Age UK report that more than 2 million people in England over the age of 75 live alone, and more than a million older people say they go for over a month without speaking to a friend, neighbour, or family member.

Before the pandemic, around 1 in 12 people aged 50 and over in England were often lonely. This is equivalent to around 1.4 million people.

Loss of regular daily social interactions with colleagues can be one of the hardest adjustments to make in retirement. With more time on your hands, and less weekly structure, loneliness can creep up unnoticed.

Avoid loneliness in retirement with these five positive, proactive, and fun solutions.

1. Start small with a routine and regular physical activity

Instead of having a lie-in every morning, start your day at roughly the same time by getting out of bed and into your routine before inertia has the chance to set in.

Starting your morning with physical exercise can be a great way to give yourself an early feel-good boost. It needn’t be overly ambitious. Even a gentle stretching routine can be enough to wake the body and stimulate the brain into a positive, rather than negative, cycle.

2. Fill your diary

Along with starting your days on a positive note, try adding something tangible to your diary each Monday to get your week off to a productive start.

Again, keep it simple. An activity you do alone is enough. Maybe you want to fill your fridge with batch-cooked meals for the week ahead? Alternatively, schedule an afternoon doing some gardening or use Mondays to attend appointments.

Whatever it is, make Monday a day where you get something done and feel good about it.

When you have a regular Monday activity, expand out to fill the rest of your week. A task or activity every other day will keep you focused and there’ll always be something to look forward to.

Things to consider could include:

• A walk in the park
• Going to a local coffee shop
• Browsing the shelves in your local library
• A swim or other activity at a gym or sports centre
• Seeing a movie at the cinema
• Visiting a museum.

If you like to stick to a routine and start to do the same thing at the same time each week, after a while, you may find that you see the same faces, giving you an opportunity to strike up a conversation and meet people with similar interests.

3. Sign up to the University of the Third Age and learn something new

The University of the Third Age (U3A) offers retirees the chance to learn or do something new.

Run by volunteers, U3A gives you the chance to do, play or learn something you may never have done before, or something you haven’t considered since your school days. It’s also a perfect way to meet other people and make new friends. Visit the U3A website to find out what’s going on in your local area.

4. Share your home (or your shed)

If you live alone, you could consider finding a compatible live-in companion to share your home with.

Share my Home is an organisation that matches older people with companions across the UK.

Jennifer Petch, founder of Share my Home, is an occupational therapist and set up the organisation to give older people an affordable and practical solution to remain living happily at home.

Younger companions pledge between 10 to 15 hours to help out with household chores such as shopping, cooking, cleaning, or gardening in exchange for a room and a place to call home.

Alternatively, men can join their local Men’s Shed group.

Men’s Sheds is an organisation that offers community spaces for men to connect, converse and create. Activities are similar to those of garden sheds but they are carried out in groups, so men can meet and enjoy making, mending, and building stuff together.

Many local Shed groups get involved in community projects too – restoring village features, helping maintain parks and green spaces as well as building things for schools, libraries, and people in need.

5. Volunteer your time and share your knowledge and experience

Volunteering is a great way to give back to the community and is an easy way to meet people interested in the same things as you.

There are plenty of volunteering opportunities that will welcome your experience and time. To find out what you could get involved with, visit Do-it.org, where you can search opportunities by interest, activity, or location.

Get involved during Mental Health Awareness Week

This year’s Mental Health Awareness Week, 9 – 15 May 2022, is highlighting the far-reaching problems of loneliness, their effect on our mental health, and how we can work towards reducing loneliness in our communities.

If you’re not lonely but want to help support and befriend others who are isolated, volunteer your time to meet older people who will appreciate a friendly smile or a chat.

It could be as simple as a weekly telephone call or a regular home visit for a chat and to help with shopping or a spot of cleaning or gardening. Alternatively, offer to drive an elderly person to a social event, or host a regular coffee morning for groups of older people.

Find more information from Age UK, Independent Age, or the Royal Voluntary Service, which all offer a variety of opportunities for volunteers wishing to befriend an older person.

