particularly painful for investors with a lower risk approach as they may well have lost more money than those with a higher risk profile.

Then in September the whole world was looking at the UK, our politics, economy and bond market.

The unstable political backdrop was thrown into chaos and driven by what was described as a “mini” budget. Its ramifications were anything but mini! Thankfully, action was taken quickly, and the situation stabilised. Although we are not out of those woods yet.

With the economic outlook in mind, 2023 will, no doubt, be quite a year as well.

The word that is getting used more than most to describe the outlook for economies and markets in 2023 is “uncertain”, I am not 100% sure but I think that is as good a word as any. Obviously, we never know what is going to happen, but we can have a view on what we think might happen; so, let’s have a go at that.

Innes Reid portfolios are truly diverse and they embrace the global market. And with this in mind let’s take a quick look at what we can expect;

US

• The US is the world’s largest and most important economy, it is a key driver of what happens elsewhere and it appears, for now to be in pretty good shape. There is hope that inflation may have peaked, that we can look forward to a slowing pace of interest rate increases, with the peak currently expected to be in the second quarter of 2023, and that the economy may only go into a mild recession; that would be considered as a great outcome.

China

• Next up; China. COVID induced lockdowns, a highly stressed property sector and tightening regulations may cause the economy to slow at concerning pace, which is not good news. Indeed, the current social unrest can only exacerbate the problems. It has become fashionable to see China as a country in trouble. Do not underestimate its impact. In the wake of the Global Financial Crisis, it was the extensive stimulus (mainly fiscal) from the Chinese government that pulled the whole global economy out of recession.

Eurozone

• In the Eurozone, the outlook has improved as it now appears energy rationing will not be required and forced shutdowns of energy-intensive industries are unlikely. That said, a recession still appears unavoidable. In addition, more European Central Bank (ECB) tightening seems likely given the labour market pressures – unemployment rate is the lowest since the start of the common currency.

UK

• In the UK, a prolonged recession appears likely, as monetary tightening, fiscal tightening, the energy price shock and supply-side constraints from Brexit combine to create a challenging outlook. GDP (gross domestic product) has yet to regain pre-COVID-19 lockdown levels, but labour-supply shortages have driven the unemployment rate to the lowest level since 1973.

Japan

• In Japan, the country is set for a year of softer economic growth in 2023. Domestic demand is weakening and there is slowing demand for Japanese exports. Unlike the rest of the world, Japan is still operating below capacity, which means it doesn’t face the risk of monetary overtightening.

Can 2023 be a better year for financial markets?

“The backdrop is not great, caution is the watchword, uncertainty abounds.”

It’s been a tough 3 years globally for society and the economy. In economic terms 2023 will be tough as well. In the months to come we will need a positive jolt of some description, whether that be confirmation of inflation peaking or central banks no longer hiking rates or, indeed, a resolution to the tragic war in Ukraine, and – of course – a milder-than anticipated recession.

Even with the decline already seen in the price of both equities and bonds, we still anticipate 2023 will be another difficult year, though as we go through the year, the situation should improve and the outlook may get better as well.

My thoughts above are predicated on avoiding spiralling wage inflation and geo-political matters in Ukraine and China not escalating and caveated by the fact that I may well be wrong!

As always, if you have any questions about your own personal finances do not hesitate to get in contact with your adviser. Alternatively if you are new to financial planning and would like a free, no obligation consultation simple get in touch using the form below or call 01244 347 583 to speak to our team.

The outlook for financial markets 2023 – This article is not personal advice. If you are unsure what is right for you, please seek personal financial advice.

Source: Financial Express

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Read our latest insight to find out more about the key changes affecting pensions, personal taxes, investments and property.

How does the Autumn Statement affect my Pension?

The State Pension “triple lock with be honoured. Under the “triple lock”, the State Pension increases each year by the higher of:

• Inflation, as measured by the Consumer Price Index (CPI) in September (of the previous year)
• The average increase in wages across the UK
• or 2.5%.

Those in retirement can expect a boost of just over 10% to their State Pension from April 2023. For someone on the full, new State Pension, that will represent an additional payment of more than £900 a year. Pension Credit will also rise by 10.1% in April 2023 and benefits will be uprated by inflation, too.

For more information about how the Autumn Statement affects your pension and retirement planning please get in touch.

How does the Autumn statement affect tax allowances?

The chancellor announced reductions to Capital Gains and Dividend Tax.

Capital Gains Tax
The Capital Gains Tax (CGT) annual exempt amount will fall from £12,300 to £6,000 in April 2023, and to £3,000 in April 2024. This means that you will only be able to make profits of £6,000 on non-ISA investments – such as company shares or second homes – in the 2023/24 tax year before CGT becomes due.

