news

How understanding behavioural finance could improve your decisions

The study of how psychology affects financial behaviours is fascinating. Understanding the basics could improve your relationship with money and how it influences your financial decisions.

Behavioural finance looks at how psychological influences and biases affect the behaviour of investors. It aims to understand why people make certain financial choices and the effect it could have on returns.

The study argues that investors don’t always behave rationally or have self-control. Instead, your mental state and biases play a role in your decision-making.

As well as the effect it has on an individual’s wealth, behavioural finance notes that it could explain market anomalies, such as a sharp rise or fall in the value of a particular stock or even an index.

For example, one behavioural financial concept is the “emotional gap”.

The emotional gap refers to decisions based on extreme emotions. You might read a headline about how a company’s value is going to “plummet” in the newspaper. If you hold stocks with that company, it’s normal to fear or worry about what that could mean for your finances. These emotions might prompt you to sell the stock to avoid the perceived potential losses, even if that decision doesn’t align with your long-term financial plan.

If a large group of people read the same headline and also experienced fear, it could lead to the price of that company’s stock falling, even if its intrinsic value hasn’t changed.

So, how could improving your understanding of behavioural finance help you?

Awareness of behavioural finance may help you keep your emotions in check

It’s normal for your experiences to affect your emotions and decisions. Yet, when you’re investing, it could lead to you making decisions that don’t align with your goals and potentially harm your long-term plans.

Deciding to withdraw investments because you’re worried the value will fall might lead to lost returns when you look at the bigger picture.

It’s not just negative emotions that could influence your investment decisions either. You might also feel excited about an investment opportunity after you’ve read about it in the newspaper, so you proceed without fully assessing the risks or if it’s right for you.

According to an FTAdviser report, 61% of investors who take financial advice worry about short-term market movements. A similar proportion also regularly made decisions or proposals based on these concerns that “surprised” their adviser.

Being aware of financial bias could mean you’re able to keep your emotions in check.

Recognising bias could put you in a better position to evaluate information

Emotions are an important part of behavioural finance, and so is understanding how you evaluate information.

For example, loss aversion is a type of bias where your view is anchored to a particular piece of data. You might hold on to this information, even if it becomes irrelevant or separate data offers a different view.

Let’s say you first see a stock listed for £50. You might become fixated on this price regardless of other factors that may affect its value when you’re deciding how to manage the investment.

Once again, these types of bias could lead to decisions that aren’t right for you.

Understanding investor behaviour could help you feel more confident about market movements

As an investor, it can be challenging to keep your nerves in check when the market is experiencing volatility. Understanding what might be driving this could help to put your mind at ease.

The market moving up and down is part of investing. Numerous factors affect the value of the market and short-term movements are normal. Yet, when you see values fall, it can still be nerve-wracking. It can make it tempting to try and time the market to minimise losses.

However, as investors, and as a result the market, can act irrationally, timing the market consistently is impossible. Rather than reducing potential losses, it could mean you miss out on returns overall. Recognising this may help you feel more confident during periods of volatility so you’re more likely to stick to your long-term investment strategy.

Historical data shows that, despite short-term movements, the long-term trend of markets is an upward one. Even after periods of recession or downturns, the market has recovered when you look at returns over years rather than days or months.

It’s important to keep in mind that investment returns cannot be guaranteed and there is a risk. However, for most investors, taking a long-term approach makes financial sense.

Working with a financial planner could reduce the effect of emotions and bias

Recognising when your emotions or biases are influencing your financial decisions can be difficult. Working with a financial planner means you have someone to turn to when creating your financial plan if you’re thinking about making changes. With the benefit of a different perspective, you can identify when you might be responding to emotions or bias in a way that might harm your long-term goals.

If you’d like to talk to us about your financial plan, please contact us.

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

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.

Inheritance Tax: 5 shrewd strategies for reducing a potential bill

If you take a proactive approach to managing your wealth, you could reduce how much Inheritance Tax (IHT) your estate may be liable for when you pass away.

Last month, you read about what IHT is and when estates become liable to pay it. Now, read on to discover some of the shrewd strategies you could use to reduce a potential IHT bill.

Around 1 in 22 estates are liable for Inheritance Tax

The latest HMRC figures show that around 1 in 22 estates are liable for IHT. In fact, in 2021/22, 4.39% of deaths resulted in an IHT charge. However, frozen IHT thresholds mean the portion of estates liable for IHT is slowly rising.

While only a small proportion of estates face an IHT bill, the standard IHT rate of 40% means it can lead to a sizeable amount going to HMRC rather than your beneficiaries. Indeed, according to the Office for Budget Responsibility, HMRC collected £7.1 billion through IHT in 2022/23. The organisation expects the figure to reach £9.7 billion in 2028/29.

So, if your estate could exceed the nil-rate band, which is £325,000 in 2024/25, you might want to consider these steps to reduce a potential IHT bill.

1. Write or review your will

A will is one of the key steps you can take to ensure your assets are distributed according to your wishes. Your will can also be used to manage IHT liability by distributing your assets in a way that allows you to use allowances.

For example, the residence nil-rate band could increase how much you’re able to pass on tax-efficiently if you pass on your main home to children or grandchildren. In 2024/25, the residence nil-rate band is £175,000, so it could significantly boost the amount you’re able to pass on before your estate needs to pay IHT.

Yet, according to a FTAdviser report, a third of adults aged 55 or over have not made a will.

If you already have a will in place, reviewing it may be worthwhile. You might find opportunities to reduce your estate’s IHT liability or that your wishes have changed.