Read more: Are you emotionally ready for retirement? 5 tips to help ease your way into retirement

Retirement is traditionally seen as a chance to relax, put your feet up, and enjoy the rewards of all your hard work. It can also be a great opportunity to do all the things you wanted to while working, but never had the time.

You may already have thought about what you’d like to do, whether that’s taking long foreign holidays, mastering your hobbies, or simply spending more time with your loved ones.

Of course, if you want to have a stress-free retirement, there can be a lot of practical financial considerations too. Read on to find out five important issues that you should consider before taking cash from your pension.

1. Taking a lump sum could have serious implications for your long-term plans

Since 2015, Pension Freedoms have given you greater flexibility than ever before regarding how you draw an income in retirement.

Under the current rules, you can take up to 25% of your pension pots as a tax-free cash lump sum. This obviously sounds like a very attractive option, as it can give you access to a large amount of your wealth very quickly.

However, before you withdraw any of this cash, it’s important that you consider how your decision could affect your long-term plans.

As we discussed in a previous article, advances in healthcare and technology mean that people now live longer than ever before. However, this can be something of a double-edged sword.

While you’ll be able to enjoy your retirement for longer than previous generations did, you’ll also need to ensure that you have enough wealth to support you throughout.

As you might imagine, taking a quarter of your wealth right from the outset could have a huge impact on the amount of income that your pension could provide you with. By taking too much in one go, you may not have enough left to support you throughout retirement.

If you want to avoid this prospect, it’s important to carefully consider your option to take a pension lump sum within the context of your wider long-term plans.

2. There could be tax considerations if you opt for a phased retirement

In recent years, many people are shunning the traditional “cliff-edge” retirement in favour of a more phased approach. Essentially, this involves slowly reducing your work hours over time, or working in a consultancy role, while also drawing on your pension to supplement your income.

This approach can have several benefits, helping to bolster your retirement finances while also giving you the opportunity to regularly see old friends and colleagues.

However, if you continue to work while drawing cash from your pension, it’s important to bear in mind that there can be tax implications to consider. Perhaps the most notable one is that you may trigger the Money Purchase Annual Allowance (MPAA).

While you can usually contribute 100% of your taxable earnings, up to £40,000, to your pension while still benefiting from tax relief, this amount falls once you start drawing from it. If you trigger the MPAA, your allowance will reduce to just £4,000 each tax year (6 April to the following 5 April).

This means that while a phased retirement could enable you to make contributions to your pension, even after retirement, you may not be able to do so in a tax-efficient way.

3. Drawing your non-pension wealth first can have useful benefits

Over the course of your life, you’ve probably been able to build your wealth in a variety of different ways. On top of your pension, you may have other assets and investments, which you can use to give you a regular income.

It might sound surprising but drawing on this wealth first in retirement can have useful benefits. While your pension may make up a large portion of the total value of your assets, it can sometimes be smart to save this for last.

This can help you to pass on more of your wealth to your loved ones by reducing the amount of Inheritance Tax (IHT) they will have to pay.

Since your pension falls outside of your estate, unlike investments such as Stocks and Shares ISAs, it won’t be subject to IHT. This can mean that as long as you haven’t accessed a pension pot, you may be able to leave it to your loved ones without having to worry about tax reducing its value.

Typically, you can leave a defined contribution pension to your loved ones and they can access it at any age for any purpose. For example, they may choose to use it to pay off a mortgage or boost their own retirement savings.

4. You may have to pay more tax if you breach your Lifetime Allowance

To encourage people to save for retirement, the government offers tax relief when you contribute to your pension. However, there is a limit on how much wealth you can build up over the course of your lifetime, while still enjoying the full tax benefits.

This threshold is called the “Lifetime Allowance” (LTA) and in the 2022/23 tax year stands at £1,073,100.

Of course, while this might sound like a lot of money, it can be easier to breach this limit than you might think. This is because the LTA applies to the total value of your pensions, including any tax relief, contributions from your employer, and decades of growth.

