Wealth Management Update May 2024

HM Revenue & Customs data today revealed that a record amount of £7.5billion in Inheritance Tax (IHT) was paid to the Treasury in the 2023/24 tax year.

Total receipts for April 2023 to March 2024 were £ 0.4 billion greater than the all-time high of £ 7.1 billion in 2022/23, a rise of 5.6%.

Since the freezing of the tax-free allowance since 2009 and the astronomical rise of average house prices by 82.7%, this is not a surprising outcome! With no plans to unfreeze the existing Nil Rate Band (£325,000 per person) we can expect receipts to continue to rise, confirmed by The Office for Budget Responsibility itself who noted recently that IHT receipts are set to hit £9.7billion in 2028/29.

More estates and assets are likely to become liable to IHT over the coming years, and it will be the children and grandchildren who will be pushed to part with a larger chunk of their families’ hard-earned wealth when the time comes.

Remember – IHT is the easiest tax to plan to reduce or avoid.

The good news is that there are legitimate ways to mitigate IHT through advanced Estate Planning including options such as trust arrangements. So, make sure to protect as much of your legacy as possible, for your future generations today.

Have a read of our Trust Guide and our IHT Guide for more information.

Elections Everywhere

2024 seems to be the year of elections, they are happening all around the world and in the US and UK they are colliding, in what could make this year one to remember.

There is inevitably going to be volatility in the Investment markets, particularly in the run-up as uncertainty reaches its peak; the worst enemy of any stock market is uncertainty. Things tend to fare better when the outcome is a sure thing, but as an election hasn’t even been called yet in the UK, it’s unclear who is or isn’t the favourite to win. So, we can expect some ups and downs on the way to the polls, we are sure.

Once elections are over and we have a winner, markets tend to pick up where they left off before the election madness, whether that be a decline or an incline, though they do tend to rally once a decision has been made.

It’s important to remember, that whilst fluctuations in the market during an election year can be more dramatic than usual, in the long term the impact they have is nominal. That’s because markets are influenced by more than just politics and they will keep ticking over regardless of any blips that come along.

The Robot Uprising

Like it or not, Artificial Intelligence (AI) is now part of our personal and professional lives, changing the way we work and live. There have been huge advances in recent years, with the shift in questions being asked; how do we deal with it now, rather than when do we have to start dealing with it.

For clients such as yourselves in the Pensions and Investments industries, the benefits will hopefully be faster, leading to more efficient systems and processes. A positive byproduct of this will mean as advisers, we can spend more time with you, our clients, being there for you in a real and tangible way that only humans can do.

Potential changes on the horizon may include audio from face-to-face meetings being automatically recorded, automatic reporting, virtual account top-ups and online risk analysis to name a few. Not all of these will happen at once, but we think it’s safe to say that AI is here to stay, and it will learn and develop exponentially.

Don’t worry, we will always be here for our clients; we aren’t concerned that AI will take over completely and there will always be a human role required, in our opinion. The way to approach the introduction of this new technology, is to see how it can make our lives better and focus on making it work for us and for you.

Don’t Lose Sight of LPAs 

Lasting Powers of Attorney (LPAs) can be often overlooked, when in fact they are a cornerstone of estate planning.

An LPA is a legal document which allows individuals to appoint others to manage their affairs should they lose mental capacity. There are two types – one for health and welfare, and the other for property and financial affairs.

There has been a sharp increase in the amount of registered LPAs in recent years, attributed to various factors including large parts of the process being moved online as well as the Covid pandemic, which prompted many people to get their affairs in order.

At present, an LPA still needs to be signed and witnessed in person but there are plans to take the process completely online. It will be interesting to see what safeguards, if any, will be implemented to stop any potential abuse of the system regarding those with vulnerabilities.

In the meantime, be sure to make sure you have LPAs in place, to ensure, should the worst happen, that you have a trusted and reliable person of your choice in place to manage your affairs.

