Avoiding the Retirement Tax Trap

A high net worth guide to investing for retirement; then drawing down tax efficiently

How high‑earning families and business owners can build wealth in anticipation of an early, affluent and tax-efficient retirement.

The retirement tax trap is straightforward: paying more tax than necessary by drawing the wrong money, from the wrong places, at the wrong time. For high net worth households this is could be real money lost every year, compounding across decades and eroding legacies.

This guide is built to be your operational handbook. It explains how to:

  • Map your net-of-tax cashflow and direct funds to the right savings and investment wrappers;
  • Use ISAs, Pensions, GIAs, Onshore/Offshore Bonds and Trusts together – not in isolation;
  • Capitalise on today’s tax allowances and reliefs to invest more tax-efficiently (like the recently increased pension annual allowance of £60,000, and the removal of the Lifetime Allowance charge);
  • Sequence withdrawals to keep taxable income in low bands during retirement (while using allowances efficiently);
  • Plan for the 2027 pension‑IHT reforms to mitigate double taxation;
  • Deploy advanced moves (phased crystallisation, ‘bed & ISA’, bond segmentation) in a compliant and documented manner.

Practical benefit: for many HNW families, re‑sequencing and multi‑wrapper orchestration reduces annual tax leakage by £10k–£30k+ versus a single‑wrapper drawdown, often without reducing disposable income.

The retirement tax landcape at a glance

This section lists the key allowances and rules you will base every decision on, both for saving towards your retirement as well as when eventually drawing down from those investments in retirement.

Key income thresholds and allowances
  • Personal Allowance: £12,570 p.a. per person
    • Protect it! When adjusted gross income exceeds £100k, the Personal Allowance is tapered by £1 for every £2; until it reaches £0 at £125,140 – an effective 62% marginal band when national insurance is factored in on top. Use pension contributions and other forms of salary sacrifice to avoid this cliff.
    • In retirement, use phased withdrawals to keep income-taxable drawdown below £100k each year.
  • Income tax bands (England & NI for 2025/26):
    • 20% basic rate; 40% higher rate; 45% additional rate.
    • In retirement, these determine the marginal cost of pension/ GIA/ bond events: small changes in taxable income can move you across bands with significant tax consequences.
  • Dividend allowance: £500 per person
  • Savings allowance per person:
    • £1,000 (basic rate taxpayer), £500 (higher rate taxpayer), £0 (additional rate taxpayer).

Practical tip: Always start withdrawal planning by listing all taxable sources (rental income; realised gains; dividend income; taxable pension income). Tax bands and allowances should form the ‘frame’ for sequencing.

Capital Gains Tax (CGT)
  • Annual Exempt Amount: £3,000 per person
    • Use it every year – it cannot be carried forward.
  • Rates (recently increased):
    • 18% within basic band;
    • 24% for gains above the basic band.
    • That tightening increases the potential value that can be gained from annual CGT harvesting and ‘bed & ISA’ tactics.

What is ‘bed & ISA’?

  1. Sell the investment outside your ISA
    • You sell your shares, funds, or ETFs held in a general investment account (GIA) or similar.
    • This sale may realise a capital gain — but you can use your annual CGT allowance (£3,000 in 2025/26) to minimise or eliminate any tax liability.
  2. Repurchase the same investment inside the ISA
    • Using the proceeds from the sale, you immediately repurchase the same investment within your ISA (or choose something else entirely).
    • Once inside the ISA, all future growth and dividends are tax-free.

Practical tip: Small, repeated sales in General Investment Accounts – timed to use Annual Exempt Amounts and avoid income band creep – materially beat large once‑off disposals taxed at the higher CGT rate.

Pension allowances and crystallisation rules

Relevant primarily for Defined Contribution (DC) pensions

  • Annual Allowance: £60,000 (or 100% of relevant earnings, whichever is lower).
  • Tapered Annual Allowance:
    • Occurs where threshold income exceeds £200,000 and adjusted income exceeds £260,000
    • Allowance reduces by £1 for every £2 of adjusted income above £260,000, down to a minimum of £10,000.
  • Money Purchase Annual Allowance (MPAA): £10,000
    • Triggered if you take flexible access of your pension; avoid accidental triggers!
  • Tax‑free pension cash/ Lump Sum Allowance (LSA):
    • 25% of the total value of your pensions, capped at £268,275
  • Lump Sum & Death Benefit Allowance (LSDBA): £1,073,100

Practical tip: After the removal of the Lifetime Allowance charge, one blunt cap was replaced with allowances and death‑benefit ceilings. Accessing the tax-free portion of your pension requires careful planning, as phased crystallisation can be more efficient than taking lump sums.

Individual Savings Accounts (ISAs)
  • ISA allowance: £20,000 per person
  • Growth and income on assets held within the ISA are tax free.
  • Withdrawals are tax free and do not count as taxable income – one of the most powerful levers in retirement sequencing.

Practical tip: Use ISAs to hold growth and yield assets that would otherwise generate taxable income in General Investment Accounts (GIAs) or pensions.

Onshore & offshore investment bonds
  • 5% cumulative allowance per policy year: withdrawals up to 5% of initial capital investment (accumulative) are tax‑deferred (not tax‑free).
  • On a later chargeable event, gains are treated as income. ‘Top‑slicing’ relief may reduce the effective tax.
  • Segmentation (issuing multiple small bond segments) enables partial encashments without crystallising the entire bond.

Practical tip: Bonds are sequencing tools – excellent for smoothing when you want to avoid lifting marginal taxable income.

Trusts and their charges

Discretionary trusts carry entry charges, 10‑year periodic charges (up to 6%), and exit charges – all complex, but invaluable where control and estate planning are jointly required with income management.

Practical tip: Use bonds in trust to provide family controlled distributions while preserving beneficiary tax allowances.

The strategic pivot: Pensions & IHT from April 2027

From 6 April 2027, most unspent pensions and many pension death benefits will be included within estates for IHT purposes.

This is a structural change: the once‑automatic IHT shelter provided by pensions will no longer be universally reliable.

Practical tip: Planning that relied on “leaving wealth in pensions forever” should be re‑examined. Sequencing may shift towards partial de‑risking and movement into ISAs/ trusts/ bonds where appropriate.

State Pension

Often overlooked in drawdown, the New State Pension applies to men born on or after 6 April 1951, and women born on or after 6 April 1953.

New State Pension (full rate): £230.25 per week, or about £12,005 per year.

Qualifying years:

  • Minimum 10 years of National Insurance (NI) contributions or credits needed to receive any pension.
  • Full rate requires 35 years of contributions or credits.

Protected payments: If your earnings record from before April 2016 would give you a higher payout under legacy rules, you may receive that as a “protected payment” on top of the current full rate.

Deferral increases entitlement by ~1% every 9 weeks (~5.8% p.a.).

The “triple lock” policy guarantees the New State Pension will rise by the larger of: inflation (CPI), average earnings growth, or 2.5%. In 2025–26, the increase was 4.1%, based on average earnings growth from May-July 2024.

The government has launched the third review of the State Pension age, to determine whether pension age should be automatically linked to life expectancy, possibly raising it even further. The current plan already includes raising the age to 67 by 2027-2028 and to 68 by 2044-2046.

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The orchestration mindset: Principles and objectives

How high net worth households avoid the retirement tax trap.

The objective: Provide for your target net-of-tax lifestyle, sustainably, while minimising total lifetime tax (Income Tax + CGT + IHT) and preserving estate optionality.

Principle 1. Start with spend, not pots

Build a 10- to 30-year plan, that models the net income required each year, stress tested for market downturns and longevity. This should account for irregular outgoings too, such as travel, contributing to school fees, property works, gifting, and care contingencies.

An expert financial adviser will use sophisticated cashflow modelling software that considers a variety of scenarios.

Principle 2. Segment capital by tax behaviour

Define which savings and investment pots are tax‑free, tax‑deferred, taxable and trust/ legacy oriented.

  • Tax-free: ISA
  • Tax-deferred: Pensions & Bonds
  • Taxable but manageable: GIA
  • Plus, those which are Trust-based to offer control & IHT shaping
Principle 3. Sequence withdrawals to preserve low-rate bands
  • Use allowance‑rich pots first and leave taxable pots to years where other income is low;
  • Keep taxable income inside lower bands/allowances;
  • Harvest CGT each year without eroding core capital;
  • Maintain optionality for later-life and estate outcomes.
Principle 4. Split ownership of assets

Share key allowances between spouses;

  • Personal Allowance
  • CGT Annual Exemptions
  • Dividend allowances

…to avoid higher tax bands as individuals.

Principle 5. Preserve optionality

Avoid locking all capital into illiquid or high-penalty structures.

For example, pensions generally cannot be accessed until age 55 (rising to age 57 in 2028), and now face potential double taxation inside estates for IHT purposes.

Principle 6. Annual discipline
  • Harvest allowances;
  • Move assets to ISAs when appropriate;
  • Re-sequence if income profile changes;
  • Crystallise gains;
  • Reset bond segments; and
  • Top up a 2-3 year cash bucket so markets don’t dictate tax timing.

Tax optimisation is allocation and timing: Think allocation (ISA vs GIA vs pension) and timing (year to year sequencing). For HNW households, a modest shift in timing often outperforms a risky, concentrated tax shelter.

Total-return beats income-only: Preferring high yields traps you in dividend tax bands and concentration risk. A total-return approach with controlled sales from the optimal wrapper gives cleaner tax and risk management.

Wrapper-by-wrapper: Deep dive and pro moves

What each wrapper really does, and how to use them. These are the rules, tactical moves, common pitfalls and pro plays for each wrapper.

Pensions – the orchestration core

Core rules:

  • Up to 25% tax-free, but limited by LSA £268,275 (protections aside). Remainder taxed at your marginal rates.
  • Contributions: Annual Allowance £60k, taper from £260k adjusted income (min £10k). MPAA £10k if flexibly accessed.
  • Flexi-access drawdown vs UFPLS: both create taxable income beyond the tax-free element; beware Emergency (Month-1) tax on first payments; reclaim via P55/ P53Z/ P50Z.

What they do well:

  • Tax relief on contributions;
  • Tax‑deferred compounding;
  • Structured death benefits (beneficiary rules).

Key constraints:

  • Taxable on withdrawal beyond PCLS/ LSA;
  • MPAA may restrict future contributions once flexible access is used;
  • PCLS subject to LSA cap;
  • 2027 IHT inclusion looms.

Pro moves:

  • Earning between £100–£125k? Combine pension contributions and other salary sacrifice to reclaim or preserve Personal Allowance (effective 62% marginal relief zone).
  • Phased crystallisation:
    • Crystallise small portions each year to realise up to 25% tax‑free cash (within LSA) and keep taxable income inside target bands.
    • Preferred to large UFPLS where MPAA or rate spikes may occur.
  • PCLS-only first draws (where legally feasible) to avoid MPAA trigger in the short term. Document carefully.
  • Pension contributions as tax-band management: for those near the PA taper band, an extra pension contribution or Gift Aid top‑up can reduce adjusted net income, restoring PA or reducing marginal rates. (Use with caution and model liquidity.)

Common mistakes:

  • Emergency tax shock on first draw; plan cash and reclaim promptly.
  • Taking a large UFPLS early, triggering MPAA or pushing into 45% band. Can trigger HICBC/ benefit cliffs for under-retirement-age households.
  • Failing to segment crystallisations, losing LSA advantage or incurring unnecessary income spikes.
ISAs – the retirement workhorse

Core rules:

  • Withdrawals are tax-free and don’t count as income for tax-band tests – ideal for smoothing income and avoiding higher-rate thresholds.
  • £20,000 p.a. use-it-or-lose-it allowance per person.

What they do well:

  • Tax‑free withdrawals;
  • Tax-free growth and income on investments within ISAs;
  • Do not count as taxable income;
  • Ideal for smoothing tax bands.

Pro moves:

  • Prioritise funding ISAs in accumulation years after covering tax‑efficient pension contribution needs.
  • Family pooling: two spouses = £40k p.a.
  • Bed & ISA‘ GIA assets each year to migrate yield/ growth into a tax-free silo.
  • Park high-yield or fast-growing assets inside ISA to silence tax drag.

Common mistakes:

  • Putting low‑growth or defensive assets into ISAs, while leaving high‑growth investments in pensions/GIA – match asset to wrapper strategically.
GIAs – taxable but flexible

Purpose:

Flexible, taxable accounts used for CGT harvesting, dividend management and bridging between tax‑sheltered pots.