Dividend Tax
The Dividend Allowance – the amount you can earn from dividends before Dividend Tax is paid – will be reduced from £2,000 to £1,000 in April 2023, and then to £500 in April 2024.
If you receive any income from dividends, it’s likely that you will pay more tax on these dividends from April 2023 onwards.

If you are unsure or  have further questions about how these changes will affect your personal investments please get in touch. Our wealth management advisers will be able to advise you on your individual circumstances.

How does the Autumn Statement affect Inheritance Tax?

The Inheritance Tax (IHT) nil-rate band has been at its current level of £325,000 since April 2009. The additional residence nil-rate band is set at £175,000 and normally applies if you leave your home to a child or grandchild. The threshold will now remain at these levels until at least 2028.

Qualifying estates can continue to pass on up to £500,000 and the qualifying estate of a surviving spouse or civil partner can continue to pass on up to £1 million without an IHT liability.

As house prices and asset values rise, it is likely that more and more estates will face an IHT bill over the next five years. If you have concerns about your wealth and taking financial care of your family. We have specialist Trust and tax knowledge to guide you through this complex area of Inheritance Tax and gifting to ensure you have full confidence that your loved ones will benefit from your legacy. Please get in touch if you have any questions.

How will the Autumn Statement affect my Income Tax?

Hunt reduced the threshold at which individuals pay additional-rate Income Tax. Which means higher earners will pay 45% tax on more of their earnings.

The 45% rate will now apply for earnings above £125,140 rather than the previous level of £150,000. It means if you earn £150,000 or more, you will pay just over £1,200 more in Income Tax each year.

Income Tax Personal Allowance frozen – the amount an individual can typically earn before paying Income Tax – at the current level of £12,570 until 2028. Additionally frozen, the higher-rate threshold at £50,270 and the National Insurance thresholds at their current level to 2028.

Tax planning only ever gets more complicated and that is why we are here to help. Please do not hesitate to contact us to arrange a free, no obligation meetings to talk through your personal circumstances with an independent adviser.

Need to ask a question?

If you have any questions about how the autumn statement will affect you and your personal or business finances, please get in touch. We provide a free, no obligation consultation to enable you to gain confidence in your financial planning. Call 01244 347 583 or email enquiries@innesreid.co.uk to book your meeting.

Autumn Statement – How does it affect you? This article is not personal advice. If you are unsure what is right for you, please seek personal financial advice. This article is intended for general information purposes only. The content should not be relied upon in its entirety and shall not be deemed to be or constitute advice.  Please obtain professional advice before entering into or altering any new arrangement.

Source: Gov.uk  Autumn Statement HM Treasury

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Client meetings are currently dominated by the same subjects and I am sure you will all be able to guess the themes; inflation, energy prices, interest rates (or mortgage payments), collectively known as the “cost of living crisis”. Then throw in government indebtedness, the war in Ukraine and Chinese intentions towards Taiwan and you get a long list of client concerns.

We then move on to discuss markets as volatility is always a challenge for clients and in 2022, it has been nonstop. We believe that markets are undergoing some significant shifts as they struggle to price in inflation and come to terms with slower growth. However, we believe that once inflation peaks, the volatility should ease and positive growth should eventually return.

Market volatility is a normal part of investing. Typically, market falls of 5% happen on average three times a year, and markets have historically rebounded quickly. Declines of 10% to 20% happen every two and a half years, and severe declines of 20% to 40%, usually associated with recessions, occur every 8.6 years, and values have typically recovered within about 14 months on average. (Source Yardeni Research; Bloomberg. Data as of January 31, 2022)

For the markets at present, it is all about inflation

Since October 2020, a combination of factors has brought about some significant changes to the inflationary environment. These include:

• The rapid economic restart as pandemic-related restrictions eased, prompting severe disruption to supply chains.
• Post-pandemic pent-up demand pushing up global energy prices.
• Geopolitical tensions inflamed by the Russia/Ukraine conflict and related sanctions affecting the supply of energy and key commodities.

The combined effect of the above has led to widespread supply-side price inflation across energy, raw materials and manufacturing costs.

The importance of being invested

One of the most frequent questions I get asked when I have suggested that the economic outlook is not good and financial markets have clear risks at present is “why do we not sell and switch to cash?”.

We fully appreciate the current negative political and economic news understandably impacts risk appetite for Innes Reid clients. However, there are three key drivers to staying invested;

• Time in the market, not timing the market, delivers returns.
• Compounded long-term returns tend to outweigh the losses prompted by episodic crises.
• In the context of high inflation, cash is riskier than equities for capital preservation.