It’s often a good idea to check your will every five years or following major life events, such as getting married, welcoming children, or relationships breaking down.

2. Gift assets during your lifetime

Giving away some of your wealth during your lifetime might bring the value of your estate under IHT thresholds or reduce the overall bill. It could also be useful for your loved ones, who may benefit more from financial support now compared to later in life.

Some gifts may be considered immediately outside of your estate for IHT purposes, including:

• Up to £3,000 in 2024/25 known as the “annual exemption”
• Small gifts of up to £250 to each person, so long as they have not benefited from another allowance
• Wedding gifts of up to £1,000, rising to £2,500 for your grandchildren or great-grandchildren and £5,000 for your child
• Regular gifts that you make from your income that do not affect your ability to meet your usual living costs. For example, you might pay rent for your child or contribute to the savings account of your grandchild. It’s important these gifts are regular and it’s often a good idea to keep a record of them.

However, other gifts may be known as a “potentially exempt transfer” (PET) and could be included in IHT calculations for up to seven years after they were received.

You might also need to consider how gifting could affect your long-term financial security.

If you want to gift assets to your loved ones during your lifetime, making it part of your financial plan could offer peace of mind. We may be able to help you understand how gifting will affect your wealth in the future and how to do so tax-efficiently.

3. Use your pension to pass on wealth

For IHT purposes, your pension usually sits outside your estate. As a result, it might provide a valuable way to pass on assets. According to a PensionBee survey, almost two-thirds of Brits were unaware of this, so your pension might be an option you’ve overlooked when considering IHT.

Choosing to use other assets to fund your retirement could help you pass on more to your loved ones through your pension. Considering your beneficiaries when you’re creating a retirement plan could help you decide which option is right for your goals.

While pensions aren’t normally liable for IHT, your beneficiary may need to consider Income Tax when accessing funds held in an inherited pension in some circumstances.

Your pension isn’t typically covered by your will. Instead, you can complete an expression of wish form to inform your pension provider who you’d like to receive it when you pass away.

4. Place assets in a trust

Provided certain conditions are met, assets that are placed in trust no longer belong to you. So, they normally won’t be included when calculating an IHT bill.

A trust is a legal arrangement that holds assets for the benefit of another person. As the benefactor, you can set out who will benefit from the assets and under what circumstances, which can give you greater control when compared to gifting or leaving an inheritance. In some cases, you may still benefit from the assets held in a trust, such as receiving the dividends from investments.

You can also name a trustee, who would be responsible for managing the trust in line with your wishes and for the benefit of the beneficiaries.

There are several different types of trusts and it’s important it’s set up correctly to ensure it meets your needs, including reducing a potential IHT bill if that’s one of your priorities. Taking legal advice might be valuable when creating a trust.

In addition, it may be difficult, and sometimes impossible, to reverse decisions related to a trust. As a result, you should think carefully about which assets you place in a trust and how your decisions align with your wider financial plan. Please arrange a meeting with us if you’d like to talk about putting some of your wealth into a trust.

5. Take out life insurance 

Life insurance isn’t a way to reduce your estate’s IHT liability. However, it could provide a useful way for your family to pay the bill.

Whole of life insurance cover would pay out a lump sum to your beneficiaries when you pass away. They could then use this payout to cover the IHT bill, so they wouldn’t need to consider how to use their inheritance to pay the cost. This option might ease the stress your loved ones are dealing with at a time when they’re grieving or handling your affairs.

It’s important to note that you’ll need to pay regular premiums to maintain life insurance coverage. The cost of life insurance can vary depending on a range of factors, from the size of the eventual payout to your health.

You might want to consider using a trust to hold the life insurance. Otherwise, the payout could be added to the value of your estate and increase the IHT that is due.

Legal advice may be useful when setting up a trust, which can be complex.

Contact us to talk about your Inheritance Tax strategy 

There might be other ways you could reduce a potential IHT bill too. If you have any questions about IHT or your wider financial plan, please contact us.

Next month, read our blog to discover how IHT in the UK compares to other countries and proposals to reform the tax.

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

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate estate planning, trusts or Inheritance Tax planning.

Note that life insurance plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.

What the 2024 general election could mean for your finances

2024 has been called “the year of elections” with an estimated 2 billion people around the world heading to the polls.

Voters in the UK will have their say on 4 July. Now that each of the main parties has published their manifestos, here’s what the 2024 general election could mean for your finances.

Conservatives – more National Insurance cuts and the “triple lock plus”

Having already reduced National Insurance (NI) rates twice in 2024, the Conservatives have made further cuts to NI one of their flagship policies at this election.

They propose to:

• Take another 2p off employee NI by April 2027, reducing the rate from 12% at the start of 2024 to 6%. They say this represents a total tax cut of £1,350 for the average worker on £35,000.
• Abolish the main rate of Class 4 NI contributions for self-employed workers by the end of the next parliament. Crucially, this will not affect any entitlement to the State Pension. The Conservatives say this measure means that 93% of self-employed people – 4 million of them – will no longer pay self-employed NI.

The party also says it will keep Income Tax thresholds frozen until 2028 and will not raise the rate of VAT or Capital Gains Tax (CGT). They have committed to maintaining Private Residence Relief so that your home is protected from CGT and introducing a two-year temporary CGT relief for landlords who sell to their existing tenants.

Despite rumours that the Conservatives may reform Inheritance Tax (IHT), there is no mention of IHT in their manifesto.

In 2010, the coalition government introduced the State Pension triple lock, which guarantees a rise in the State Pension each year. The Conservatives say that the triple lock has seen the basic State Pension rise by £3,700 since 2010.

