Inheritance Tax (IHT) represents a significant consideration for anyone looking to pass on assets to the next generation. As of the 2024/25 tax year, IHT incurs a 40% charge on the portion of an estate exceeding the nil rate band of £325,000, excluding transfers to a spouse or registered civil partner.
Additionally, the introduction of the main residence allowance in 2017, offering an extra £175,000 relief when a primary residence is bequeathed to direct descendants or where an individual has moved into a care home, enables individual allowances to reach £500,000 before IHT applies cumulatively.
However, this allowance diminishes for estates valued above £2 million and comes with specific conditions, highlighting the importance of proactive IHT planning. With the IHT threshold frozen until at least April 2028, understanding how to manage your estate’s potential IHT liability is more crucial than ever.
A cornerstone of estate management and IHT management involves maximising the use of gift allowances. The law permits unlimited transfers between UK-domiciled spouses or registered civil partners without incurring IHT. For gifts to others, the annual exemption allows you to give away up to £3,000 per tax year, potentially carrying forward any unused allowance to the next year, enabling a £6,000 gift.
Further opportunities for IHT-free gifting include small gifts of up to £250 per person annually, donations to qualified charities and institutions, and wedding gifts within certain monetary limits, depending on your relationship with the couple. These strategies reduce your taxable estate and allow you to see your beneficiaries enjoy their inheritance during your lifetime.
Another straightforward method to minimise your estate’s IHT exposure is to gift excess income. This approach requires that gifts do not affect your standard of living, originate from surplus income rather than capital and be made regularly.
You can significantly lessen the future IHT burden by redistributing income that would otherwise increase your estate’s value. Moreover, such surplus income could be channelled into funding a life assurance policy within a trust, providing further financial efficiency and peace of mind.
Gifting assets such as cash, art and property presents a viable strategy for reducing your future taxable estate’s value. It’s imperative, however, that once gifted, you derive no benefit from these assets to avoid them being classified as ‘gifts with reservation’, which could negate any IHT benefits.
Furthermore, to qualify as ‘potentially exempt transfers’, the ‘7-year rule’ means you must survive for seven years following the gift. Failure to do so may result in the gifts being subject to IHT. Given the complexity of trusts, professional advice is prudent when considering gifts into trust, typically treated as chargeable lifetime transfers.
| Years between gift and death | Rate of tax on the gift |
| 3 to 4 years | 32% |
| 4 to 5 years | 24% |
| 5 to 6 years | 16% |
| 6 to 7 years | 8% |
| 7 or more | 0% |
However, any gift made in the seven years before you died uses up the Nil Rate Band allowance first, which is the IHT allowance each individual has on their death of £325,000. So, if you make gifts totalling less than the Nil Rate Band in the seven years before you died then the tapper will not apply. These rules are very complex and advice should be taken.
Securing against potential IHT liabilities can be achieved effectively through insurance, especially for assets that are not easily transferred into trusts or gifted, such as real estate. Opting for a ‘whole of life’ assurance policy can serve as a strategic approach, ensuring a predetermined sum is available to settle any IHT due upon death.
Notably, if these premiums are financed using surplus income or within the £3,000 annual gift exemption, they evade classification as chargeable lifetime transfers. The policy must be placed in an appropriate trust to ensure the proceeds do not augment the value of the estate and thus remain outside the scope of IHT.
In addition to insurance, investing in assets eligible for Business Relief (BR) presents a viable method for reducing IHT liability. Such assets once held within an IHT portfolio for a minimum of two years—and assuming ownership at the time of death—are subject to 0% tax. This encompasses a range of unlisted companies and certain AIM-listed stocks.
While this strategy introduces a greater degree of investment risk compared to other avenues, it offers the distinct advantage of retaining access to your capital without the necessity to survive an additional seven years, as is typically required. However, it is essential to acknowledge that this form of investment, predominantly in small capitalisation equities, is considered high risk due to the inherent volatility and uncertainty of growth, making it a long-term commitment.
Given the speculative nature of investments focused on small capitalisation and AIM-listed stocks, potential investors should proceed with caution. The possibility of substantial fluctuations underscores the need for such investments to be viewed with a long-term perspective. Furthermore, the regulatory landscape governing IHT and the tax treatment of specific investment vehicles, like AIM shares, could evolve, potentially affecting their suitability as part of an IHT mitigation strategy.
Therefore, obtaining professional financial advice is indispensable. Tailoring financial strategies to individual circumstances and maximising the efficacy of available tax reliefs demands a comprehensive understanding of current regulations and personal financial objectives. Efficiently managing your estate to mitigate IHT liabilities requires careful planning and a thorough knowledge of the available allowances and exemptions.