Pro moves:

  • Annual CGT harvesting: Crystallise up to £3,000 p.p. every year. Split across spouses for double allowance.
  • Bed & spouse’ transfers: Shift gains to the spouse with lower rates or unused allowances (watch out for 30‑day/ share-matching rules to avoid wash sales).
  • Prefer funds with accumulation units where dividend stuffing would otherwise create tax drag.
  • Target dividends within the £500 allowance; progressively migrate surplus yield into ISAs.
Onshore & offshore investment bonds – mastering deferral

Purpose:

  • Create tax-deferred cashflow via the 5% cumulative allowance – useful when you want spending power without lifting taxable income;
  • Top-slicing relief may mitigate a large one-off encashment if held many years;
  • Assignments (to spouse/trust) normally no gain/ no loss – can shift future gains to different taxpayers/structures;
  • Useful in early retirement or when deterministic withdrawals are required.

Design tips:

  • Segment policies at outset (e.g., 10–100 segments) to allow partial encashment without crystallising the whole bond;
  • Match bond type to tax profile: onshore has a basic-rate credit; offshore maximises gross roll-up but gains are fully income-taxed when they arise.

Pro moves:

  • Segment large bonds into multiple policies/ segments to allow partial surrenders;
  • Use top‑slicing relief modelling when planning a large encashment;
  • Assign to spouse or trust as part of intergenerational planning (assignment usually non‑taxable).

Common errors:

  • Treating 5% as tax-free (it’s deferred); always model the eventual chargeable event with future expected income bands;
  • Large future chargeable events can collide with high-rate bands or Personal Allowance taper.
Trusts – for control

Purpose:

  • Control, protection, and IHT management for surplus capital;
  • Ring‑fencing and bespoke distributions;
  • Useful when a retiree wishes to provide controlled family income without inflating personal taxable income.

Key charges:

  • Entry: ~20% on value above available Nil-Rate Band (NRB) for discretionary trusts;
  • Periodic (10-year) charge: up to 6% above NRB;
  • Exit charges apply on capital appointments.

Where Trusts meet retirement income:

  • House surplus capital in trust (often using bonds) to deliver trustee-controlled distributions while ring-fencing from your personal bands/ means-tests.
  • Time trustee distributions around beneficiaries’ allowances (e.g., adult children in low bands).

Pro move:

  • Use trusts for pension death benefit holding where legislation permits (but seek legal advice).

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Withdrawal sequencing playbook

Concrete algorithms and templates you can run each year, according to your household’s objectives.

An expert financial adviser will revisit your sequencing strategies each year using cashflow modelling; taking into account market fluctuations, tax allowances and reliefs, and your changing tax bands.

Template A: Keep taxable income ≤ basic-rate band
  1. ISAs first (withdraw tax‑free cash to meet most of the need).
  2. Bond 5% allowances next (tax deferred).
  3. GIA disposals up to CGT Annual Exemption.
  4. Pension taxable draw only to fill remaining PA/ basic band headroom.

This maximises tax‑free draw, defers taxable draws until necessary, and avoids creeping into 40/ 45% income tax territory.

Template B: Materially zero-tax year
  1. ISAs first;
  2. Bond 5% allowances next (tax deferred);
  3. Pension up to Personal Allowance only;
  4. Harvest CGT Annual Exemption in GIA, but avoid creating dividend income beyond the £500 allowance.
Template C: Estate-centric pre-2027 reposition

Goal: Re‑weight pension‑heavy estates to reduce 2027 IHT exposure, without spiking marginal tax rates.

  1. Cash & ISA top ups;
  2. Phased crystallisation of smaller pension tranches to preserve PA and basic rate (not UFPLS lumps) to re-weight gradually from pension to ISA/ bond/ trust;
  3. GIA to fund bed & ISA over multiples years;
  4. Onshore bond assignment to trust where continuity of control is needed;
  5. Life cover in trust to insure IHT if immediate migration impossible.Note: model run‑rate impact carefully; acting too quickly may crystallise gains or incur large income tax;
  6. Maintain a cash buffer (2–3 years) to avoid forced selling in down markets, preserving tax control into 2027+.

Important: Your financial adviser shoudl model the run‑rate impact carefully; acting too quickly may crystallise gains or incur large income tax.

Implemetation algorithm (annual):

  1. Forecast the next 24 months of required net spending (base and irregular);
  2. Project all expected non‑portfolio income (state pension, rental, interest);
  3. Run the sequencing template to meet net spend, while keeping taxable income within parameters;
  4. Update ISA/ CGT harvest/ segment bond decisions for each tax year;
  5. Rebalance, migrate high‑return assets into ISAs if room, and reset bond segments.

Example case studies

These examples show the numerical effect of sequencing. All examples are simplified and illustrative. An expert financial adviser can show more precise outcomes through cashflow modelling. Investment risk, sequencing, spend patterns and wrapper history will alter outcomes.

Example A: £80,000 lifestyle with minimal/ zero tax

Two spouses age 60 and 58 target £80,000 annual expenditure.

Asset breakdown:

  • Pensions: £900k (uncrystallised)
  • ISAs: £450k
  • GIAs: £500k
  • Offshore bond: £300k (10 segments)
  • Cash: £50k

Annual drawdown plan (year 1):

  • Withdraw £40,000 from ISAs (untaxed)
  • Withdraw £15,000 from offshore bond (5% allowance of £300k, tax deferred)
  • Each crystallise pension income equal to Personal Allowance of £12,570, using PCLS to fund the tax‑free portion (zero taxable income)
  • Realise £6,000 in gains from GIA (utilising annual exemption)
  • Earn dividends up to £1,000 (utilising allowances); migrating high-yield positions into ISAs over time.

Net result:

~£80k cash flow with negligible/ zero current-year income tax; no CGT; bond withdrawals deferred; pensions largely untouched and compounding.

Why it works:

Layering tax‑free and tax‑deferred withdrawals plus spouse allowances to avoid higher bands.

Example B: £1m pension single drawdown (hidden leakage)

Single age 62 targets £80,000 gross from their pension alone.

Income tax:

  • First £12,570 at 0%;
  • Next slice at 20%;
  • Next slide at 40%
  • Typical tax bill £20k-£25k+ p.a. (exact amount depends on other income).

At this rate the pension could run out entirely in less than 20 years, assuming 5% net growth. A quarter of the pension pot is lost unnecessarily to income tax.

This is avoidable if part-funded from ISA/ bond/ GIA to cap marginal rates and preserve allowances.

Example C: £1m portfolio capping lifetime tax exposure

Asset breakdown:

  • Pensions: £450k
  • ISAs: £250k
  • GIAs: £200k
  • Onshore bond: £100k

Strategy:

  • Years 1-5:
    • Withdraw from ISA (tax free);
    • Withdraw £5,000 from onshore bond each year (5% allowance of £100k, tax deferred)
    • Crystallise pension income equal to Personal Allowance of £12,570 each year
    • Harvest £3k CGT (within annual exemption) via GIA each year
  • Years 6-10:
    • Phase pension crystallisations to keep within basic rate band (20%), avoiding higher income tax rates where possible;
    • Make gifts from surplus income
  • Estate planning considerations:
    • Review pension nominations and possible bypass/ discretionary trust strategies for death benefits;
    • Consider writing a life cover plan in trust to meet an eventual IHT liability;
    • Gradually re-weight across wrappers.

Outcome:

Materially lower lifetime income tax and lower projected IHT exposure vs a pension-only draw.

Example D: Significant one-off cash is needed (e.g. renovation)

Strategy:

  • Split across two or more tax years if possible;
  • Use ISA first;
  • Use bond encashment with top-slicing analysis (consider partial segment surrenders);
  • Pension: crystallise tranches to maximise PCLS and keep taxable slice within target bands;
  • GIA: realise gains up to CGT annual exemptions across both spouses.

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Advanced strategies for HNW households

Phased crystallisation with PCLS routing

Crystallising small pension tranches each year (taking tax‑free element where available, and only taxable as needed) reduces marginal tax spikes and preserves MPAA headroom. Document precisely for HMRC (dates, amounts).

Bond segmentation and top-slicing

Issue multiple small bond segments (or purchase multiple small policies) to aid partial surrenders and preserve the 5% allowance across different policy anniversaries. When a larger encashment is required, estimate top‑slicing relief to reduce the effective tax rate.

Trustee distribution engineering

Trustees can smooth distributions to beneficiaries so the household uses beneficiaries’ PA and lower bands, preserving the settlor’s tax bands and potentially keeping the settlor’s taxable income low (subject to trust tax rules).

A measured approach to lifetime gifting

Where wealth exceeds long‑term needs and IHT is a concern, measured regular gifting (within the normal expenditure out of income rules) can reduce estate exposure without incurring IHT charges. Keep precise records – to prove regularity to HMRC.

Your tax trap checklist

Before your first withdrawal

  • Decide on draw type (phased PCLS and income vs UFPLS).
  • Avoid MPAA trigger unless unavoidable.
  • Confirm tax code to avoid Emergency (Month-1) tax shock.
  • Factor in other income (rent/dividends) to avoid band creep.
  • Coordinate spouse allowances (PA/ Dividend/ CGT).

Annual actions

  • Max usage of ISA allowance (£20k p.p.).
  • Harvest Capital Gains up to annual exemption (£3k p.p.).
  • Review dividend flows vs £500 p.p. allowance.
  • Rebalance risk and refill cash reserves.

Estate planning factors

  • Model 2027 pension-IHT exposure; review death-benefit nominations and potential trust structures.
  • Review Wills/ LPAs; keep pension expressions of wishes current.
  • Consider a life plan in trust to meet anticipated IHT liability.
  • Keep robust gift records (rules may change over time).

Integration with portfolio design

  • Total-return orientation with factor & geographic diversification;
  • Asset location (what sits where):
    • ISA: growth and high-yielding assets;
    • Pension: equities for long runway (tax-sheltered compounding);
    • GIA: tax-efficient funds/ETFs; prefer accumulation units only when they don’t create dividend tax drag beyond allowance;
    • Bond: lower-volatility sleeves to stabilise 5% withdrawals.
  • Rebalancing: set hard ranges; use flows to minimise CGT.
  • Costs: consolidate legacy plans where sensible; monitor ongoing charges and platform fees.

DIY vs Professionally Advised: The Drawdown Pay-Off

When entering retirement, the decisions you make around how, when, and from where you draw your income can add – or subtract – hundreds of thousands of pounds from your future wealth.

Retirees who ‘go it alone’ often underperform – not because of poor investment returns, but because of suboptimal drawdown sequencing and missed opportunities.

Apollo Private Wealth orchestrates every moving part: income sourcing, wrapper sequencing, tax harvesting, inflation protection, and estate planning – producing materially better financial outcomes over the long term.

The four biggest DIY mistakes

Front-loading pensions

The problem:

Many DIY investors take the majority of income from pensions first, triggering unnecessary income tax at 40%+ and eroding future compounding potential.

Apollo’s advantage:

Apollo blends ISAs, GIAs, pensions, and bonds intelligently to minimise tax drag and maximise portfolio longevity.

Overlooking allowance stacking

The problem:

DIY retirees often underuse the CGT annual exemption, dividend allowance, and personal savings allowance – meaning they overpay HMRC every year.

Apollo’s advantage:

Apollo engineers an “allowance-maxing” waterfall that uses every relief available. Typical saving: £7,500-£12,000 per year.

Sequence-of-returns risk

The problem:

Withdrawing from growth assets after a market crash can lock in permanent losses – a risk many DIY retirees are blind to.

Apollo’s advantage:

Apollo applies buffer strategies and dynamically switches wrappers to protect growth assets until recovery.

Underestimating longevity

The problem:

Many retirees overspend in the early years or fail to inflation-proof later spending, risking depletion. Assets are eroded quickly by unnecessary taxation, rather than continuing to compound.

Apollo’s advantage:

Apollo stress-tests against 100+ scenarios (inflation spikes, recessions, policy changes) to maintain sustainable drawdowns.

How we add value to every £1 withdrawn:

Tax Alpha → Saving £100,000s+ over decades

Behavioural Alpha → Avoid panic-selling, stick to plan

Sequencing Alpha → Reducing portfolio depletion risk

Legacy Alpha → Integrated estate strategy more wealth passed on to your beneficiaries

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The art of retirement drawdown isn’t picking a single ‘best’ pot. It’s orchestrating all of your pots – year by year – to spend well, stay in low bands, and keep options open as rules evolve (not least the 2027 pension-IHT shift). Get the sequencing right, and you keep more of your money – every year for the rest of your life.