If the total value of your pensions is higher than this threshold, you may need to take steps to reduce your tax liability. This is because for any amount that you withdraw over the LTA, you will typically have to pay an extra 25% charge, on top of your marginal rate of Income Tax.

Thankfully, there are a few things you can do to avoid this prospect. As we discussed in a previous article, one option is to put LTA protection in place. If you want to know more about whether this would be right for you, speaking to a planner can help you make an informed decision.

5. Working with a planner can help to ensure that your retirement is sustainable

Retirement should be a time to relax and enjoy yourself, which is why concerns about finances are the last thing you need. Despite this, according to a recent survey published in City A.M., around half of Brits are worried about the risk of running out of money during this important chapter of their lives.

One major problem that many people run into is that they don’t know how much they can take from their pensions each year in a sustainable way. According to recent figures published in Professional Adviser, more than 160,000 Brits took withdrawals of 8% or more in the 2020/21 tax year.

If you’re concerned about the prospect of running out of money in retirement, seeking professional advice can put your mind at ease. We can help you to assess the total value of your pension wealth, as well as your desired lifestyle in retirement. This can enable you to find a sustainable withdrawal rate that is right for you.

Get in touch

If you want to know more about how we can help you to enjoy the retirement you want, we can help. Email enquiries@bowmorefp.com or call us on 01275 462 469.

Please note:

This article is for information only. Please do not act based on anything you might read in this article.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.

The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.

Bowmore Financial Planning Ltd is authorised and regulated by the FCA.

In recent weeks, you can’t have failed to miss the headlines stating that the UK is currently experiencing a cost-of-living crisis. According to data from the Office for National Statistics (ONS), inflation in the UK rose to 7% in the year to March 2022.

Due to this recent spike in the cost of living, many of us have had to tighten our belts and look for new ways to save money. If this is true for you, making the most of your workplace perks can be a great way to do this.

Many companies offer a variety of benefits to their employees, on top of a regular salary. If you want to save money, read on to find out how making the most of your workplace perks can help you.

The cost of living has reached a 30-year high

In recent months, it’s been hard to ignore the rising cost of goods and services. From loaves of bread to litres of petrol, there has been a noticeable increase in the price of many products. According to government data, the rise in the cost of living is at its highest level in around three decades.

One of the main drivers of this is the fact that the economies of countries across the globe have been in lockdown in recent months. This has meant that the production of many types of goods has fallen, causing prices to rise.

The war in Ukraine has also contributed significantly to the increase in inflation. According to figures from the ONS, in 2021 the UK imported around £830 million worth of goods from the country, mostly in the form of agricultural products such as wheat and vegetable oils.

Since we’re having to pay more to import from elsewhere, this has made many types of food more expensive. On top of this, the sanctions on Russia have also increased the price of fuel and the cost of energy bills, as the UK is refusing to buy their gas and oil exports.

With these price rises in mind, it’s understandable that many people are trying to find new ways to save money. This is where making the most of your workplace perks can really benefit you.

Making the most of your workplace perks can save you a considerable amount of money

In recent months, many companies have learned that employee benefits can be a useful way of attracting new staff. According to a recent survey by Metlife, published in This is Money, half of Brits stated they would be willing to sacrifice some of their salary in exchange for personalised workplace perks.

These benefits can come in a variety of forms, with some of the most popular including:

• Ability to work flexibly from home
• Private medical cover
• Life insurance
• A company car
• Mental health support.

Many workplace perks can help you to save a large amount of money, which is why it’s important to make the most of the benefits that your company offers you.

For example, the ability to work flexibly from home can not only enable you to spend more time with your loved ones, but it could also cut out your daily commute. Whether you drive or take public transport, this can help you to reduce your household expenses considerably.

Private medical cover can also be a very valuable perk, especially given the current NHS backlog due to the pandemic. If you already pay for this service, switching to a plan paid for by your employer can save you a significant sum each year.