If you require further information or wish to discuss tailored estate planning solutions, we are ready to provide you with the guidance and support needed to navigate the complexities of Inheritance Tax planning. Contact us today to secure your legacy for tomorrow.
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THIS ARTICLE DOES NOT CONSTITUTE TAX OR LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. TAX TREATMENT DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF EACH CLIENT AND MAY BE SUBJECT TO CHANGE IN THE FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE.
THE FINANCIAL CONDUCT AUTHORITY DOESN’T REGULATE TRUST PLANNING AND MOST FORMS OF INHERITANCE TAX (IHT) PLANNING. SOME IHT PLANNING SOLUTIONS PUT YOUR MONEY AT RISK, AND YOU MAY GET BACK LESS THAN YOU INVESTED. IHT THRESHOLDS DEPEND ON INDIVIDUAL CIRCUMSTANCES AND THE LAW. TAX AND IHT RULES MAY CHANGE IN THE FUTURE.
THE VALUE OF YOUR INVESTMENTS CAN GO DOWN AS WELL AS UP, AND YOU COULD GET BACK LESS THAN YOU INVESTED.
Recent research findings have brought to light a striking observation: fewer than 10% of adults in the UK contribute occasional lump sums to their pensions[1]. This statistic is particularly surprising given that such contributions could significantly amplify one’s retirement savings.
Analysis reveals that even modest lump sum investments can significantly increase the overall size of one’s pension pot due to the power of compound growth over time. For example, starting with an annual salary of £25,000 and contributing the auto-enrolment minimum (5% from the employee and 3% from the employer) from age 22 could lead to a retirement fund of around £434,000 by 66 [2].
Yet, by adding nine lump sum payments of £500 every five years from age 25 to 65, one could enhance one’s retirement savings by an additional £11,000. Those capable of making heftier contributions, such as £5,000 every five years, could see their pension pot grow to £549,000, which is £115,000 more than without any lump sum additions, not accounting for inflation.
Encountering unexpected financial windfalls, whether through bonuses, gifts or other means, often tempts immediate expenditure. Currently, many are directing these extra funds towards managing monthly expenses. However, those who are financially able to contribute additional amounts to their pension stand to benefit significantly in the long term.
Pensions offer tax efficiency and the potential to outpace both inflation and interest rates on savings accounts, making them a wise choice for securing one’s financial future. With the end of the fiscal year having passed, and with it the expectation of annual bonuses for many, allocating a portion of this windfall towards a pension could substantially impact one’s retirement lifestyle.
Employers and pension providers play a crucial role in educating individuals about the importance of long-term financial planning. It is essential to illustrate how pensions fit within a broader financial context, ensuring individuals perceive retirement savings as a key component of their overall financial strategy.
These efforts can empower individuals with the knowledge and resources needed to make informed decisions about their financial future, fostering a proactive engagement and planning culture.
If you seek further insights into maximising your retirement savings through lump sum contributions or require personalised financial planning advice and wish to explore how to enhance your financial security and prepare for a comfortable retirement, please get in touch with us. Let us help you navigate your path towards a financially secure and fulfilling retirement.
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[1] Boxclever conducted research for Standard Life among 6,350 UK adults. Fieldwork was conducted 26 July–9 August 2023. Data was weighted post-fieldwork to ensure the data remained nationally representative on key demographics.
[2] Calculations assume the following: Starting salary £25,000 – Employer contributions 3.00% – Employee contributions 5.00% – Investment growth 5.00% – Salary growth 3.50% – Annual investment costs 1.00%
THIS ARTICLE DOES NOT CONSTITUTE TAX OR LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. TAX TREATMENT DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF EACH CLIENT AND MAY BE SUBJECT TO CHANGE IN THE FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE.
A PENSION IS A LONG-TERM INVESTMENT NOT NORMALLY ACCESSIBLE UNTIL AGE 55 (57 FROM APRIL 2028 UNLESS THE PLAN HAS A PROTECTED PENSION AGE).
THE VALUE OF YOUR INVESTMENTS (AND ANY INCOME FROM THEM) CAN GO DOWN AS WELL AS UP, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.
YOUR PENSION INCOME COULD ALSO BE AFFECTED BY THE INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS.
Individual Savings Accounts (ISAs) offer a versatile and tax-efficient way to save for the future, whether for yourself, your children or grandchildren. Now that we have entered the new financial year, on 6 April 2024, significant changes to ISAs have been introduced.
Since 6 April, savers and investors have had a more flexible approach to using their ISA allowance. For the first time, individuals can open multiple accounts of the same type of ISA within a single tax year, from 6 April one year to 5 April the next, provided they do not exceed the annual ISA limit. This marks a departure from previous rules, which annually restricted savers to one account per ISA type.
