5 practical tips that could help you set realistic financial goals
Setting goals is part of creating an effective financial plan. They can motivate you, keep you on the right track, and help you define what “success” is for you. As your plan might cover decades, it can be difficult to know if your goals are realistic. Read on to discover five practical tips that could help make your financial objectives achievable.
1. Take steps to build a strong financial foundation
One of the challenges of meeting financial goals is that the unexpected can happen and derail even the best-laid plans.
You might set out to add an extra £200 each month to your pension so that you can retire early. But an emergency repair to your home or an illness preventing you from working for several months means you need to halt contributions.
Having appropriate financial foundations in place could mean you’re in a better position when you face challenges.
For example, building up an emergency fund could improve your financial resilience if you face an unexpected bill, such as repairs to your car or home. How much you might want to have in an emergency fund will depend on your needs, but a general rule is between three and six months of essential expenses.
Despite the security it could offer, many people in the UK don’t have an emergency fund. According to a report from the Financial Conduct Authority, almost a third (30%) of UK adults, the equivalent of 15.9 million people, do not have a savings account.
Similarly, taking out appropriate financial protection could keep your long-term plans on track if you had an illness or accident that prevented you from working. Depending on the type you choose, financial protection may pay out a regular income or lump sum under certain circumstances.
Having a strong financial foundation could help you minimise risk to your long-term goals, and mean they’re more realistic.
2. Start with a review of your current finances
Before you start setting goals, a complete review of your current finances could be valuable.
Setting out your income, assets, and expenditure might play an important role in understanding how you could use your wealth to reach your goals, and whether they’re realistic. It could highlight where you could manage your wealth more efficiently or where you’d be happy to make adjustments if it meant you’re more likely to secure the future you want.
3. Make your goals specific and measurable
A vague goal might seem like it gives you more flexibility, but it could mean the steps you need to take are unclear.
Rather than stating, “I want to build a nest egg for my child”, you could change it to, “I want to build up a £20,000 nest egg for when my child is 18”. By making it more specific, you could set out a clear plan to make it achievable.
In this scenario, you might consider:
· How much you should contribute to the nest egg each month
· Whether you should save or invest
· The best vehicle for building the nest egg, such as a Junior ISA
· How interest rates or investment returns could help you reach your goal.
A clear goal could make it simpler to understand if you’re on track when you review your target and decide if adjustments should be made to your plan. It might also help you identify if you’re being unrealistic. For example, if the monthly contributions to your child’s nest egg don’t fit into your day-to-day budget, you may choose to revise your expectations.
4. Ensure your assumptions are backed by evidence
Often, factors outside of your control will play a role in reaching your financial aspirations. For instance, you might assume a certain interest rate or investment return when making a plan. It’s important that the assumptions you make are realistic, or it could mean you unexpectedly fall short of your goals.
Of course, interest rates or returns cannot be guaranteed, but you can base your expectations on facts.
Let’s say you’re investing and calculate you’ll need to achieve returns of 8% each year to reach your goal – historical data might show that these returns are improbable, or that you’d have to take more risk than is appropriate for you.
Instead, you might find that returns of 5% are more likely. So, you could adjust your goal to make it more realistic or make changes to your plan, such as increasing how much you invest each month.
5. Work with a financial planner
A financial planner could bring together your current finances and long-term goals to help you understand if you’re being realistic and what steps could support your aspirations. A tailored financial plan may help you turn goals into a reality and give you confidence about the future.
Please contact us to arrange a meeting and talk about your financial and lifestyle objectives.
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.
Note that financial 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.
6 in 10 Brits are unaware their pension is usually outside of their estate
Many people could be omitting a useful way to pass on assets when they die because they aren’t aware that pensions usually fall outside of their estate. It could also mean some have failed to name a beneficiary for their pension. Read on to find out what you need to know about pensions and why they could be a tax-efficient way to pass on wealth.
According to a survey carried out by PensionBee, 62% of people are unaware that their pension won’t usually form part of their estate when they die. As your pension may be one of your largest assets, the oversight could mean a significant proportion of your wealth isn’t passed on according to your wishes.