Some healthcare providers also allow you to claim money back whenever you need to pay for check-ups, such as eye tests or visits to the dentist. This can potentially help you to save a large amount of money, especially if your loved ones are included in your plan.

Workplace perks don’t only benefit employees but can also be useful for employers, as keeping your team happy can make them much more productive. They also help to improve employee retention, which can save you time and money on training new staff.

Working with a planner can help if your employer offers you financial perks

Of course, while many perks are simple to understand, others may not be. For example, if your employer offers you financial benefits, such as stock options, which we discussed in a previous article, you may not feel confident making decisions with them. This is where seeking professional advice can help you.

At a time when it’s important to manage your finances carefully, making the most of valuable benefits such as stock options can be essential. If you use them correctly, you have the potential to boost the value of your portfolio by a significant amount.

Working with a planner can enable you to make properly informed decisions about your finances, giving you more confidence when building your wealth. This can help to reassure you that, even if there are bumps in the road, you’re on track to reach your long-term goals.

Get in touch

To find out more about how we can help you to make the most of your finances and workplace benefits, get in touch. Email enquiries@bowmorefp.com or call us on 01275 462 469.

Please note:

The value of your investment 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.

Bowmore Financial Planning Ltd is authorised and regulated by the FCA.

In recent months, many of us have been understandably concerned about the coronavirus pandemic. Not only is there an omnipresent fear that a loved one may fall ill, but the greater amount of social isolation can make it more difficult to handle stress.

Furthermore, the recent outbreak of war in Ukraine has also heightened many people’s anxieties. With such major crises happening around us, it’s easy to see how these events have had a psychological impact on the population.

According to research, published in FTAdviser, one-third of Brits stated that they are now less willing to take risks than they were prior to the first national lockdown in 2020.

When headlines are full of bad news, it can be easy to worry about your investments and you may want to be more cautious. In fact, being too averse to risk can actually pose the greatest threat to your wealth. Read on to find out why.

Holding too much of your wealth in cash can harm your long-term prospects

In recent weeks, the Russian invasion of Ukraine has sent shockwaves across the world, both politically and economically, and has caused significant volatility in many markets.

According to data from the Guardian, the value of the FTSE 100 index fell by 3.5% in the week following the invasion, which has affected some investors’ portfolios.

When there is economic volatility, it can be tempting to hold a large portion of your wealth in cash, rather than investing it. Of course, while this can give you more financial resilience, having too much cash can hurt your long-term prospects.

While the Bank of England raised its base rate to 0.75% in March, this is still significantly below the rate of inflation. This means that any of your wealth you hold in cash will see its real value decrease over time.

According to data from the Office for National Statistics (ONS), the Consumer Price Index (CPI) rose to 7% in the year to March 2022. Your money will need to see returns of at least this much if you want it to maintain its buying power.

However, according to market data from Moneyfacts, as of 4 April, the highest interest rate for an easy access savings account stood at only 0.93%.

High inflation means your investments have to work harder

While rising inflation will affect your cash holdings the most, due to low rates of interest, it can affect your investments too. This is because if they don’t grow as fast as the cost of goods and services, they are still losing value in real terms.

For example, let’s say you have an investment whose value rises by 5% a year, but inflation is at 4%. While it may appear to show strong growth on the face of it, it has actually only grown in real terms by a small amount.

This can pose a serious problem if you prefer lower-risk investments, such as corporate bonds or gilts. Although this may seem like a safer strategy, overreliance on low-risk low-return assets could affect your long-term prospects.

Working with a planner can help you to find the risk tolerance that’s right for you

One of the most important reasons to build your wealth is so that you can enjoy the lifestyle you want when the time comes to retire. That’s why it’s essential that you aim to do so in the most effective way.

Working with a financial planner can help you to assess whether your investing strategy is right for you. For example, they can use cashflow forecasting to analyse your wealth, lifestyle, and goals to help you determine what your retirement may look like.

If it shows that you may not have enough to support your long-term plans in a sustainable way, you may want to consider reassessing your investing strategy.