In addition to this newfound flexibility, the rules now permit partial transfers of funds from current tax year ISAs into different types of ISAs, enhancing the ability to tailor savings strategies to personal needs. Furthermore, the government has proposed a new ‘British ISA’ featuring a separate £5,000 allowance aimed at investments in UK-based companies on the UK stock market.
The Chancellor’s announcement of the British ISA during this year’s Spring Budget seeks to complement the existing £20,000 annual ISA allowance. This initiative is still under consultation, with a deadline set for 6 June, signalling a potential boost for domestic investment.
The ISA regime offers a variety of options to cater to different financial goals and risk appetites. Whether prioritising safety, growth or a mix of both, there’s an ISA type to match most requirements. From Cash ISAs, known for their simplicity and tax efficiency, to Stocks & Shares ISAs, which offer the potential for higher returns albeit with increased risk, choosing the right ISA depends heavily on individual circumstances.
Cash ISAs serve as a cornerstone for risk-averse savers, providing a straightforward, tax-efficient haven for cash savings. Cash ISA products can be easy access accounts that allow immediate withdrawals or fixed rate accounts that reward savers for committing their funds for a predefined period. Although these accounts can offer both higher and lower interest rates typically offer lower interest rates than standard savings accounts, they present a valuable tax shield, especially for those who have maximised their savings allowance or anticipate doing so.
The allure of Cash ISAs lies in their tax advantages. Interest earned within these accounts does not contribute to the saver’s personal savings allowance, thereby offering a tax-efficient growth environment for savings. This feature is particularly beneficial for higher rate taxpayers and those with substantial savings, making Cash ISAs an option despite potentially lower interest rates compared to non-ISA savings accounts.
Stocks & Shares ISAs, sometimes referred to as ‘investment ISAs’, present an opportunity for individuals to diversify their investment portfolio across a broad spectrum, including collective investment funds, Exchange Traded Funds (ETFs), investment trusts, gilts, bonds, and stocks and shares. This form of investment carries an inherent risk since the value can fluctuate significantly; however, historically, the stock market has offered returns that surpass those of traditional savings accounts over extended periods.
Investors can choose investment funds within a Stocks & Shares ISA, where funds are amalgamated with those of other investors and managed by a professional fund manager, diluting the risk associated with individual investments failing.
Proceeds from Stocks & Shares ISAs are tax efficient. This encompasses both capital gains and dividends derived from the investments within the ISA. The convenience of not having to report these investments on a tax return simplifies the investment process, making Stocks & Shares ISAs an appealing starting point for newcomers to the investment world.
The Lifetime Individual Savings Account (ISA) presents a unique opportunity for individuals aged between 18 and 40, potentially benefiting your children or grandchildren. For each pound deposited into the account, the government offers an additional 25p, tax-free. With an annual contribution limit of £4,000, savers can receive a maximum bonus of £1,000 per year.
This fund can be used to purchase a first home worth up to £450,000 or for retirement savings, functioning similarly to a pension scheme. It is important to note that funds can be freely accessed after the age of 60 to supplement retirement income. However, early withdrawals for other purposes incur a 25% penalty.
The Lifetime ISA is available in two forms: Cash ISA and Stocks & Shares ISA. The market for Cash ISAs within this category is limited, with only a handful of providers. The £4,000 contribution towards a Lifetime ISA is counted within the broader £20,000 annual ISA allowance.
Turning our attention to Junior ISAs (JISA), these are designed for individuals under the age of 18. This financial year allows for an investment of up to £9,000 in either cash or stocks and shares. Access to the funds is restricted until the beneficiary turns 18, at which point full control over the account is granted. From the age of 16, they can manage the account, making it an ideal option for those looking to foster financial independence in their youth. From the start of the 2024/25 tax year, the minimum age to open a Cash ISA increased to 18.
The flexibility to transfer across different ISA providers and types (from cash to stocks and shares or vice versa) enhances the appeal of ISAs. However, verifying transfer policies with your chosen providers is critical, as not all permit transfers. Direct withdrawals and transfers should be avoided to maintain the funds’ tax-efficient status. Instead, the recommended approach involves initiating the transfer through the receiving provider, who will manage the process on your behalf through a straightforward form.
When it comes to managing the financial aftermath of a loved one’s passing, understanding the nuances of how Individual Savings Accounts (ISAs) can be inherited is key. An ISA can be transferred to a surviving spouse while retaining its coveted tax-free status, offering a silver lining during such difficult times.
However, it’s important to note that no further contributions can be made to the ISA once the original owner has passed away. Nevertheless, any increase in account value during the probate period remains exempt from tax. For the surviving spouse, this transfer includes an additional ISA allowance, which is calculated based on the higher of two values: the cash or investments inherited or the market value of the ISA at the time of the original holder’s death.