If your estate could be liable for Inheritance Tax (IHT) considering how to use your pension to leave wealth to your loved ones could be valuable.
Your will won’t usually cover your pension
Writing a will to set out who you’d like to receive your assets when you pass away is an important step when creating an estate plan. However, it’s important to note that pensions are not usually covered by your will.
Instead, an expression of wish is used to tell your pension provider who you’d like to receive your pension savings when you die. What you write will be a key influence when pension trustees are deciding who to release your pension savings to, but they may also consider other factors, such as whether you have any dependents.
You can name more than one beneficiary in an expression of wish and specify what proportion of your savings you’d like each person to receive.
If you have more than one pension, you’ll need to complete an expression of wish for each one.
You can often complete an expression of wish by logging into your online account and filling in a form in a matter of minutes. Just like with a will, it’s important to review your expression of wish regularly and following major life events to ensure it continues to reflect your estate plan.
Completing an expression of wish gives you a chance to state who you’d like to benefit from your pension and it could reduce how much IHT your estate pays.
Passing on wealth through a pension could reduce your estate’s Inheritance Tax bill
IHT is a tax paid on your estate when you pass away if its total value exceeds certain thresholds. As pensions typically sit outside of your estate, they may be a useful way to pass on wealth without increasing a potential IHT bill.
Yet, according to the PensionBee survey, 52% of people said they weren’t aware pensions are typically exempt from IHT. Around 6 in 10 over-55s said they hadn’t considered using their pension to reduce the size of their estate.
You may want to consider IHT as part of your estate plan if the value of your estate exceeds the nil-rate band. For the 2024/25 tax year, the nil-rate band is £325,000 and it’s frozen at this level until April 2028.
You may also be able to use the residence nil-rate band if you leave your main home to direct descendants. This allowance is £175,000 in 2024/25 and, again, is frozen until 2028.
You can pass on unused allowances to your spouse or civil partner. So, when you’re planning as a couple, you may be able to pass on up to £1 million before IHT is due.
If your estate exceeds these thresholds, the standard rate of IHT is 40% and it could substantially reduce the inheritance your loved ones receive.
There are often steps you can take to reduce a potential IHT bill, but you usually need to be proactive. One option might be to consider using your pension, because if you pass away:
· Before the age of 75, the beneficiary who receives your pension won’t usually need to pay tax.
· After the age of 75, your beneficiary may need to pay Income Tax. The tax rate will depend on their other taxable income and how they access the money. However, it could be much lower than the standard rate of IHT.
Tax rules around inherited pensions can be complex. Seeking professional advice could help you and your beneficiaries understand the tax bill they might face.
So, your pension could be a useful tool when you’re considering your estate plan. With the potential IHT benefits in mind, you might choose to:
· Increase your pension contributions during your working life or continue to contribute after you’ve retired (up to age 75 and based on your earnings) to pass on more wealth tax-efficiently to your loved ones.
· Deplete other assets to fund your retirement to reduce the value of your estate and preserve your pension to pass on to beneficiaries.
If you’re thinking about using your pension to effectively pass on wealth you might need to consider factors such as the Annual Allowance, which limits how much you can contribute tax-efficiently to your pension each tax year, or the effect it could have on your income now.
We could help you make it part of your overall plan, so you can understand the potential implications and what’s right for you.
Contact us to talk about your estate plan
An estate plan could help ensure your assets are passed on according to your wishes, provide you with security later in life, and potentially reduce an IHT bill. If you haven’t considered these important issues yet, please get in touch. We can work with you to create an estate plan that’s tailored to you.
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 estate planning or Inheritance Tax planning.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
What you need to know about taking your pension tax-free lump sum in 2024/25
Taking a tax-free lump sum from your pension could be a fantastic way to kickstart your retirement plans. If it’s something you’re thinking about, it’s important to consider the long-term implications and understand how much you could withdraw from your pension before facing a tax bill, as the rules have changed in 2024/25.