Typically, the more risk you expose your wealth to, the greater the returns you may be able to earn. Raising your risk tolerance can help your investments to outpace inflation and grow their real value over time.

Of course, when it comes to investing, there can be a lot to think about. That’s why it’s important to see these decisions within the broader context of your financial plan, so you don’t expose yourself to more risk than is necessary.

Working with a planner can help to give you greater peace of mind to know that you’re able to make a properly informed decision with your investments. This can help you to build your wealth with confidence, knowing that you’re growing your portfolio in the most effective way.

Get in touch

If you want to know more about whether your investing strategy is right for your needs, we can help. Email enquiries@bowmorefp.com or call us on 01275 462 469.

Please note:

The value of your investment 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.

Bowmore Financial Planning Ltd is authorised and regulated by the FCA.

The US central bank, the Federal Reserve (Fed), last month gave investors what they have been waiting for: an insight into the balance sheet roll-off. The Fed’s balance sheet reflects the total value of assets purchased by them as they have bought up bonds in a bid to stimulate the US economy. Since the beginning of 2020, the Fed’s balance sheet has more than doubled in the wake of Covid, ballooning out to nearly $9 trillion. It now has a plan to shrink this figure in a bid to tackle the highest inflation seen in the US for decades.

What is the Fed’s goal?

To temper inflation, they have a number of tools at their disposal, including the ability to raise interest rates and remove financial stimulus from the economy. They implemented the first 0.25% interest rate increase in the US since 2018 during their committee meeting in March (though the minutes disclosed a number of Fed members wanted to hike by 0.50%).

Alongside this, details of the plan to reduce the Fed’s balance sheet were also shown in the minutes. By scaling back the injection of monetary stimulus pumped into the economy, they are tightening the economic environment further. The central bank’s plan is to shrink the balance sheet by $1 trillion a year, whilst hiking rates in an attempt to tackle high inflation.

Source: Refinitiv

How will it work and what is the impact?

They will “roll off” around $95 billion of Treasuries (US government bonds) and other assets each month. What this means is that as the bonds they currently hold mature over time, they will not reinvest the proceeds of those back into the market, with the total value of assets held on the balance sheet therefore falling.

Expectations for the bond market are similar to those linked to rising interest rates – values will come under downward pressure. With a large buyer of bonds leaving the marketplace demand is dropping, driving the price of assets down and yields up. The 10-year US Treasury yield has reached 2.65% this week, a level not seen since early 2019.

Some fear the pace at which the Fed are planning to tighten policy this year may be too much too soon. By comparison, as a result of the 2008 financial crisis, the Fed slashed rates and began buying bonds for the first time in a bid to support the economy. After the dust had settled, monetary policy remained loose for years. Interest rate rises were not forthcoming until 2015 and a wind down of the balance sheet followed two years later. However, many feel their hand has been forced, with inflation running hot. According to Fed governor Lael Brainard, the economy can handle the faster pace “given that the recovery has been considerably stronger and faster”.

Although much is printed regarding the impact that tightening will have on markets and the economy, it is important to remember that it is a necessary part of the economic cycle. Tightening the belt when conditions are favourable means there is headroom to loosen the purse strings when they deteriorate. What remains to be seen is how the economic fundamentals change over the course of the year as the Fed pushes forward with its policy revisions.

Jill Ellicott, Chartered Financial Planner quoted in IFA Magazine 2nd April 2022

“Pensions are now central to divorce settlements and it’s important to understand what your financial future will look like – post settlement, and therefore what is negotiable, or not, to come to an agreement”.

“You can spend tens of thousands arguing it through the courts, but the more cost-effective option is to understand what assets you each have and how they can best be split.  There are less stressful means by which a settlement may be reached than a long, protracted litigation in Court”.

“Often one party has taken the lead in financial aspects and the other party needs some help to understand what they have first, what options are available and how this, or that, settlement leaves them to start their new life”.