The situation becomes markedly different when ISAs are bequeathed to beneficiaries other than the spouse. In these instances, the value of the ISA may fall within the scope of Inheritance Tax (IHT), which is levied at a rate of 40% on portions of the estate exceeding the current £325,000 (2024/25) IHT threshold. This significant tax implication underscores the importance of proactive estate planning to effectively navigate the potential fiscal impact.
From the growth-focused Lifetime ISA to the foundational Junior ISA, understanding the nuances and options available is crucial for maximising benefits. Please get in touch with us if you’re contemplating opening an ISA or transferring between accounts and require further guidance. We can assist you in navigating these options to secure your financial future.
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THIS ARTICLE DOES NOT CONSTITUTE TAX OR LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. TAX TREATMENT DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF EACH CLIENT AND MAY BE SUBJECT TO CHANGE IN THE FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE.
THE VALUE OF YOUR INVESTMENTS (AND ANY INCOME FROM THEM) CAN GO DOWN AS WELL AS UP, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.
THE TAX TREATMENT IS DEPENDENT ON INDIVIDUAL CIRCUMSTANCES AND MAY BE SUBJECT TO CHANGE IN FUTURE. THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE TAX PLANNING.
A recent study suggests that a substantial proportion of Generation Z, born from 1996 to 2010, view property acquisition as their principal avenue to amass wealth for their retirement years [1]. This perspective is slightly more prevalent within this demographic than the reliance on pensions, with 33% of Gen Z individuals planning to utilise property as a retirement fund compared to 30% who favour pensions.
This inclination contrasts markedly with preceding generations; notably, Baby Boomers show a stronger preference for pensions (42%) over property (18%), and a similar trend is observed among Millennials, with a more significant number leaning towards pensions (36%) over property (22%).
Moreover, the way different age groups perceive their home’s financial role varies significantly. A notable 35% of Gen Z individuals regard their home as a wealth source accessible in times of need, especially during retirement – a view less commonly held by Millennials and Generation X (24%) and Baby Boomers (20%).
Despite the young adult population’s intent to lean on property for retirement income, the feasibility of such plans remains questionable, given today’s challenging housing and mortgage landscape. Only a minimal fraction of Gen Z (10%) currently holds a mortgage, and there is growing concern about the prospect of bearing mortgage costs into retirement.
Based on current forecasts, the research anticipates that over 13 million individuals could face continued rental or mortgage expenses into their retirement years [2]. This insight into the prevailing preference for pensions among those nearing retirement age sheds light on the typical choices made regarding retirement income.
While each approach – property versus pension – has its merits, the younger generation’s focus on property is understandable, considering the hurdles in accessing the housing market.
Nonetheless, relying solely on one asset for retirement is fraught with risk. It is advisable to achieve a diversified investment portfolio encompassing various funding options alongside the critical inclusion of pensions and easily accessible savings for emergencies.
Pensions offer several benefits, including tax relief on contributions and employer contributions for those enrolled in workplace pension schemes, potentially coupled with investment growth. However, limitations exist, such as the inability to access pension savings until reaching the minimum pension age, which is set to increase from 55 to 57 by 2028.
On the property front, options include selling before reaching the minimum pension age. However, for many, their property doubles as their home, necessitating downsizing, relocating or exploring equity release to tap into their home’s value.
While equity release might offer a solution for individuals without alternative assets, seeking professional financial advice to ensure it aligns with personal circumstances and financial goals is imperative.
For those navigating the complexities of planning for retirement, whether through property, pensions or a blend of both, informed decision-making is crucial. Please get in touch with us for professional financial advice if you require additional information or guidance tailored to your unique situation.
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Source: [1] Boxclever conducted research among 6,350 UK adults for Standard Life. Fieldwork was conducted 26 July–9 August 2023. Data was weighted post-fieldwork to ensure the data remained nationally representative on key demographics.
Source: [2] The Longer Lives Index https://www.thephoenixgroup.com/phoenix-insights/longer-lives-index/
THIS ARTICLE DOES NOT CONSTITUTE TAX OR LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. TAX TREATMENT DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF EACH CLIENT AND MAY BE SUBJECT TO CHANGE IN THE FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE.
A PENSION IS A LONG-TERM INVESTMENT NOT NORMALLY ACCESSIBLE UNTIL AGE 55 (57 FROM APRIL 2028 UNLESS THE PLAN HAS A PROTECTED PENSION AGE).
THE VALUE OF YOUR INVESTMENTS (AND ANY INCOME FROM THEM) CAN GO DOWN AS WELL AS UP, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.
YOUR PENSION INCOME COULD ALSO BE AFFECTED BY THE INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS.