To enhance this protection for pensioners, the “triple lock plus” will ensure the Personal Allowance for pensioners also rises by the highest of prices, earnings, or 2.5% each year. This guarantees that the new State Pension will always be below the threshold at which Income Tax becomes payable.

Additionally, a new Pensions Tax Guarantee will pledge:

• No new taxes on pensions
• To maintain tax relief on pension contributions at a saver’s marginal rate
• To not extend NI to employer pension contributions.

In the Spring Budget, chancellor Jeremy Hunt announced an increase in the amount you can earn before you start to lose Child Benefit. Previously, it was taken away entirely when one parent earned more than £60,000. This has already been increased to £80,000.

The Conservatives are also pledging to move to a “household” rather than an individual basis for Child Benefit, by setting the combined household income at which a family will start losing Child Benefit at £120,000.

They then plan to gradually remove it until household income reaches £160,000, above which families will no longer receive Child Benefit. They say this will have a positive impact on more than 700,000 households, each gaining an average of £1,480 a year.

The party has committed to delivering 1.6 million homes in England in the next parliament and has already announced changes to the non-dom rules.

Finally, the Conservatives say that they will go ahead with their proposal for an £86,000 cap on social care costs for people who are older or disabled in England. It means no one would pay more than that for personal care over their lifetime. The party plans to introduce this in October 2025.

Labour – No plans for tax rises, but changes to private school fees and non-dom rules

While they have made no commitments to reduce personal taxation, Labour says that, if they win on 4 July, they “will ensure taxes on working people are kept as low as possible”.

They have pledged not to increase NI, VAT, or the basic, higher, or additional rates of Income Tax.

Instead, the party plans to address what it calls “unfairness” in the tax system by:

• Abolishing non-dom status and replacing it with a modern scheme for people genuinely in the country for a short period.
• Ending the use of offshore trusts to avoid IHT.
• Ending private schools’ VAT exemption and business rate relief. They plan to use this additional tax revenue to train more teachers, citing an estimated shortage of 6,000.

Interestingly, Labour has also confirmed that, in a change from their previous stance, they have no plans to reintroduce the pension Lifetime Allowance (LTA).

The LTA capped the amount you could hold in your pensions without paying an additional tax charge when you accessed the funds. Chancellor Jeremy Hunt removed the additional LTA tax charge in April 2023, before abolishing the LTA altogether in April 2024.

Labour has decided not to reintroduce the charge to provide certainty for savers and because they say it would be too complex to bring back the former rules.

With regard to CGT and IHT, the Labour manifesto contains no plans to change the rules – although the party has ruled out applying CGT to primary residences.

When it comes to social care, the manifesto does not provide any detail on how much an individual should pay for personal care over their lifetime. However, Labour have confirmed they “will not disrupt” an existing plan to implement an £86,000 care cap from October 2025.

To help first-time buyers, Labour will also introduce a permanent, mortgage guarantee scheme, helping prospective homeowners who struggle to save for a large deposit. They say this measure would support 80,000 young people to get on the housing ladder over the next five years.

Finally, in a nod to the Truss administration’s “mini-Budget”, Labour says that they will take a strategic approach that gives certainty and allows long-term planning. They have committed to one major fiscal event a year, giving families and businesses due warning of tax and spending policies.

Liberal Democrats – raising the Personal Allowance and reforming Capital Gains Tax

While the two leading parties have published no plans for changes to the Personal Allowance, the Liberal Democrats have made increasing the allowance their priority, when the public finances allow.

They say this would benefit “the vast majority of families” and take more low-paid workers out of paying Income Tax altogether.

Making the tax system fairer is another key Liberal Democrat pledge, and they propose to do this by:

• Reversing tax cuts for the big banks, restoring Bank Surcharge and Bank Levy revenues to 2016 levels in real terms.
• Increasing the Digital Services Tax on social media firms and other tech giants from 2% to 6%.
• Introducing a 4% tax on the share buyback schemes of FTSE 100 listed companies, to incentivise productive investment, job creation, and economic growth.

The party also says it would “fairly reform” CGT to close loopholes exploited by the super-wealthy – although they have published no specific details of what changes they would make.

In addition, the Liberal Democrats plan to remove the two-child limit for Universal Credit and Child Tax Credit, as well as the benefit cap – the limit on the total amount of benefits one household can claim.

Reform UK – tax cuts for individuals and business

With Nigel Farage having called himself the real “leader of the opposition” in recent weeks, Reform UK has surged in the polls.

If they were to win power on 4 July, the party has pledged to:

• Increase the Income Tax Personal Allowance to £20,000. This would remove 7 million people from paying Income Tax and save every worker almost £1,500 a year.
• Increase the threshold for paying higher-rate Income Tax to £70,000.
• Reduce fuel duty by 20p a litre for both residential and business users.
• Scrap VAT on energy bills.

Reform UK also wants to increase the threshold at which IHT is paid, so it only affects estates worth more than £2 million. They also propose to significantly increase the Stamp Duty threshold when buying a residential property in England and Northern Ireland, from £250,000 to £750,000.

In addition to pledges concerning personal tax, the Reform UK “contract” also includes several policies to support British businesses:

• Lift the minimum Corporation Tax profit threshold to £100,000.
• Reduce the main Corporation Tax rate from 25% to 20%, then to 15% from year 3.
• Abolish IR35 rules.
• Lift the VAT threshold to £150,000.
• Abolish business rates for high street SMEs and offset this with an Online Delivery Tax at 4% for large, multinational enterprises.