“With the incredible value of modern pensions, it is no wonder that many going through divorces are looking to ‘have their day in court’ to settle how they are split.  All that angst isn’t any good for anyone, not least, if children are involved and you’re not guaranteed a better outcome”.

“Working together with a Financial Planner such as myself who subscribes to the Resolution code of practice and helps to minimise conflict, whilst helping clients to understand the assets available, and how they may be split, means that you can go to a solicitor with the basis of an agreement, which should save time and money.  It should then be a simple and reasonably quick process to have it ‘rubber stamped’ by the court”.

“We can of course implement Pension Sharing Orders that have been approved by the court already, but working together, so that everyone understands the limits of the assets available, I think we would get some far better outcomes for both couples and families”.

Read more: https://bit.ly/3uLcDmQ

Jill Ellicott, Chartered Financial Planner quoted in Financial Planning Today 4th April 2022

Read more: https://bit.ly/3wYJDLi

According to figures released last month, inflation in the US hit 7.9% in February, the highest since the 1980s with inflation expected to remain around the 8% mark for March. In light of this, last month the US central bank (the Fed) raised interest rates for the first time since 2018. Whilst this hike was very much expected, (in fact markets may have been shaken if it had not been forthcoming), it does pose the question of how rising interest rates will affect the consumer and the post-pandemic recovery.

The consumer underpins the US economy, but with rates rising, consumers will feel the squeeze first hand. Debt becomes more expensive, with the US 30-year mortgage rate currently sitting at levels not seen since January 2019. Despite this, consumer confidence has risen steadily since the beginning of 2021 and one reason for this is that the labour market continues to tighten in the US.

Consumer confidence recovers

Source: Refinitiv

With initial jobless claims coming back towards pre-pandemic lows and job openings hovering around all-time highs, resultant wage growth is providing a cushion against inflation for the consumer. This has helped underpin earnings and the recovery for equities, notwithstanding this year’s volatility.

The balancing act for the Fed will be the pace at which they raise rates and when. If they can bring inflation to heel, something which will also be affected by a de-escalation in Ukraine, this will provide a more attractive outlook for individuals feeling the pinch. Implement a tighter environment too quickly, however, and they may stifle consumer spending power. (The market has currently priced in 5-7 rate rises this year.)

Quarter-to-date

This week ushered in the end of March and the end of Q1 2022. It’s been a rocky ride for much of the quarter, with global markets selling off through January and February amidst concerns around high inflation, rising energy prices, interest rate speculation and, of course, geopolitical uncertainty in relation to events in Ukraine. Although March initially echoed similar sentiment through its first two weeks, we have seen a stabilisation in some of those concerns and a partial claw back of losses since the middle of the month.

However, we have not by any stretch seen a full market recovery. Global equities are still off by 5.5% year-to-date. In some sectors equities are sat at lower levels, with global growth equities down 9.8% and the US NASDAQ tech index down 9.1%. Many of the above concerns remain present, though appear to have been priced in by investors. The coming quarter will provide an understanding of the longer-term environment for inflation, central banking policy and the state of peace talks between Russia and Ukraine.

Higher energy prices, due to the events happening in eastern Europe, are placing a strain on consumers who have already faced significant inflationary pressures off the back of the Covid pandemic. 2021 had seen the price of natural gas push higher because of limited supply and, in the UK, low winds last summer. Although higher prices eased towards the end of last year, this second sharp rise has again put energy at the forefront of everyone’s mind.

EU Imports and short-term plans

The price squeeze has forced governments to analyse the source of their energy, levels of consumption and their ability to sustain these within an uncertain geopolitical landscape. A tighter energy market means those consuming need to get creative in how to meet the shortfall.

As the below graphic shows, the EU’s reliance on Russian energy has been huge and underlines their reluctance to sanction Russian imports heavily. This week we have seen a deal reached between the EU and the US to deliver liquefied natural gas (LNG) to Europe; a move away from Russian fuel that saw the oil price fall around 2%.