Previously, you could take up to 25% of your pension as a tax-free lump sum. This could be through a single withdrawal or spread across several. However, following the removal of the pension Lifetime Allowance, there is now a cap.
The “Lump Sum Allowance” is £268,275 in 2024/25
In 2023, chancellor Jeremy Hunt announced the pension Lifetime Allowance (LTA) would be scrapped in the 2024/25 tax year. The LTA limited the amount of pension benefits you could build up during your lifetime without incurring an additional tax charge.
With workers now able to save more into their pension tax-efficiently during their careers, the government has frozen the limit on tax-free withdrawals from your pension.
In 2024/25, you can still usually take up to 25% of your pension tax-free – although now there is a cap on the total tax-free cash you can take. This is the new Lump Sum Allowance (LSA) of £268,275.
Your LSA may be higher if you benefit from one of the various types of LTA “protection”, such as “individual” or “fixed” protection.
Withdrawing a tax-free lump sum could harm your long-term finances
If you want to take a lump sum from your pension, the new rules aren’t the only area you might want to consider. You may also want to weigh up the effect it could have on your long-term finances.
There are plenty of reasons why you may want to take a lump sum from your pension, and some could improve your financial position in retirement. For example, you could use the lump sum to clear your mortgage or other debt, which may significantly reduce your outgoings in retirement and lead to a more comfortable and secure lifestyle.
Alternatively, you might plan to use the money to reach aspirations, like travelling the world once you stop working.
It could be a great way to fund your early retirement plans. However, taking a lump sum from your pension could have a significant effect on your long-term financial security and income. Not only will you be reducing the size of your pension but, as your pension is usually invested, you may have a smaller pot left to invest, reducing your potential for further growth.
Understanding the potential implications of taking a lump sum at the start or during your retirement could help you make a decision that’s right for you.
You may find that after taking a lump sum from your pension you’ll still be financially secure and able to reach long-term goals. If this is the result, you might feel more confident taking a lump sum and more able to enjoy your retirement.
On the other hand, if you find taking a lump sum could harm your long-term finances, you may decide to halt your plans or make adjustments to improve your financial security throughout retirement.
As a financial planner, we can help you understand what the consequences of taking a lump sum could mean for you.
On average, over-55s spend a third of their tax-free lump sum within 6 months
A 2023 survey from Standard Life found that over-55s who have taken a tax-free lump sum, on average, spend or expect to spend a third of their withdrawal within six months.
While having some cash to fall back on in retirement could be useful, withdrawing a lump sum to hold the money outside of your pension might not be financially savvy.
The money held in your pension is usually invested, so it has the potential to deliver returns during your retirement. In addition, investments held in your pension are not liable for Capital Gains Tax, so it provides a tax-efficient way to invest. If you withdraw money from your pension to hold in cash, its value could fall in real terms and you might miss out on potential long-term growth.
Of course, investment returns cannot be guaranteed and they could experience volatility. As a result, it’s important to consider your risk profile and circumstances when deciding how to manage your pension.
Setting out how you plan to use your tax-free lump sum and making it part of your wider financial plan could help you assess if withdrawing it now or in the future is right for you.
Contact us to talk about your pension withdrawals
When you’re accessing your pension, whether to take a lump sum or a regular income, you might worry about what’s right for you. Working with a financial planner could give you confidence in retirement. Please contact us to talk to one of our team about how to access your pension in a way that’s tax-efficient and aligns with your goals.
Please note:
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
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.
Could you face an unexpected bill now the Capital Gains Tax allowance has halved?
The gains you can make before potentially paying Capital Gains Tax (CGT) have halved for the 2024/25 tax year. If you plan to dispose of assets, the change could affect you. Read on to find out when you could be liable for CGT and some steps you might take to manage a bill.
CGT is a tax on the profit you make when you sell certain assets that have increased in value. CGT could be due when disposing of a range of assets, including:
· Shares that aren’t held in a tax-efficient wrapper
· Property that isn’t your main home
· Personal possessions that are worth £6,000 or more, excluding your car.
The amount of profit you can make during the year before CGT is due has fallen significantly over the last couple of years.