Reform UK also wants to support marriage through the tax system by introducing a UK 25% transferable Marriage Tax Allowance when finances allow. This would mean no tax on the first £25,000 of income for either spouse.

Green Party – a new wealth tax and changes to National Insurance for higher earners

Unlike other leading parties who are seeking to levy no more taxes, the Green Party manifesto proposes to raise up to £151 billion a year in new taxes by 2029 – equal to around 4.5% of GDP.

One of the main components of this is a new tax on the wealthy, which would be levied at 1% a year on the assets of people with more than £10 million, and 2% on those with more than £1 billion. The party say this new tax would raise about £15 billion.

The Greens also propose to change NI rates and to charge the basic 8% rate on income above the Upper Earnings Limit (the rate is currently 2%). The party says that, if you earn £55,000, the additional amount you pay under their proposals would be less than £6 a week. If you earn £65,000, it would be about £17 a week.

Other manifesto promises include:

• A renewed pledge to scrap university tuition fees and bring back maintenance grants.
• Nationalising the railway, water, and big five energy companies.
• Making personal care free (support with daily tasks like washing, dressing and medication), similar to the system already operating in Scotland.

Finally, the Greens have also pledged to reform CGT to align the rates paid by taxpayers on income and taxable gains. They say this would affect less than 2% of all income taxpayers.

Other regional parties

Scottish National Party – seeking greater tax powers and fairer maternity pay

Under the terms of devolution, the Scottish parliament has the power to make changes to a range of taxes including setting the bands and rates of Scottish Income Tax.

In their manifesto, the Scottish National Party (SNP) say that they will demand the full devolution of tax powers to enable them to create a fairer system that protects public services and invests in the local economy.

For example, they are seeking the devolution of NI so they could ensure rates and thresholds fit the progressive Scottish Income Tax regime.

Like the Liberal Democrats, the SNP say they would also abolish the two-child limit for Universal Credit and Child Tax Credit.

Furthermore, the party wants to see maternity pay increase to 100% of average weekly earnings for the first 12 weeks of leave for new mothers. Thereafter it would be set at either 90%, or the statutory minimum allowance (currently £184 a week) for 40 weeks, whichever is lower.

Plaid Cymru – seeking a fairer settlement for Wales

Like the SNP, Plaid Cymru has also called for greater devolved powers. The party has backed devolution since the start and ultimately wants the country to run all its affairs, and to correct what it sees as “unfair” funding from Westminster.

The party wants to see a change in the welfare system, which is controlled at Westminster, with an increase in Child Benefit payments of £20 a week. They also want an extension of the energy “windfall tax” to help redress economic unfairness.

In line with the Green Party, they would also equalise CGT with Income Tax, raising between £12 billion and £15 billion.

Democratic Unionist Party  – a new funding model and protecting family incomes

As with other regional parties, the Democratic Unionist Party (DUP) says it will continue to lead the charge for a new “needs-based” funding model for the region to enable it to provide quality frontline services.

The DUP has also committed to “protect family incomes” and to continue to campaign with whichever party forms the next government to “fully restore Northern Ireland’s place within the UK […] including removing the application of EU law in our country and the internal Irish Sea border it creates”.

Sinn Féin – more devolved powers and constitutional change

While Stormont is responsible for a range of issues, which mainly cover everyday life within Northern Ireland, including agriculture, education, the economy, finance, health and infrastructure, it does not have the power to set its own Income Tax levels – and this is something Sinn Féin would like to change.

Constitutional change is also a key part of the manifesto, although the party has published no timescale for a border poll as the timing remains in the hands of the Westminster government.

Get in touch

If you have any questions about how the general election could affect your finances, please get in touch.

The content of 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.

Guide: How to find purpose and get the most out of your retirement

Retirement might be a chapter of your life you’ve been looking forward to for years. Perhaps you’ve been daydreaming about how you’ll make use of the extra time, or you’ve already planned an adventure to kickstart your life after work. 

Yet, for many people, retirement can be a difficult adjustment. 

While work often means less freedom, it might provide you with a sense of purpose and a structure to your days and weeks. Suddenly stepping away from a routine you may have followed for decades can be jarring. So, if you feel adrift when you retire, you’re not alone. 

Finding a new purpose you’re passionate about could be imperative to your happiness and wellbeing in retirement.

This practical guide offers some ways you could embrace a new lifestyle that balances freedom and purpose, including:

• Discovering your passions
• Finding a daily routine that works for you
• Prioritising your physical and mental health 
• Making time to connect with people
• Playing a role in your community.

Download your copy of ‘How to find purpose and get the most out of your retirement’ to read practical tips and key areas you might want to consider when you retire.  

If you have any questions about how to get more out of your retirement, please contact us. 

Uncertainty drives record numbers to take out income protection. Here’s what you need to know

Figures from the Association of British Insurers (ABI) suggest a record number of families are taking out income protection to create a safety net. Read on to find out how income protection works and whether it could be valuable for you.

Income protection would pay out a regular income if you were unable to work due to an accident or illness. As a result, it could provide you with a way to keep up with your financial commitments if your income unexpectedly stops. Income protection will normally continue to pay an income until you’re able to return to work, retire, or the term ends.

Usually, the sum provided through income protection is a proportion of your regular salary, such as 60%. You’ll need to pay a monthly premium to maintain the cover, the cost of which will depend on a range of factors, such as your age and lifestyle. While you might not want to increase your expenses, income protection could be cheaper than you think, and it may substantially improve your financial resilience.