USING EQUITY IN YOUR HOME WILL AFFECT THE AMOUNT YOU ARE ABLE TO LEAVE AS INHERITANCE. ANY MEANS TESTED STATE BENEFITS (BOTH CURRENT AMD FUTURE) MAY BE AFFECTED BY ANY EQUITY RELEASED. EQUITY RELEASE IS EITHER A LIFETIME MORTGAGE OR HOME REVERSION SCHEME.
For investors, the perennial question of whether to ‘stick or twist’ with their current investments or pivot towards the perceived safety of cash is fundamental. Numerous factors influence this decision, which plays a pivotal role in the journey towards financial prosperity.
The appeal of cash, particularly in uncertain times, is clear; however, a judicious choice to remain invested frequently emerges as the more astute strategy.
The argument for maintaining an investment stance centres on the potential for long-term growth. Historically, investment options such as stocks have consistently outperformed inflation and delivered significant returns over prolonged periods.
The magic of compound interest, where your investments earn returns that, in turn, generate their own earnings, can dramatically increase the value of your initial stake, potentially leading to exponential growth over time.
The endeavour to time the market, shifting to cash in downturns and returning in upswings, is beset with difficulty. Even the most experienced professionals often fail to make consistently accurate timing decisions – a fact highlighted by Warren Buffett, who attributes his success to a mere dozen ‘truly good’ investment choices.
Predicting market movements can be challenging, especially in bull markets – when the prices of stocks or other assets generally rise over a sustained period of time, usually accompanied by optimism and confidence among investors. It’s like a market on the rise, where people expect good things to continue happening. Investors may sell at low points and miss subsequent recoveries or remain in cash during bull markets, thereby forfeiting potential gains. This underscores the principle that ‘time in the market, not timing the market’ is a more reliable pathway to capturing long-term growth.
Diversification is a key tenet of sound investing. By allocating resources across a variety of asset classes, sectors and themes, investors can mitigate the risks associated with specific market segments.
Staying invested allows for the upkeep of a diversified portfolio, which serves as a buffer against market volatility. Such portfolios often experience smoother performance trajectories, as positive returns from certain assets can help offset losses in others. This proves particularly beneficial during economic slumps when specific sectors might lag.
Holding cash may seem like a prudent financial safety net, offering immediate liquidity and a sense of security. However, this approach has drawbacks, as it effectively sidelines the potential for higher returns from other investment avenues.
Embracing a long-term investment strategy is key to preserving and enhancing the real value of your wealth over time, navigating past the limitations imposed by cash holdings.
The investing journey can be fraught with emotional upheaval, particularly during market volatility. By committing to a long-term investment stance, investors are better equipped to sidestep the behavioural pitfalls of fear and greed, which often precipitate rash decisions.
A robust investment strategy, centred around long-term objectives, can help instil confidence that enables investors to endure the tempests of market fluctuations with composure.
The influence of taxation on investment outcomes cannot be overstated. Liquidating assets could trigger a Capital Gains Tax payment, potentially carving a significant slice from your profits. A commitment to remain invested, deferring the realisation of these gains, offers an avenue to mitigate tax liabilities, thereby bolstering the efficiency of your investment portfolio.
The annals of financial history are replete with instances of market resilience and the inevitable cycles of downturn and recovery. Although economic setbacks, such as recessions and market crashes, are inescapable, they can potentially set the stage for subsequent periods of growth. Staying the course allows investors to partake in the recovery, harvesting the rewards of economic upturns.
In light of the compelling arguments for long-term growth prospects, the psychological steadiness afforded by a consistent investment approach, tax advantages and the historical patterns of economic recovery, the logic for remaining invested becomes incontrovertible.
While maintaining a reserve of cash for emergencies or imminent expenditures is wise, the strategy of continued investment is eminently sensible if it matches your risk profile, needs and circumstances.
We’re here to assist if you are seeking more detailed guidance or looking to deepen your investment knowledge. We’ll provide tailored advice, equipping you with the tools and insights necessary to navigate the complexities of the investment landscape. Contact us to discover how we can help you achieve your financial goals and maximise your investment potential.
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THIS ARTICLE DOES NOT CONSTITUTE TAX OR LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. TAX TREATMENT DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF EACH CLIENT AND MAY BE SUBJECT TO CHANGE IN THE FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE.
THE VALUE OF YOUR INVESTMENTS CAN GO DOWN AS WELL AS UP, AND YOU MAY GET BACK LESS THAN YOU INVESTED.
THE TAX TREATMENT IS DEPENDENT ON INDIVIDUAL CIRCUMSTANCES AND MAY BE SUBJECT TO CHANGE IN FUTURE.
A recent study has spotlighted women and investing, offering critical insights that aim to empower women to take the reins of their financial destinies and forge paths toward a prosperous future. Notably, an impressive majority of women (68%) engage in investment activities at least once a month, with over two-fifths (42%) diligently monitoring their savings and investments via online platforms or apps at least once weekly[1].