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The Inheritance Tax Escape Route

Your complete guide to preserving family wealth for 2025/26

How high‑earning families and business owners can build and preserve wealth across generations – with practical steps you can take this tax year.

With inheritance tax (IHT) thresholds frozen until at least 2028 and new pension tax rules taking effect from 2027, many families are asking the same question:

“Do I need to leave the UK to protect my wealth?”

The good news: you don’t. There are multiple estate planning strategies available that can significantly reduce or even remove an eventual IHT liability – without changing your residency or lifestyle.

Read this 1-min snapshot first

If your total estate could exceed £500k+ as an individual, or £1m+ as a couple, you’re in inheritance tax (IHT) territory. If you’re around £2m+, decisions about lifetime gifts, trusts, business relief and pensions will materially alter your family’s eventual outcome. Here’s the fast path:

Write/Review your Will (and Letters of Wishes) and Lasting Powers of Attorney.

Map your estate: assets, liabilities, how they’re owned (sole/ joint/ trust/ company), and your domicile/ residence status.

Use allowances today: £3,000 annual exemption, wedding/ civil ceremony gifts, small gifts, and – the most powerful – regular gifts out of surplus income.

Plan around the £2m threshold: keeping your estate below the Residence Nil-Rate Band (RNRB) taper can increase the tax‑free amount that passes with the family home.

Protect business and farm assets: review eligibility for Business Relief (BR)/ Agricultural Property Relief (APR), as well as the reforms to these reliefs from April 2026.

Re‑think pensions: with most pensions facing IHT from April 2027, adjust nominations, drawdown plans, and wrapper strategy to avoid double‑tax traps.

Fund the bill: if you can’t (or don’t want to) gift enough, consider whole‑of‑life insurance written in trust and pay premiums from surplus income.

Consider structures: trusts (bare/ IIP/ discretionary, loan trusts, discounted gift trusts) and Family Investment Companies (FICs) to control, protect and direct wealth.

Charity: leave ≥10% of the net estate to charity to reduce IHT from 40% to 36%.

Keep records: gift logs, income vs expenditure evidence, trust paperwork, valuations, ownership statements, and a family “financial map”.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

Wills as well as Trusts are not regulated by the Financial Conduct Authority.

What’s changed and what’s coming

UK resident non‑domiciled individuals & IHT scope: from 6 April 2025, the UK has moved toward a residence‑based approach for IHT scope. Transitional rules may apply, and planning is essential if you have overseas assets.

Business & Agricultural Property Relief reforms: from 6 April 2026, BR/ APR will be modernised – including a £1m per‑person allowance at 100%, with only 50% relief above that, plus holding‑period and listing clarifications, and separate allowances for trusts/estates.

Pensions: from 6 April 2027, most unspent pensions are scheduled to be brought inside your estate and face IHT. Pension scheme administrators are expected to report/ pay IHT. This creates potential double tax alongside Income Tax on beneficiaries.

With these major changes it is absolutely critical that you review your estate planning as soon as possible.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

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The 12 fundamental principles to mitigating unnecessary inheritance tax eroding your family’s wealth

Principle 1. How IHT works (2025/26)
  • Standard rate: 40% above the available Nil‑Rate Band (NRB) and Residence Nil‑Rate Band (RNRB).
  • NRB: £325,000 per individual, generally transferable between spouses/civil partners.
  • RNRB: up to £175,000 per individual when leaving a qualifying residence to direct descendants. Unused RNRB is transferable. There’s a downsizing addition if you’ve sold or downsized.
  • RNRB taper: the RNRB is reduced by £1 for every £2 that the estate exceeds £2,000,000. Importantly, the estate value for taper ignores BR/ APR and similar reliefs (so you can’t “taper‑proof” via BR/ APR alone).
  • Spouse/civil partner exemption: generally unlimited on transfers between UK‑domiciled spouses/ civil partners.
  • Charity: leave ≥10% of the net estate to charity, and the IHT rate on the rest drops from 40% to 36%.
  • When is IHT paid? Typically due by the end of the sixth month after death; some assets allow instalments. Probate is usually granted after IHT is settled, so it’s necessary to plan liquidity.

Lifetime transfers

  • Potentially Exempt Transfers (PETs): outright gifts to individuals become fully exempt if you survive 7 years. Taper relief reduces tax on failed PETs after year 3.
  • Chargeable Lifetime Transfers (CLTs): gifts to most trusts are CLTs and can attract 20% lifetime IHT above your available NRB, with possible further tax if you die within 7 years.
  • Gifts with Reservation (GWR): if you keep benefit (e.g., stay living in the gifted home rent‑free), the asset remains in your estate. Pre-Owned Asset Tax (POAT) may also apply to certain arrangements.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

Principle 2. Mapping your estate (so you can plan it)

Build an inventory:

  • Property: main home, other UK/ overseas property; ownership (joint tenants/ tenants in common), mortgages, SDLT history.
  • Pensions: DC/ DB values; death benefit nominations; age 75 considerations; current drawdown; protected tax‑free cash; uncrystallised amounts.
  • Investments & cash: ISAs, GIAs, bonds (onshore/ offshore), VCT/ EIS holdings, AIM shares; premium bonds; crypto; private equity.
  • Business interests: shareholdings, partnerships/ LLPs, carried interest; qualifying trading status; excepted assets.
  • Trust interests: you as settlor/ trustee/ beneficiary; type of trust; assets; appointment powers; 10‑year/exit charge cycle.
  • Insurance: policies, owners, lives assured; in trust?; beneficiaries?
  • Loans: intra‑family loans, loan trusts; director’s loans
  • Liabilities: mortgages, personal loans, guarantees, IHT loans, POAT charges.
  • Domicile & residence: your current status and history; exposure of overseas assets; treaty positions.

Outputs: (a) estimated taxable estate at death, (b) expected IHT liquidity (cash to pay), and (c) target actions this tax year.

An expert Private Wealth Adviser will help you gather this information and ‘model’ it, with various scenarios to show potential liabilities and mitigation actions.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

Wills as well as Trusts are not regulated by the Financial Conduct Authority.

Principle 3. The £2m question: Restoring a tapered RNRB

If your estate exceeds £2m, your RNRB can reduce to zero. Practical ways to manage the estate value at death:

  1. Time‑sequenced gifting
    • Use annual/ small/ wedding exemptions now.
    • Establish regular gifts out of surplus income (document the pattern and that your lifestyle is unaffected).
    • Consider larger PETs early to start the 7‑year clock.
  2. Charitable bequests
    • Calibrate a residuary gift to charity so that your adjusted estate drops below £2m while also unlocking the 36% rate.
  3. Trust strategies
    • Loan trusts/ discounted gift trusts — retain access to an income stream while moving capital growth outside your estate, subject to CLT/ GWR/ POAT rules.
  4. Business & agricultural planning
    • BR/APR relief does not reduce the estate value for RNRB taper, but lifetime planning may still reduce your taxable estate and improve control.
  5. Pensions & wrappers
    • Historically, pensions sat outside IHT; with pensions scheduled to face IHT from April 2027, revisit the balance between ISAs, GIAs and pensions and your drawdown plan.

Worked example (simplified): Total estate £2.3m; home £900k left to children; couple with full transferable NRB/ RNRB. Because the estate exceeds £2m by £300k, the RNRB is reduced by £150k. Bringing the estate down to £1.99m (via gifts/ charity) can restore up to £350k of additional tax‑free band for the couple.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

Trusts are not regulated by the Financial Conduct Authority.

Principle 4. Lifetime gifting that actually works
  1. Use the easy wins first
    • Annual exemption: £3,000 per donor per tax year (can carry forward one prior year if unused).
    • Small gifts: £250 per recipient per tax year (cannot combine with the £3,000 exemption to the same person).
    • Wedding/ civil ceremony: up to £5,000 to a child, £2,500 to a grandchild/ great‑grandchild, £1,000 to others.
  2. The most powerful – regular gifts out of surplus income
    • Gifts must be from income, regular/ normal, and not reduce your standard of living. Keep meticulous records (income/ expenses schedule, minutes/ letters, bank statements).
  3. PETs vs CLTsPETs (to individuals)
    • no lifetime tax, fully exempt after 7 years; taper relief applies on failed PETs after 3 years (tax on the gift, not the estate).
    • CLTs (to most trusts): may trigger 20% lifetime IHT above NRB; further charges if death within 7 years. Trusts within the Relevant Property Regime may face 10‑year and exit charges.
  4. Trap‑dodgingGWR/POAT
    • Don’t keep using what you’ve “given away” (e.g., living in a gifted home) without paying full market rent; beware asset “share‑and‑stay” schemes.
    • 14‑year look‑back: earlier CLTs can reduce the NRB available against later gifts, increasing potential tax if you die within 7 years of the later gift.
  5. Record‑keeping pack (we’ll help you set up)
    • Gift log (date, recipient, amount, exemption used, cumulative totals)
    • Income vs expenditure statement (evidence for the “surplus income” rule)
    • Valuations and letters of intent/wishes

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

Trusts are not regulated by the Financial Conduct Authority.

Principle 5. Trusts: Control, protection and precision
  1. Common trust types
    • Bare trust: simple, assets belong absolutely to the beneficiary at age 18 (16 in Scotland); gifts are PETs.
    • Interest in Possession (IIP): named beneficiary has a right to income; can be pre‑ or post‑March 2006 with different IHT treatments.
    • Discretionary trust: trustees decide who benefits and when; offers control/protection; falls under the Relevant Property Regime (RPR).
    • Vulnerable beneficiary trusts: special tax treatment where conditions met.
  2. Charges under RPR
    • Entry (usually CLT at up to 20% over NRB), 10‑year charges (up to 6% of value above NRB), and exit charges when capital leaves.
  3. Popular planning structures
    • Loan trust: you lend a lump sum to a trust; growth accrues outside your estate, while the loan remains repayable to you (no immediate gift for IHT, but loan forms part of your estate).
    • Discounted Gift Trust (DGT): you gift into a trust but retain a fixed, actuarially‑valued income stream; the actuarial “discount” can reduce the initial CLT/GWR exposure.
    • Life assurance in trust: Explained in greater detail in Principle 8.
  4. When trusts help most
    • You want control over timing/ quantum of distributions, or to protect beneficiaries (creditors, divorce risks, addiction, vulnerability).
    • You’re comfortable with trustee responsibilities, reporting, and charges.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

Trusts are not regulated by the Financial Conduct Authority.

Principle 6. Business & Agricultural Property Relief (BR/ APR)
  1. Today’s position (high‑level)
    • BR can provide 100% or 50% relief from IHT on shares in unlisted trading companies, interests in a trading partnership, or business assets used in a qualifying trade. Certain excepted assets may not qualify. Shares on certain junior markets may qualify depending on the rules.
    • APR can relieve the IHT value of qualifying agricultural property.
  2. Reforms from 6 April 2026 (headline points)
    • A new £1,000,000 per‑person allowance for the combined value relieved at 100% across APR and BR. Value above the allowance receives 50% relief.
    • Shares admitted to trading on certain recognised stock exchanges designated as “not listed” will receive 50% relief (not 100%).
    • Qualifying periods and conditions will be modernised/ clarified, and trusts/ estates will have their own allowances.
  3. What to do now
    • Audit eligibility of business/ farm assets and any AIM/ quoted exposures.
    • Consider timing of transactions, restructures, or succession ahead of April 2026.
    • Ensure excepted assets are minimised and trading tests are satisfied.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

Trusts are not regulated by the Financial Conduct Authority.

Principle 7. Pensions and the 2027 IHT change
  1. Position until April 2027 (simplified)
    • Currently, most unused DC pensions do not form part of the estate for IHT.
    • Income tax applies to beneficiaries’ withdrawals if death occurs after age 75; pre‑75 deaths can be tax‑free (subject to rules and timing).
  2. From 6 April 2027 (subject to legislation)
    • Most unused pension funds are scheduled to be included for IHT. Pension scheme administrators will typically report and pay the IHT.
    • Spouse/ civil partner exemptions continue for death benefits paid to them.
    • This creates a potential double‑tax effect (IHT at death plus Income Tax when beneficiaries draw the fund), producing very high effective rates for some families.
  3. Planning actions
    • Refresh nominations (make sure trustees have clear directions, and review expression of wishes wording).
    • Consider drawing part of the tax‑free Lump Sum Allowance and using it in‑life (spending, gifting, or funding insurance premiums) where appropriate.
    • Balance wrappers: re‑assess the trade‑off between keeping wealth inside pensions vs. drawing and moving to ISAs/ GIAs/ trusts/ FICs.
    • Integrate pension planning with your £2m RNRB taper strategy and overall IHT liquidity plan.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

Trusts are not regulated by the Financial Conduct Authority.