Source: ELEMENTS.VISUALCAPITALIST.COM

In the UK, there is a chance that the government will start re-issuing North Sea drilling licences and there have also been discussions about delaying the closure of coal power stations. Germany has even reactivated old coal power plants to ensure electricity supply.

Governments are also starting to directly support the consumer, with some choosing to offer subsidies. The French government has announced a 15 cent discount per litre of fuel, beginning in April for a period of four months, and also intervened with major energy provider EDF (Electricité de France), forcing them to supply power below market prices. In the UK, Rishi Sunak, the Chancellor, also announced on Wednesday, during his Spring Statement, a cut of 5 pence per litre on fuel until March next year.

What about renewable energy?

The road map for cleaner energy has become clearer over recent years, with the move towards environmentally friendly consumption the driving force behind corporate and political promises to support the renewable space. Indeed, we hold a direct allocation to the sector in portfolios to leverage this growing theme over the long term.

In the UK, Boris Johnson has committed to build a variety of new nuclear reactors and other renewable energy sources and the EU is committing €1 trillion to the clean energy initiative. In the US, Biden’s Build Back Better Act, which has passed the House of Representatives, but not the Senate, contains upward of $500 billion for clean energy tax credits, electric vehicles and more.

This can only mean one thing. A faster, better-supported push towards the renewable energy transition. The short-term pain of higher energy prices and public spending should accelerate the dawn of a greener future for us all and provide opportunities along the way.

Mark Incledon, CEO quoted in IFA Magazine 23rd March 2022

The UK’s Capital Gains Tax bill has jumped 35% from £10.8bn to a record £14.6bn in the past year* following a rise in tax on entrepreneurs selling businesses, says Bowmore Financial Planning.

HMRC’s yield from Capital Gains Tax has risen significantly in recent years, with the latest total almost double the £8.1bn collected five years ago and more than treble the £4bn collected a decade ago.

Bowmore says the record increase in the past 12 months has been driven by three major factors:

• Increase in tax on the sale of businesses – the lifetime limit for Entrepreneurs Relief (now Business Asset Disposal Relief) has been lowered from £10m to £1m, costing some business owners millions in extra tax when they sell their stakes
• Buy-to-let property investors taking profits in the hot housing market – the average UK house price rose 16% from January 2020 to December 2021**
• The stock market rally – the FTSE 100 rose 42% from its pandemic low through to the end of 2021

Given the sharp rise in inflation, Chancellor Rishi Sunak will be under pressure to repair the Government’s finances in a way that doesn’t affect the most economically vulnerable in society.

Bowmore says there are continued concerns the Chancellor might look to raise CGT rates, potentially taking into account a recommendation from the Office for Tax Simplification (OTS) in 2020. The OTS recommended that CGT rates increase in line with rates of Income Tax, as well as making inherited assets subject to both CGT and Inheritance Tax.

The OTS report added to longer-running concerns that the Government may look to raise more money from CGT. The cut to Entrepreneurs’ Relief (now Business Asset Disposal Relief) in April 2020 also triggered hurried sales of businesses by entrepreneurs.

Bowmore says this has led more individuals to sell assets that might attract even bigger CGT bills in the future, such as buy to let property.

It also warns taxpayers to take professional advice before hastily selling assets in fear of a rise in CGT. It says that too many people do not understand the full tax implications of these decisions and can end up paying more tax than is necessary.

Other options that many people selling assets overlook include:

• Making full use of your pension. Even if you plan to hold an investment for the short term consider buying that asset inside a pension wrapper to make any gains on sale CGT-free
• Investing a gain from the sale of an asset into an EIS investment, deferring the CGT bill until that investment is sold
• Sell all of an asset across more than one tax year and use each year’s £12,300 tax-free allowance

Mark Incledon, CEO of Bowmore Wealth Group, comments: “These numbers show how the Government has already been targeting CGT for increased tax revenues over the last few years – in particular through a greater tax on entrepreneurs selling their businesses.”

“The concern would be that the Government continues to use this route to fill its deficit.”

Read more: https://bit.ly/3IzPits