This proactive stance leads to nearly one in five (19%) women having a precise understanding of the value of their investments at any given time. However, the distribution of investment vehicles among women reveals a tendency towards traditional savings accounts (61%) and Cash ISAs (35%), with a notably smaller segment (17%) opting for Stocks & Shares ISAs, in stark contrast to 30% of men.
When it comes to selecting a savings or investment product, an equal number of women (37%) value ‘easy access to funds’ and the protection offered by the Financial Services Compensation Scheme (FSCS) above other factors. Additionally, ‘low or reasonable fees’ are paramount for nearly one in four (23%), while digital accessibility is deemed essential by almost one in five (19%).
Alarmingly, a substantial proportion of women (37%) report not investing at all, a figure that exceeds that of men (24%). The reasons cited for this abstention are diverse, with the most common being a lack of disposable income for investment purposes (45%), followed by concerns over high risk (18%), complexity (10%) and liquidity (9%). These findings underscore an urgent need for bespoke financial education and empowerment initiatives for women.
The study further reveals a commendable balanced approach to investment risk among women, with a significant majority (85%) describing their investment strategy as either medium (35%) or low (50%) risk. This cautious yet strategic approach is laudable, especially in light of evidence suggesting that female investors often outperform their male counterparts over the long term, thanks to a patient and disciplined investment style.
In an age where financial independence is a coveted goal for many, it becomes crucial to address and surmount the unique obstacles that women may encounter in the investment landscape.
The journey towards becoming an adept investor commences with the acquisition of a solid grounding in financial literacy. This foundational step involves understanding diverse investment concepts, terminologies and strategies, thereby enabling one to make well-informed decisions.
Articulating your immediate and long-term financial aspirations is paramount. These objectives not only direct your investment strategy but also keep you concentrated on your ultimate financial targets. The decision to save or invest is pivotal; while savings offer security, their value may diminish due to inflation. On the other hand, investments seek to grow your wealth, though they come with the risk of potential loss.
Before embarking on investment ventures, setting up an emergency fund is wise. This acts as a financial buffer for unexpected expenses, ensuring that you are not forced to liquidate investments during unforeseen circumstances. How much you put aside will depend on your circumstances. If you have three to six months’ worth of essential outgoings in your account to fall back on, this will give you a financial buffer if you need it.
A critical investment principle is diversification – the practice of spreading investments across various assets, funds and tax-efficient vehicles. This strategy aims to mitigate risk and foster long-term wealth growth. Interestingly, the research indicates that only 7% of women engage in diversified investing compared to 18% of men, highlighting the need for greater awareness and participation among female investors.
An informed investor keeps abreast of local and international market trends and emerging opportunities that could influence investment decisions. Regular portfolio reviews are crucial to ensure your portfolio remains aligned with your financial goals and risk tolerance. Adjustments may be necessary in response to personal financial changes or shifts in the market landscape.
Understanding your risk tolerance is essential for creating an investment portfolio that reflects your comfort level with risk, balancing it against the potential for returns. It’s important to remember that investments can fluctuate, resulting in both gains and losses.
We’re here to assist if you are seeking more detailed guidance or looking to deepen your investment knowledge. We’ll provide tailored advice, equipping you with the tools and insights necessary to navigate the complexities of the investment landscape. Contact us to discover how we can help you achieve your financial goals and maximise your investment potential.
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Source data:[1] Research conducted by Censuswide between 10–12 January 2024 of 2,003 general consumers, aged 16+, national representative sample. Censuswide abide by and employ members of the Market Research Society which is based on the ESOMAR principles.
THIS ARTICLE DOES NOT CONSTITUTE TAX OR LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. TAX TREATMENT DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF EACH CLIENT AND MAY BE SUBJECT TO CHANGE IN THE FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE.
THE VALUE OF YOUR INVESTMENTS CAN GO DOWN AS WELL AS UP, AND YOU MAY GET BACK LESS THAN YOU INVESTED.
THE TAX TREATMENT IS DEPENDENT ON INDIVIDUAL CIRCUMSTANCES AND MAY BE SUBJECT TO CHANGE IN FUTURE.
With the ever-evolving landscape of investment, it’s not hard to see why it might appear daunting. The investment world is equivalent to a living, breathing entity constantly evolving and changing. It’s a landscape that never remains static, mirroring the dynamic nature of global economies and financial markets.
Market conditions are like shifting sands, unpredictable and often beyond control. They can be impacted by many factors, such as political events, economic indicators, corporate earnings reports and even natural disasters.