Economic uncertainty could be driving more people to consider their financial resilience

According to the ABI statistics, a record 247,000 people took out income protection in 2023. The figure is almost four times higher than it was just 10 years ago. Critical illness insurance, which would pay out a lump sum if you were diagnosed with a covered illness, saw a similar rise between 2013 and 2023.

Yvonne Braun, director of policy, long-term savings, health and protection at the ABI, said: “Financial resilience – the ability to withstand a financial shock – is a hugely important issue. It’s encouraging to see that so many people recognise that income protection and critical illness insurance are an important part of financial planning and play a crucial role in providing a financial safety net.”

There are many reasons why you might consider how to improve your financial safety net.

A change in your circumstances can often be a trigger. For example, if you’ve purchased a property or have welcomed children, you may reevaluate your finances and take steps to improve your ability to weather a financial shock.

Wider economic circumstances are also likely to have played a role in the rising number of households choosing to take out income protection.

Over the last few years, the Covid-19 pandemic and subsequent period of high inflation may have led to more families facing unexpected changes to their budget. Indeed, a BBC report suggests 7 million adults felt “heavily burdened” by their finances at the start of 2024.

With many families having to absorb higher essential costs, from energy bills to grocery shopping, it’s perhaps not surprising that more are looking for ways to ensure they can overcome losing their income.

Income protection could safeguard your short- and long-term finances

If taking time off work might place pressure on your finances, it may be worth considering if income protection could be right for you.

It’s not just your income you may want to weigh up either. For example, your partner may be the main income earner in your household while you are responsible for the majority of childcare. In this scenario, you might want to consider how your household’s expenses would change if you were ill – your childcare bill could rise significantly or your partner might be forced to take time off work while you recover.

Income protection could complement your wider financial safety net

While you may already have measures in place to provide a short-term income if you are unable to work, income protection could still be useful.

You may have an emergency fund you can draw on, but how long would it last, and what would happen if you were unable to work for longer than expected? Similarly, your employer might provide enhanced sick pay, but this is often for a defined period, such as six months.

Assessing your financial resilience could help you see how income protection might complement your wider financial plan.

A financial shock could affect your long-term finances too

When you experience a financial shock, your focus is likely to be on the immediate impact it has on your budget. Yet, it could have long-term implications too.

If you’re unable to work you might stop paying into your pension, or cut back how much you’re adding to a savings account. Depending on your circumstances, income protection could allow you to stick to your wider financial plan. It may help you to maintain non-essential outgoings that might be crucial for your long-term goals.

Get in touch to discuss your financial resilience

Taking steps to improve your financial resilience could help you feel more confident about your future and mean you’re in a better position to overcome unexpected shocks. Please contact us to talk about your financial plan and whether income protection or other measures could be right for you.

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

Note that income protection plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.

Cover is subject to terms and conditions and may have exclusions. Definitions of illnesses vary from product provider and will be explained within the policy documentation.

3 practical ways you could reduce your tax bill in retirement

The number of retirees who could face an Income Tax bill is expected to rise. If your total income could exceed tax thresholds, there might be some steps you can take to reduce your tax bill.

The Personal Allowance is the amount of income you can receive before you usually need to pay Income Tax on the portion that exceeds the threshold. For 2024/25, the Personal Allowance is £12,570.

Crucially, the allowance hasn’t increased since the 2022/23 tax year and it’s currently frozen until April 2028. In contrast, your outgoings and income are likely to rise in line with inflation. So, even though your income might not increase in real terms, you could find a greater proportion of it is liable for Income Tax.

For example, the State Pension has benefited from large increases in the last two tax years under the triple lock. In April 2023, it increased by 10.1%, and then by a further 8.5% in April 2024.

As a result, those who are eligible for the full new State Pension receive £11,502 in 2024/25. So, you only need to receive a small income from other sources before you might need to start considering Income Tax in retirement.

Luckily, there could be steps you can take to reduce your tax bill, including these three.

1. Access the tax-free portion of your pension in instalments

You might know that you can access up to 25% (up to a maximum of £268,275) of your pension as a tax-free lump sum. But did you know you can also spread out this tax-free portion of your pension?

If you choose this option, each time you withdraw money from your pension, 25% of it will usually be tax-free. You can take different amounts each time to suit your needs if you’d like.

As well as potentially making your income more tax-efficient, this method could allow your pension to grow further. The money that remains in your pension will typically be invested, so it has an opportunity to deliver returns.

Of course, investment returns cannot be guaranteed and it’s important that your investments match your circumstances. When you retire, your risk profile may change, so reviewing how your pension is invested could be useful. If you have any questions about investing in retirement, please contact us.

2. Know which allowances could reduce your tax bill

There are tax-free allowances you may be able to use to reduce your Income Tax bill.

The interest earned on savings held outside of a tax-efficient wrapper may be added to your total income and could become liable for Income Tax as a result. However, many people benefit from a Personal Savings Allowance (PSA). So, the interest your savings earn might be a practical way to boost your regular income.

Your PSA depends on the rate of Income Tax you pay. In 2024/25:

• Basic-rate taxpayers have a PSA of £1,000
• Higher-rate taxpayers have a PSA of £500
• Additional-rate taxpayers have a PSA of £0.

In addition, if you’re married or in a civil partnership, you may also be able to use the Marriage Allowance to increase your Personal Allowance.

If your partner doesn’t use their full Personal Allowance and you pay Income Tax at the basic rate, they may be able to transfer £1,260 of their Personal Allowance to you. It could reduce your overall tax bill by £252 in 2024/25.