The Annual Exempt Amount has fallen to £3,000 in 2024/25
According to research from the University of Warwick, less than 3% of UK adults paid CGT in the decade to 2020. In fact, in any given year, just 0.5% of adults were liable for CGT. Yet, the total amount paid through CGT tripled between 2010 and 2020 to £65 billion.
The government has substantially reduced the amount of profit you can make before CGT is due, so the number of people paying the tax could soar over the coming years.
In 2022/23, the amount you could make before CGT was due, known as the “Annual Exempt Amount”, was £12,300. This was reduced to £6,000 in 2023/24, and from 6 April 2024, it is reduced further to just £3,000.
If your total profits during the tax year exceed the Annual Exempt Amount, your CGT bill will depend on which tax band(s) the taxable gains fall into when added to your other income. In 2024/25, if you’re a:
· Higher- or additional-rate taxpayer, your CGT rate will be 20% (24% on gains from residential property)
· Basic-rate taxpayer, you may benefit from a lower CGT rate of 10% (18% on gains on residential property) if the taxable amount falls within the basic-rate Income Tax band.
So, if you have assets to sell, considering how to mitigate a potential bill could be valuable.
6 practical ways you could reduce your Capital Gains Tax bill
1. Time the sale of your assets
The Annual Exempt Amount cannot be carried forward to a new tax year if you don’t use it. Timing the disposal of your assets could help you make use of the allowance to minimise your bill. For instance, you might hold off selling an asset until a new tax year starts if you’ve already exceeded the Annual Exempt Amount in the current year.
2. Pass assets to your spouse or civil partner
The Annual Exempt Amount is an individual allowance, and you can pass assets to your spouse or civil partner without tax implications. So, if you’ve used your Annual Exempt Amount, transferring an asset to your partner before you dispose of it to use their allowance might be an option you want to consider.
3. Use your ISA to invest tax-efficiently
An ISA is a tax-efficient wrapper for saving or investing. Returns and profits made on investments held in an ISA are not liable for CGT. So, if you want to invest, choosing an ISA may help you mitigate a tax bill.
If you already hold investments outside of an ISA, you could sell the investments and immediately buy them back within your ISA. This strategy of moving your investments to a tax-efficient account is known as “Bed and ISA”.
In the 2024/25 tax year, you can add up to £20,000 to ISAs.
4. Use a pension for long-term investments
Like ISAs, pensions offer a tax-efficient way to invest – investments held in a pension are not liable for CGT.
In the 2024/25 tax year, the pension Annual Allowance is £60,000 for most people. This is the maximum amount you can pay into your pension during the tax year while still benefiting from tax relief. However, you can only claim tax relief on up to 100% of your annual earnings.
If you’ve already taken an income from your pension or are a high earner, your Annual Allowance could be as low as £10,000. If you’re not sure what your Annual Allowance is, please contact us.
The Annual Allowance can be carried forward for up to three tax years. So, if you’ve used all your Annual Allowance in 2024/25, you may want to review your pension contribution in previous tax years.
Before you boost your pension, considering your investment goals and time frame might be essential. You cannot usually access the money in your pension until you’re 55, rising to 57 in 2028, so it isn’t the right option for everyone.
5. Manage your taxable income
As mentioned above, basic-rate taxpayers may benefit from a lower rate of CGT if the gains fall within the basic-rate tax band. As a result, managing your taxable income to stay below Income Tax thresholds once expected profits are included could slash a CGT bill.
6. Deduct losses from your gains
It is possible to deduct losses from the profits you make. You must report the losses to HMRC by including them on your tax return. When you report a loss, the amount is deducted from the gains you make in the same tax year.
If your total taxable gain is still above the tax-free allowance, you can deduct unused losses from previous tax years. If the losses reduce your gain to the tax-free allowance, you can carry forward the remaining losses to a future tax year.
Contact us to talk about your tax liability
Whether you’d like to understand how you could reduce a potential CGT bill or you want to review your financial plan with tax efficiency in mind, please contact us. We could help you identify ways to cut your tax bill in 2024/25 and beyond.