Principle 8. Pensions and the 2027 IHT change

If you have surplus income and want to retain capital (or can’t gift enough), consider a guaranteed whole‑of‑life policy written in trust to create liquidity for heirs.

  1. Why trust‑own the policy?
    • Keeps the sum assured outside your estate.
    • Pays before probate, giving executors cash to meet IHT and other costs.
  2. Best practice
    • Pay premiums from surplus income (documented) where possible to avoid gifts counting against your NRB.
    • Review joint life, second‑death vs. single life arrangements; consider waiver of premium options.
  3. Illustrative cost
    • As a reference point, a joint life, second‑death guaranteed whole‑of‑life for age‑65 non‑smokers with £400,000 sum assured can be c. £6k–£7k p.a. (provider‑ and underwriting‑dependent). Your actual premium will vary.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

Trusts are not regulated by the Financial Conduct Authority.

Principle 9. Charitable giving

Leave ≥10% of your net estate (the “baseline amount”) to charity and your IHT rate can drop to 36% on the remainder.

Consider donor‑advised funds or charitable legacies via Will; you can also structure lifetime gifts (with Gift Aid where appropriate) to reduce the eventual estate.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

Principle 10. Domicile, residence and overseas assets

From 6 April 2025, the UK has shifted to a residence‑based approach for the scope of IHT on worldwide assets, with transitional rules. Long‑term UK residence can bring overseas assets into the IHT net after a qualifying period.

If you have non‑UK assets, review exposure and treaty interactions; consider excluded property trusts and timing where appropriate (specialist advice essential).

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

Principle 11. Family Investment Companies (FICs)
  1. What they are:
    • Private companies used to hold family investments.
    • Parents typically subscribe for voting/ non‑growth shares; younger generations subscribe (or are gifted) growth shares.
    • Result: control retained, growth shifted outside the parents’ estates.
  2. Why consider FICs
    • Control via articles/share classes and board.
    • IHT: initial gifts of growth shares may be PETs/ CLTs; future growth outside parents’ estates.
    • Corporation tax on investment income/ gains (rates and reliefs apply); dividends up to parents may be controlled.
  3. Watch‑out for
    • Settlements legislation and transfer of assets abroad rules.
    • Corporate governance & costs (accounts, filings, loans).
    • Valuation of share classes; minority discounts.
  4. When FICs shine
    • Large, multi‑generational portfolios;
    • Desire for control and protection;
    • Willingness to maintain good records and governance.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

Principle 12. Deeds of Variation (DoV)

Within 2 years of death, beneficiaries may vary inheritances so they pass to others (including charity or trusts) and be treated for IHT/ CGT as if made by the deceased.

This can:

  • Restore RNRB by redirecting assets.
  • Reduce the overall IHT rate to 36% via charitable legacies.
  • Implement trusts where the Will didn’t.

All affected parties must agree; and we would refer you for legal advice.*

*Involves the referral to a service that is separate and distinct to those offered by St. James’s Place.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

Trusts are not regulated by the Financial Conduct Authority.

Pulling it together: Three mini case studies

A) Couple, estate £2.3m (home £900k), children as heirs

Goals: keep the family home; minimise IHT; keep flexibility.

  • Annual/small gifts and regular gifts out of income documented.
  • £60k charitable residuary legacy calibrated to bring estate below £2m at second death, restoring £350k combined RNRB.
  • Loan trust established; growth now outside estate.
  • Whole‑of‑life policy £400k in trust funded from surplus income to create liquidity at second death.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

Trusts are not regulated by the Financial Conduct Authority.

B) Entrepreneur with trading company and AIM portfolio

Goals: succession to children; use reliefs; prepare for 2026 reforms.

  • Audit trading status/ excepted assets; rebalance AIM exposures mindful of 50% relief treatment changes post‑2026.
  • Pass controlling shareholding to family trust with staged appointments; equalise estates between spouses.
  • Update Wills to capture BR/ APR efficiently.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

Trusts are not regulated by the Financial Conduct Authority.

C) Widow with £1.7m pension + £600k ISA/ GIA

Goals: family provision with simplicity; aware of 2027 pension change.

  • Review beneficiary drawdown vs. lump sum; consider partial crystallisation and tax‑free cash gifting.
  • Increase ISA funding; consider charity legacy to reduce rate to 36%.
  • Evaluate whole‑of‑life in trust to fund residual IHT.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

Trusts are not regulated by the Financial Conduct Authority.

Your next 90 days (action list)

  1. Estate inventory and ownership map (Principle 2).
  2. Will and LPAs review; add letters of wishes (trusts/guardianship guidance).
  3. Set up gift log and begin surplus income gifting (documented).
  4. Decide on RNRB restoration approach if near/ over £2m (gift/ charity/ trust path).
  5. Pensions: update nominations; model drawdown vs. wrapper relocation ahead of 2027.
  6. BR/APR assets audit; plan around April 2026 reforms.
  7. Explore trust or FIC if control/protection needed.
  8. Obtain quotes for a whole‑of‑life policy in trust funded from surplus income.
  9. Build the IHT liquidity plan and executor instructions.
  10. Schedule regular reviews; update on life events (property sales, business exits, windfalls).


An expert Private Wealth Adviser will help you put this plan into action.

Protecting your wealth from the taxman can be harder than creating it – but with early, structured planning and expert guidance, you can give your family the freedom, control and security you want for them. If any of this resonates, we’ll turn this into a personal plan and do the heavy lifting for you.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

Wills as well as Trusts are not regulated by the Financial Conduct Authority.

Arrange your no-obligation estate planning conversation with an expert wealth adviser

Select date and time

SJP Approved xx/xx/xxxx

Should you require more information or have particular questions, we invite you to contact us at your convenience.

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Taking the leap: Financial clarity when leaving a high-earning role

Introduction

Whether you’re preparing to leave corporate life behind, scaling back, or stepping into something new – like launching your own business or becoming a partner – it’s crucial to have a clear view of your financial position before you make the move. Here are some of the key areas our team of advisers can help you navigate.

Workplace Pensions

If you’ve built a significant pension through your employer – particularly in a defined contribution or hybrid scheme – it’s worth reviewing your options before you leave:

  • How can you manage multiple pension pots? Many professionals now have multiple pensions scattered across employers, and it’s easy to lose track. Holistic planning will take these into account and seek to preserve any guarantees or employer perks.
  • Will your new business or partnership offer a pension? If not, a personal or SIPP* arrangement might be essential to keep building tax-efficient retirement savings.

*These types of pensions will not be suitable for everybody, as they require investors to be happy in making their own investment decisions and may incur costs not usually associated with other types of pension schemes. The value may fall as well as rise and you may get back less than the amount invested. Pension and tax rules can change at any time and will be dependent on individual circumstances.

Save time – receive a no-obligation financial plan, tailored to your circumstances.

Let’s get started

Equity Compensation: Options, RSUs, and Exit Events

If you’ve received share options, restricted stock units (RSUs), or performance-based shares during your tenure, now is the time to check the fine print:

  • Are you close to a vesting event? Leaving too early might result in forfeiting a significant portion of your equity.
  • What tax liabilities are triggered? Depending on timing, exercising or selling shares may result in income tax or capital gains tax charges.
  • Do you need liquidity planning? If a lump sum or windfall is expected, structuring that into your wider financial strategy could help reduce tax and unlock future opportunities.

We help senior professionals manage these transitions with an eye on both opportunity and downside risk.

Please note that advice with regard to exit strategy planning may involve the referral to a service that is separate and distinct to those offered by St. James’s Place.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

Personal Protection, Specialist Insurance and Private Medical Cover

Group benefits often disappear the moment you leave employment. That might include:

  • Life cover
  • Critical illness protection
  • Income protection
  • Private medical insurance

We help clients identify what’s worth replacing privately, what can be deferred, and how to get covered in the most cost-effective and tax-efficient way. This is especially important for new business owners, where income can be volatile.

Founding a business or becoming a partner?

Starting your own business or joining a partnership structure presents both risks and opportunities:

  • Are you losing employer pension contributions or matched benefits?
  • Do you have startup capital or need to keep cash liquid?
  • How will your income change – and how can your personal finances adjust?

From creating a director’s remuneration strategy to helping you reinvest a bonus or exit package tax-efficiently, we provide forward-thinking advice for professionals building their next chapter.

Please note that advice with regard to exit strategy planning may involve the referral to a service that is separate and distinct to those offered by St. James’s Place.

Planning for retirement, sooner or later

Whether this career change brings retirement forward – or just sharpens your focus – it’s essential to understand:

  • What will you spend? Retirement Living Standards can give you a national benchmark, but our team builds bespoke financial models so you know exactly what’s needed for your lifestyle.
  • How will you draw down income? We’ll help you weigh the pros and cons of drawdown, annuities, or phased lump sums – and time withdrawals to avoid unnecessary tax.
  • Do you still need protection or investment growth? Retirement doesn’t mean standing still. Let’s plan for the future you want.

A strategic wealth plan for professionals

When high-earners leave a role, the stakes are high: pensions, protection, share schemes, benefits, taxes, and future income are all in play.

Whether you’re stepping away to reset, relaunch or retire, our team is here to help you leave on your terms – with confidence and clarity. Let’s take stock of your position and map out what’s next – for your wealth, your goals, and your peace of mind.

Book a Career Change Financial MOT with an expert Private Wealth Adviser.

Start Your Conversation

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up.  You may get back less than you invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

SJP Approved 08/08/2025

Should you require more information or have particular questions, we invite you to contact us at your convenience.

Contact Us

Advanced protection strategies for high net worth individuals

Why protection isn’t a product – it’s a philosophy

Most successful individuals understand the value of investing, tax planning, and building wealth. But far fewer give the same care and attention to protecting it.

We often encounter HNWIs with portfolios worth millions – yet protection strategies that are fragmented, outdated, or insufficient. The issue isn’t affordability. It’s complexity. And the misconception that insurance is only for people with “less to lose.”

The reality is this: the more you have, the more you need to protect.

In this article, we explore the advanced protection strategies used by high-net-worth individuals to safeguard their wealth, ensure family continuity, and keep their businesses resilient.

Life Insurance structured for tax and control

Term life vs. Whole of life: Matching product to purpose

While most people are familiar with term life cover, many HNWIs require a combination of term and whole-of-life (WOL) policies to achieve different objectives:

  • Term cover: Useful for covering debts, children’s education, or business continuity during a defined period (e.g. until retirement or exit).
  • Whole-of-life cover: Critical for estate planning – ensuring liquidity to meet inheritance tax (IHT) liabilities.

Writing policies into trust

High earners often make the mistake of holding policies in their own name, which brings the payout into their estate – and potentially into the IHT net at 40%.

The solution? Write policies into trust to keep them outside the estate, avoid probate delays, and give control over who receives what, when, and how.

Save time – receive a no-obligation protection sufficiency assessment.

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Relevant Life Plans: Tax-efficient cover for directors and high earners

Relevant Life Plans (RLPs) are a highly tax-efficient way for employers (typically limited companies) to provide individual life cover for an employee, including directors. They’re especially attractive to high earners and owner-managed businesses looking for a cost-effective way to protect loved ones and extract value from the company.

A Relevant Life Plan is a term life insurance policy that provides a lump sum benefit to the insured’s family or nominated beneficiaries if they die (or are diagnosed with a terminal illness) during the policy term.

For company directors, a Relevant Life Plan (RLP) can help to extract value from their business tax efficiently. For directors, high-earning employees, or partners in a firm, RLPs are often a cornerstone of HNW protection planning. Proceeds are typically paid into a discretionary trust, keeping them outside the estate.

Critical Illness Cover – but done correctly

Critical illness cover is often overlooked by high net worth individuals, who may believe their wealth alone provides sufficient protection. However, for affluent clients – especially those with dependents, complex financial structures, or lifestyle dependencies on active income – critical illness cover is not just a safety net; it’s a strategic wealth preservation tool.

Liquidity protection at a critical time

While HNWIs may have significant assets, those assets are often tied up in illiquid holdings – property, businesses, pensions, or investments that cannot be easily accessed or sold without penalty or delay. A tax-free lump sum from a critical illness policy provides instant liquidity without needing to disrupt investment strategies, crystallise capital gains, or make distress sales.