In addition to the ever-changing market conditions, investors are inundated with a ceaseless news stream. Breaking news, financial analysis, expert opinions and economic forecasts are examples of the information barrage investors face.
While beneficial for making informed decisions, this constant flow of information can also lead to information overload. Sifting through the noise and identifying valuable insights that can genuinely impact one’s investment strategy can be challenging.
One of the most effective ways to accumulate wealth is to start investing early. It’s not about waiting until you’ve amassed a significant sum of cash or savings; it’s about leveraging the power of compounding.
Compounding is equivalent to a snowball effect, where the money you earn through investments generates more earnings. You’re growing your initial investment and any accumulated interest, dividends and capital gains. The longer you stay invested, the more time there is for your returns to compound.
Investing regularly is as important as starting early. Doing so ensures that investing remains a priority throughout the year rather than a task confined to specific deadlines like year-end tax planning. This disciplined approach can aid in wealth accumulation over time. Regular investments also allow you to easily navigate different market conditions (rising, falling, flat), eliminating the need to time your investments perfectly.
By consistently investing a fixed amount, you can buy more when prices are low and less when they’re high, potentially reducing your long-term investment cost. Moreover, investing small amounts continuously can help balance returns over time and decrease overall portfolio volatility.
Knowing how much to save today is key to achieving your long-term financial goals. Whether you’re saving for a property, education or retirement requires careful thought and decision-making. Your current income is a valuable benchmark for calculating long-term goals like retirement savings.
The more you earn today, the more savings you’ll likely need to maintain your lifestyle post-retirement. To determine how much you need to save, ask yourself: What is your goal (e.g., retirement, travel, starting a business)? How long will it take to reach your goal? How much money will you need? What savings do you currently have in place?
The investment world offers a simple yet powerful mantra to manage risk and enhance the likelihood of success – diversify your portfolio. This strategy involves spreading your investments across various asset classes, geographical markets and industries. But what makes this approach so crucial?
Financial markets are not uniform entities; they do not move in sync. Different types of investments or asset classes, such as cash, fixed income and equities, will lead or lag at different stages in the market cycle. They may also react differently to environmental factors such as inflation, corporate earnings forecasts and interest rate changes.
Diversifying your portfolio places you in an advantageous position to seize opportunities across various investments as they emerge. This strategy usually results in a smoother investment journey. But how? The answer lies in the balancing act that diversification encourages. Investments that appreciate in value can offset those that are underperforming.
Applying these principles of successful investing can help ensure that your portfolio is poised for long-term growth, equipped to navigate temporary market volatility and ready to capitalise on opportunities as market conditions evolve.
Despite these challenges, it’s crucial not to let this deter you from embarking on your investment journey. While investing may seem daunting at first glance, it’s a journey that can lead to substantial financial growth and security when undertaken with due diligence and strategic planning. If you require further information or want to discuss your investment journey, we’re here to help you navigate the complex investing world and achieve your financial and life goals.
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THIS ARTICLE DOES NOT CONSTITUTE TAX OR LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH.
TAX TREATMENT DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF EACH CLIENT AND MAY BE SUBJECT TO CHANGE IN THE FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE.
THE VALUE OF YOUR INVESTMENTS (AND ANY INCOME FROM THEM) CAN GO DOWN AS WELL AS UP, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.
Early retirement typically signifies reaching financial autonomy before the statutory pension age, however the concept of early retirement will differ by each individual and their life objectives.
In the United Kingdom, retirees can begin drawing their State Pension at age 66, although this retirement benchmark is set to increase to age 67 by 6th April 2028. Individuals can also start drawing on their personal or workplace pension savings at age 55, however this is due to increase to age 57 from 6th April 2028.
During the early retirement phase, the focus tends to be on living life to the fullest and accomplishing long-held dreams. One’s spending might then reduce as activity levels decline, only to surge again later, possibly due to rising care needs.
It’s common for individuals to either overestimate their health or underestimate their lifespan. As average life expectancy gets longer, some people may spend over 20 years or more in retirement. Yet, as with many aspects of life, this depends on a number of variables.
In fundamental terms, full retirement implies that your lifetime expenses should not surpass your income plus any remaining assets, such as savings and investments. This can be a complex calculation in many instances. It will require you to weigh your pension and other income sources against your expenditure and evolving needs as you age.
Simultaneously, it’s crucial to consider investment returns and inflation, which refers to the rising cost of living. As we have recently witnessed, everyday prices can escalate rapidly, significantly diminishing the purchasing power of a fixed income or cash savings.
Embracing early retirement doesn’t necessarily translate to a full-stop on professional life. Instead, many individuals transition into more flexible, part-time roles or switch toward volunteering. This shift allows retirees to sidestep less appealing aspects of working life, such as long commutes or stressful work environments whilst retaining many employment benefits.