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 value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested.
Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
The Financial Conduct Authority does not regulate tax planning.
Retirement planning: Bringing together your goals and finances
Effective retirement planning often involves weaving together lots of different threads. As you think about your retirement, you might be unsure how to bring everything together, but a bespoke financial plan could put your mind at ease.
Over the last few months, you’ve read about the importance of deciding how you’ll retire, why you should set out your goals, and your options for accessing your pension. Now, read on to discover the challenges of bringing together these different strands of retirement planning and why a tailored financial plan could provide a solution.
The challenges of retirement planning you could face
A common concern among those approaching retirement is whether they have enough money to retire. Even after the milestone, you might worry about running out of money too soon.
Understanding what a sustainable income is for your circumstances can be difficult. After all, you don’t know how long you’ll spend in retirement and you might need to factor in a range of influences outside of your control, such as the effect inflation will have on your expenses.
As a result, you might not be confident in your ability to live the lifestyle you want once you give up work.
Uncertainty could mean you spend too much too soon, which could leave you in a financially vulnerable position in your later years. Alternatively, it might lead to you being more frugal than necessary and missing out on retirement experiences.
There could be other challenges too. Perhaps you’re considering taking a lump sum out of your pension or using assets to fund a one-off expense but you’re unsure about the long-term effect it may have. Or you want to ensure you leave an inheritance behind to support loved ones after you’ve passed away.
While pensions are often the main source of income in retirement, retirees will often have other assets at their disposal too. You might be unsure how you could use your savings, property, or investments to support your retirement goals, but financial planning could help.
A financial plan will bring together your aspirations and finances
When you think about what financial planning involves, your mind might turn towards understanding your assets. However, an effective financial plan starts by understanding what you want to achieve.
At retirement, this might be the lifestyle you want to enjoy for the rest of your life. You may have other priorities too, such as lending support to your family or ensuring your partner is also financially secure.
Once you’ve set out your lifestyle goals, you can start to review your assets and how they might make these objectives achievable.
One of the benefits of working with a financial planner is that they may help you bring together these different goals. So, a retirement plan that’s tailored to you may consider what a sustainable income is, but it might also include:
· Gifting assets to your loved ones during your lifetime
· Putting assets aside for your family to inherit when you pass away
· Financial protection that could provide for your partner if the worst happened
· A safety net that may give you peace of mind
· Provisions in case you need care in the future.
Using a tool called “cashflow modelling”, we could help you visualise how to use your wealth to reach your goals.
By adding details about your assets, cashflow modelling could show how your wealth will change over time depending on the decisions you make. For instance, it could demonstrate how long your pension may last if it was used to provide an annual income of £35,000 or £45,000. Or how using your investments to supplement your income might provide you with greater financial freedom.
Cashflow modelling could also highlight potential risks. You can model different scenarios, including those that are outside of your control, to understand how they might affect your lifestyle and financial security.
For example, could the rising cost of living place pressure on your finances 20 years after you’ve retired? By identifying potential risks at the start of retirement, you may be able to take steps to mitigate them or create a safety net. To manage the effect of inflation on your outgoings, you may plan to increase the income from your pension each year to preserve your spending power.
As a result, working with a financial planner could help you realise your retirement goals and give you financial confidence as you start the next chapter of your life.
Contact us to talk about your retirement plans
If you’re preparing for retirement, whether it’s a milestone you hope to reach this year or it’s a decade away, we could offer you support. Please contact us to talk about your retirement aspirations and how your finances may provide you with security once you give up work.
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.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available.
Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
Investment market update: March 2024
While inflation continues to be a challenge for many economies, there are positive signs in the UK and around the world. Read on to find out what may have affected stock markets and your investment portfolio in March 2024.
Remember, volatility is part of investing and most people should invest with a long-term outlook. If you have any questions about your investment strategy or performance, please contact us.
UK
In March, chancellor Jeremy Hunt delivered the 2024 Budget and set out the government’s spending and changes to taxation. One of the big announcements was a 2% cut to employee National Insurance, which follows a previous cut made in the 2023 Autumn Statement.
