Your financial toolkit

• Purpose: Pensions are designed to offer a reliable source of income once you retire.
• Types: The main categories include State Pensions, Workplace Pensions, and Personal Pensions.
• Contributions: Contributions can be made by individuals, employers, or both, often with valuable tax advantages.
• Investment growth: Pension funds are typically invested across a range of assets, allowing your savings to grow over time.
• Retirement age: Currently, most pensions can be accessed from the age of 55, known as the 'normal minimum pension age', but from 2028 this will rise from 55 to 57.
• Withdrawal options: You may choose to take a lump sum, purchase an annuity, or withdraw funds gradually as needed.
• Death benefits: Pension funds can often be passed to beneficiaries, sometimes tax-free if you pass away before a certain age.

The State Pension, provided by the UK Government, offers a foundational level of income in retirement. Eligibility is based on your National Insurance record.

• Basic State Pension: Available to those who reached State Pension age before 6 April 2016, providing a fixed amount according to your contribution history.
• New State Pension: For those reaching State Pension age on or after 6 April 2016, the new system simplifies payments based on your National Insurance record
• State Pension age: The age at which you can access your State Pension is gradually increasing and is determined by your date of birth.
• Deferral: If you defer your claim, your State Pension amount may increase.
• Payments: State Pensions are paid every four weeks directly into your bank account and under current legislation the New State Pension is typically adjusted annually in line with inflation, using the 'triple lock' system (the highest of earnings growth, price inflation, or 2.5%).
• Tax: State Pension income is taxable; however, no tax is deducted at source. If your total income exceeds your personal allowance, tax may be payable.

Personal pensions are private plans managed by individuals to help build retirement savings. They offer flexibility and notable tax benefits.

• Tax relief: Contributions benefit from tax relief, making personal pensions a highly tax-efficient way to save for retirement.
• Contribution limits: You can contribute up to £3,600 or 100% of your annual earnings (whichever is higher) each tax year, up to a maximum annual allowance of £60,000. Unused allowance from previous years can be carried forward.
• Investment choices: Personal pensions offer a selection of investment options, so you can tailor your strategy to your goals.
• Flexible access: You can start accessing your pension from age 55 (rising to 57 from 2028), with up to 25% available as a tax-free lump sum (up to £268,275). The remainder is taxed as income when withdrawn, and you can draw funds as needed, subject to the terms of your plan.

SIPPs are a flexible type of personal pension, giving you greater control over how your savings are invested.

• Contribution Limits: The same annual limits and tax relief as personal pensions apply, including the option to carry forward unused allowance.
• Investment Flexibility: SIPPs allow investments in a broad range of assets including stocks, bonds, funds, and commercial property. There is usually a much wider selection than a standard personal pension so you could manage your own portfolio or work with an adviser.
• Access and Tax Benefits: From age 55 (rising to 57 from 2028), you can usually access up to 25% of your SIPP as a tax-free lump sum (up to £268,275), with the remainder taxed as income. Flexible drawdown options are available to suit your retirement needs.

Also known as 'final salary' schemes, defined benefit pensions promise a specific income in retirement based on your salary and years of service

• Predictable income: These schemes provide a secure, inflation-adjusted retirement income, calculated using your salary and length of service.
• Employer responsibility: The employer ensures that there are sufficient funds to meet future obligations, which is why these schemes are becoming less common.
• Inflation protection: Many schemes offer increases in line with inflation, helping maintain your purchasing power.
• Early retirement: Some schemes allow you to retire before the normal retirement age, though benefits may be reduced.
• Death benefits: Survivor benefits are often available for your spouse or dependents.
• Tax-efficiency: Contributions usually receive tax relief, and transfers to other pension arrangements may be possible, though expert advice is recommended.
• No investment decisions: With defined benefit schemes, investment management is handled by the employer or scheme trustees.
• Pension age: Scheme retirement ages often align with the State Pension, but early or late retirement options may be available.
• Tax: Pension income from these schemes is subject to income tax at your marginal rate.

IHT is charged on estates that exceed a certain threshold, known as the nil-rate band. In the UK, for example, this threshold is currently set at £325,000, and the residence nil-rate band (RNRB) adds an additional £175,000 if a qualifying residence is passed to direct descendants. These thresholds have been frozen until at least 2030, meaning they will not rise with inflation.