Protecting human capital

Many HNWIs are entrepreneurs, executives, or consultants whose ability to earn is tied to their health and cognitive function. A diagnosis of cancer, stroke, or a heart attack could halt their income-generating potential – even if temporarily. Critical illness cover acts as a monetisation of human capital, ensuring the individual and their family can maintain lifestyle, commitments, and responsibilities without compromise.

Offsetting opportunity costs and recovery time

The cost of a serious illness is not just medical – it includes:

  • Loss of earnings (particularly for self-employed/HNWIs with performance-linked income)
  • Treatment abroad, private rehab, or experimental therapies
  • Time away from business ventures, affecting future growth and compound returns

Critical illness cover can fund these without eroding long-term investment portfolios or derailing growth strategies.

Protecting leverage and legacy commitments

HNWIs often use geared strategies – leveraging property or investments – and are committed to legacy or intergenerational planning. A serious illness at the wrong time could force early liquidation of assets, undermine gifting strategies, or create unforeseen liabilities.

Critical illness payouts can:

  • Pay off loans or service interest during incapacity
  • Fund trust or IHT planning strategies without delay
  • Maintain life cover or pension contributions during recovery

Supporting family stability and dependents

For clients with children in private education, dependents abroad, or family members reliant on their oversight (e.g. elderly parents, disabled children), a critical illness diagnosis can ripple through their financial ecosystem. Having an immediate lump sum allows the family to bring in support, continue funding important commitments, or restructure life with minimal stress.

Business continuity and key person risk

If the HNWI is a business owner, their illness could trigger:

  • Business interruption
  • Loss of investor confidence
  • Buy-sell complications with co-directors
  • Staff or client attrition

Critical illness cover can be written in trust or as part of a business protection plan, providing capital for succession, share purchase, or continuity.

Tax-efficient structuring

Depending on how it’s set up, critical illness can be arranged in tax-efficient structures that reduce corporation tax and preserve personal allowances.

Executive income protection and business continuity

HNWIs often have non-salary income (e.g., dividends, drawings, performance bonuses), making standard income protection inadequate or mispriced.

Solution: Executive Income Protection, which can be structured via a company to:

  • Cover a % of total remuneration, not just base salary
  • Be tax-deductible for the company
  • Provide ongoing cover during sabbaticals or international relocation (if structured correctly)

For entrepreneurs or partners, cover can be extended to:

  • Replace lost profits or revenues in the event of illness
  • Provide sick pay for multiple directors or key individuals

Key Person and Shareholder Protection

If you run or co-own a business, you are the business. Your loss could destabilise your team, clients, and profitability.

Key Person Insurance:

Covers financial loss from the death or serious illness of a key revenue generator or leader. Payouts can be used to:

  • Recruit replacements
  • Cover lost profits
  • Stabilise credit lines or investor confidence

Shareholder/Partnership Protection:

If a co-owner dies or becomes critically ill, what happens to their shares?

Solution: Cross-option agreements funded by life and/or critical illness cover allow surviving shareholders to buy out the deceased’s estate at fair value, keeping ownership within the firm and avoiding disputes.

Premium equalisation also ensures tax efficiency and fairness between shareholders.

Trusts and legacy structuring

Using life insurance in estate planning

When structured correctly, life insurance is a powerful estate planning instrument – not only as a means to provide for heirs, but also as a way to protect the estate itself. For wealthy individuals and families, particularly those with complex asset structures (e.g. businesses, real estate portfolios, or international holdings), life insurance can solve several challenges that arise when passing wealth between generations. Many wealthy families use life insurance as a liquidity tool to fund estate tax liabilities, often via Discretionary Trusts. This ensures:

  • Rapid access to capital (outside probate)
  • No forced asset sales (such as property or business interests)
  • Equalisation between beneficiaries (e.g., if one child inherits a business and the others don’t)

For ultra-high-net-worth individuals with high net worth but illiquid or unpredictable income, premium financing is becoming increasingly popular. This involves:

  • Borrowing funds (often through referral to private banking solutions) to pay large policy premiums
  • Using the policy’s cash value and/or death benefit as security
  • Repaying the loan via the estate, policy proceeds, or other liquidity events

This preserves capital and investment returns, avoids disrupting cash flow or needing to liquidate high-performing assets, and allows for much larger policies than might be affordable with cash alone. However, it is a complex strategy involving interest rate risk, loan covenants, and insurer underwriting – so professional advice is essential.

Additional considerations

  • Gift of premiums: Regular premiums paid into a trust may be exempt from IHT if they qualify as normal expenditure out of income.
  • Business Relief: If certain business assets qualify for Business Relief, life insurance might not be needed for those – but it’s important to plan for assets that don’t qualify.
  • Generational planning: Life insurance can also be used to fund Legacy Trusts or Dynasty Trusts, ensuring wealth protection across multiple generations.
  • Expatriates: International clients may benefit from offshore life assurance policies, adding layers of tax efficiency across jurisdictions.

Private medical and global protection

For internationally mobile clients or those with high expectations for healthcare, private medical insurance and international health plans are essential.

Plans may include:

  • Worldwide cover with no cap on cancer care
  • Direct billing for major hospitals
  • Concierge claims management
  • Optional cover for dependents, domestic staff or business employees

HNWIs also benefit from second opinion services, executive health screening, and genomic testing – all now available via advanced private healthcare packages.

Philanthropic and ethical protection planning

Increasingly, HNWIs want to align their protection strategies with their values, such as:

  • Naming charitable organisations in their trust beneficiaries
  • Using overfunded life policies to create legacy donations
  • Applying ESG filters to insurers or private medical providers

These choices can be embedded into broader philanthropy planning, often in tandem with donor-advised funds or family foundations.

Ready to create your protection strategy?

Let’s Get Started

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up.  You may get back less than you invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

SJP Approved xx/xx/xxxx

Should you require more information or have particular questions, we invite you to contact us at your convenience.

Contact Us

Should you save more than £1 million in your pension?

Carving out the optimum strategy to save for your retirement, and mitigate tax on your earnings

The removal of the Pension Lifetime Allowance (LTA) charge in 2023 was a significant win for high earners, allowing unrestricted pension growth without an additional tax charge. However, the landscape changed again in October 2024 when it was announced that most unspent pensions will form part of an individual’s estate for Inheritance Tax (IHT) purposes from 6 April 2027.

This raises a crucial question: should you continue maximising pension contributions beyond £1 million, or are there better alternatives? This guide explores the tax benefits and trade-offs of pensions, compared to ISAs and Offshore Bonds.

  • What is the right combination of Pensions, ISAs and Offshore Bonds?
  • How should your strategy be tailored, depending on your level of income?
  • Could you be impacted by these decisions when funding your retirement?

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and the value may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.

Save time – receive a no-obligation financial plan, tailored to your circumstances.

Let’s get started

Tax considerations for pensions

Tax relief

One of the biggest advantages of pension contributions is tax relief:

  • Basic rate taxpayers (20%): Receive 20% tax relief at source, on eligible contributions to a personal pension plan.
  • Higher rate taxpayers (40%): Can claim an additional 20% relief via HMRC.
  • Additional rate taxpayers (45%): Can claim an additional 25% relief via HMRC.
  • On earnings between £100,000 and £125,140, the effective rate of tax relief could be as high as 60% if the pension contributions restore your tapered personal allowance.

Example:

A £10,000 pension contribution effectively costs:

  • £8,000 for a basic rate taxpayer.
  • £6,000 for a higher rate taxpayer.
  • £5,500 for an additional rate taxpayer.
  • £4,000 when income between £100,000 and £125,140 is sacrificed to mitigate the tapered personal allowance.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

Tax relief on personal contributions is limited to a maximum of 100% of relevant earnings in the tax year the contributions are paid. Contributions are also limited by the annual allowance. The standard annual allowance is £60,000.

Taxation on Pension Withdrawals

While pensions benefit from tax relief on contributions, withdrawals are subject to income tax:

  • 25% of withdrawals are tax-free, up to the Lump Sum Allowance (LSA) of £268,275.
  • The remaining 75% is taxed at the individual’s marginal rate (20%, 40%, or 45%).

One rule of thumb is that you ought to save into a pension if, when you retire, your marginal rate of income tax is similar to or lower than when you were working. That would typically result in a strong degree of tax efficiency, given the tax-free element up to the LSA.

However, the tax efficiency of pensions is diminished once the total value of one’s pensions exceeds £1,073,100. That’s because less than 25% of the total value is available as a tax-free withdrawal – for instance, the LSA applied to a pension valued at £3 million is equivalent to only 9% rather than 25%.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

When the amount you can save into a pension is ‘tapered’

For high earners, the decision to make increased pension contributions may be taken away from you.

Pension tapering regulates the amount high-earning individuals can contribute to their pensions annually while still receiving the full benefits of tax relief.

For the 2025/26 tax year, the standard annual allowance is set at £60,000. Nonetheless, those earning a higher income may see their allowance reduced to as low as £10,000, based on their total yearly income.

Individuals with a ‘threshold income’ over £200,000 and an ‘adjusted income’ over £260,000 are subject to the tapered annual allowance. The reduction in allowance halts when ‘adjusted income’ exceeds £360,000, setting the annual allowance to a minimal £10,000 for pension savings that receive the full benefit of tax relief.

Broadly, ‘Threshold Income’ includes all taxable income received in the tax year, including rental income, bonuses, dividend, and other taxable benefits.  From this you deduct any personal pension contributions to personal pension scheme.

‘Adjusted income’ includes all taxable income plus any employer pension contributions and most personal contributions to an occupational pension scheme.

Individuals exceeding both a ‘threshold income’ of £200,000 and ‘adjusted income’ of £260,000 will experience a reduction in their annual allowance by £1 for every £2 exceeding £260,000 in adjusted income.

For instance, an ‘adjusted income’ of £280,000 reduces the annual allowance by £10,000, resulting in a £50,000 allowance instead of £60,000.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up.  You may get back less than you invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

What are the alternatives?

Making ISA contributions

A Stocks and Shares ISA (or Investment ISA) is a tax-efficient way to invest, offering potential for higher growth than a Cash ISA. Any gains or income within an ISA are free from Capital Gains Tax and Income Tax. You can invest up to £20,000 per tax year (6 April – 5 April), and if you’re married, you might consider using your spouse’s allowance to maximise tax efficiency.

While you can withdraw funds anytime, Stocks and Shares ISAs are best suited for mid- to long-term investing, helping you ride out market fluctuations. While you won’t receive tax relief on your ISA contributions like you might with a pension, the withdrawals you make are entirely tax-free.

The value of an ISA with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise.  You may get back less than you invested. An investment in a Stocks and Shares ISA will not provide the same security of capital associated with a Cash ISA. 

The favourable tax treatment of ISAs may not be maintained in the future and is subject to changes in legislation.

Please note that Cash ISAs are not available through Apollo Private Wealth nor St. James’s Place.

Investing in a General Investment Account (GIA)

A General Investment Account (GIA) can be a useful addition to a retirement strategy, particularly for individuals who have already maximised their pension and ISA allowances. Unlike pensions, GIAs have no contribution limits, and unlike ISAs, they don’t offer tax-efficient growth or withdrawals. However, they provide full flexibility: you can invest as much as you like, access your funds at any time, and choose a wide range of investments.

While investment growth and income within a GIA are subject to capital gains tax (CGT) and dividend tax, you can make use of annual allowances – like the £3,000 CGT exemption and dividend allowance (currently £500) – to manage tax efficiently. In retirement planning, a GIA can complement other wrappers by offering liquidity, investment flexibility, and tax-planning opportunities, especially when used alongside ISAs and pensions to smooth income and reduce overall tax liabilities.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up.  You may get back less than you invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

Offshore Bonds

An Offshore Bond is a tax-efficient investment vehicle that can be used as an alternative to or alongside a pension for retirement planning. It offers tax-deferred growth, meaning that any gains within the bond are not subject to UK tax while they remain invested. Instead, tax is only due when withdrawals are made, allowing your investments to grow more efficiently over time.

One of the key benefits of an Offshore Bond is its withdrawal flexibility. You can take up to 5% of your original investment each year, tax-deferred for 20 years, which can be particularly useful for supplementing retirement income without an immediate tax liability.

Offshore Bonds also provide estate planning advantages, as they can be structured under a trust to help mitigate Inheritance Tax. Additionally, they offer investment flexibility, giving access to a wide range of funds, including those not typically available within UK-based wrappers.