The Resolution Foundation, a thinktank, said pensioners were among the biggest losers in the Budget, as National Insurance is paid by workers but not people who are retired.
Investment bank Citigroup responded to the Budget by saying the Office for Budget Responsibility (OBR) was being too optimistic when it assumed productivity would grow by 0.9%. The organisation predicts a more modest 0.5% and said it means the UK could be “fiscally offside by around £50 – £60 billion”.
The OBR recognised that productivity has been poor since the 2008 financial crisis. In fact, growth has fallen from 2.5% a year to 0.5% – the economy would have been around 30% bigger today if the pre-2008 trend had continued.
David Miles, a member of the OBR, said the last 15 years have been so bad, that the next 5 to 10 years are likely to be a “bit better”. He particularly noted that AI could help boost productivity.
Inflation continued to fall in the 12 months to February 2024, with a rate of 3.4% – the lowest since September 2021.
Despite the positive news, the Bank of England (BoE) held its base interest rate at 5.25%. Huw Pill, chief economist at the BoE, said he believed more compelling evidence was needed before a cut would be made and it could be “some way off”.
The UK fell into a technical recession at the end of 2023, but the BoE said signs suggest it is already over.
Figures from the S&P Global Purchasing Managers’ Index (PMI) also support this. Private sector growth hit a nine-month high in February, indicating that the recession was shallow. However, the manufacturing sector continued to face challenges, with PMI data showing weak demand and supply chain disruption are contributing to a downturn.
The FTSE 100 – an index of the 100 largest companies listed on the London Stock Exchange – hit a 10-month high on 21 March when it increased by around 1.1%. Mining stocks were among the main risers amid expectations that the US Federal Reserve will cut its base interest rate soon.
Greggs also saw its stock rise during March. The bakery chain revealed like-for-like sales increased by 13.7% in 2023, while pre-tax profits jumped 27% to £188.3 million. The firm added it expected another year of good progress in 2024.
Europe
According to data from Eurostat, inflation across the eurozone continued to fall in February 2024, when it was 2.6% compared to 2.8% a month earlier.
While many countries in Europe are battling high inflation, Turkey’s rate of inflation has consistently been in double digits since the end of 2019. In February, it hit a 15-month high of 67%. In a bid to cool the soaring cost of living, Turkey’s central bank increased its interest rate to 50%; this compares to a rate of 8.5% just a year ago.
The pan-European Stoxx 600 index reached a record high on 13 March boosted by upbeat company results from the likes of energy supplier E.ON and retailer Zalando. Buoyant company forecasts indicate that businesses are feeling optimistic about the future.
US
Inflation in the US unexpectedly increased to 3.2% in the 12 months to February 2024. The news dampened hopes that an interest rate cut would be announced soon.
A consumer sentiment index from the University of Michigan suggests Americans have a gloomy outlook about economic conditions and prospects for the future. Pessimistic consumers might be more likely to curb their spending, which could harm businesses.
Data from the US Federal Reserve also indicates that businesses are taking a more cautious approach. Average hourly earnings increased by just 0.1% in February 2024, while unemployment reached 3.9% – the highest figure since January 2022.
Technology giant Apple saw its shares fall by around 2.5%, wiping around $70 billion (£55 billion) off the value of the company, on 4 March following an EU-issued fine. The EU fined the company €1.8 billion (£1.54 billion) after it was found to have broken competition laws by imposing curbs on app developers.
Asia
Japan’s main index, the Nikkei, hit 40,000 points for the first time on 4 March after it increased by 0.5%, partly thanks to a weak Japanese Yen helping exporting businesses. The milestone follows a strong start to the year – the Nikkei has gained almost 20% since the start of 2024 thanks to booming technology firms.
The Bank of Japan also made its first interest rate hike in 17 years and ended eight years of negative interest rates, which sought to encourage lending. The bank’s base rate increased from -0.1% to 0.1% after board members said they expected to achieve 2% inflation in the coming year after decades of deflation and stagflation.