We could help you understand which allowances might be right for you.

3. Supplement your pension by making withdrawals from your ISA

While a pension is often the main source of your income in retirement, you can supplement it with other assets.

During your working life, you might have built up savings or investments in an ISA. Now, you could use it to supplement your pension income. As an ISA is a tax-efficient way to save or invest, it could prove a useful way to boost your income without increasing your tax bill.

There might be other assets you can use to support you in retirement too, such as investments held outside of an ISA or property. However, you should be aware they might increase your tax liability. For instance, if you sold investments that weren’t held in an ISA, you might have to pay Capital Gains Tax (CGT) on the profits if you exceed certain thresholds.

We can help you understand how you might use other assets to fund your retirement goals.

Contact us to talk about your tax bill in retirement

Depending on your circumstances there could be other ways to reduce your Income Tax bill and you might be liable for other types of tax in retirement too, such as CGT. As part of creating a retirement plan, we can work with you to understand how to mitigate or reduce your tax liability. Please contact us to arrange a meeting.

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

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

Making your present part of your financial plan could enhance your life

As financial planners, we often talk about the importance of working towards long-term goals and security. As part of your financial plan, you might be putting money into a pension for retirement or building an emergency fund to safeguard your finances if you experience a shock.

Considering your long-term ambitions is often important for turning them into a reality. Yet, enjoying the present is just as essential. While it can be difficult to balance your lifestyle needs now with those of your future, it may help you get more out of life.

Overlooking the present could mean you miss out on experiences

Planning for the future is important, but you don’t know what’s around the corner. If you take today for granted or put off experiences until later in life you could end up missing out.

You might cut back now and pool all your money into a pension with the plan to travel extensively once you give up work. But if you suffered from ill health before you reached that point, you might not have the opportunity to visit bucket-list destinations or have experiences you’ve been looking forward to for years.

The Great British Retirement Survey 2023 revealed that almost a fifth of people aged between 56 and 65 have faced a major life event that has changed their retirement plans. The most common reason was ill health.

Similarly, a higher-paying job might offer the chance to save more for retirement. But if you’re family-oriented and want to strike a better work-life balance, a promotion that will lead to longer working hours or more responsibility might not be right for you when you weigh up the effect it could have on your family life.

For many people, balancing short- and long-term financial needs is important for living a fulfilling life.

Doing things now and so giving yourself fond memories to look back on could improve your sense of wellbeing. This could be something small like enjoying a nice meal out with friends, or a grander expense, such as planning a trip to hike Machu Picchu in Peru if you love to travel.

Not only could embracing today in your financial plan make you happier now, but it could motivate you to stay on track when you’re working towards long-term goals. Perhaps a holiday that allows you to relax and focus on the things you love will mean you’re more inclined to top up your pension so you can retire and enjoy a slower pace of life sooner.

An effective financial plan can help you balance the present and future

It can be difficult to balance your short- and long-term needs. One of the key challenges is understanding how much you need for your future, as well as considering the effect unexpected events might have. That’s why working with a financial planner could prove invaluable.

Cashflow forecasting is one tool we could use to help you assess how to strike the right balance. It offers a way to visualise how your wealth might change based on the decisions you make.

Let’s say you want to increase your disposable income, so you have the freedom to spend money on days out doing things you enjoy, such as going to the theatre, eating out, or visiting historical locations. To do this, you may need to reduce the amount you are allocating elsewhere, such as your monthly savings or investments. Cashflow forecasting could let you see the impact this decision would have on your future finances.

Armed with this information, you can start to understand how to balance your expenses now with your future goals. You might find your long-term finances would still provide the security you need even if you spent more now, so you feel comfortable adjusting your expenses. On the other hand, you may find a compromise if it could affect your long-term goals.

Having a clear financial plan could mean you’re able to enjoy the present more too.

Financial concerns can take the joy out of experiences you might otherwise have been looking forward to. So, knowing that you’ve taken steps to create long-term financial security may help you live in the moment and take in what life has to offer.

Get in touch to talk about a financial plan that balances your short- and long-term needs

If you’d like to create a financial plan that balances your lifestyle needs now with long-term goals, please get in touch. We’ll work with you to understand what’s important to you and how you might use your assets to create financial security that lets you enjoy your life now and in the future.

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

The Financial Conduct Authority does not regulate cashflow planning.

The value of financial planning: The intangible benefits that could boost your wellbeing

Consider the benefits of financial planning. If the first advantage that comes to mind is the opportunity to grow your wealth, you might be overlooking some of the intangible benefits that could improve your wellbeing.

Last month, you read about the potential financial benefits of working with a financial planner and how it could help you reach your goals.

Now, read on to learn more about some of the wellbeing benefits. While intangible benefits can be harder to quantify, they are just as important and might be something you value as much as growing your wealth.

1. Working with a professional could offer you peace of mind

A report in Professional Adviser suggests that one of the key reasons many people use a financial planner is the peace of mind it offers. In fact, in a survey of people with more than £300,000 of investable assets, more than half said this was important to them.

Worrying about your finances may affect your mental health. A survey from Standard Life found that 47% of women and 33% of men feel worried, anxious, stressed, or overwhelmed due to economic uncertainty.

A financial plan can help you focus on what you want to achieve in the future and the steps you might take to provide security, even if the unexpected happens. As a result, it could support your overall mental wellbeing.

2. A financial plan could improve your knowledge and confidence

Having someone you trust to turn to when you have financial questions could take a weight off your mind, and it could boost your finances too.

According to research from Moneybox, two-thirds of UK adults are, on average, £65,000 worse off because of low levels of financial confidence and knowledge.