If unused, both bands can be transferred to a surviving spouse or civil partner, allowing up to £1 million to be passed on tax-free. Estates exceeding £2 million begin to lose the RNRB through a tapering mechanism. The freeze on thresholds, combined with rising property values, is expected to increase the number of estates subject to IHT in coming years.

IHT is typically charged at a rate of 40%. There are, however, several exemptions and reliefs, and not all estates will result in an IHT bill. Typically, assets left to a spouse, civil partner, or charity are exempt.

IHT is usually paid out of the estate before assets are distributed to beneficiaries. In some cases, beneficiaries who receive certain gifts may be responsible for paying the tax. Understanding who is liable is essential in planning effectively and avoiding unexpected financial burdens for loved ones.

• Gifting assets during your lifetime is a straightforward way to reduce your estate’s taxable value.
• Each person can gift up to £3,000 per year tax-free (annual exemption).
• Additional exemptions apply for small gifts and wedding gifts.
• Gifts to spouses, civil partners, and charities are generally exempt from IHT.
• Larger gifts may be free from IHT if you live for at least seven years after making them.
• If you die within seven years of making a large gift, a sliding scale of tax (taper relief) may apply.
• Keeping clear records and planning gifts carefully is essential to maximise reliefs and ensure compliance.

• Consider taking out a life insurance policy written in trust to cover potential IHT liabilities.
• Proceeds from a policy held in trust do not form part of your estate and can be accessed swiftly.
• While life insurance doesn’t reduce the tax owed, it protects beneficiaries from unexpected financial strain.

• Transferring assets into a Trust can offer flexible wealth distribution and potentially reduce IHT.
• Assets in certain Trusts may be removed from your taxable estate, lowering the IHT bill.
• Various types of Trusts exist, such as discretionary and bare Trusts, each with distinct features and rules.
• Trusts involve specific regulations and possible charges, so obtaining professional advice is important.

Some assets, such as shares in qualifying businesses or agricultural property, may be eligible for special reliefs. Business Relief (BR) and Agricultural Property Relief (APR) can allow these assets to be transferred without incurring IHT.

These reliefs have specific conditions, making them particularly beneficial for business owners and farmers, but careful planning and compliance with HMRC regulations are essential to take full advantage.

Please note: The rules governing Business Relief and Agricultural Property Relief are scheduled to change from April 2026, which may impact eligibility and the potential tax benefits available.

• Leaving assets to registered charities is exempt from IHT.
• If at least 10% of your net estate is left to charity, the IHT rate on the remainder can drop from 40% to 36%.
• This not only supports charitable causes but can also significantly lower your estate’s tax liability.

• Spending surplus cash during your lifetime can effectively lower the value of your estate and reduce your potential IHT liability.
• Consider thoughtful spending on travel, experiences, or helping loved ones – this creates personal satisfaction while decreasing taxable assets.
• Balance your current lifestyle needs and future financial security with any intention to minimise your estate’s value.

April 2025

The UK moved from a domicile-based to a residence-based IHT regime. Individuals who are UK tax resident for 10 of the previous 20 tax years are now treated as long-term UK residents, bringing their worldwide assets into scope for IHT. A 'tail' rule applies after leaving the UK, keeping worldwide assets liable to IHT for three—10 years depending on prior residence. The old deemed domicile rules apply only to transfers or deaths before this date.

April 2026

Government proposals include introducing caps on Business Relief (BR) and Agricultural Property Relief (APR). Current proposals suggest 100% relief on the first £1 million of qualifying assets per individual, with 50% relief above that. Any value above this threshold will receive only 50% relief, resulting in an effective IHT rate of 20%.

Unlisted shares, including those on markets like AIM, will only qualify for 50% relief, regardless of previous eligibility.

April 2027

Most unused pension funds and death benefits will be brought within the scope of IHT. Currently, discretionary pension schemes allow individuals to pass on pension wealth tax-free. Under the new rules, these unused funds will be treated as part of the deceased’s estate and taxed accordingly, and inherited pensions will become taxable from April 2027.

IHT laws are intricate and subject to change.

Tailored advice ensures that your estate is structured in the most tax-efficient way possible, helping to protect your legacy and provide for your loved ones. Our experienced team can help you navigate the rules, identify opportunities to reduce liability, and give you peace of mind for the future.