While pensions offer tax relief on eligible contributions, they come with restrictions on access, along with the Lump Sum Allowance (LSA) and income tax on withdrawals. An Offshore Bond, by contrast, provides greater control over when and how you draw your money, making it a valuable complement to retirement planning. However, tax treatment will depend on individual circumstances and may change, so professional advice is essential.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up.  You may get back less than you invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.


Next steps

For many, pensions will still be a core part of retirement planning due to the up-front tax relief. However, it may be time to consider diversifying into ISAs, Offshore Bonds, and other tax-efficient vehicles. The right approach depends on income level, retirement goals, and intergenerational wealth planning objectives.

Speak to an expert Private Wealth Adviser to assess your specific situation and develop a tailored strategy that maximises tax efficiency and protects your wealth for future generations.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up.  You may get back less than you invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

SJP Approved 13/06/2025

Start planning now – invest later. Obtain a bespoke financial plan, tailored to your unique objectives.

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Should you require more information or have particular questions, we invite you to contact us at your convenience.

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Starting the new tax year on the right footing

For busy professionals, the smartest wealth decisions happen in April – not next March. Here’s why.

If you’re a high-earning professional, your time is at a premium. Between work, life, and everything in between, financial planning often slips down the list – until deadlines loom. But when it comes to building and protecting your wealth, timing matters.

This guide outlines the key allowances available for the 2025/26 tax year and explains why acting early (with the right support) can generate significantly better outcomes than leaving things to the last minute. Best of all? We do the legwork for you – so you can focus on what you do best.

Save time – receive a no-obligation financial plan, tailored to your circumstances.

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What are the key tax allowances and reliefs for 2025/26?

ISA and JISA Allowances
  • £20,000 per adult
  • £9,000 per child

ISA and JISA Allowances reset each tax year, on a use-it-or-lose-it basis. Invest in cash, stocks & shares, or a blend. Enjoy flexible access for mid-term goals. Both growth and withdrawals are free of income and capital gains tax.

St. James’s Place do not offer cash ISAs or JISAs.

Pension Annual Allowances
  • Up to £60,000, or 100% of relevant earnings, per adult
  • Up to £3,600 for non-earners, including children

Pension Annual Allowances reset each tax year, but in some cases, you can carry forward unused allowances from the previous three years. Benefit from tax relief at your marginal rate of income tax. Growth is also tax free, and withdrawals can be made tax efficient.

When sacrificing your salary, you could mitigate an effective 60% rate of tax on income between £100,000 and £125,140.

Your Pension Annual Allowance may be tapered, if your ‘threshold income’ exceeds £200,000 and your ‘adjusted income’ exceeds £260,000; the reduction in allowance halts when ‘adjusted income’ exceeds £360,000, setting the annual allowance to a minimal £10,000 for pension savings that receive the full benefit of tax relief.

Capital Gains Tax Exemptions
  • £3,000 per person, including children

Capital Gains Tax Exemptions reset each tax year on a use-it-or-lose-it basis, and apply to everyone, whether adult or child, earning or not.

It is crucial to capitalise on the CGT Exemption when rebalancing your portfolio, or exiting positions, to realise gains in the most tax efficient way.

A financial adviser can also help you with tax loss harvesting – an investment strategy for generating capital losses to gain a tax advantage.

Dividend Allowances
  • £500 per person, including children

Dividend Allowances reset each tax year on a use-it-or-lose-it basis, and apply to everyone, whether adult or child, earning or not.

Particularly relevant for company directors, and for investors, utilising Dividend Allowances can provide a small additional tax-free income.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.

Why acting now, rather than in March next year, could yield thousands.

For busy professionals, the smartest wealth decisions happen in April – not next March. Leaving everyone else to scramble at the 11th hour of the tax year end deadline, you’ll have already taken control, and put your capital to work from day one.

  1. More time in the market = greater potential for growth
    Time in, not timing the market. The earlier you invest, the longer your money benefits from tax-efficient compounding. Example: Investing £20,000 into each ISA in April, instead of next March, could add £1,200+ to your long-term returns, based on 6% net annual growth. Do that year after year, and the difference compounds into five figures.

    This figure is for illustrative purposes only. You may get back more or less than the figure shown. How your investment grows will depend on the fund choices made, the taxation of the funds selected and the charges attributed to your plan.
  2. Less stress, better strategy
    Trying to rush through financial decisions next March, meeting deadlines at the same time as juggling end-of-Q1 pressure at work, means crucial planning could get missed – rarely resulting in the best outcomes. Starting early gives you time to plan your cashflow, and space to think thoroughly about your investment decisions; supported by an expert financial planner, who curates your approach according to your unique goals and objectives in life.
  3. Proactive utilisation of all the tax allowances and reliefs available to you and your family
    By starting early, you can allocate pension contributions according to regular income, plan lump-sum investments around bonus and maturity dates, and engage your spouse and children in taking a holistic approach to your family’s finances.

We make it effortless.

Our core expertise is in helping time-poor professionals – investment bankers, lawyers, consultants, founders – take full advantage of every tax planning opportunity, with zero hassle. Benefit from;

  • A dedicated, expert Private Wealth Adviser, who remains your single point of contact and understands your unique requirements
  • Support from your Adviser’s team of qualified Associates, Paraplanners and administrative staff – working tirelessly to bring your financial objectives to life
  • A bespoke strategy report each year, complemented by advanced cashflow modelling and scenario planning

Your holistic financial roadmap will also encompass important frameworks for preserving your wealth, asking questions like;

  • Is your insurance coverage (e.g. critical illness, key person) sufficient, based on your lifestyle and that of your dependents?
  • What is your mounting inheritance tax liability, and how can your estate be structured to enable as much of your wealth as possible to be passed on to your beneficiaries?
  • Do your investments remain suitable for your objectives over time? Is there a rebalancing need? And most of all, is the asset location optimal for tax efficient accumulation?
The Value of Advice

Start by creating your action plan today.

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Should you require more information or have particular questions, we invite you to contact us at your convenience.

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How to manage a windfall, tax efficiently

A strategic guide for high net worth individuals

Receiving a windfall – whether from an inheritance, business sale, bonus, or other significant financial gain – presents both opportunities and complexities. Without a clear strategy, it’s easy to mismanage these newfound assets, potentially eroding wealth over time. This guide outlines a structured approach to making the most of your windfall while ensuring long-term financial security.

Save time – receive a no-obligation financial plan, tailored to your circumstances.

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Assessing your financial situation

Before making any financial decisions, take a step back and evaluate your current financial position.

Understanding your net worth

Compile a detailed breakdown of your assets, liabilities, income sources, and ongoing expenses.

Clarifying your financial goals

Define short-, medium-, and long-term objectives – whether that’s early retirement, property investment, philanthropy, or wealth preservation.

Evaluating your existing investment strategy

Assess whether your current portfolio is aligned with your new financial reality and risk tolerance.

Reviewing liabilities and liquidity needs

Determine if paying down liabilities (such as mortgages or business loans) is a priority or if maintaining liquidity for future opportunities is more beneficial.

A professional wealth adviser can help you take a holistic view and ensure your decisions align with your broader financial aspirations.

Managing tax implications

A windfall can have significant tax consequences, and careful planning is essential to ensure you retain as much wealth as possible.

Inheritance Tax (IHT) mitigation

If the windfall is from an inheritance, consider strategies such as gifting, trusts, and other qualifying investments to reduce future IHT liabilities.

Capital Gains Tax (CGT) planning

If assets (such as shares or property) are involved, a phased disposal strategy may help spread CGT liability over multiple tax years.

Income tax efficiency

Large bonuses and unexpected income surges can push you into higher tax brackets. Structuring receipts over time, pension contributions, or investing in tax-efficient vehicles can mitigate this impact.

Use of tax wrappers

Leveraging ISAs, pensions, and other HMRC-approved schemes and investment wrappers, can provide significant tax relief while ensuring long-term wealth growth. Don’t forget, you could also provide some funds to your partner, and/or children, to utilise their respective pension and ISA allowances.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise.

The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances.

Trusts are not regulated by the Financial Conduct Authority.

Developing an investment strategy

Once tax considerations are addressed, focus shifts to deploying the windfall effectively. A well-structured investment strategy should reflect your risk tolerance, investment horizon, and objectives.

Diversification

Avoid overexposure to any single asset class. A mix of equities, bonds, property, private equity, and alternative investments can mitigate risk.

Risk management

Understand how your risk appetite has changed now that your wealth has increased. Stress-test different scenarios using cashflow modelling.

Tactical vs strategic asset allocation

Balance active opportunities (e.g., private equity or thematic investing) with a long-term passive core.

Liquidity considerations

Ensure you maintain an emergency fund while keeping a portion of your portfolio readily accessible for new opportunities.

Professional oversight

Regular reviews with a financial adviser can help ensure your investments remain aligned with your changing needs and market conditions; for example, regularly evaluating rebalancing need.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise.

The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances.

Retirement planning

A windfall provides an opportunity to reassess retirement plans, whether accelerating retirement or enhancing existing strategies.

Maximising pension contributions

Consider using your Annual Allowance (£60,000) and any available Carry Forward from the past three years to boost tax-efficient pension savings. One could theoretically contribute up to £200,000 at once, at a net cost from £110,000, subject to relevant earnings. Discover more about Pension Carry Forward.

Overall pension value considerations

While the Lifetime Allowance charge has been abolished, excess pension savings may still impact income tax rates in retirement. The Lump Sum Allowance (LSA) caps tax-free cash at £268,275, while the Lump Sum Death Benefit Allowance (LSDBA) has significant estate planning implications for individuals who die before age 75. Furthermore, from 2027, unspent pensions will be brought inside of estates for Inheritance Tax (IHT) purposes. Strategic withdrawals and planning remain crucial.

Sustainable withdrawal strategies

If you’re considering early retirement, ensure you have a sustainable drawdown plan that balances income needs with longevity risks.

Decumulation tax planning

Structuring withdrawals across ISAs, pensions, and taxable accounts efficiently can optimise your income tax position in retirement. Discover more about managing a high-value retirement portfolio, tax efficiently.

A well-integrated retirement plan ensures your windfall contributes to a financially secure future, rather than being eroded by inflation or inefficient withdrawals.

Estate planning and wealth preservation

A windfall can have long-term implications for your estate and legacy. Proper planning ensures your wealth is protected and transferred tax-efficiently to the next generation.

Trust structures

Discretionary and bare trusts can provide tax-efficient intergenerational wealth transfers while maintaining control. Discover more about Trusts.

Gifting strategies

The use of the £3,000 annual gift exemption, potentially exempt transfers (PETs), and regular gifts out of surplus income can mitigate inheritance tax. Discover more about Gifting.

Family Investment Companies (FICs)

For larger estates, FICs can provide an alternative to trusts while offering greater control and flexibility.

Please note FICs are not offered by St. James’s Place.

Updating Wills and Lasting Powers of Attorney (LPAs)

Ensure legal documents reflect your new financial circumstances and wishes for asset distribution.

Charitable giving and philanthropy

If philanthropy is a priority, consider setting up a donor-advised fund (DAF) or a family charitable trust to structure donations effectively.

The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances.

Will writing involves the referral to a service that is separate and distinct to those offered by St. James’s Place. Wills are not regulated by the Financial Conduct Authority.

Advice given in relation to a Power of Attorney will involve the referral to a service that is separate and distinct to those offered by St. James’s Place and is not regulated by the Financial Conduct Authority.

Trusts are not regulated by the Financial Conduct Authority.

Professional advice: A critical component

Handling a windfall effectively requires expert input from multiple disciplines, including financial planning, tax advisory, and legal expertise. Partnering with an expert Private Wealth Adviser ensures you:

  • Make tax-efficient decisions from day one.
  • Implement a diversified and well-structured investment plan.
  • Safeguard your wealth for future generations.
  • Maintain flexibility as your circumstances evolve.

A well-managed windfall can significantly enhance your financial future. With the right strategy, you can turn a one-time financial event into a lasting legacy of security and prosperity.

Start planning now – invest later. Obtain a bespoke financial plan, tailored to your unique objectives.

Book A Conversation

Should you require more information or have particular questions, we invite you to contact us at your convenience.

Contact Us

Thinking about retiring in 2025?

Fine-tune your strategy for an imminent retirement

Retirement isn’t just about stopping work – it’s about securing financial freedom on your terms. If you’re planning to retire in 2025, now is the time to fine-tune your strategy. This guide walks you through the essential financial decisions to help you retire with confidence while optimising your tax efficiency.

