Category

Financial Planning

Mar 22
0

“Stealth taxes” to watch in 2022

By | Financial Planning

In 2022, many households face greater financial pressure as living costs rise. However, less well known is a set of “stealth taxes” that could erode your wealth without careful planning. Below, our team at WMM shares six of these to be aware of in the coming months – together with ideas to address them with your financial planner. 

 

Five-year income tax freeze

Chancellor Rishi Sunak announced in the 2021 Spring Budget that income tax (together with others like capital gains tax and inheritance tax) will be frozen for four years from 2022/23 to 2025/26. Some projections suggest that this could, eventually, push 1.2m people into the 40% higher rate threshold as average UK wages steadily rise.

A range of options can be used to mitigate the impact on your finances. One idea might be to increase your pension contributions, as these receive tax relief at your highest income tax rate.

 

State Pension rise cap

In normal times (under the “triple lock” system), the State Pension rises each financial year in line with inflation, 2.5% or in line with the National Average Earnings Index (NAEI) – whichever is highest. However, after an 8.8% increase in earnings last year, this formula was suspended. Instead, the State Pension is set to rise by 3.1% in April. This is below the current 5.5% rate recorded by the Bank of England (BoE), and lower than the 7.25% rate projected in the spring.

Here, you may need to discuss your strategy with a financial planner. It might be that you need to lean more heavily on other income sources to fund your retirement in the short term (e.g. ISA savings). Alternatively, you may need to revisit your budget.

 

Child benefit loss

For parents with two children child benefit can be worth up to £2,000 per year. Once you or your partner starts earning over £50,000 per year, however, you may need to start paying some of this back (via a levy called the “High Income Child Benefit Tax Charge”).

This threshold has been frozen since 2013 and is set to continue as frozen in April 2022. This means about 1.6m families could lose their child benefit – including 120,000 families on the basic rate – as higher inflation and wage growth occurs across the country.

Again, this might mean revisiting your financial plan as a family, to prepare. For some, it might form another reason for a child-caring partner to return to full-time work (now that the children are older). Others may need to re-examine their budget.

Whatever you do, be careful not to simply avoid claiming child benefit (to avoid the hassle of repaying). Claiming can help you build up your State Pension via National Insurance credits.

 

Pensions lifetime allowance freeze

The lifetime allowance (LTA) is the maximum you can hold in your pension(s) before facing extra tax charges, and this has been frozen at £1,073,100 until April 2026. The annual allowance – which caps yearly pension contributions at £40,000 – will also remain frozen.

With inflation going up, many expected the LTA to rise to account for the rising cost of living. Yet the Chancellor has said he is pursuing this route as an alternative to raising income tax, VAT or National Insurance. This means that retirement savers need to be extra careful, planning so that they do not inadvertently breach the threshold.

Doctors and high-earning public sector workers, for instance, may be particularly at risk. Here, you can explore options such as “de-risking” your retirement portfolio strategy, if you still have some years ahead of you until retirement and you are nearing the LTA. Another idea is to make use of other tax-efficient investment vehicles, such as a Stocks & Shares ISA or a VCT.

 

Invitation

Interested in finding out how we can optimise your financial plan and investment strategy? Get in touch today to arrange a free, no-commitment consultation with a member of our team here at WMM. 

You can call us on 01869 331469 

 

This content is for information and inspiration purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice regarding your affairs please consult us here at WMM (financial planning in Oxfordshire).

 

Feb 03
0

Use your ISA & pension allowances before April

By | Financial Planning

Looking to put more money back into your pocket? People often think of their monthly budget when trying to increase disposable income, yet improving your tax plan can have equal – if not more – impact. Maximising your yearly “allowances”, in particular, can be a great way to save on tax and potentially increase real investment returns.

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Dec 13
0

How the Marriage Allowance works

By | Financial Planning

Did you know that, in 2021-22, there are still tax benefits to being married or in a civil partnership? One of the lesser-known advantages is the Marriage Allowance – which lets one spouse transfer up to £1,260 of their personal allowance to the other person. Yet how does this work, exactly? Who could benefit from it and what other tax advantages are available in the current tax year? Below, our team at WMM addresses these questions.

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Oct 13
0

Preparing for life’s unpredictability

By | Financial Planning

Life is unpredictable. You cannot fully anticipate what will happen in the next hour, let alone tomorrow or in the coming years. This can make life exciting and interesting; an unknown adventure to experience. Yet it also brings dangers such as crippling injury, personal loss or early death. Whilst you cannot shield yourself from tragedy, there is much you can do to lower the financial impact. In this article, our financial planning team at WMM lists some common tragedies that can afflict people and what you can do to preserve financial stability.

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Sep 21
0

A short guide to critical illness cover

By | Financial Planning

Serious illness or injury can strike at any age – regardless of health – and change your life completely. We see it in the news all the time. One recent story tells of how Maria O’Neill, aged 28, was diagnosed with an aggressive form of breast cancer. 5 weeks later, her mother was diagnosed with ovarian cancer. From November, Maria’s sick pay will be halved and she will stop getting paid entirely from April 2022 – leaving her financially vulnerable, as well as sick.

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Jun 11
0

How a financial planner helps business owners

By | Financial Planning

Most business owners are aware of their need for an accountant. After all, taxes need to be filed each year and most limited companies recognise that it mitigates risk by getting a professional to look over everything. Yet why use a financial planner? To use an analogy, an accountant is like a mechanic for your car. They check that everything passes the legally required tests. Your financial planner, however, is like an experienced guide for a long, cross-continent road trip where you will encounter many challenges and opportunities that need navigating effectively.

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May 19
2

A short guide to Lasting Power of Attorney

By | Financial Planning

What is a Lasting Power of Attorney? In short, it’s a very useful and powerful legal document which specifies to whom you give authority to act on your behalf, should you become “incapacitated”. This refers to events which affect your physical and mental wellbeing, removing your ability to manage your personal affairs effectively and independently. As such, a LPA document comes into effect during your lifetime – not at the end of it, like a will does (which is a separate legal document). Below, our financial planning team at WMM explains how LPA works, the different types and how it can play a key role in your financial plan.

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