Unfortunately, early retirement due to ill health isn’t a choice but a necessity, creating unique challenges for some. Time constraints limit opportunities to plan and build retirement finances. Additionally, careful planning for care and support becomes a priority. Making the decision to retire early is significant and requires thorough consideration of multiple factors.
To determine whether you can retire early, you will need to assess your financial standing. This means calculating your total pension pots, tracking lost ones and considering other possible income sources or debts. Additionally, you need to envision your ideal early retirement lifestyle and estimate its costs.
To retire early, starting to plan sooner rather than later is essential. The earlier you start saving, the harder your money can work for you. Please contact us for further information or assistance in navigating your retirement journey. We’re here to help you plan for a secure and fulfilling future.
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THIS ARTICLE DOES NOT CONSTITUTE TAX OR LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH.
TAX TREATMENT DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF EACH CLIENT AND MAY BE SUBJECT TO CHANGE IN THE FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE.
A PENSION IS A LONG-TERM INVESTMENT NOT NORMALLY ACCESSIBLE UNTIL AGE 55 (57 FROM APRIL 2028 UNLESS THE PLAN HAS A PROTECTED PENSION AGE).
THE VALUE OF YOUR INVESTMENTS (AND ANY INCOME FROM THEM) CAN GO DOWN AS WELL AS UP, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.
YOUR PENSION INCOME COULD ALSO BE AFFECTED BY THE INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS.
Significant life changes, such as getting married, having a baby and buying a property, are key times to consider protecting your family’s future. Life insurance assures that your loved ones won’t face financial stress in your absence and this peace of mind is not confined to those earning an income.
Even if you’re not currently working, for instance, if you’ve taken a career break to raise children, your demise could impose unexpected costs such as childcare on the surviving partner. A life insurance payout could alleviate these expenses.
The government does provide some benefits like Bereavement Support when a family member passes away. However, these benefits typically fall short of covering living costs. Moreover, even if you have a Will to financially support your family posthumously, the estate distribution process can be time-consuming. A life insurance payout can cover interim expenses or contribute towards funeral costs, easing the strain during an emotionally challenging time.
There are scenarios where life insurance may not be necessary. For instance, if you’re single with no financial dependents or your partner earns enough to support your family without your income. However, remember that a life insurance payout could still be beneficial by allowing your partner to take time off work to grieve. Additionally, you can purchase life insurance more cheaply the younger you are and while you are in good health.
Choosing the right life insurance policy necessitates understanding the types available and how they align with your circumstances. Often paired with a mortgage, term life insurance is a popular choice. It provides coverage for a specific term and only pays out if you die within the agreed period. There’s no lump sum or refund if you outlive the term.
On the other hand, whole life insurance covers you for your entire life, provided you keep up with the monthly premiums. The guarantee of a payout makes these premiums higher. Life insurance typically only pays out in the event of death, but some policies offer a terminal benefit, paying out early if you’re diagnosed with a terminal illness. Some insurers also provide integrated critical illness cover for slightly higher premiums.
It’s important to note that most life insurance policies exclude certain causes of death, such as those resulting from drug or alcohol abuse. If you’ve been diagnosed with a severe illness, a basic life insurance policy may also exclude causes of death related to this illness. Therefore, we can advise and help you scrutinise your contract terms carefully to understand what is and isn’t covered.
Please contact us to learn more about life insurance and find the right policy for your needs. We are here to assist you in making an informed decision that best suits your individual circumstances.
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THIS ARTICLE DOES NOT CONSTITUTE TAX OR LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH.
TAX TREATMENT DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF EACH CLIENT AND MAY BE SUBJECT TO CHANGE IN THE FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE.
Chancellor Jeremy Hunt positioned worker and parental tax cuts at the core of his Spring Budget 2024 in a move to bolster the economy. The most substantial change announced was a 2p reduction in the rate of Class 1 National Insurance paid by employees. This tax cut will be compensated for through tax rises in other areas, including business class airfares, short-term holiday let owners, vapes and tobacco.
By contrast, a few taxes remain unchanged, such as fuel duty and alcohol duty, thereby providing some relief to consumers. In addition, the income limit for parents to qualify for child benefits has been increased, expanding the number of families eligible for this support.
A new initiative, dubbed ‘British ISAs’, has been introduced to stimulate investment in UK companies. These ISAs grant an additional £5,000 tax-free allowance for savings invested domestically.
These moves by Mr Hunt are seen as an attempt to revitalise the economy while addressing key concerns of workers and parents. Our guide to the Spring Budget 2024 summarises the key points announced.
Download our full budget guide
THIS ARTICLE REPRESENTS THE VIEWS OF THE ADVISER AND DOES NOT CONSTITUTE AS FINANCIAL ADVICE.