China continues to face a property crisis, which is affecting consumer spending and lending, as well as economic growth.
The Chinese government previously cracked down on property speculation that sent prices soaring. However, the property market peaked in 2020 and has faced a downturn ever since.
According to the country’s National Bureau of Statistics, house prices continued to fall in major cities in February. The organisation said it expects real estate to remain the main drag on economic growth in 2024.
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.
Pensions and Childcare: What do they have in common?
By Jessica Best, 8th March 2024
With today being International Women’s day and it being Mother’s Day on Sunday let’s talk about women’s wealth and how a pension contribution can help you retain your free childcare.
The UK government provides 30 hours’ free childcare for 3 and 4 years olds each year, on the basis that their parent or guardian household has at least £16,000 of annual income.
This tax-free benefit saves households with children thousands of pounds worth of childcare costs each year; to put this into perspective, Money Helper says the average cost of only 25 hours’ of childcare in the UK in 2023 was £7,210 Average childcare costs | MoneyHelper.
However, this benefit will be lost once either parent/guardian in the household has net adjusted earnings that exceed £100,000. Net adjusted earnings are total earned salaried income, self-employed income, some state benefits, dividends, pension, trust and rental income and savings interest. This is not to be confused with net income which is after tax.
What’s more, exceeding this £100,000 bracket, not only would you fully lose your entitlement to 30 hours’ free childcare, your income will also fall into the effective 60% rate of income tax because you will start to lose your personal allowance by £1 for every £2 of gross income above this limit.
Pensions are a really good answer to helping you retain these tax benefits, and you will also be helping future you.
Women are characteristically more likely to let their pension contributions suffer when caring for children because we are more likely to spend our money looking after others.
This is one of the main reasons we have a gender pension gap, which coincides with women being more likely to have time out of work and, therefore, miss opportunities for pay rises and subsequent increased pension contributions too.
In making a pension contribution your adjusted net income will reduce. You can take off the ‘grossed-up’ pension contribution value by £1.25 for every £1 contributed towards a pension. But what does this really mean?
When you make a pension contribution using taxed money, the government will automatically increase your pension contribution by 20% basic rate income tax relief, effectively giving you the tax back. As a higher or additional rate taxpayer the remaining 20% or 25% tax relief can be claimed through self-assessment.
Say for example, you have a salary of £92,500 and rental income of £22,500, your total net adjusted income for the year is £115,000. Meaning you lose your 30 hours’ free childcare and £15,000 of your income has fallen into the 60% income tax bracket. You could alternatively make a personal pension contribution of £14,400 from your bank account and then the government would automatically raise this by £3,600, to total a pension contribution of £18,000, resulting in your net adjusted income falling to £97,000 and all the tax benefits will be retained.
Be a little selfish, put some money into a pension for future you and make sure you can still get free childcare for your little one too.
The same principle can also be applied to child tax benefits. The UK government announced in Wednesday’s Spring Budget that the threshold for child tax benefit eligibility is increasing to £60,000 from £50,000 effective 6th April 2024, and the high income child benefit charge will now apply from £60,000 up to £80,000 and that this applies to earnings of both parents/guardians in the household individually. This means that child benefit is now only fully withdrawn if a parent/guardian has earnings above £80,000.
Making a personal pension contribution to reduce net adjusted income below £60,000 will mean the family will now receive the full child benefit. Alternatively, a pension contribution to lower net adjusted earnings below £80,000 will now mean the family can still retain some child benefit.
At the time of writing on Friday 8th March 2024, there is just under a month until the end of the 2023-2024 tax year on Friday 5th April and this means that you still have time to make a pension contribution up to the pensions annual allowance of £60,000 and benefit from these tax savings.
If you would like to discuss this opportunity further and see how a pension contribution can help your family, then please do get in touch: jab@mclarencapital.co.uk.
This article has been written as per current legislation of the 2023-2024 tax year.
Past performance cannot be seen as a guide to the future and returns can go down as well as up. This is for information only and you should seek tax advice in conjunction to any financial planning decisions you make.