The study found that less than a third of people claim they are very confident when managing finances. What’s more, 64% said they have missed out on financial opportunities in life – 35% blamed a lack of financial knowledge and 29% cited low financial confidence.

When asked why they struggled to manage their finances, the participants said they didn’t know where to start, found the topic overwhelming or struggled because of jargon. Yet, just 14% had spoken to a financial planner.

Working with a financial planner could mean you feel more confident about the steps you’re taking.

3. A financial planner could give you more time to focus on what’s important

Ensuring your financial plan remains on track and continues to reflect your circumstances can be time-consuming.

As well as keeping on top of your finances, factors outside of your control could also affect your financial plan. For example, if the government made changes to tax allowances, it could potentially lead to a higher tax bill or an opportunity to improve tax efficiency.

When you’re working with a financial planner, you can rest assured that your finances are in safe hands and focus on what’s most important to you.

4. You’re more likely to reach your goals with a clear plan

Only 17% of people in the UK have a plan to achieve their long-term money goals, according to data from the Aegon Wellbeing Index. In addition, only a quarter of people surveyed said they have a concrete vision of the things and experiences their future self might want.

If you don’t clearly outline your goals and how you’ll achieve them, it can be difficult to measure your success and stay on track. Understanding what you want to achieve now and in the future is an integral part of financial planning.

While you might link effective financial planning to growing your wealth, that’s not always the case. Indeed, in some circumstances, your plan might involve depleting your assets to allow you to reach your goals. For instance, when you retire, you’re likely to switch from accumulating wealth to turning your assets into an income stream.

A financial planner can help you assess how to manage your finances with your goals in mind.

Contact us to talk about your financial plan

If you’d like to discuss how a financial plan could support your wellbeing and help you create a path to reaching your goals, please contact us to arrange a meeting.

Next month, read our blog to discover how financial planning could lead to you making decisions that align with your aspirations and deliver even greater value.

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

Why “safety in numbers” might not apply to investing

Being part of a group can make you feel like you’re less likely to fall victim to a mishap or other negative event. While the hypothesis might be true in some circumstances, the opposite may be said when you’re investing. Read on to find out why failing to follow the crowd could be a good thing.

The inclination to be part of a large group and adopt the behaviours of people around you is sometimes referred to as “herd mentality”. Following the same route as other people can give you a sense of security and help you feel as though you’re making the right decisions. After all, you might think: they can’t all be wrong, can they?

Yet, financial decisions should often be based on your circumstances. So, a safety-in-numbers approach could have the opposite effect and harm your long-term finances.

A fear of missing out could lead to you following the crowd

There are lots of ways that a herd mentality might affect your investment decisions, including a fear of missing out.

You could hear a group of friends or colleagues discussing an investment opportunity. They may be excitedly talking about the returns they expect to make and how it’ll help them reach their goals, from retiring early to paying for private school for their children. With everyone else seemingly poised to secure huge returns, you might be worried about missing out, and so follow the crowd too.

Similarly, reading news articles might lead to you seeking safety in even larger numbers.

Earlier this year, you might have read about the soaring value of US-based technology stocks dubbed the “Magnificent Seven”. With headlines like ‘The Magnificent Seven stocks are now roughly equal to the combined value of the UK, Japan, and Canada’s stock markets’, you might feel like you’d be missing a huge opportunity by not investing in these companies like other investors.

Even the moniker collectively given to these technology firms makes it seem like you’d be a fool not to invest some of your money in them.

Yet, delve a little deeper, and you could find that investing in the same companies as everyone else isn’t right for you.

Take Tesla, for example. While it is one of the companies that make up the Magnificent Seven, according to Bloomberg, between January and March 2024, it was the worst performer on the S&P 500 stock index. So, if you had invested, it might not have delivered the returns you expected if you simply read the headlines. What’s more, the company might not suit your risk profile or investment strategy.

Despite this, the view that there is safety in numbers still leads to people making investment decisions that aren’t right for them. Indeed, history is littered with examples of investors who followed the crowd and faced the financial consequences.

Investment bubbles: From technology to tulips

Investors believing there is safety in numbers may cause “bubbles” – where the market or a particular asset’s value rapidly escalates before quickly falling in value when it “crashes” – as demand rises as more people seek to get on the bandwagon.

Some investors might remember the dot-com bubble in the late 1990s. The widespread adoption of the internet led to the rapid growth of valuation in so-called “dot-com startups”.

Eager to capitalise on the rocketing growth of companies operating in this exciting technology space, investors started to pool their money in online shopping companies, communication firms, and more. Indeed, between 1995 and 2000, tech-focused US stock index Nasdaq rose by around 800%.

When the bubble burst in 2000, some companies failed, many without ever making a profit, and others lost a large portion of their market capitalisation.

Herd mentality harming investors isn’t a new phenomenon either.

In the 1630s, the price of fashionable tulips soared when they became seen as a status symbol across Europe. At the height of “tulipmania”, the rarest tulip bulbs traded for as much as six times the average person’s annual salary. To some, it seemed like everyone was making money simply by purchasing and trading bulbs.

A fear of missing out led to people purchasing bulbs on credit – and when prices started to fall, some victims of herd mentality were forced to declare bankruptcy as a result.

A tailored investment strategy could help you make decisions without following the crowd

So, if there isn’t safety in numbers, what approach should you take to investing? Creating a tailored investment strategy that focuses on long-term returns could help you reach your goals.

