Saving on tax and investment costs are frequently not given the attention they warrant, but both are hugely important parts of any affluent individual’s wealth management strategy.
This month, our users are pondering how to escape potentially punitive tax charges, both on their estates and on retirement savings exceeding the frozen Lifetime Allowance limit.
Our users are increasingly seeking a relatively little-known, but potentially hugely valuable means of gaining a higher level of Lifetime Allowance (LTA) for their pensions, and we couldn’t be more pleased to see this increasingly on High Net Worth Individuals’ radars
The LTA is the maximum amount you can build up in a pension tax-efficiently, with any funds in excess of that being subject to a 25% LTA charge (in addition to the normal income tax payable) if used for an annuity or put into drawdown; if taken as a lump sum, a punitive 55% LTA charge will apply.
At the last Budget the LTA was frozen at £1,073,100 until the 2025/26 tax year, meaning that many people who are close to this figure face crossing the threshold if they enjoy strong investment gains in the next five years.
At the last Budget the LTA was frozen at £1,073,100 until the 2025/26 tax year, meaning that many people who are close to this figure face crossing the threshold if they enjoy strong investment gains in the next five years
Savvy savers are increasingly looking at other ways of building their retirement pots, like ISAs, but what many don’t realise without professional advice is that they may be eligible for one of two “protection” schemes which can give them a higher LTA of £1,250,000 if they have been a member of a registered pension scheme since 2016.
The rules around Fixed Protection 2016 and Individual Protection 2016 are quite complex and certainly call for professional advice from a specialist in high-value pensions. Our panel of wealth managers are standing by to help, so please do get in touch with this or any other pension-related issues. Checking your retirement saving (and decumulation) strategy periodically is always wise.
As people tend to have much of their wealth tied up in their main residence, rises in property prices tend to bring a smile to homeowners’ faces. However, Inheritance Tax (IHT) concerns are dampening the joy of many our users.
The continued property boom has seen some incredible house price increases, particularly in areas of the country which have become ultra-attractive due to the exodus from cities prompted by the COVID-19 pandemic. We are now at a point that the average property’s value has risen by 53% since 2009 – and an incredible 90% in some parts of the UKi.
The IHT freeze combined with the property frenzy means that many more estates are slipping into exposure to IHT charges of 40% just on the basis of the family home and without taking other assets into account
At the same time, the nil-rate IHT band – the limit of what can be passed on free of tax – has remained frozen at £325,000 (or £1m for couples who pool their allowance and also leverage the Main Residence Nil Rate Band). The IHT freeze combined with the property frenzy means that many more estates are slipping into exposure to IHT charges of 40% just on the basis of the family home and without taking other assets into account.
Fears about IHT exposure are joining with a media focus on estate planning gaps to bring HNWIs to tackle these incredibly important issues. We are increasingly hearing from users who wish to get their houses in order on a whole-family basis.
Recent well-covered researchii has revealed that a massive 65% of people rarely or never discuss inheritance with their children. More shockingly still, 78% have no estate planning strategy in place, despite the fact that most over-60s do wish to pass wealth onto their children.
One of the most gratifying parts of our work is helping families to have the tricky conversations around later life and estate planning that are so easy to put off – and which can cause so much anguish if not tackled
Part of the picture is a generalised lack of later life planning which is causing anxiety across the generations: 41% of adults aged 30-59 say they feel overwhelmed at the thought of managing their parents’ finances and 22% are worried about potentially falling out with their siblings over it.
Both parents and adult children getting to grips with these issues comprise a significant proportion of our users. One of the most gratifying parts of our work is helping families to have the tricky conversations around later life and estate planning that are so easy to put off – and which can cause so much anguish if not tackled. Wealth managers bring wide-ranging planning expertise to the table, but also the objectivity required to take the emotion out of this most challenging area. They can also help coach children to handle inheritance sensibly.
ii Schroders Personal Wealth
It is always a pleasure to hear from users who have been able to save substantial sums in potential tax bills by consulting a wealth manager – and the amounts involved can often be very significant indeed.
Tax planning is a highly complex area, however, and you have to be certain that those you consult really are experts working at the highest level of trust. The rise of scamming, especially in the pensions sector, has been breath taking.
All of the wealth managers we work with are leading institutions which are fully regulated, and boast excellent track records and reputations, so there is nothing to fear in seeking advice through our service. You have nothing to lose either, since we arrange free, no-obligation discussions with a shortlist of firms perfectly matched to you.
The investment strategy and financial planning explanations of this piece are for informational purposes only, may represent only one view, and are not intended in any way as financial or investment advice. Any comment on specific securities should not be interpreted as investment research or advice, solicitation or recommendations to buy or sell a particular security.
We always advise consultation with a professional before making any investment and financial planning decisions.
Always remember that investing involves risk and the value of investments may fall as well as rise. Past performance should not be seen as a guarantee of future returns.