For more information on LPAs and how to get one set up, email the Legal Team at Simpson Solicitors on [email protected] or call them on 029 2160 2600 and mention MAY24 for a 10% discount off the service.

Spring into the Budget

The Spring Budget, although it seems far in the past now, did bring about some changes from April 2024, we think you should be aware of. We’ve tried to narrow it down to those things that will impact personal finances in the main. Here we go:

ISA changes afoot

• You will be able to pay into more than one of the same types of ISA each year, for investment and cash ISAs. You can’t do this for Lifetime ISAs or Junior ISAs, and you still need to make sure you don’t pay more than the £20,000 allowance into your ISA each tax year – across all your accounts.
• The age for opening Cash ISAs is also changing, going up from 16 to 18 – bringing it in line with other types of ISA. But in practice, the rules mean the increase only affects anyone aged 15 and under at tax year end, with 16 and 17-year-olds (as at 5 April), still able to open and pay into a Cash ISA if they haven’t already.

Capital Gains Tax cut again

• From April the tax-free allowance for capital gains tax (CGT) has been cut in half, from the current £6,000 down to just £3,000. It is now less than a quarter of what it was just over a year ago.
• For property, the top CGT rate of 28% will be cut to 24%, to give a tax break for someone selling a second property. The lower rate of 18% remains unchanged.

Dividend tax-free allowance also cut

• The tax-free dividend allowance has been cut in half from £1,000 to £500. These changes are on top of the cuts made in April 2023, bringing the dividend tax-free allowance to a quarter of what it was in March 2023.

Lifetime Allowance is abolished – for real

• We have said goodbye to the pension lifetime allowance, over one year after Chancellor Jeremy Hunt announced the plans at last year’s Spring Budget. For the past twelve months, pension providers, financial advisers and pension savers have been grappling with the details of the government’s new pension tax regime. But these rules are far from simple, and even HMRC have asked for more time to finalise the finer details!
• Two new main allowances will be introduced for savers to contend with – the lump sum allowance and the lump sum and death benefit allowance – as well as a third relating to overseas transfers. The lump sum allowance, or the tax-free lump sum limit people can take from their pension, will be set at £268,275, and the lump sum and death benefit allowance will be set at £1,073,100. These allowances are designed to limit the pension tax-free lump sums people can receive during their lives and the tax-free lump sums they can pass onto beneficiaries when they die. Where previously pension withdrawals exceeding the lifetime allowance could be subject to a lifetime allowance tax charge, savers can now take as much income as they want from their retirement pot, with just income tax to pay on pension withdrawals.

Child Benefit extension

• The threshold where you start to lose child benefit payments is increasing from £50,000 to £60,000. That means if you earn between £50,000 and £60,000 you should be able to receive more child benefit.
• You’ll continue to receive some child benefit up to when you earn £80,000 or more, where previously this cut-off was £60,000. A parent earning £60,000 currently isn’t eligible for any child benefit, but as a result of the changes they will now get the full amount from April.
• The catch is that the benefit is based on both parents’ income – meaning if either of you earns more than the thresholds you’ll lose entitlement to the benefit. Families also need to claim the child benefit, they won’t automatically receive it – so anyone who is now eligible needs to fill out some paperwork and do battle with HMRC’s systems.

National Insurance is cut again

• The starter rate for National Insurance for employed people, which is charged on the band of earnings between £12,570 and £50,270, falls from the current 10% to 8%. But it has dropped from 12% at the end of last year.
• Self-employed people got a similar two percentage point cut to their National Insurance rate, affecting around two million people. The rate for Class 4 National Insurance will be cut from 8% to 6% from April – having already been in line for a cut from 9%. At the same time, the government previously announced it was abolishing Class 2 contributions, which comes into effect from April this year.

State pension triple lock boost

• Retirees will receive an inflation-busting 8.5% boost to their state pension from April that will see the ‘new’ state pension increase to £11,502.40 a year as per the triple lock promise.