Firstly, trying to time the market to buy before ‘good’ days and sell before ‘bad’ ones is impossible. Staying invested is critical to capture all the good days that drive returns, but inevitably that means accepting some bad ones too. While it can be uncomfortable, it is better to stay invested.

This was recently brought home to me, having turned off the TV to save energy, I read a Bank of America research note that highlighted that an investment in the S&P 500, left alone from 1931 until today, would have produced a return of 19,020%.

However, by missing the 10 best days of each decade, the return would have only been 38%.

Secondly, we must remember compounding or growth on growth.

Albert Einstein famously said “compound interest is the 8^th wonder of the world”

If you invest £100 and it grows by 5% a year, after one year your investment would grow to £105. After another year, though, your balance would not grow to £110, but £110.25. The extra 25p is earned because the 5% growth is applied to the balance of £105, not £100 – the £5 growth earned in your first year has achieved 5% growth again in your second year.

Compounding becomes more powerful the longer you can harness its benefits for. Warren Buffet’s business partner Charlie Munger noted that “The first rule of compounding is to never interrupt it unnecessarily”.

Investing early and keeping the money invested can provide a massive benefit in later life:

Finally, when I say; in the context of high inflation, cash is riskier than equities for capital preservation, there is then a need to understand the difference between investment risk (volatility) and inflation risk (loss of purchasing power) over time. And while it is never comforting to see negative returns (as investors have done recently), it is important to put things in perspective.

Read our recent blog: Are you Benefiting from the Power of Compound Investing?

Investment risk vs inflation risk

It is important to consider ‘risk’ in a broad sense: not just investment risk, but inflation risk too, in the context of time.

During the last 20 years I have not worried too much about the impact of inflation on cash savings as we have been in a low interest rate low inflation environment but I have always made it clear only capital which needs to be immediately accessible, as a ‘liquid reserve’ or ‘rainy day’ fund, should be retained on deposit in a bank or building society deposit account.

Historically, deposit accounts have not produced sufficiently high, long-term returns to ensure that the real (inflation-adjusted) values of capital and income are maintained. Now with a high inflation environment the game is quite different and the pressure is really on and to stand any chance of protecting the real value of capital over the long term you need exposure to ‘asset-backed’ investments.

In light of the current inflationary pressures, I can’t ever remember being more sensitive to the potential long term impact on the real buying power of cash savings. Achieving the correct balance between cash and invested capital for each client has never been so important as cash is currently very expensive.

I have summarised this visually below:

Relationship between risk and time during a higher inflation regime

Source: Elston research, for illustration only

Investment risk, often measured in volatility, is the flip side of returns. By this I mean in a benign market environment, when things are going well, volatility is your friend – you are rewarded for the risk taken. But in a malign market environment, when things are getting difficult, volatility can very quickly become your enemy – you receive a negative return for the risk taken.

Cash may appear safe and not fluctuate but when inflation is high, cash is high-risk over the medium to long term as its buying power is destroyed by inflation.

Equities vs cash when inflation is high

By way of illustration, we can look at the relative performance of equities (for this example we will use S&P 500 in GBP) and cash during the period of high inflation in the UK from December 1972.

What we see is that staying invested and allocating to equities for the short, medium and long term in a high inflation environment can deliver preservation of purchasing power and capital growth.

As humans we are asymmetrically loss averse – a lost £1 gives more pain than a gained £1 gives pleasure – but in an inflationary environment it is important that investors are not risk averse and, in fact, risk should be embraced when taking a medium to long term view.

If you have any questions about the importance of being invested or you would like to review your Innes Reid portfolio, please do not hesitate to contact your adviser.

If you have not worked with us before, come and see us to learn more about how we do things. Book a complimentary meeting here or Call 01244 347 583 or email enquiries@innesreid.co.uk

This article is not personal advice. If you are unsure what is right for you, please seek personal financial advice.

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

The post The importance of being invested – A view from Mark Reidford’ appeared first on Innes Reid.

In his Fiscal Statement, Kwasi Kwarteng introduced a number of tax cuts aimed at addressing the rising cost of living and delivering future growth.

In his ‘plan for growth’ he carried through on Liz Truss’s leadership pledge to reverse the National Insurance and dividend tax increases that were implemented to help fund social care reforms. And in a surprise move, he will remove the additional rate of income tax from April 2023 and bring forward the 1% cut to basic rate tax.

Income tax

• Earnings and savings- The additional rate of tax of 45% (39.35% for dividends) on income in excess of £150,000 is to be abolished from 6 April 2023. This means that all taxable income over £37,700 will be taxed at 40% (32.5% for dividends).

The cut to the basic rate of income tax will take place a year earlier than planned, also from April 2023. The rate for both non-savings and savings income will fall from 20% to 19% – a saving of up to £377 a year.