A “good” investment isn’t right for everyone. A friend may tell you about an excellent investment opportunity that sounds tempting. However, if they are investing for retirement in 20 years and you’re investing for a goal that is just five years away, your approach to assessing if an opportunity is “good” could be very different. For example, with a longer time frame, your friend’s risk appetite may be much higher than yours.

Rather than following the crowd, reviewing investments with your strategy in mind could help you select investments that align with your aspirations.

Contact us to talk about your investment strategy

We can work with you to assess which investments suit your needs. We’ll consider a wide range of factors, from your risk profile to your other assets. Please contact us to arrange a meeting.

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

The 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.

Investment market update: May 2024

On the back of data showing some countries have exited recessions at the end of the first quarter of 2024 and inflation falling, several market indexes reached record highs in May. Read on to find out what else may have affected the markets and your investment portfolio.

UK

Dominating headlines towards the end of May was prime minister Rishi Sunak calling a general election. Sunak made the seemingly snap decision following positive inflation news despite polls suggesting the Conservative government is trailing the Labour Party.

The general election will take place on Thursday 4 July. The uncertainty over the next few weeks could lead to markets being bumpy as they react to the latest information and assumptions. Remember, ups and downs are a part of investing and it’s important to focus on your long-term goals during periods of volatility.

The latest figures from the Office for National Statistics (ONS) show the UK is nearing the Bank of England’s (BoE) 2% inflation target. In the 12 months to April 2024, inflation was 2.3%.

Sunak said the data was proof the Conservative’s plan was working and “brighter days are ahead”. In response, the Labour Party accused the government of celebrating a “tone-deaf victory lap”.

The BoE voted to hold its base interest rate at 5.25%. Borrowers keen for rates to start falling could receive some good news this year though. BoE governor Andrew Bailey said a cut will likely come in the coming quarters if inflation continues to fall, and he hinted the Bank could make cuts faster than the market expects.

Data on the economy was positive too. After the UK fell into a technical recession – defined as two consecutive quarters of negative growth – at the end of 2023, ONS figures confirm the UK economy grew in the first quarter of 2024. GDP increased by 0.4% in March 2024, following growth of 0.3% and 0.2% in January and February respectively.

Yet, the Organisation for Economic Co-operation and Development warned the UK would have the weakest growth across G7 countries in 2025. The organisation predicts GDP will rise by just 1% next year.

The latest readings from the S&P Global’s Purchasing Managers’ Index (PMI) support the ONS GDP data. PMI data provides an indicator of business conditions, such as output and new orders.

In April 2024, the service sector posted its fastest business activity growth in almost a year. The sector makes up around three-quarters of the UK economy, so strong growth will have helped pull the UK out of the recession quickly.

There was good news in the construction sector as well, with the PMI information showing growth reached a 14-month high. However, the data indicates the manufacturing sector contracted in April. One of the challenges facing manufacturing firms was purchasing costs rising for four consecutive months.

May was an excellent month for the FTSE 100 – an index of the 100 largest companies on the London Stock Exchange. It reached record highs several times throughout the month as markets reacted to speculation that interest rates would fall.

On 15 May, the index jumped by around 0.5% to reach 8,474 points. The top riser was credit data firm Experian after it reported growth at the top end of their expectations for the last financial year, which led to shares rising by more than 8%.

Europe

The wider continent fared similarly to the UK.

Eurostat confirmed that the eurozone is out of a recession. The economy shrank by 0.1% in the last two quarters of 2023 but posted growth of 0.3% in the first quarter of 2024. Major economies, including Germany, France, Spain, and Italy, grew in the first three months of the year.

However, the European Commission warned external factors could place economic growth at risk. These risks include ongoing Ukraine-Russia and Israel-Gaza conflicts.

In the eurozone, inflation was stable at 2.4% in the year to April 2024. While the European Central Bank has also yet to cut interest rates, it’s expected that it may do so as early as June if inflation falls.

European markets were also influenced by expectations that an interest rate cut could be imminent. Sliding oil prices led to modest gains on 8 May when France’s CAC was up 0.6% and Germany’s DAX increased by 0.1%.

US

Figures from the US show inflation fell to 3.4% in the year to April 2024. It led to Wall Street reaching a record high on 15 May as both the S&P 500 and the tech-focused Nasdaq index rose.

Data could suggest that US business confidence is falling after fewer jobs were added to the US economy than expected in April. Businesses added around 175,000 jobs compared to the 243,000 economists had predicted. Unemployment also increased slightly from 3.8% to 3.9%, which had a knock-on effect on the power of the dollar.

The Dow Jones index, which contains 30 major US companies, hit a milestone this month. The index reached 40,000 points for the first time on 16 May. The biggest riser was retailer Walmart, which was up 6%.

Entertainment giant Disney also hit a landmark in May – its streaming platform Disney+ turned a profit for the first time since it launched four years ago. Despite the news, Disney’s shares dropped by more than 5% in pre-market trading on 7 May as results have still fallen short of expectations.

Asia

On 9 May, encouraging trade data from China, which showed both exports and imports have returned to growth, boosted markets around the world.

However, China could face headwinds. After speculation over the last few months that the US would introduce trade tariffs, US president Joe Biden announced new tariffs would come into force on 1 August 2024.

There will be a 100% tariff on Chinese-made electric vehicles. Tariffs will also increase for other items, including lithium batteries, critical minerals, solar cells, and semiconductors.

The US said the tariff would help stop subsidised Chinese goods in the US market from stifling the growth of the American green technology sector. China responded by saying the move undermined fair trade and it’s US consumers who would bear the brunt of the additional costs.

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

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.