Planning ahead is crucial; by taking action now, you can ensure more of your wealth is preserved for the people and causes you care about most.

• Offers protection for a specified period, paying out a lump sum if the insured passes away during the term. Ideal for covering mortgages, loans, or short-term family needs.
• Level term: Provides a fixed amount of cover for a set period, with the payout remaining the same throughout the term. This is often used to protect financial commitments like family living costs or interest-only mortgages.
• Decreasing term: Designed so that the payout reduces over the policy term, typically in line with a repayment mortgage. This can be a cost-effective way to ensure debts are cleared if you pass away before the mortgage is paid off.

• This policy guarantees lifelong protection, ensuring that no matter when you pass away, a lump sum will be paid to your beneficiaries.
• Whole of Life cover is often used for estate and inheritance planning, providing financial security for future generations or to cover potential inheritance tax liabilities. 
• Premiums can be fixed or reviewed (usually reviewed after the first 10 years), and some plans may even include investment elements to grow the value over time.

• Instead of a lump sum, this type of policy provides a regular tax-free income to your family if you pass away during the policy term.
• It is designed to replace lost income, helping maintain your family's standard of living and cover day-to-day expenses such as mortgage payments, utility bills, and education costs. This can offer significant peace of mind, especially for families with young children or dependents who rely on your earnings.

• Pays a tax-free lump sum if you are diagnosed with a specified critical illness, such as cancer, heart attack, or stroke. This can be used to cover medical costs, mortgage repayments, or everyday expenses.
• Critical illness cover is also available as an addition to term assurance policies, providing benefits upon the diagnosis of a covered condition or in the event of death.

• Replaces a portion of your income if you are unable to work due to illness or injury, ensuring you can keep up with financial commitments while you recover.
• These policies typically include a deferral (waiting) period, which is the length of time you need to be off work before payments begin. Choosing a longer deferral period can often reduce your premiums, but it’s important to select a timeframe that suits your savings and needs.

• Provides access to private healthcare, allowing for faster diagnosis and treatment, and covering costs for a range of medical services and hospital stays.
• Policy extensions are typically available to include family members.
• Certain healthcare policies or supplementary options may provide coverage for dental and optical care.

• Key person insurance: Protects your business against the financial impact of losing a key employee due to death or critical illness.
• Shareholder protection: Ensures surviving business partners can buy shares in the event of a shareholder’s death, safeguarding company stability.
• Relevant life policy: Tax-efficient life cover for employees, especially useful for small businesses.

• When you apply for protection policies, the premium you’re first quoted is based on your initial information.
• Insurers then carry out an underwriting process, reviewing your health, lifestyle, occupation, and medical history to determine their level of risk.
• As a result of this assessment, your final premium may change. If additional risks are discovered, the premium might be higher than originally quoted; if risk is lower, it may remain the same or decrease.
• Providing complete and accurate information ensures your cover is tailored to you and helps avoid surprises in future costs.

• Direct investment: Investors acquire shares directly in EIS-approved companies, often through EIS funds or private arrangements.
• Qualifying businesses: EIS targets small, independent trading companies that meet rigorous eligibility criteria.
• Annual limits: Tax relief can be claimed on up to £1 million per year, or £2 million if at least £1 million is invested in knowledge-intensive companies.
• Holding requirement: You must hold shares for at least three years to retain tax reliefs.
• Carry-back: The scheme allows investments to be applied to the previous tax year, potentially offering earlier tax relief.

• Income tax relief: Claim back 30% of the amount invested against your income tax bill.
• Capital Gains deferral: Defer capital gains tax by reinvesting gains into EIS shares.
• Tax-free growth: No capital gains tax applies to profits if shares are held for three years and relief has not been withdrawn.
• Loss relief: Offset losses against income or capital gains tax, reducing your downside risk.
• Inheritance Tax relief: Shares may be exempt from inheritance tax if held for two years, under Business Relief rules.

• Business failure risk: Early-stage companies have a higher likelihood of failure or illiquidity.
• Long-term commitment: Investments usually need to remain untouched for several years.
• Complexity: Finding, managing, and monitoring EIS investments can be demanding and may benefit from expert advice.
• Diversification challenges: Direct investments can result in poor diversification unless made through EIS funds.