The Scottish Government intend to hold their own Mini Budget in the coming weeks and this will determine how these changes will apply to Scottish taxpayers.

• Dividends– The rate of tax on dividend income is to be cut by 1.25% from 6 April 2023. The rates will return to their pre-April 2022 levels of 7.5% (basic rate) and 32.5% (higher rate) on amounts in excess of the £2,000 dividend allowance. Following the removal of the additional rate, 32.5% will be the highest rate paid on dividends from next year.
• Allowances and thresholds– There were no fresh announcements relating to the personal allowance and basic rate band. These remain frozen at £12,570 and £37,700 respectively until 2025/26. This means that the higher rate tax threshold will remain at £50,270 for those entitled to a full personal allowance.
• Trusts – There was no announcement on how the removal of the additional rate of tax will impact trusts. Currently trustees pay tax on trust income and dividends at a rate equivalent to the additional rate (45% on income and 39.35% on dividends). Further clarification is awaited and may be included in the Autumn Statement or when draft legislation is published in the Finance Bill.

The trust standard rate band for the first £1,000 of income will fall from 20% to 19% from 6 April 2023.

• Gift Aid– although the basic rate falls to 19% from next year, there will be a four year transitional period for Gift Aid, maintaining income tax basic rate relief at 20% until April 2027.

Pensions

• There were no changes to pension tax relief or allowances in the Emergency Budget.
• The abolition of the additional rate tax band from 6 April 2023 will mean that the maximum level of tax relief on pensions will be at the higher rate of 40%.

Despite the reduction of basic rate income tax from 20% to 19% from 6 April 2023, pension schemes that operate the relief at source method for claiming tax relief (personal pensions, stakeholders, SIPPs) will still be able to claim 20% basic rate relief until April 2024.

National Insurance

• The increase to NI to help pay for social care reforms has been scrapped. The additional 1.25% which was added to the rates of NI for 2022/23 for employees, employers and the self-employed will be removed from November 2022.

The changes to the thresholds at which individuals (both employed and self-employed) start to pay NI, which were introduced in July 2022, will remain – i.e, they’re in line with the annual personal allowance of £12,570.

Capital Gains Tax

• No changes announced.

Previously announced – The annual exempt amount will remain frozen at £12,300 for individuals (and personal representatives) and to £6,150 for trustees of settlements, until 2025/26.

Inheritance tax

• No changes announced.

Previously announced – Both the nil rate band and residence nil rate band will remain fixed at £325,000 and £175,000 respectively until April 2026.

Corporation tax

• The planned rise to the rates of corporation tax from 19% to 25% from April 2023 will not go ahead. The rate of corporation tax will remain at 19% and the reintroduction of tapering relief for businesses with profits under £250,000 has also been scrapped.

Seed Enterprise Investment Schemes (SEIS)

• In a move to encourage entrepreneurism, the Chancellor is increasing the amount of funding that young start-up companies can raise through the SEIS. The amount that investors can subscribe into SEIS and enjoy the tax breaks on offer will double from £100,000 to £200,000 from April 2023.

IR35

• Previous reforms to ‘off-payroll’ working, also known as IR35, will be repealed as part of the Government’s plan to reduce complexity in the tax system.

From 6 April 2023, the responsibility for determining employment status and paying the right amount of tax and NI will again fall those contactors providing their services via an intermediary company, such as a personal services company.

This will take the burden away from the company engaging the services of a contractor, saving them time and money and allowing them to focus on growth.

The rules as to the employment status of a worker providing services through an intermediary have not changed, and the Chancellor promised that compliance would be kept under review.

Stamp Duty Land Tax

• As part of a package of measures designed to ‘get the housing market moving’, the SDLT threshold will be doubled so that no tax will be due on purchases of residential property up to £250,000 in England and Northern Ireland.

This relief is extended to first time buyers who will pay no tax on purchases less than £425,000 (up from £300,000) on properties up to a maximum value of £625,000.

These new thresholds will apply from today.

In Scotland Land and Buildings Transaction Tax (LBTT) and Wales Land Transaction Tax (LTT) is a matter for their respective Governments, but both will receive funding to use as they see fit.

Get in touch

If you have any questions about how the mini-Budget will affect you and your finances, please get in touch to book a meeting with Innes Reid.

All information is from the Growth Plan 2022 document.

The content of this “mini-Budget” summary is intended for general information purposes only. The content should not be relied upon in its entirety and shall not be deemed to be or constitute advice.

While we believe this interpretation to be correct, it cannot be guaranteed and we cannot accept any responsibility for any action taken or refrained from being taken as a result of the information contained within this summary. Please obtain professional advice before entering into or altering any new arrangement.

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