TAX IN RETIREMENT

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.

The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax relief depends on individual circumstances.

Save time – receive a no-obligation financial plan, tailored to your circumstances.

Let’s get started

Define your retirement goals

Retirement is more than just a financial milestone – it’s a transition to a new phase of life. The foundation of any successful retirement plan is a clear understanding of your goals. Defining these early ensures that your financial strategy aligns with your lifestyle aspirations, risk tolerance, and long-term wealth planning.

What do you want your retirement to look like?

Your retirement objectives should dictate your financial plan, not the other way around. Ask yourself:

  • Do you prioritise capital growth or stable income? Some individuals focus on growing their portfolio to support a longer retirement or leave a financial legacy. Others prioritise generating reliable income streams to fund day-to-day expenses.
  • How much flexibility do you need? Unexpected costs—such as healthcare, home renovations, or family support—can arise. Ensuring liquidity in your portfolio is key.
  • Are there legacy or philanthropic goals? If passing wealth to future generations or supporting charities is a priority, your investment and estate planning strategies must reflect this.
Common retirement objectives

Most retirees fall into one of the following categories—or a combination of them:

  1. Growth-Focused – You may aim to increase your purchasing power over time, ensuring your investments outpace inflation. This approach suits those with a long investment horizon or wealth they intend to pass down.
  2. Income-Focused – Generating sufficient cash flow to cover essential and discretionary expenses is the main goal. A structured withdrawal strategy is key to making assets last.
  3. Balanced Approach – Many retirees require both growth and income to maintain financial security over multiple decades. A well-balanced portfolio allows for withdrawals while preserving capital for the future.
Investment time horizon and risk considerations

Understanding your time horizon is critical:

  • If you retire at 60 with a long family history of longevity, your portfolio may need to last 30+ years, requiring continued investment growth.
  • Conversely, if you plan for a shorter retirement window, preserving wealth and minimising volatility may take precedence over long-term appreciation.

By defining clear goals, you create a roadmap that informs every financial decision—from asset allocation to tax planning.

Assess your asset allocation

Your asset allocation—the balance of equities, fixed interest, cash, and other investments—plays a crucial role in determining the success of your retirement strategy. As you transition from wealth accumulation to income generation, reassessing your portfolio is essential to ensure it aligns with your evolving financial needs and risk tolerance.

Are you holding the right mix of assets?

A well-structured portfolio should provide both growth and stability. Key considerations include:

  • Diversification – Are you overly concentrated in a single asset class, such as equities, property, or cash? A well-diversified portfolio mitigates risk while capturing growth opportunities.
  • Liquidity – Do you have sufficient accessible funds to cover unexpected expenses without disrupting your investment strategy? Cash holdings should be balanced against inflation risk.
  • Volatility vs. Stability – Is your current allocation too aggressive or too conservative for your retirement objectives? While equities provide long-term growth potential, fixed interest investments (such as bonds and gilts) offer stability and income.
The impact of asset allocation on retirement income

Asset allocation is a considerable factor in portfolio returns. However, retirees often make the mistake of becoming either too cautious or too aggressive with their investments:

  • Being too conservative – Holding excessive cash or bonds may seem prudent, but it can reduce purchasing power due to inflation. A well-balanced portfolio should include assets that provide growth to sustain long-term income needs.
  • Being too aggressive – A high allocation to equities can create unnecessary risk if market downturns force you to sell assets at a loss. As you near retirement, consider shifting towards a mix that prioritises stability while maintaining growth potential.
Adjusting for market conditions and personal circumstances

Your ideal asset allocation isn’t static—it should evolve based on market conditions, economic shifts, and personal circumstances. Regular reviews ensure that your portfolio remains aligned with your retirement goals.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.

Structuring your retirement income

A successful retirement plan ensures you have enough income to maintain your lifestyle while preserving capital for the future. This requires careful planning to balance essential living costs, discretionary spending, and long-term financial security.

Non-discretionary expenditure (essential costs)

These are unavoidable expenses that form the foundation of your retirement budget:

  • Living Expenses – Day-to-day costs such as housing, groceries, utilities, and transportation. If you plan to remain in your current home, you likely have a good estimate of these. If downsizing or relocating, consider potential cost changes.
  • Debt Obligations – Mortgages, car loans, and credit card payments need to be factored in to ensure you can comfortably meet these commitments without depleting assets too quickly.
  • Taxes – Your tax liability depends on income sources, including pensions, investments, and withdrawals from tax-advantaged accounts. Strategic tax planning helps minimise unnecessary outflows.
Discretionary spending (lifestyle and leisure)

Once essential costs are covered, your remaining budget supports the lifestyle you envision:

  • Travel – Many retirees plan to explore new destinations or visit family abroad. Whether it’s an annual holiday or extended stays overseas, travel expenses should be accounted for.
  • Hobbies & Interests – Retirement is the perfect time to pursue passions, whether it’s golf, art, music, or learning a new skill. Even low-cost hobbies can add up over time.
  • Luxury & Leisure – Dining out, entertainment, or personal indulgences should be factored into your spending plan to ensure a comfortable retirement without financial strain.
  • Family Support – Many retirees choose to financially support children or grandchildren, whether through gifts, education funding, or home deposits. Consider how much of your wealth you’re comfortable passing on during your lifetime.
Structuring your income for stability

Your retirement income should be structured to cover non-discretionary expenses first, with additional sources funding discretionary spending and future needs. This typically involves:

  1. Fixed Income Sources – State Pension, defined benefit pensions, annuities, and rental income provide stable, predictable cash flow.
  2. Investment Withdrawals – Drawing from ISAs, GIAs, and pension pots in a tax-efficient manner to optimise your total retirement income.
  3. Flexible Access Funds – Cash reserves and liquid investments provide security for unexpected expenses or market downturns.

By carefully structuring income sources, you can ensure financial security while enjoying the flexibility to fund your ideal retirement lifestyle.

Drawing down your retirement savings

As you transition into retirement, how you access your savings can significantly impact your long-term financial security and tax efficiency. Withdrawing funds in the right order – while considering tax liabilities – can help preserve wealth, minimise unnecessary tax charges, and maintain eligibility for certain allowances and benefits.

Tax implications and withdrawal sequencing

A well-structured drawdown approach should prioritise:

  • Minimising income tax liabilities by spreading withdrawals across different tax years
  • Using tax-free allowances effectively
  • Managing capital gains tax (CGT) exposure when selling investments
  • Considering estate planning implications to protect wealth for future generations

Understanding your retirement accounts and tax implications…

Tax-free withdrawal accounts

Individual Savings Accounts (ISAs)

  • Tax treatment: Withdrawals are entirely tax-free (no income tax, dividend tax, or CGT)
  • Best use: Ideal for supplementing income while keeping taxable withdrawals lower
  • Estate planning: Included in your estate for Inheritance Tax (IHT)

Tip: Since ISAs don’t trigger tax on withdrawals, they can be used to fill income gaps without pushing you into a higher tax bracket. However, they should be balanced against other accounts that might be more tax-efficient for legacy planning.

Taxable investment accounts

General Investment Accounts (GIAs)

  • Tax treatment: Gains and income are subject to CGT and dividend/income tax
  • Best use: Useful for funding additional income needs, but tax planning is essential
  • Tax exemption: £3,000 CGT exemption in 2025/26

Tip: Withdrawals should be carefully managed to avoid exceeding tax allowances. Spreading gains over multiple years can reduce CGT exposure.

Investment Bonds

  • Tax treatment: Withdrawals of up to 5% per year (of original investment) are tax-deferred
  • Best use: Controlled income withdrawals without immediate tax consequences
  • Tax on gains: When exceeding the 5% allowance, gains are subject to income tax

Tip: Investment bonds can be beneficial for later retirement years when taxable income is lower, helping smooth tax liabilities over time.

Pension drawdown and tax considerations

Defined Benefit Pension (Final Salary Scheme)

  • Tax treatment: Pays a guaranteed income, fully subject to income tax
  • Best use: Provides stability but limited flexibility on withdrawal sequencing

Tip: Since payments are fixed and taxable, other withdrawals should be structured to keep total income within optimal tax bands.

Defined Contribution Pensions (Workplace & Personal Pensions)

  • Tax treatment:
    • 25% of withdrawals are tax-free (usually as a lump sum or phased), up to the Lump Sum Allowance (LSA) of £268,275
    • The remaining 75% is taxed as income at your marginal rate
  • Best use: Can be drawn flexibly via pension drawdown or used to purchase an annuity

Self-Invested Personal Pension (SIPP)

  • Tax treatment: Same as workplace pensions, but with more control over investments
  • Best use: Flexible drawdown strategy to balance income and tax efficiency

Tip: Using the 25% tax-free lump sum strategically – either upfront or in phases – can help reduce income tax in higher-tax years. Remember that, from 2027, unspent pensions will be brought inside your estate and subject to inheritance tax.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief is dependent on individual circumstances.

State Pension considerations
  • Tax treatment: Taxable income but paid gross (without tax deducted at source)
  • Best use: Forms the foundation of retirement income, but may push other withdrawals into higher tax bands
  • Full new State Pension (2025/26): £11,976 per year

Tip: If your total income (State Pension + withdrawals) exceeds the personal allowance (£12,570 in 2025/26), additional withdrawals should be planned carefully to avoid higher tax rates.

How to structure drawdowns for long-term tax efficiency

A well-planned withdrawal strategy can significantly enhance your retirement income while minimising tax and preserving long-term wealth. There’s no one-size-fits-all approach, but understanding the pros and cons of different sequences can help you make informed decisions.

Key principle: It’s not just about minimising tax this year – it’s about minimising tax over your lifetime.

A phased, tax-efficient drawdown approach might look like this:

Phase 1: Early Retirement (before State Pension and required pension access)

  • Primary income sources:
    • ISAs – tax-free withdrawals
    • Pension tax-free lump sum (25%)
    • Cash savings
  • Why?
    • Keeps taxable income low
    • Maximises use of lower tax bands in future years
    • Provides flexibility before pensions are accessed

Phase 2: Mid-Retirement

  • Primary income sources:
    • Taxable investments – general investment accounts (GIAs), investment bonds
    • Controlled pension withdrawals – draw income while managing tax brackets
  • Strategy:
    • Harvest capital gains within the annual exemption
    • Use personal allowance, dividend, and savings rate bands
    • Avoid higher-rate tax thresholds where possible

Phase 3: Later Years

  • Primary income sources:
    • Pensions – more heavily drawn upon after deferring earlier
    • Investment bonds – for tax-deferred growth and possibly top-slicing relief
    • ISAs – as a tax-free income buffer in high-cost years or for care needs
  • Why?
    • Helps manage income post-State Pension
    • Maintains flexibility and liquidity in older age

Should you use tax-free assets first or last? There are two schools of thought – both valid depending on the situation:

Using tax-free assets early (e.g., ISAs, pension lump sum)

Ideal for minimising early income tax and creating flexibility

Pros:

  • Keeps taxable income low in early retirement
  • Avoids triggering higher tax brackets or benefit tapers
  • Supports early lifestyle or travel goals without tax friction

Cons:

  • Reduces future flexibility and tax-free growth potential
  • May increase reliance on taxable income later in life

Preserving tax-free assets for later

Ideal for long-term tax optimisation and estate planning

Pros:

  • Allows tax-free wrappers (ISAs, pensions) to grow longer
  • Reduces future tax liability
  • Supports legacy and care planning

Cons:

  • May result in paying more tax early on
  • Could underuse valuable allowances like CGT exemption or dividend allowance

The hybrid approach: Best of both worlds

In practice, the most tax-efficient withdrawal strategy typically blends both approaches:

  • Withdraw just enough from taxable assets to use allowances (personal allowance, CGT exemption, dividend allowance)
  • Use ISAs and tax-free cash strategically to top up income when needed
  • Defer pension withdrawals where possible to reduce future tax and maximise flexibility
  • Review annually — small adjustments can yield large long-term benefits

Final thought: Keep reviewing your withdrawal plan

Tax laws and personal circumstances change. A structured withdrawal strategy should be reviewed annually to ensure it remains tax-efficient and aligned with your goals. The right withdrawal sequence is highly personal – and depends on:

  • Your current vs future tax position
  • Your goals (e.g., spending, gifting, legacy)
  • The mix and value of your assets
  • When and how you want to retire

We’re here to model your options and help you choose the strategy that works best for you.

Structuring a sustainable retirement income strategy from investments

Generating reliable income in retirement requires a balanced approach, ensuring your portfolio provides both cash flow and long-term growth. Below are five key sources of retirement income, each with its benefits and risks.

Equity dividends: A potential source of passive income

Many retirees rely on dividends from equity investments as a core income stream. However, it’s important to understand their limitations:

  • Regular Income Potential – Some companies pay dividends consistently, providing passive income.
  • Dividend Cuts Can Happen – No payout is guaranteed; companies can reduce or eliminate dividends.
  • Concentration Risk – Many high-yield stocks cluster in specific sectors, limiting diversification.
  • Best Approach: Rather than focusing solely on dividends, consider a total return strategy that balances growth and income.
Homegrown dividends: Generating cashflow from your portfolio

Instead of relying solely on company dividends, selectively selling investments can provide more flexibility:

  • Control Over Timing and Tax Implications – Selling specific assets allows you to manage capital gains tax efficiently.
  • Portfolio Rebalancing – Adjust allocations strategically by selling appreciated assets.
  • Maximise Allowances – Utilise your annual capital gains tax exemption to withdraw tax-efficiently.
  • Best Approach: Sell assets selectively to manage income needs while maintaining diversification and tax efficiency.
Fixed interest coupons: Predictable income, with trade-offs

Fixed interest securities, such as government and corporate bonds, provide regular interest payments. While attractive for stability, they come with risks:

  • Stable and Predictable Income – Bonds offer set coupon payments.
  • Inflation Risk – Fixed payments lose purchasing power over time.
  • Interest Rate Sensitivity – Rising rates can decrease bond values.
  • Default Risk – Some issuers may struggle to meet obligations.
  • Best Approach: Use bonds strategically, balancing income stability with growth-oriented investments.
Cash holdings: Liquidity for short-term needs

Cash reserves provide immediate access to funds, but holding too much can be detrimental:

  • No Market Volatility – Cash is stable and readily available.
  • Inflation Erosion – Purchasing power declines over time.
  • Opportunity Cost – Cash may not generate sufficient returns.
  • Best Approach: Keep a cash buffer for emergencies, but avoid excessive cash holdings that can erode wealth over time.
Annuities: A structured income stream, with constraints

Annuities provide guaranteed income but come with trade-offs:

  • Predictable, Lifelong Income – Provides security against outliving savings.
  • Inflation Risk – Fixed payments may not keep up with rising living costs.
  • Limited Liquidity – Once purchased, annuities are difficult to adjust or sell.
  • Best Approach: If considering an annuity, ensure it complements other income sources and inflation protection strategies.

Optimising Your Retirement Income Mix

The most effective retirement income strategy balances multiple sources to reduce risk and enhance sustainability. Regularly reviewing your withdrawal approach can help protect your long-term financial well-being.

Beyond investments: A holistic approach to retirement planning

A successful retirement plan extends beyond investment strategy – it involves optimising your estate planning, and structuring your wealth, to meet your financial and legacy goals.

State Pension: When and how to take it

1. When Should You Start?
The timing of your State Pension can impact your overall retirement income:

  • The State Pension age currently ranges between 66 and 68, depending on your birth year.
  • Delaying your claim increases payments by 1% every 9 weeks (approximately 5.8% per year).

2. Spousal Benefits & Eligibility

  • Your State Pension is based on your National Insurance record, not your spouse’s.
Estate Planning: Protecting your wealth and legacy

Effective estate planning ensures that your assets are distributed according to your wishes while minimising costs and taxes.

1. Key Estate Planning Questions:

  • Who should inherit your assets? (Family, charities, friends)
  • Which assets should they inherit? (Cash, property, investments, heirlooms)
  • What are the tax implications? (Inheritance tax, capital gains tax)

2. How Assets Transfer Upon Death:

There are three primary ways assets can pass to beneficiaries:

Wills

  • A legally binding document outlining how your estate is managed.
  • Executors must usually apply for a Grant of Probate to distribute assets.
  • Wills alone do not prevent probate but provide legal clarity.

Trusts

  • Bare Trusts: Assets are held for a beneficiary who gains full access at age 18.
  • Discretionary Trusts: Trustees have control over how and when beneficiaries receive assets.
  • Trusts can provide tax efficiency and asset protection but require careful structuring.

Beneficiary Designations

  • Life insurance policies, pension plans, and annuities often bypass probate and go directly to named beneficiaries.
  • Regularly review designations to ensure they align with your wishes.

Executors & Trustees

  • Choose a trusted individual or professional to oversee your estate’s administration.
  • They will be responsible for applying for probate and ensuring assets are distributed correctly.

Best Approach: Regularly review and update your will, trust structures, and beneficiary designations to reflect life changes and tax laws.

Maximising your legacy through tax planning and charitable giving

Reducing Inheritance Tax (IHT):

  • The current Inheritance Tax threshold is £325,000 per individual, with an additional £175,000 allowance for a main residence left to direct descendants.
  • Spouses can transfer unused allowances, increasing the tax-free threshold to £1 million per couple.

Gifting & Charitable Giving Strategies:

  • Gifts up to £3,000 per year are tax-free, reducing your taxable estate.
  • Charitable donations can lower IHT liability while supporting causes you care about.

Best Approach: Work with an estate planner to optimise your wealth transfer and mitigate tax exposure.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.

The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax relief depends on individual circumstances.

Will writing involves the referral to a service that is separate and distinct to those offered by St. James’s Place. Wills, along with Trusts are not regulated by the Financial Conduct Authority.

Start planning now – invest later. Obtain a bespoke financial plan, tailored to your unique objectives.

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Should you require more information or have particular questions, we invite you to contact us at your convenience.

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Net Adjusted Income: Crucial Information for Parents

Why net adjusted income is so important

Many parents overlook the complexities of net adjusted income, leading to costly financial mistakes. One of the most common errors involves pension contributions and eligibility for government childcare schemes. To ensure you make informed decisions, we’ll clarify how net adjusted income is assessed and how strategic planning can help you optimise your finances.

Optimise your net adjusted income, with a no-obligation financial planning consultation.

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A case study

Kate and Mark are new parents, both committed to securing the best future for their family. Kate earns an annual salary of £130,000, placing her above the income threshold for key government childcare benefits, including 30 free hours’ childcare, and tax-free childcare (£2 government contribution for every £8 saved into the scheme).

To bring her income below the relevant threshold and qualify for these schemes, she began making additional pension contributions. However, she made a critical mistake.

The miscalculation

Kate increased her pension contributions by £1,000 per month, beginning in January. She assumed this would immediately reduce her net adjusted income and enable her to access government childcare support. Unfortunately, this assumption was incorrect.

Net adjusted income is assessed over the entire tax year (6 April to 5 April), not on a monthly basis. Despite her increased pension contributions in the later months, Kate’s total net adjusted income for the full tax year still exceeded the qualifying threshold.

The financial impact

As a result of this miscalculation, Kate remained ineligible for government childcare support and may have lost £2,000 per year in potential savings, compared to if she had she structured her pension contributions strategically from the start of the tax year.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected, and the value may therefore fall as well as rise. You may get back less than you invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.

Key actions

To avoid similar pitfalls, consider the following:

  1. Plan well in advance – Adjustments to net adjusted income should be made at the start of the tax year (April), not mid-year, to maximise potential savings.
  2. Understand the full-year assessment – Government childcare schemes evaluate income over a 12-month period, not on a rolling basis.
  3. Assess the financial trade-offs – While pension contributions can reduce net adjusted income, it is essential to balance contributions with immediate financial needs.

Steps to optimise your net adjusted income

With April fast approaching, now is the time to prepare. Here’s how you can take proactive steps:

Step 1: Determine the benefits available through government childcare schemes based on your income level.

Step 2: Calculate the impact of increased pension contributions on your take-home pay and long-term savings.

Step 3: Compare the financial advantages of reduced net adjusted income with the benefits of additional pension growth.

Many parents find that with careful planning, they can strike a balance between immediate cost savings, and long-term financial security.

Act now to establish your financial position

With the new tax year just around the corner, now is the ideal time to take control of your finances. By planning ahead, you can optimise your net adjusted income, access valuable childcare benefits, and strengthen your long-term financial security.

If you want to ensure you are making the right decisions without unnecessary complexity, book a no-obligation financial planning consultation for the start of the new tax year.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.

Optimise your net adjusted income, with a no-obligation financial planning consultation.

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Should you require more information or have particular questions, we invite you to contact us at your convenience.

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Employee Share Options as an Employment Benefit

What you need to know

Overview:

  • Many high-earning professionals receive shares as part of their remuneration package, which can impact their tax situation. Understanding different Employee Share Options arrangements can help optimise tax efficiency.
  • Employee Share Options schemes vary and often have different tax implications. For instance, under the Enterprise Management Incentives (EMI) scheme—frequently used by start-ups—employees can benefit from Business Asset Disposal Relief on Capital Gains Tax upon selling their shares.
  • Seeking expert advice is crucial to maximise any available tax reliefs and make the most of your wealth.

In today’s business climate, companies are carefully structuring remuneration packages, with Employee Share Options schemes becoming a popular option to promote employee loyalty. Such schemes can motivate employees, especially those in senior roles like executives and directors, by giving them a personal stake in the company’s success.

Simon Martin, Chartered Financial Planner at Technical Connection (a company owned by St. James’s Place), notes that many high-net-worth clients’ remuneration packages include either direct shares or Employee Share Options, regardless of whether they work for private or public companies.

Different types of share schemes offer unique tax benefits, and the specific scheme available often depends on the company’s nature.

Explore your Employee Share Options benefits, with a no-obligation financial planning consultation.

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Common schemes

Enterprise Management Incentives (EMI)

Common among start-ups, the EMI scheme allows employees to purchase shares if they meet certain performance or tenure requirements. This scheme helps attract talent by providing the potential for investment returns in the future, even if the company can’t currently match larger firms on salary.

Technology companies frequently use EMI as it enables key employees to own shares and benefit from the company’s growth in a tax-efficient way. A company can grant up to £250,000 worth of share options over a three-year period.

With EMI, you might have the option to buy shares in the future at an agreed price, potentially much lower than their market value at purchase time. If shares were priced at £1 initially and are worth £10 when purchased, you could gain £9 per share.

If shares are bought at or above market value when the option was granted, no Income Tax or National Insurance is due. A discounted purchase will, however, incur Income Tax and National Insurance on the difference. When you sell, Capital Gains Tax (CGT) applies at a reduced rate of 10% (rather than the standard 20%) if the option has been held for at least two years.

Company Share Option Plan (CSOP)

Under a CSOP, you have the option to buy up to £60,000 worth of shares at a non-discounted, fixed price.

As long as shares are held for three years, there is no Income Tax or National Insurance on the difference between the purchase price and their value. CGT may apply when the shares are sold.

Save As You Earn (SAYE)

SAYE is a popular UK share scheme available to all employees, not just higher-level staff.

With SAYE, you save between £5 and £500 monthly for three to five years, deducted from your gross salary. At the end of this period, you have the option to buy shares at a pre-set price, usually up to 20% below the market rate at the time.

If share prices drop, you can opt not to buy and withdraw your savings as cash, minimising risk. If you do buy the shares, they can be held or sold immediately for a profit. Income Tax and National Insurance do not apply, though CGT may be due unless shares are transferred to a pension or ISA within 90 days.

Share Incentive Plans (SIP)

With a SIP, employers can offer shares to employees or allow them to buy shares through gross pay deductions, holding these shares in trust until they leave the company.

Employers can give up to £3,600 worth of shares per employee annually, or employees may buy up to £1,800 worth themselves.

SIPs allow employees to acquire shares in four ways: free shares, partnership shares, matching shares, or dividend shares. Holding these shares for at least five years avoids Income Tax and National Insurance. If shares are sold immediately after this five-year period, CGT may also be avoided.

Other Share Plans

Beyond HMRC’s tax-advantaged schemes, some companies offer Employee Share Options as part of a bonus arrangement. For instance, you might receive a £20,000 share bonus, withheld for three years. When the shares are released, they are subject to Income Tax and National Insurance like a salary. If you leave the company within three years, the bonus is forfeited, encouraging loyalty.

Advice for maximising your Employee Share Options benefits

Understanding your company’s share scheme and tax implications is essential to make the most of your employment benefits. Seeking expert financial advice can help ensure your wealth is working efficiently for you.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.

Should you require more information or have particular questions, we invite you to contact us at your convenience.

Contact Us

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